Com. of Massachusetts v. Departmental Grant Appeals Bd. of U.S. Dept. of Health and Human Services

• Decision Date: 12 January 1983
• Docket Number: No. 82-1364,82-1364
• Parties: COMMONWEALTH OF MASSACHUSETTS, by its Department of Public Welfare, Petitioner, v. DEPARTMENTAL GRANT APPEALS BOARD OF the UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Respondents.
• Court: U.S. Court of Appeals — First Circuit

Page 22

698 F.2d 22

1 Soc.Sec.Rep.Ser. 55

COMMONWEALTH OF MASSACHUSETTS, by its Department of Public

Welfare, Petitioner, v. DEPARTMENTAL GRANT APPEALS BOARD OF the UNITED STATES

DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al.,

Respondents.

No. 82-1364.

United States Court of Appeals, First Circuit.

Argued Oct. 7, 1982.

Decided Jan. 12, 1983.

William L. Pardee, Asst. Atty. Gen., Boston, Mass., with whom Francis X. Bellotti, Atty. Gen., Leah S. Crothers, Asst. Atty Gen., and Ellen L. Janos, Asst. Atty. Gen., Boston, Mass., were on brief, for petitioner.

Robert A. Dublin, Atty., Annandale, Va., with whom Juan A. Del Real, Gen. Counsel, and Ann T. Hunsaker, Asst. Gen. Counsel, Washington, D.C., were on brief, for respondents.

Before PECK, ^* Senior Circuit Judge, CAMPBELL and BREYER, Circuit Judges.

LEVIN H. CAMPBELL, Circuit Judge.

This is a petition filed by the Commonwealth of Massachusetts seeking review under 42 U.S.C. Sec. 1316(a)(3) of an administrative determination by the Secretary of Health and Human Services. The challenged decision would require Massachusetts to bear alone--without federal financial aid--the full cost of unrecovered excess interim payments which the state made to nursing homes under the joint federal-state medical assistance program known as Medicaid. We dismiss the petition for want of jurisdiction, holding that the disputed determination is not one for which Congress has provided review in a court of appeals.

To determine the applicability of the statute upon which Massachusetts relies to obtain direct review in this court, it is necessary to ascertain the nature of the administrative proceeding in question. We begin by describing the dispute between Massachusetts and the federal agency which led to the actions now challenged.

I. The Dispute

Massachusetts contests the refusal of the federal government to reimburse it (up to the appropriate federal share under the Medicaid program) for sums now owed to Massachusetts by certain defunct, insolvent, or otherwise unwilling nursing homes. This indebtedness arose in the course of a federally approved practice--followed by Massachusetts and some but not all other states--of making payments to nursing homes on the basis of interim rates, subject to later adjustment. Simply put, the practice works as follows: At the close of each month, nursing homes submit to Massachusetts a report of the number of Medicaid patient days they have during that month. Massachusetts then reimburses them at an "interim rate" expressed as a single per patient, per diem amount. The interim rate is set on the basis of the actual costs of a prior year, adjusted for inflation. At the close of the 12-month interim period, the state computes a final rate based on the actual allowable costs for that period. If the interim rate turns out to have been lower than the final rate, the state includes the amount of underpayment in its payments to homes under the new interim rate. If the interim rate was too high, the state either obtains direct reimbursement from the providers or else subtracts the amount of excess payments from subsequent payments to them. The state credits the federal government for the latter's share of any monies thus recovered.

A practical difficulty with the above procedure--and one which gave rise to this case--is that Massachusetts often cannot recover excess payments where the recipient has entered bankruptcy, gone out of business, or ceased to participate in the Medicaid program. There are then no ongoing payments from which to subtract a previous overpayment; and actual repayment is unlikely at best.

The above described system of advance payments to nursing homes and later adjustments runs parallel to the system whereby Massachusetts receives the federal contribution toward the same Medicaid outlays. Massachusetts presents the Department of Health and Human Services ("HHS") with quarterly cost estimates based on the prevailing interim rate. Upon approval by the Secretary, the agency advances to Massachusetts its share of the estimated expenses for the upcoming quarter. At the close of the quarter, Massachusetts is required to submit a report of actual expenditures. HHS reviews the report, and notes any expenditures as to which it believes federal financial participation ("FFP") is not allowable. It then adjusts the next quarterly advance to reflect what it deems to be previous over or underpayments. See 42 U.S.C. Secs. 1396b(d)(1), (2).

The Health Care Financing Administration ("HCFA") is the branch of HHS charged with the administration of the Medicaid program at the federal level. Over the last half of 1979, HCFA conducted an apparently routine audit of the accounts receivable ledger cards maintained by the Massachusetts Department of Public Welfare. The audit revealed outstanding unrecovered excess payments made under former interim rates. One hundred forty-seven nursing homes owed the Commonwealth a total of $10,231,222, of which the federal share was $5,115,610. On February 21, 1980, HCFA wrote the Massachusetts Commissioner of Public Welfare requesting him to deduct that amount from the next quarterly submission. Should he fail to do so, HCFA planned to reduce its grant appropriately. The Commonwealth then sought reconsideration of this "disallowance" before the federal Departmental Grant Appeals Board (reserving, however, the question of whether or not the Board had jurisdiction insofar as the determination by HCFA raised a question of state plan compliance). The Board upheld the HCFA's decision, and the Commonwealth then sought review in both this court and the district court. The district court action has been stayed pending our decision.

The basic issue comes down to whether the Secretary erred in treating as "overpayments," 42 U.S.C. Sec. 1396b(d)(2), funds which he had earlier advanced to the state for provider payments on the basis of overgenerous interim rates and which the state had not returned. Massachusetts argues that it is liable solely for those payments it has actually recovered from providers. The Secretary contends that the state alone bears the risk of the inevitable bad debts arising under the system of advance payments provided for in its plan. We can only reach this substantive question, however, if section 1316(a)(3) empowers us to entertain Massachusetts' petition for review. We now turn to this issue.

II. Review Under Section 1316(a)(3)

Section 1316(a)(3) of 42 U.S.C. provides that a state dissatisfied with a final determination of the Secretary "under section 1396c" (and the equivalent provisions of other portions of the Social Security Act) may file a petition for review of that determination with the United States court of appeals for the circuit in which the state is located. Massachusetts contends that the decision presently in dispute was, in substance if not in form, a final determination of the Secretary under 42 U.S.C. Sec. 1396c and hence reviewable here under section 1316(a)(3). The Secretary disputes this. He asserts that the action of the Departmental Grant Appeals Board was not "final" and that, in any case, the agency's action was not regarded by itself as a determination pursuant to section 1396c, nor was it functionally such a determination. Rather, argues the Secretary, the Board's decision was merely a so-called "disallowance" for which Congress has not provided direct court of appeals review.

Putting aside the order's claimed lack of finality, we turn directly to the issue of whether the Secretary's action was in reality a determination under section 1396c. If not, we lack jurisdiction and can proceed no further.

A. Determinations Under Section 1396c

Section 1396c is best understood in light of other provisions of the Medicaid statute, Title XIX of the Social Security Act, codified at 42 U.S.C. Secs. 1396-1396i. Title XIX begins by authorizing federal funding for medical and rehabilitation services provided by states which have a plan for medical assistance approved by the Secretary. Id. Sec. 1396. Clause a of section 1396a sets out 36 requirements which a state plan must meet for approval. With certain exceptions not relevant here, the Secretary is directed to approve any plan which fulfills all these conditions. Section 1396b, entitled "Payment to State-Computation of Amount," provides how, when, and in what amounts the Secretary is to reimburse states with approved plans.

Section 1396c, the provision in question, allows the Secretary to shut off funds, in whole or in part, if a state plan "has been so changed that it no longer complies with the provisions" of section 1396a, or if "in the administration of the plan there is a failure to comply substantially with any such provision." ¹ Such shut-off may occur only "after reasonable notice and opportunity for hearing" to the interested state agency. ² Section 1316(a)(3) authorizes court of appeals review of a final adverse determination under section 1396c.

A straightforward example of a compliance proceeding under section 1396c is Connecticut State Department of Public Welfare v. Department of Health, Education & Welfare, 448 F.2d 209 (2d Cir.1971). There the Secretary determined initially that Connecticut was failing to comply with federal requirements when it modified its plan so as to place a ceiling on the reimbursement of nursing home costs. The Secretary moved to cut off federal funding. After administrative proceedings, in which the Secretary maintained his position, the matter was reviewed by the Second Circuit, and the Secretary was upheld.

B. Disallowance

The Secretary processed the present claim not as a determination of noncompliance under section 1396c but simply as a "disallowance." The agency notified Massachusetts that it should deduct the contested amount from its quarterly request for federal reimbursement, and that if it did not do so, the federal government would reduce its future grants...