Solomon v. Califano, Civ. A. No. N-77-2163.
| Decision Date | 25 January 1979 |
| Docket Number | Civ. A. No. N-77-2163. |
| Citation | 464 F. Supp. 1203 |
| Parties | Neil SOLOMON, M. D., Ph. D., Secretary, Department of Health and Mental Hygiene v. Joseph A. CALIFANO, Jr., Secretary, Department of Health, Education and Welfare, Robert A. Derzon, Administrator, Health Care Financing Administration. |
| Court | U.S. District Court — District of Maryland |
Stephen H. Sachs, Atty. Gen. of Maryland, Louise T. Keelty and Stephen J. Sfekas, Asst. Attys. Gen., for plaintiff.
Jeffrey Golland, Dept. of Health, Education and Welfare, Washington, D. C., for defendants.
This is an action by the Secretary of the Department of Health and Mental Hygiene for the state of Maryland (DHMH) against the Secretary of the United States Department of Health, Education, and Welfare (HEW) and the Administrator of the Health Care Financing Administration (HCFA), seeking a declaratory judgment, mandamus, injunction, or other appropriate relief. In this suit, the state of Maryland challenges the Secretary of HEW's decision to disallow approximately $539,385.23 in federal Medicaid funds because of the alleged overpayment of nursing homes by the State during fiscal years 1968 and 1969. The State contends that neither the disallowance nor the procedures utilized by HEW to determine it are authorized by the Medicaid Act, 42 U.S.C. § 1396 et seq. or the administrative regulations that implement the Act. Therefore, the State requests that the Secretary's actions be declared invalid.
In its present posture, the case is before the Court on cross-motions for summary judgment. The defendant also has moved for a protective order barring any further discovery by plaintiff or, in the alternative, delaying discovery until disposition of the summary judgment motion. In September 1978, the Court requested the parties to submit supplemental memoranda on issues raised in their initial summary judgment motions. The Court has received those memoranda and, after full consideration of all pertinent pleadings, is ready to rule on the motions.
Under Title XIX (Medicaid provisions) of the Social Security Act, 42 U.S.C. §§ 1396 et seq., Congress has made available to the states federal funds to aid in financing state medical assistance programs. Before dispensing funds, however, Congress has required that any state that wishes to participate in the Medicaid program must develop and submit a plan to HEW that meets certain requirements set forth by the Secretary of that agency. Once approved, this plan must be put into operation by the state.
Realizing that many states might have difficulty financing a Medicaid program even if subsequently reimbursed by the federal government, the Congress also established a funding mechanism by which HEW forwards funds to the state, on a quarterly basis, equal to its share of the estimated cost of the program. The state then must have its program audited periodically to determine the accuracy of the payment. If payment was inaccurate, the Secretary of HEW may adjust future payments to reflect the prior overpayment or underpayment which he determines was made to the state for any prior quarter. See 42 U.S.C. § 1396b(d)(1), (2); State of Georgia Dept. of Human Resources v. Califano, 446 F.Supp. 404 (N.D.Ga.1977).
In addition to the power to adjust payments made to the state programs, the Secretary is given the responsibility of scrutinizing plans that are in operation to ensure that they continue to comply with the applicable sections of the Medicaid Act and the federal regulations and that the state does not impose any prohibited requirements under the plan. When the Secretary believes that the state is operating its plan in non-compliance with federal regulations, he must give the state agency "reasonable notice and opportunity for a hearing" to evaluate the operation of the plan. See 42 U.S.C. § 1396c; State Dept. of Welfare v. Califano, 556 F.2d 326 (5th Cir. 1977). If the Secretary finds noncompliance with the plan or any of its provisions, he must notify the state agency that further payments will not be made until he is satisfied that there is no longer any failure to comply with the plan. 42 U.S.C. § 1396c.
Furthermore, the Secretary of HEW has the power under 42 U.S.C. § 1316(d) to disallow federal financial participation for certain items or classes of items claimed by the state as proper subjects of federal funding under the Medicaid Act. However, before the Secretary disallows such items or classes of items from federal financial participation, the state is entitled to and upon request shall receive a reconsideration of the disallowance. 42 U.S.C. § 1316(d); 45 C.F.R. 201.14; see State of Georgia Dept. of Human Resources v. Califano, supra.
In this case, the state of Maryland submitted a plan to HEW which was approved in 1966. The State put the plan into operation almost immediately and, as part of its medical assistance program, began releasing funds directly to skilled nursing facilities. The Maryland plan provided that payment for nursing home services would be made at "rates established by the State." See Plaintiff's Motion for Summary Judgment, Exhibit 1, filed June 23, 1978.
In 1968 and 1969, the years in question in this suit, the Maryland Legislature fulfilled its responsibility to establish payment rates by setting forth a formula by which to determine reimbursement to nursing homes in its budget bills. That formula required rates to be set on the basis of "verified audited costs," as the term is determined by the Secretary of HEW in the administration of Title XVIII of the Social Security Act amendments of 1965, plus an additional sum, to be determined by the State Board of Public Works, which would include a profit of not less than 10% of total costs. In 1968, the Legislature stated that the "additional sum" should not exceed $12.00 per day per patient. In 1969, the Legislature declared that the entire reimbursement (audited cost plus additional sum) should not exceed $12.00 per day per patient. In an opinion dated March 29, 1976, the Attorney General of Maryland concluded that the State Board of Public Works is under a mandatory duty to calculate the "additional sum" included in the 1968 and 1969 budget bills' formula. See Plaintiff's Motion for Summary Judgment, Exhibit C, filed June 23, 1978.
As a complement to its provisions defining reimbursement rates, the Maryland plan directed the Secretary of DHMH to contract with the Hospital Cost Analysis Service, Inc. to obtain audits and studies of nursing home financial records in order to establish proper cost figures. In 1971, the Secretary of DHMH contracted with the Hospital Cost Analysis Service (HCAS) to audit nursing homes to review and verify costs for FY 1968 and FY 1969. This audit did not concern itself with the "additional sum" to be determined by the Board of Public Works. Focusing only on cost, the HCAS audit disclosed that nursing homes had been paid approximately $702,799.45 in excess of verified costs.
In 1975, HEW conducted an audit to determine if the per diem rates paid to nursing homes from July 1, 1969 to December 31, 1973 were computed in accordance with federal regulations and the state plan. As part of this audit, HEW reviewed the HCAS audit of "verified costs" completed in 1971 for the State of Maryland. The HEW Audit Agency concluded that Maryland had overpaid nursing homes by $325,365.09 in FY 1968 and FY 1969. Subsequently, these figures were readjusted to reflect an overpayment of $545,837.01 attributable to federal matching funds.
On June 4, 1975, the Social and Rehabilitation Service (SRS) Regional Commissioner advised Maryland that the overpayments revealed through the two audits were being disallowed and apprised the State of its administrative appeal rights. On June 30, 1975, the State of Maryland requested an appeal of the Regional Commissioner's decision pursuant to 45 C.F.R. § 201.14. After reviewing all documents relevant to the disallowance, Maryland took the position that the HCAS audits were not final since they did not consider the "additional sum" or profit margin established by the Legislature as the second and third criteria by which costs are to be determined.
To articulate this position, Maryland requested a conference with the Administrator as provided for in 45 C.F.R. 201.14(d)(7). In setting up the conference, the Acting Administrator of SRS informed the State that the purpose of the meeting was to allow the State to informally present those particular aspects of its case which it specifically wished to bring to the Administrator's attention before he proceeded to make the reconsideration. At the conference, the State introduced into evidence the state laws governing Medicaid reimbursement to nursing homes for FY 1968 and FY 1969, the Attorney General's opinion letter interpreting the requirements of State law, and generally explained the difficulty in interpreting the "additional sum" language of the Budget bills of 1968 and 1969.
On October 28, 1977, the Administrator of the Health Care Financing Administration, after reconsideration of the Regional Commissioner's finding, affirmed the disallowance of $534,219.62. This figure reflected a repayment of a small portion of the original disallowance by the State. The Administrator's findings of fact and conclusions of law in this decision are the basic subject matter of the present action.
The Administrator made the following findings of fact in his October 28, 1977 decision:
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