Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT:
Pennsylvania Department
of Public Welfare
Docket Nos. A-07-115
A-08-11
Decision No. 2152
DATE:
February 6, 2008
DECISION
The Pennsylvania Department of Public Welfare (Pennsylvania)
appeals determinations by the Centers for Medicare & Medicaid
Services (CMS) disallowing costs claimed as “residential
habilitation” costs under the State’s Home and Community-Based
Services Waiver for Individuals with Mental Retardation (HCBS
waiver). The State claimed Medicaid funding under title XIX of
the Social Security Act (Act) totaling $50,939,457 for seven
calendar quarters from July 2005 to March 2007. CMS disallowed
the costs on the ground that they represent room and board costs
that are excluded from reimbursement under section 1915(c)(1) of
the Act and the regulations at 42 C.F.R. § 441.310(a)(2). On
September 27, 2007, for the same reason CMS disallowed an
additional $9,997,220 in funding claimed by Pennsylvania for the
calendar quarter ending June 30, 2007.
Pennsylvania argues that although it has had HCBS waivers for
many years, and had never before claimed Medicaid reimbursement
for “occupancy” costs (such as rent, utilities, facility
maintenance and repairs, and furnishings) incurred by community
residential facilities, Pennsylvania is entitled to such
reimbursement now. Pennsylvania asserts that because its
Medicaid recipients receive “habilitation services” while they
are living in community residential facilities, 54% of the
“occupancy costs” associated with those facilities should be
reimbursed with Medicaid funds. This percentage, the State
argues, represents a reasonable allocation of costs, consistent
with Office of Management and Budget (OMB) Circular A-87 and
CMS’s State Medicaid Manual.
Pennsylvania concedes, however, that the costs at issue here are,
in general, joint costs that benefit the objective of providing
2
room and board to the residents, as well as the objective of
providing habilitation services. Congress excluded room and
board costs from Medicaid reimbursement for HCBS services. Act,
§ 1915(c)(1). Under OMB Circular A-87, costs that are excluded
from federal reimbursement are not allowable, and may not be
charged to federal funds, even if they might otherwise be
allocable to the program. For this reason, Pennsylvania’s
attempt to allocate and seek reimbursement for these “occupancy”
costs must fail. Pennsylvania submitted no evidence to
demonstrate that any of the costs were incurred solely to provide
habilitation services and were not also attributable to the cost
objective of providing room and board. Accordingly, we uphold
the disallowance in full.
Relevant legal authority
Title XIX of the Act established the Medicaid program to provide
medical services for low-income persons. The Medicaid program is
jointly funded by the federal and state governments, and
administered by the states under federal guidelines. Act,
§§ 1901-03.1 Federal financial participation (FFP) is available
for Medicaid assistance provided under an approved State plan.
Act, § 1903(a).
In the 1981 Omnibus Budget Reconciliation Act (OBRA), Congress
added a provision to the Medicaid program authorizing the
Secretary of the Department of Health and Human Services (HHS) to
permit each state to apply for a waiver to provide Medicaid
coverage for individuals who would otherwise need institutional
care to receive care and services in home or community-based
settings instead. Act, § 1915(c); see also H.R. Rep. No. 208,
97th Cong., lst Sess. 965-68 (1981) (Conf. Rep.), reprinted in
1981 U.S.C.C.A.N 1010, 1327-30. This has come to be known as a
home and community-based services (HCBS) waiver. Congress gave
states the option of using the waiver to serve individuals with
developmental disabilities and mental retardation. Conf. Rep. at
966. As with the legislation governing other parts of the
Medicaid program, Congress provided for FFP in a percentage of
the state’s Medicaid costs. Act, §§ 1915(c), 1901-03.
1
The current version of the Social Security Act can be
found at www.ssa.gov/OP_Home/ssact/comp-ssa.htm. Each section of
the Act on that website contains a reference to the corresponding
United states Code chapter and section. Also, a cross reference
table for the Act and the United States Code can be found at 42
U.S.C.A. Ch. 7, Disp Table.
3
The OBRA statutory provision for the HCBS waiver reads, in
pertinent part, as follows:
The Secretary may by waiver provide that a State plan
approved under this title may include as “medical
assistance” under such plan payment for part or all of
the cost of home or community-based services (other than
room and board) approved by the Secretary
which are provided pursuant to a written plan of care to
individuals with respect to whom there has been a
determination that but for the provision of such
services the individuals would require the level of care
provided in a hospital or nursing facility or
intermediate care facility for the mentally retarded the
cost of which could be reimbursed under the State
[Medicaid] plan.
Act, § 1915(c)(1) (emphasis added). Congress’s choice to exclude
room and board costs from Medicaid reimbursement was a deliberate
one. As the Conference Report explains, the House bill would
have permitted the Secretary to approve coverage for room and
board services. However, the Senate amendment did not authorize
coverage for such services, and the conferees agreed not to
include the coverage. Conf. Rep. at 967.
Members of Congress enacting section 1915(c)(1) “anticipate[d]
that the provision of community-based care [would] have a longrange and significant impact on the size of states’ Medicaid
budgets;” they believed that substantial savings could be
achieved. Conf. Rep. at 966. The legislation required the
states to ensure that the costs of home or community-based care,
on an annual basis, did not exceed those costs estimated for the
individual Medicaid recipients had they been in institutional
care, and to report to the Secretary annually on this and other
aspects of the waiver program. Act, §§ 1915(c)(2)(D) and (E).
The legislation enabled more people with disabilities to live in
the community, and expanded the types of reimbursable medical
assistance available to persons in home or community-based
settings to include, for example, case management services,
homemaker/home health aide services and personal care services,
adult day health services, habilitation services, and respite
care; and to include day treatment, psychosocial rehabilitation
services, and clinic services for individuals with chronic mental
illness. Act, § 1915(c)(4)(B). “Habilitation services” are
defined as services designed to assist individuals in “acquiring,
retaining, and improving the self-help, socialization, and
4
adaptive skills necessary to reside successfully in home and
community based settings.” Act, § 1915(c)(5)(A).
HHS promulgated implementing regulations at 42 C.F.R. Part 441,
subpart G. 46 Fed. Reg. 48,532 (Oct. 1, 1981). These
regulations provide, in pertinent part:
(a) FFP for home and community-based services listed
in § 440.180 of this chapter is not available in
expenditures for the following:
*
*
*
*
(2) The cost of room and board . . . .
42 C.F.R. § 441.310.2
There are two exceptions to the room and board costs exclusion
for Medicaid reimbursement purposes. The first is a regulatory
exception promulgated in 1981 for respite care room and board
costs, because Congress had provided in the HCBS waiver statute
for respite care. 42 C.F.R. § 441.310(a)(2)(i); 46 Fed. Reg.
48,532, 48,534 (Oct. 1, 1981). The second is an exception for
unrelated personal caregivers’ room and board costs, enacted by
Congress in the Omnibus Budget and Reconciliation Act of 1990.
Pub. L. No. 101-508, amending section 1915(c)(1) of the Act; 42
C.F.R. §§ 441.310(a)(2)(ii), 441.303(f)(8). Pennsylvania does
not claim that either exception applies here.
Factual background
For many years, Pennsylvania has held an approved HCBS waiver,
under which the State obtains Medicaid coverage for home and
community based services provided to persons with developmental
disabilities or mental retardation who otherwise would require
care in an intermediate care facility for persons with mental
retardation (ICF/MR). Brief of Appellant Pennsylvania Department
of Public Welfare (App. Br.) at 7. Pennsylvania secured CMS
approval of a revised waiver in January 2001, covering July 1,
2000 through June 30, 2005, and authorizing the State to serve up
to 18,279 eligible recipients under the waiver. App. Ex. 1. In
December 2006, Pennsylvania obtained a five-year renewal of the
2
We cite to the 2006 Code of Federal Regulations
throughout this decision; all the relevant regulations were
unchanged during the times at issue here.
5
waiver, effective December 23, 2006. App. Ex. 7.3 Pennsylvania
currently has about 2,200 community-based facilities operating
under its waiver, with up to four residents in each one. App.
Br. at 6, 9. A small number of these facilities are owned by
counties; most are operated by private non-profit agencies. Id.
at 6.
The waiver agreement effective July 1, 2000 provided, in relevant
part, that “Federal financial participation will not be available
in expenditures for the cost of room and board, . . .” App. Ex.
1, at 6. This waiver agreement did not set forth any specific
method for allocating “occupancy” costs between “room and board”
and habilitation services. This waiver agreement did, however,
contain a detailed description of habilitation services and an
enumeration of habilitation costs, in these terms:
Community Habilitation means services designed to assist
individuals in acquiring, retaining, and improving the
self-help, socialization, and adaptive skills necessary
to reside successfully in home and community-based
settings. Habilitation may be provided up to 24 hours a
day based on the needs of the individual receiving
services. Included are provider training costs,
supervisory costs, purchased personnel costs, and costs
of necessary supplies, equipment and adaptive
appliances. Services may be provided by a qualified
family member or relative, independent contractor, or
services agency.
App. Ex. 1, at 13 (emphasis added).
The July 1, 2000 waiver agreement also contained a specific
provision requiring the State to make formal requests for waiver
amendments for any proposed changes to the approved waiver. App.
Ex. 1, at 8.
From July 2001 until the spring of 2006, Pennsylvania did not
seek Medicaid funding under the HCBS waiver for any of the
occupancy costs for Medicaid recipients in community residential
facilities under the HCBS waiver. Church Decl. ¶ 5; App. Br. at
11; CMS Br. at 4. Instead, Pennsylvania paid these costs using a
3
Presumably, the July 1, 2000 waiver was extended to
the period between July 1, 2005 and December 22, 2006, since
neither party submitted any waiver document for that period, and
it is undisputed that a waiver was in effect during the entire
disallowance period at issue.
6
combination of state funds and part of the residents’
Supplemental Security Income (SSI) payments. Church Decl. ¶ 5;
App. Br. at 11.4
In 2005, Pennsylvania engaged a consultant, called MAXIMUS, to
assist it in developing and implementing a revenue maximization
strategy for the State’s Medicaid program. Berger Decl. ¶¶ 1-3,
7-15. MAXIMUS’s Director, Bruce Berger, developed several
methods for allocating part of the facility (or occupancy) costs
for Medicaid recipients in community residential facilities to
“provision of waiver services,” i.e., habilitation services. Id.
In late 2005 and early 2006, Pennsylvania officials chose an
allocation method MAXIMUS had recommended which was based on an
estimate that residents of the community facilities were, on
average in a typical 24-hour period, sleeping for 8 hours,
engaged in “habilitative activities or other waiver activities”
for 13 hours, and eating or otherwise engaged in activities of
daily living that do not involve receiving services for 3 hours.
Berger Decl. ¶¶ 13-16; Church Decl. ¶ 6; see also App. Br. at 14
16. This estimate involved some difficult line-drawing, since
according to Pennsylvania, many of the habilitation services are
provided while residents are engaged in activities of daily
living, such as bathing, dressing, grooming, preparing food,
eating, taking medications, and taking part in other activities.
App. Br. at 9-11; McCool Decl. ¶¶ 16-18. Pennsylvania
nevertheless chose to treat most of this time as habilitation
services time rather than daily living activities time. App. Br.
at 15-16; Berger Decl. ¶¶ 13-15.5
4
Pennsylvania state law allows for up to 72 percent of
the SSI maximum rate to be used to cover the resident’s share of
room and board at the community residential facility. 44 Pa.
Code § 6200.16 (2006); App. Br. at 11, nn.7, 8. The SSI program,
administered by the Social Security Administration, provides a
federal income supplement for disabled, blind, and aged persons
with little or no income. See title XVI of the Act, and 20
C.F.R. Part 416.
5
Had Pennsylvania chosen to count these 13 hours a day
when residents are engaged in both daily living activities (such
as preparing breakfast) and habilitation (such as receiving
advice or instruction from a staff member about how to prepare
breakfast) as daily living time, then the MAXIMUS method would
not have resulted in a larger claim for Medicaid FFP. The
allocation of hours and costs would have been 24 hours or 100% to
(continued...)
7
Based on this estimate, Pennsylvania allocated 54.1667% (or
13/24) of most categories of its occupancy costs (including rent,
utilities, interest, depreciation, insurance, housekeeping,
building repairs and renovations, furnishings and equipment) to
“waiver services” or “habilitation services.” App. Br. at 15-16.
The rationale for this 54% allocation is that the premises of
each community residential facility are used for both “room and
board” and for waiver or habilitation services; therefore,
according to Pennsylvania, these costs should be allocable in
some proportionate share to “room and board” on the one hand and
waiver or habilitation services on the other. Id. at 9-12, 22
24.6
According to Pennsylvania, it contacted CMS in April 2006 to
begin discussing the use of its new cost allocation methodology,
and submitted its first claim using the methodology (for calendar
quarters covering July 1, 2005 to December 31, 2005) in August
2006.7 App. Br. at 16-18.
5
(...continued)
daily living activities and 0 hours or 0% to habilitation
services.
6
There were other possible allocation methods that
MAXIMUS considered but did not recommend, and Pennsylvania did
not adopt. For example, MAXIMUS’s director did not recommend,
and Pennsylvania’s officials did not select, a square footage
allocation approach, which would be based on seeking federal
Medicaid reimbursement for those spaces in the community
residential facilities that are used exclusively for habilitation
or treatment purposes. App. Br. at 13. According to
Pennsylvania, this method was not adopted because “most of the
rooms in Pennsylvania’s community residential facilities have
multiple uses” and “[v]ery few facilities have rooms devoted
solely to eating, sleeping, or living activities or solely to the
provision of services.” Id. Therefore, an allocation
methodology based on square footage used solely for habilitation
or other waivers services would do little to increase the state’s
Medicaid revenue.
7
Pennsylvania apparently used this new methodology
only as a basis for claiming increased FFP in its HCBS waiver
costs, and did not increase the amounts paid to the counties and
private non-profit providers operating the community-based
facilities. See CMS Br. at 13, n.7; App. Br. at 29-30. It also
(continued...)
8
Pennsylvania and CMS representatives communicated several times
during 2006 about Pennsylvania’s new methodology for claiming FFP
under its HCBS waiver, but failed to reach agreement. App. Br.
at 16-19; see also App. Ex. 2-6. On June 21, 2007, CMS
disallowed that part of the waiver claims Pennsylvania submitted
for July 1, 2005 to March 31, 2007 based on its new allocation
method for facility costs. App. Br. at 18-19; App. Ex. 8. On
September 27, 2007, CMS disallowed similar waiver costs
Pennsylvania submitted for the quarter ending June 30, 2007, on
the grounds that they were not in accordance with federal
statutes, regulations and guidelines or the provisions of
Pennsylvania’s approved waiver. Letter from CMS Associate
Regional Commissioner to Secretary of the Pennsylvania Department
of Public Welfare, September 27, 2007 (Attachment to
Pennsylvania’s Notice of Appeal in DAB No. A-08-11).8
Pennsylvania and CMS had also been negotiating for a renewal of
Pennsylvania’s HCBS waiver. CMS approved Pennsylvania’s
application for renewal of the waiver effective December 23,
7
(...continued)
appears that the facilities continued to receive funds from
residents’ SSI payments to cover some room and board costs.
Br. at 29-30.
App.
8
In its appeal assigned Docket No. A-07-115,
Pennsylvania disputes the disallowance of FFP for:
Quarter ending June 30, 2006
(covers retroactive period of July 1
to Dec. 31, 2005)
Quarter ending Sept. 30, 2006
Quarter ending Dec. 31, 2006
Quarter ending Mar. 31, 2007
(includes claims for Jan. 1 to June 30,
2006, and Jan. 1 to Mar. 31, 2007)
$12,282,424
8,193,804
9,357,238
21,105,991.
See Pennsylvania’s Notice of Appeal (July 19, 2007), and
Attachment.
In Docket No. A-08-11, Pennsylvania disputes the disallowance of
FFP for:
Quarter ending June 30, 2007
$ 9,997,220.
See Pennsylvania’s Notice of Appeal (Oct. 18, 2007), and
Attachment.
9
2006. App. Ex. 7. The waiver application approved effective
December 23, 2006 provides that, in accordance with 42 C.F.R.
§§ 441.310(a)(2), FFP will not be claimed for the cost of room
and board except when it is part of respite care or reasonably
attributed to an unrelated caregiver. App. Ex. 7, at 8. The
waiver’s definition of “habilitation” and its costs is very
similar to the definition in the earlier waiver, and lists those
costs as provider training, supervisory, purchased personnel, and
necessary supplies. App. Ex. 7, Appendix C-3, at 7-8. In
addition, the waiver award letter states, in pertinent part:
This approval is based on the assurances and information
you provided including the Department of Public
Welfare’s assurance that Federal financial participation
will not be claimed for room and board in accordance
with § 4442.3.3.1.2 of the State Medicaid Manual, which
defines “room” as “hotel or shelter type expenses
including all property related costs such as rental or
purchase of real estate and furnishings, maintenance,
utilities, and related administrative services.” This
approval is based on the Department of Public Welfare’s
agreement not to claim the costs of room and board
except as explicitly allowed under Federal regulations
at 42 C.F.R. § 44[1].310(a)(2).
App. Ex. 7, at 1.9
Analysis
I.
The costs at issue in this appeal are “room” costs, as part
of room and board costs.
Pennsylvania seeks approval for a method that allocates
“occupancy” costs between “habilitation services” on the one hand
and “room [and board]” costs on the other. App. Br. at 11-16.
However, the costs that Pennsylvania is calling “occupancy” (or
“facility”) costs today are the same as the costs that
Pennsylvania previously has treated as room costs. They have the
same component parts: rent, utilities, interest, depreciation,
building insurance, housekeeping, building repairs and
maintenance, building renovations, furnishings and equipment, and
repairs of furnishings and equipment. Berger Decl. ¶ 15; App.
Br. at 16. For all intents and purposes, Pennsylvania’s
occupancy costs in community residential facilities are room
9
The quoted definition of “room” is found at
§ 4442.3.B.12 of the State Medicaid Manual.
10
costs; they are the costs of providing housing to the Medicaid
recipients who live there. Pennsylvania is not claiming that the
occupancy costs have increased in order to provide habilitation
services, nor is it claiming that these costs are no longer
necessary, in full, to provide housing for its HCBS residents.
As part of the costs of providing room and board, these costs are
excluded by federal statute from amounts that may be reimbursed
with Medicaid funds.
“Habilitation services” costs, on the other hand, have been
defined in both of Pennsylvania’s most recent waivers as
including provider training costs, supervisory costs, purchased
personnel costs, and costs of necessary supplies. App. Ex. 1, at
13; App. Ex. 7, Appendix C-3, at 7-8. Habilitation services
costs have not been defined in these two waivers as including any
of the “occupancy” costs at issue here. Id. Now, Pennsylvania
seeks to shift 54% of its “room” or “occupancy” costs to the
habilitation services category, and to claim Medicaid
reimbursement for these costs, based on its consultant’s reading
of OMB Circular A-87. As we explain below, the cost principles
in the Circular do not support Pennsylvania’s claim.
II.
OMB Circular A-87 does not permit the allocation of
costs between two cost objectives for reimbursement purposes
when the costs themselves are not allowable under federal
law.
According to Pennsylvania, it is not seeking FFP in room and
board costs because instead the occupancy costs at issue are
“attributable to” habilitation services, having been allocated to
that cost objective using the percentage of time allocation
method developed by MAXIMUS. App. Br. at 19-25. The key flaw in
Pennsylvania’s argument is the presumption that, if costs are
allocable to habilitation services, then they are not room and
board costs. As discussed below, however, Pennsylvania
acknowledges that the purpose of the facility space at issue
(such as bedrooms, bathrooms, and kitchens) was, and is, to
function both as living space for the residents and as a site for
providing the residents with habilitation services. App. Br. at
1, 3-4, 9-10, 24 (“almost every room . . . has multiple purposes
and uses”); McCool Decl. ¶ 18. Thus, the rent or depreciation
costs for that space (and related costs such as maintenance and
furnishings) benefitted the cost objective of providing “room and
board” for the residents. Stated differently, it appears from
the record here that all of the costs were allocable to the cost
objective of room and board and were therefore unallowable.
11
Pennsylvania argues that these occupancy costs may be allocated
in part to habilitation services under principles set forth in
OMB Circular A-87, Appendix (App.) A ¶ C.3 (“A cost is allocable
to a particular cost objective if the goods or services involved
are chargeable or assignable to such cost objective in accordance
with relative benefits received.”). App. Br. at 3-4, 20.10 We
disagree.
OMB Circular A-87 provides that costs otherwise allocable under
the cost principles are not allowable charges to federal grants
if they are not allowed under federal law. For example, the
“Basic Guidelines” that precede paragraph C.3 state:
1. Factors affecting the allowability of costs.
To be allowable under Federal awards, costs must meet
the following general criteria:
a. Be necessary and reasonable for proper and efficient
performance and administration of Federal awards.
b. Be allocable to federal awards under the provisions
of 2 C.F.R. part 225.
c. Be authorized or not prohibited under State or local
laws or regulations.
d. Conform to any limitations or exclusions set forth
in these principles, Federal laws, terms, and conditions
of the Federal award, or other governing regulations as
to types or amounts of cost items.
e. Be consistent with policies, regulations, and
procedures that apply uniformly to both Federal awards
and other activities of the governmental unit.
OMB Circular A-87, App. A, ¶ C.1 (emphasis added). Allocability
is only one of the factors affecting whether costs may be
properly charged to federal funds. If a cost is a type of cost
subject to a limit or exclusion under the federal statute
governing the program, then it is not allowable even if the cost
is allocable to a cost objective under that program.
While the OMB Circular provides for allocation of some joint
costs according to relative benefits received using a method such
as the one used here (if that method is determined to be
equitable under the circumstances), the joint costs to be
10
State, local, and tribal governments receiving
Medicaid grants are subject to the cost principles of OMB
Circular A-87, now codified in 2 C.F.R. Part 225. 45 C.F.R.
§ 92.22(b).
12
allocated must be allowable types of costs.11 Thus, for example,
OMB Circular A-87 provides that unallowable costs must first be
excluded from indirect cost pools used to determine an indirect
cost rate (a type of rate used to allocate costs that are not
identifiable to any specific cost objective without inordinate
effort). See OMB Circular A-87, App. E, ¶¶ A.1., C.2.b (“Both
the direct costs and the indirect costs shall exclude capital
expenditures and unallowable costs.”).
Hence, although the OMB Circular provides instructions for
allocating allowable costs among two or more cost objectives, it
cannot and does not override specific federal law that prohibits
the reimbursement of certain types of costs. In fact, the
introductory “Purpose and Scope” section of the Circular states
“The principles [in the Circular] are designed to provide that
Federal awards bear their fair share of the costs recognized
under these principles except where restricted or prohibited by
law.” App. A, ¶ A.1 (emphasis added).
Under the HCBS waiver program, room and board costs are not
allowable because the statute and regulation specifically
preclude federal funding for such costs, with limited exceptions
that do not apply here. Applying the allocation method
Pennsylvania used here clearly resulted in allocating to Medicaid
costs that simply are not allowable under that program. Thus,
the fact that the method used might, in some circumstances, be a
reasonable method of allocating joint costs among benefitting
activities is irrelevant here.
III.
Pennsylvania did not adduce evidence to show that any of
the “occupancy” costs were incurred only in order to
provide habilitation services and not in order to provide
room and board.
Pennsylvania has not provided any evidence that any of the space
at issue was used exclusively for habilitation or other eligible
11
In some circumstances, the awarding agency may
approve allocation of costs that benefit more than one cost
objective to one program in their entirety, where the statute
permits such allocation. See Implementation Guide for Office of
Management and Budget Circular A-87 (ASMB C-10) ¶ 2-12 (1997).
Otherwise, the costs will be allocated among the benefitting
objectives. See, e.g., Nebraska Dept. of Social Services, DAB
No. 1494 (1994) (10% of residential staff costs allocated to room
and board, representing the time staff members spent in helping
to provide room and board for residents with mental retardation).
13
waiver services and did not benefit the cost objective of
providing room and board for the residents. For example,
Pennsylvania has not provided any evidence that it reasonably
thought that the occupancy costs at issue were not “hotel or
shelter type expenses” and relied on that determination in
claiming the costs. See State Medicaid Manual (SMM)
§ 4442.3.B.12 (“FFP is not available for room and board of the
recipient as part of a home and community-based service. . . .
Room means hotel or shelter type expenses including all property
related costs such as rental or purchase of real estate and
furnishings, maintenance, utilities, and related administrative
services.”).12
Pennsylvania emphasizes that its community residential facilities
operating under the HCBS waiver must meet requirements beyond
those needed in private residences. For example, Pennsylvania
cites State law as requiring that the facilities be licensed and
meet numerous “design and staffing standards.” App. Reply Br. at
6-7, citing 55 Pa. Code § 6000.351 and Ch. 6400. Pennsylvania
also relies on the declaration of State official Patricia McCool
that the facilities are “specifically designed to provide
developmentally disabled individuals with the highest levels of
necessary services possible outside of an institution.” Id. at
7, citing McCool Decl. ¶¶ 14-18. Pennsylvania itself goes on to
state, however, that “the facilities have two key purposes,
providing shelter for the residents and serving as a location in
which the residents receive a wide range of services.” Id. The
problem is that the evidence is insufficient to show which, if
any, of the costs served only the goal of providing services and
not the goal of providing shelter. Moreover, since by definition
“habilitation services” are designed to assist and instruct
developmentally disabled individuals in activities of daily
living, the settings in which the services are provided are
12
In arguing that the fixed costs of a facility such
as rent, utilities, and maintenance may be included in
reimbursement rates for federal funding, Pennsylvania relies on
one Civil Remedies Division and two Board decisions, Gregory v.
Inspector General, CR336 (1994); Massachusetts Dept. of Social
Welfare, DAB No. 730 (1986); and Inter-Tribal Council of
California, DAB No. 1418 (1993). App. Br. at 20-21. However,
none of these cases involved reimbursement pursuant to the law
and regulation governing HCBS waivers, which prohibit
reimbursement of room and board costs, or pursuant to a law or
regulation with any similar prohibition. Gregory involved a
nursing facility, Massachusetts, an intermediate care facility,
and Inter-Tribal Council, a Head Start program.
14
likely to be living spaces, which the facility would have to have
even if only room and board were being provided for these
residents.
The allocation method MAXIMUS developed for Pennsylvania is
unacceptable because it results in claims for Medicaid FFP in
room and board costs, under any reasonable definition of those
costs. For example, while habilitation services may have been
provided in the facility bathrooms, as Pennsylvania asserts,
Pennsylvania cannot reasonably argue that the facilities could
provide room and board for the residents without paying for
bathroom space. Yet, Pennsylvania’s method clearly resulted in
Medicaid claims for rent and maintenance attributable to
bathrooms in the facilities.
IV.
Pennsylvania did not obtain approval for its
cost allocation method as part of the waiver program.
Finally, even if Pennsylvania had had a basis for claiming
Medicaid FFP for part of the occupancy costs, the allocation
method used by Pennsylvania has not been approved by CMS as part
of Pennsylvania’s waiver program. App. Br. at 16-19; CMS Br.
passim. CMS’s State Medicaid Manual, which provides guidance to
the states with HCBS waivers, explains:
Where you propose to provide care in a residential
setting (e.g., assisted living, residential therapeutic
foster care), there must be a clear differentiation
between waiver services and nonwaiver services (e.g.,
room and board). There must also be a detailed cost
allocation strategy provided as part of the waiver
request to explain how the cost of waiver services in
the residential setting will be determined and
segregated from ineligible waiver costs.
SMM, § 4442.3.B.8 (emphasis in original).
Pennsylvania does not deny that CMS’s waiver requirements include
the requirement that any method for allocating costs among
eligible and ineligible activities must be approved as part of
the waiver. App. Br. at 4. Nor does Pennsylvania deny that it
did not make a formal request, as required by the July 1, 2000
waiver, for any proposed changes to the waiver. Cf. App. Ex. 1,
at 8 (requiring such a request). Pennsylvania argues, instead,
that since CMS previously did not require it (or other states) to
specify an allocation formula before receiving approval for an
HCBS waiver, CMS may not now treat Pennsylvania’s new methodology
15
as a significant change in the waiver, requiring advance approval
by CMS. App. Br. at 28-31.
CMS would have had no reason, however, to require Pennsylvania to
specify any method for allocating occupancy costs between room
and board and habilitation services in the absence of any
indication that Pennsylvania intended to claim some occupancy
costs as the costs of habilitation services provided in
residential facilities. Pennsylvania’s approved waiver
agreements identified the costs of residential habilitation
services and did not include any occupancy costs for which CMS
might otherwise have required an allocation methodology to ensure
that room and board costs were not included. App. Ex. 1, at 13
(2000-05 waiver); see also App. Ex. 7, Appendix C-3, at 7-8
(similar language in waiver effective Dec. 23, 2006).
Pennsylvania provides no evidence that the other States which it
says had waivers approved without specifying allocation methods
were in fact allocating occupancy costs for residential
facilities between room and board and habilitation services.
Pennsylvania argues, however, that CMS should approve its
allocation of occupancy costs because the State Medicaid Manual
refers to “rent” costs in discussing reimbursement for days when
waiver recipients are temporarily absent. App. Reply Br. at 4-5.
This part of the Manual reads:
FFP is not available to facilities providing services in
residential settings on days when waiver recipients are
temporarily absent and are not receiving covered
waivered services (sometimes called reserve bed days).
Medicaid payment may be made only for waiver services
actually provided to an eligible recipient. Since
providers incur fixed costs such as rent, staff
salaries, insurance, etc., even when a waiver recipient
is temporarily absent, you may account for such
continuing costs when developing payment rates for these
providers. For example, rent is generally paid for a
period of 1 month. However, day habilitation services
are generally furnished only 5 days per week. You may
take the entire month’s rental cost into consideration
in setting the rate paid for services furnished on the
days the recipient is present. Similarly, if data show
that a recipient is served in residential habilitation
an average of 325 days per year and the slot is held
open when the recipient is on a leave of absence, you
may consider the entire yearly cost to the provider when
establishing its rate of payment. However, in the rate
setting process, it must be assumed that a facility will
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not have a 100 percent utilization rate every day of the
year. Consequently, payment rates are established by
dividing the provider’s total allowable costs by the
number of Medicaid patient days you estimate recipients
will actually utilize.
SMM, § 4442.3.B.15. In response, CMS suggests that this
provision, like the one immediately preceding it (§ 4442.3.B.14),
is meant to refer to an outpatient facility such as a partial
hospitalization or day treatment facility, which is distinct from
the resident’s home and not furnishing “room and board.” CMS Br.
at 8, n.3. Pennsylvania cites the words “facilities providing
services in residential settings” from § 4442.3.B.15 to support
its claim that this part of the Manual refers to residential
facilities, not outpatient settings. App. Reply Br. at 4-5.
Even if section 4442.3.B.15 applies to a state setting rates for
HCBS waiver services provided in a residential setting, however,
it is at best ambiguous with respect to what rent may be claimed.
Its final sentence refers back to the provider’s total allowable
costs. As we have explained above, the federal statute and
regulation establish that room and board costs are not allowable.
Thus, any policy that permits allocation of some occupancy costs
such as rent as a cost of habilitation or other services provided
in community residential facilities clearly would not apply if
those costs are also costs of room and board.
As discussed above, the method that Pennsylvania’s consultant
developed and that led to the claims here is unacceptable because
it resulted in Pennsylvania claiming Medicaid funds for “room and
board” costs that Congress excluded from reimbursement. Thus,
CMS properly disallowed those claims, regardless of whether the
method was a significant change to Pennsylvania’s waiver.
Conclusion
For the foregoing reasons, we uphold the determinations of CMS to
disallow Pennsylvania’s claims for federal Medicaid financial
participation in 54.1667% of its HCBS facility costs as
17
“habilitation” or “waiver” service costs, for the eight calendar
quarters from July 2005 to June 2007, totaling $60,936,677.
/s/
Leslie A. Sussan
/s/
Constance B. Tobias
/s/
Judith A. Ballard
Presiding Board Member
