July 25, 1991
Subject:
Audit Requirements; G.S. § 143-6.1
Requested by:
John C. Hunter, General Counsel Department of Environment, Health and Natural Resources
Question:
Are private home health agencies which receive funds from the Division of Adult Health, Department of Environment, Health and Natural Resources, subject to the audit requirements of
G.S. § 143-6.1?
Conclusion:
Yes.
The Home Health Service (HHS) program, administered by the Division of Adult Health, provides funds to home health agencies to pay for home health services furnished to eligible patients. Each year, the HHS program allocates available funds, determines a maximum amount which each participating home health agency may receive and enters into a contract with each home health agency. Pursuant to the contract and the rules of the HHS program, the home health agency is reimbursed, up to the annual maximum allocation, for services rendered to financially eligible individuals when reasonable measures to determine and collect from other third party payors do not result in payment. 15A NCAC 16A.0208. The home health agency determines whether a given individual is financially eligible for HHS funds based on a formula established by the HHS program. 15A NCAC 16A.0204. The amount reimbursed for the services is based upon Medicaid and Medicare amounts. 15A NCAC 16A.0202(10). No federal funds are used by the HHS program.
The question presented is whether the HHS funds are subject to the audit requirements of G.S. § 143-6.1 or whether such funds are exempt from such requirements under the exclusion for funds which are for the purchase of services. G.S. § 143-6.1, as amended by the Appropriations and Budget Revenue Act of 1991, sec. 12 and sec. 190, ch. 689, 1991 Session Laws n1, provides, in relevant part:
Each corporation, organization, and institution which receives, uses or expends any State funds shall use or expend such funds only for the purposes for which such State funds were appropriated by the General Assembly or collected by the State.
Each corporation, organization, and institution which receives, uses or expends State funds in the amount of twenty-five thousand dollars ($ 25,000) or more annually, except when the funds are for the purchase of goods or services, shall file annually with the State Auditor and with the Joint Legislative Commission on Governmental Operations financial statements in such form and on such schedule as shall be prescribed by the State Auditor, and shall furnish to the State Auditor for audit all books, records and other information as shall be necessary for the State Auditor to account fully for the receipt, use and expenditure of State funds.
n1 The 1991 amendment, inter alia, substituted the phrase "except when the funds are for the purchase of goods or services" for the phrase "except when the funds are compensation for the purchase of goods or services". Since this request for an Attorney General’s opinion was received prior to the enactment of the 1991 amendment, it should be noted that the conclusions of this opinion apply equally to the earlier version of the statute.
Opponents to requiring an audit from HHS program participants argue that the HHS funds should be exempt because the funds are used to purchase home health services. We disagree. In the broadest sense, virtually all uses of state funds, including grants, result in some advantage to the state or to the public which could be classified as either a "good" or a "service". Thus, the exception cannot apply merely because the funds result in a service being furnished.
Among the indicia to consider in construing a statute are the purposes appearing from the statute taken as a whole, the mischief to be remedied, the remedy and the end to be accomplished. State
v. White, 58 N.C. App. 558, 294 S.E.2d 1 (1982). The stated purpose of G.S. § 143-6.1 is to obtain the information which is necessary for the State Auditor to account fully for the receipt, use and expenditure of state funds. Thus, the distinction between "the purchase of goods and services" and other uses of state funds, such as grants, is the extent to which the user of the funds exercises independent control over the use of those funds.
Opponents argue that financial information regarding the home health agencies is not necessary in order to account for state funds because the home health agencies are paid on a fee for service basis and the fee is predetermined by the state, based upon Medicaid and Medicare reimbursement amounts, regardless of the cost to the home health agency of providing the service. The financial information is relevant to the State Auditor, however, in determining whether the billed services were actually rendered. Further, the audit report includes, in addition to the financial statement, a compliance report which reviews the home health agency’s compliance with program requirements such as the process for determining eligibility and the efforts to obtain third party reimbursement.
In the HHS program, unlike in a typical vendor contract, the home health agency, and not the state, identifies the need for the services. Although the HHS program does consider community needs in establishing its annual allocation to each home health agency and although the HHS program establishes financial eligibility standards, it is the home health agency which determines whether a given case is an appropriate case for drawing down the HHS funds. 15A NCAC 16A.0204. Further, the home health agency is responsible for determining whether another third party payor might be available to pay for the services, prior to billing the HHS program. 15A NCAC 16A.0208.
Thus, a review of the procedures established by the home health agency in determining eligibility and the compliance by the home health agency with those procedures; a review of the procedures established by the home health agency in identifying and billing third party payors and the compliance with the home health agency with those procedures; and a review of other substantiating information to show that the billed services were appropriate and were, in fact, rendered, are all necessary to the State Auditor in accounting for the receipt, use and expenditure of the state funds. Accordingly, the HHS funds are not merely payment for goods and services but are grant funds subject to the audit requirements of G.S. § 143-6.1.
LACY H. THORNBURG Attorney General
Gayl M. Manthei Special Deputy Attorney General