DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: New York State Department of Social Services
Request for Reconsideration of Decision No. 788
DATE: February 6, 1987
RULING
ON REQUEST FOR RECONSIDERATION
By letter dated December 10, 1986, the New York State
Depart- ment of
Social Services (State) requested
reconsideration of the Board's
decision in New York State Department of
Social Services, Decision No.
788, September 19, 1986. The Health Care
Financing Administration
(HCFA) requested and was granted an opportunity to
comment on the
State's request, and the State subsequently asked for and was
given an
opportunity to reply.
Under the Board's regulations at 45 CFR 16.13, the Board has the power
"to
reconsider a Board decision where a party promptly alleges a clear
error of
fact or law." For the reasons stated below, we conclude that
there is a
substantial question whether the State's request was timely
and that, in any
event, the State's allegations are incomplete or
unfounded.
Accordingly, we deny the State's request.
Below, we first discuss the timing of the request. We then address
the
State's allegations regarding each of the two types of costs in
question
in this case: training costs and site preparation costs.
The State had
alleged these costs were properly claimed at 90 percent federal
Medicaid
funding as costs of design, development, or installation of the
State's
mechanized claims processing system (called the WMS system).
The Board
held in Decision No. 788 that the training costs were reimbursable
only
at a 50 percent rate of federal financial participation (FFP) and
that
the site preparation costs were reimbursable only at a 75 percent
rate.
Whether the request was "prompt"
In determining whether a reconsideration request is prompt, this Board
has
not set a hard and fast rule but has examined whether the request
was
reasonably timely under the circumstances of the particular case.
Here, the
request was not submitted until more than two and one-half
months after the
decision was issued. The State attempted to excuse
this delay by
stating that its request was based on "newly discovered
evidence" and that it
had informed the Board on October 15, 1986, in a
telephone conference call in
a related case (Board Docket No. 86-21),
that it intended to request
reconsideration. When HCFA challenged the
request on the basis that it
was not prompt, the State replied that it
had been instructed in the October
15 call to brief Docket No. 86-21
first and that it had begun to prepare its
request immediately upon
submission of the brief in that case.
We have a substantial question about whether the State's request should
be
considered prompt in light of the following:
o The tape of the October 15 telephone conference shows
that,
contrary to the State's allegation, the State
was not told to brief
the other case first.
The State was specifically told that it had
to raise
and justify any reconsideration request in this case
separately from Docket No. 86-21.
o Even if the State mistakenly thought that it was told to
submit its
brief in Docket No. 86-21 first, this
would not excuse the State's
delay. That brief
was submitted on November 3, 1986, but the
reconsideration request was not filed until over five weeks
later
on December 10. The State well knows
that the Board usually allows
no more than 30 days
for a submission unless an extension is
granted,
and, indeed, the State initially was given only two
weeks
for its brief in Docket No. 86-21 because of
the limited nature of
the issue raised.
o The "notice" to the Board and HCFA in the telephone
conference call
was clearly inadequate. The
State merely said it would "in all
likelihood"
request reconsideration of Decision No. 788 based on
"newly discovered evidence" regarding training costs. The
State
did not mention any possibility of including
the site preparation
costs in its request.
(Tape of October 15 conference call) In
fact,
the State misidentified in the call the document
addressing
the training costs, stating that it was a
letter from an HHS
Assistant Secretary, whereas it
was a meeting agenda sent to the
State by a lower
level federal official.
o Although the State indicated in the conference call that
it might
submit a request for reconsideration based
on "newly discovered
evidence," the request is in
large part based on evidence which the
State did not
allege was "newly discovered" and on arguments which
the State had raised before. 1/
We do not need to resolve the issue of timeliness of the
State's
request, however, since we deny it on the grounds stated below.
The training costs issue
In Decision No. 788, the Board upheld a disallowance of
$291,645,
identified as the difference between "training costs" claimed at
the 90
percent rate and those costs at the 50 percent rate. The
disallowance
was based on HCFA regulations in effect during the disallowance
period
(October 1, 1977 through March 31, 1982). During most of this
period,
the regulations explicitly provided that the applicable rate was
50
percent for training "personnel engaged in design, development,
or
installation of mechanized claims processing and information
retrieval
systems . . . ." 42 CFR 432.50(b)(3) (1978). The Board
rejected the
State's argument that this regulation substantially changed the
previous
provision at 42 CFR 450.120(1977); the Board found that it was
logically
implicit in the previous version that training of such personnel
was
reimbursable only at the 50 percent rate. The Board also rejected
the
State's arguments that the regulations were inconsistent with the
Social
Security Act or with approval of the State's advanced planning
document
for its WMS system and of its cost allocation plan for WMS
costs.
The State alleged in its reconsideration request that its newly
discovered
evidence showed that the HCFA position upheld by the Board
was inconsistent
with HCFA's previous policy regarding training costs.
That evidence is a
meeting agenda dated September 28, 1982, which states
in pertinent part:
Please be prepared to discuss the State's position
regarding a
methodology for distributing New York
City WMS development and
operation costs.
* * *
-- Under any cost allocation methodology
which the State
proposes, the following HHS policies apply to specific
systems
development
costs:
-- Site preparation costs are
fundable only at the
operational
FFP
level (i.e. IV-A 50%; XIX 75%).
-- Trainer costs are fundable at
the development FFP level
(i.e.
IV-A 50%;
XIX 90%).
-- Trainee costs are fundable only
at the administrative
FFP
level of 50%
FFP for IV-A and XIX.
Request for reconsideration, Ex. 1.
The State incorporated by reference into its request an affidavit by
a
State Deputy Commissioner attesting that an HHS official in the
Division
of State Systems had telefaxed the agenda to him prior to a meeting
on
September 29, 1982, and that at that meeting and in other
discussions
"the issue of 90% FFP for trainers during the development phase
was
discussed by the operating division representatives as HHS
policy."
Appeal file, Docket No. 86-21, Ex. 2. The State also presented
evidence
that the question of training costs was not included in
later
discussions as an unresolved issue. Id., Ex. 3. The State
relied on
this evidence for two propositions: (1) that all training
costs are
"developmental," and (2) in any event, HHS policy was that at
least
trainer costs are reimbursable at 90 percent.
The State did not explain, however, how this showed an error in
the
Board's decision. Decision No. 788 was based on the plain terms of
the
regulation and the uncontested auditors' finding that the costs
here
were for training personnel engaged in design, development,
or
implementation of WMS. The State did not challenge the Board's
factual
finding, nor provide any rationale on which we could find that a
general
statement regarding HHS policy (even if reaffirmed orally by
HHS
officials) could override an applicable regulation. The State made
too
much of the mere reference to these costs as "systems
development"
costs. Clearly, the author of the meeting agenda was not using
this term
in the technical sense used in HCFA regulations. As we noted
in
Decision No. 788, the State's WMS system was intended to serve
other
programs as well as Medicaid and documents relating to the system
use
the terms "development and implementation" without tracking
the
terminology in the Medicaid regulations. Moreover, the State's
own
evidence shows that the State understood, at least with respect
to
"trainee" costs, that the HHS position was that they were
not
development costs. State's appeal file, Docket No. 86-21, Ex. 3, p.
20.
With respect to "trainer costs," the statement in the meeting
agenda
regarding HHS policy is (to the extent it applies to Medicaid costs)
in
conflict with the plain terms of the appli- cable regulation on
training
costs, which clearly includes as "training expenditures" costs such
as
instructors' salaries and costs of training materials. 42
CFR
432.55(b)(1978). The State did not explain how it could reasonably
rely
on a state- ment about HHS policy in conflict with the regulations,
nor
even allege that it did rely on that statement (in fact, the meeting
was
held after the time period in question here). Even if the
statement
could be somehow read as an interpretation of the regulation
which
should be binding on HCFA, however, we would find the State's
allegation
to be inadequate. The State did not allege that the costs in
question
here were in fact "trainer" costs. 2/ Thus, the State
failed to allege
a fact necessary to show that the statement about HHS policy
would
provide a basis for altering Board Decision No. 788.
The State did submit a copy of a HCFA Action Transmittal, which the
State
alleged indicates that the regulations on which HCFA relied
pertain "only to
staffing for administration of medical assistance
programs" and that "all
costs relating to a mechanized claims system are
reimbursable at 75% or 90%
FFP." Request for reconsideration, p. 8
(referring to Ex. 3). The
implication of this argument was that somehow
it provided a basis for finding
that the HCFA staffing regulations were
not applicable here.
The Action Transmittal addresses the question of whether states
may
receive reimbursement for both direct and indirect costs of
all
expenditures "allocable to an operational MMIS at 75% or to
design,
development, and installation of a MMIS at 90%" in view of the fact
that
the regulation at issue here "appears to limit allowable costs to
salary
and other compensation, travel and training." Ex. 3. In
context, a
statement in the Action Transmittal that the regulation "pertains
only
to staffing for administration of medical assistance programs"
simply
means that that regulation does not cover all costs of a
mechanized
system. The statement certainly cannot reasonably be read as
meaning
that the regulation does not cover training costs of a mechanized
system
when it explicitly does so. Moreover, the training costs in
question
here are clearly related to staffing for the administration of a
medical
assistance program. See section 1903(a) of the Act; 42 CFR
432.1,
433.15(b)(4). Finally, the State misreads the Action Transmittal
by
saying it provides for enhanced funding for all operational
or
developmental costs "related to" a mechanized system; the
Action
Transmittal uses terms such as "allocable" or "benefiting" to
describe
the costs reimbursable at the enhanced rates. In Decision No.
788, we
found that HCFA's regulation permitting only 50 percent for
training
persons engaged in design, development, or installation of a
mechanized
system was consistent with the Act because HCFA could have
reasonably
determined that Congress did not intend such costs to be
considered
"attributable to" a system and, therefore, to be reimbursed at
the
enhanced rate. The State did not contend that this conclusion
was
incorrect.
Thus, we conclude that the State did not allege a clear error of fact
or
law based on which we should reconsider our decision on the
training
costs.
The site preparation costs
In Decision No. 788, the Board upheld a disallowance of
$115,855
representing the difference in FFP in the costs of site prepara-
tion
claimed at 90 percent and those costs claimed at 75 percent.
The
disallowance was based on HCFA issuances (of which the State had
timely
notice) which clearly and unambiguously state that site
preparation
costs are reimbursable only at the 75 percent rate.
The State contended that this conclusion was erroneous based on
the
September 8, 1982 meeting agenda discussed above, which the State
said
indicates "that until the advent of the recent disallowance
numerous
operating divisions of [HHS] defined the costs of site preparation
as
developmental." Request for reconsideration, p. 4. The State
relied
for this on the fact that the agenda refers to site preparation costs
as
"systems development" costs.
As discussed above, the mere fact that certain WMS costs might have
been
considered "developmental" in a broad sense did not mean that they
were
necessarily reimbursable at 90 percent FFP. Here, the State's
reliance
on the reference to site preparation costs as "development" costs
is
particularly misplaced in light of the fact that the meeting
agenda
specifically states that such costs are reimbursable only at
the
operational 75 percent rate. (See the quote on page 3 above.)
The
meeting agenda provides support for the Board's decision on
site
preparation costs rather than indicating that the Board erred.
The State's reliance on regulations published with respect to
mechanized
claims processing systems under the Aid to Families with
Dependent
Children program (AFDC) is also misplaced. The State pointed
out that
these regulations were intended to parallel the Medicaid regulations
on
such systems and that the definitions in the AFDC regulations show
that
site preparation should be reimbursed at 90 percent because
they
"encompass the phase during which the computers and peripheral
equipment
are installed and tested which is, in essence, site
preparation."
Request for reconsideration, p. 6, citing Ex. 2. The
definitions are
not different from the Medicaid definitions analyzed in Board
Decision
No. 788, however. We found that the issue was not the timing
of when
the costs were incurred, but the nature of the costs, and that
HCFA
reasonably interpreted site preparation costs to be the type of
costs
which should be charged over a period of time and therefore charged
to
operations (at the 75 percent rate), rather than to installation of
a
system (at the 90 percent rate). Decision No. 788, pp. 3-5.
This is
consistent with the Medicaid regulations which provide for the
enhanced
rate of 90 percent only for the use of hardware (including
peripheral
equipment) to the extent necessary for the design, development,
and
installation phase. 3/
Moreover, the State submitted additional evidence which supports
the
Board's analysis about the nature of site preparation costs rather
than
calling it into question. Exhibits submitted in Docket No. 86-21
and
incorporated by reference here indicate that the State was told
to
amortize certain site preparation costs (capital costs related to
the
WMS implementation in New York City) over the life of the
improvements
(Ex. 4, Item 4), and that site preparation costs were not
considered
part of development of WMS but were considered real property costs
which
should be charged as such under the applicable cost principles (Ex.
3,
p. 21).
Thus, the State's allegations regarding site preparation costs are
also
insufficient as a basis for reconsideration.
Accordingly, we deny the State's request for reconsideration.
________________________________ Cecilia Sparks Ford
________________________________ Alexander G. Teitz
________________________________ Judith A.
Ballard
Presiding Board Member
1. We also reject the State's argument that the
Board should accept
the request as timely because HCFA was not prejudiced by
the delay. The
standard in the Board's regulations serves purposes
other than to
prevent prejudice to a party; the Board itself has an interest
in
assuring the finality of its decisions within a reasonable time
period.
2. In Docket No. 86-21, the State did allege that the
costs at issue
there were "trainer" costs, explaining that this meant they
were
expended for the individuals responsible for training staff involved
in
the operation of WMS. But the State made no such allegation
here.
3. We also note that the AFDC regulations differ from
the Medicaid
regulations in that, under the AFDC regulations, 90 percent
funding is
specifically made available for a broader range of activities,
including
"planning" and the rental and purchase of