DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Georgia Department of Medical Assistance
Docket No. 86-234
Decision No. 882
DATE: July 15, 1987
DECISION
The Georgia Department of Medical Assistance (State) appealed
a
determination by the Health Care Financing Administration (HCFA
or
Agency) disallowing $1,379,889 in federal financial participation
(FFP)
claimed for the period July 1, 1984 through March 31, 1985. The
amount
disallowed represents the difference between the State's claims
for
costs at the 75 percent rate available for operation of a
mechanized
claims processing and information retrieval system called a
Medicaid
Management Information System (MMIS), and the 50 percent rate
available
generally for administrative costs.
The Board granted Georgia's request that we address preliminarily
whether,
as a matter of law, HCFA exceeded its legal authority in
denying the State's
claim at the 75 percent rate for operation of a MMIS
for the period in
question. For the reasons stated below, we find that
HCFA acted within
its legal authority in denying the State's claim at
the enhanced rate.y
1/
I. Applicable law, regulations and guidelines
Under section 1903(a)(3)(B) of the Social Security Act (Act), FFP
is
available in the costs of a mechanized claims processing system at
the
rate of 75 percent for costs attributable to the operation of a
system
approved by the Secretary; otherwise, administrative costs
are
reimbursed at 50 percent under section 1903(a)(7) of the Act.
In 1980, section 1903(r) was added to the Act. Pub. L. No.
96-398.
That legislation requires each state with a Medicaid program,
with
certain exceptions not applicable here, to have an approved
MMIS
"operational" before established deadlines and, if the state fails to
do
so, prescribes FFP reductions by increments in the funding
available
under sections 1903(a)(2) and (7) of the Act. (Those sections
provide
75 percent FFP for compensation and training of skilled
professional
medical personnel (SPMP) and support staff and 50 percent FFP
for
general administrative expenditures.) Specifically,
subsections
1903(r)(1)(A), (B) and (C) require a state's MMIS to be
operational by a
specified deadline or be subject to a reduction in those FFP
rates.
Similarly, subsections 1903(r)(2)(A) and (B) require a state's MMIS
to
be initially approved by the Secretary within one year from the date
the
Secretary determines the system became operational or be subject to
a
reduction in the FFP rates for SPMP compensation and training and
for
general administrative expenditures. Finally, and central to
the
dispute at issue here, subsection 1903(r)(3)(A) provides that when
a
state's MMIS is initially approved "the 75 per centum Federal
matching
provided in subsection [1903] (a)(3)(B) [which provides for 75 per
cent
FFP for operation of an approved MMIS] shall become effective
with
respect to such systems, retroactive to the first quarter
beginning
after the date on which such systems became operational. . . ."
The Agency regulation at 42 CFR 433.111 (1980)y 2/ defines operation of
an
MMIS, as follows:
"Operation" means the automated
processing of claims, payments,
and
reports. "Operation" includes the use of supplies,
software,
hardware, and personnel
directly associated with the functioning
of the mechanized system.
The regulations at 42 CFR 433.113 set forth the conditions which must
be
met in order for a state to receive FFP at the 75 percent rate
for
operation of a MMIS approved by HCFA. The regulation provides that
the
Administrator of HCFA will approve the system operation if
the
Administrator determines among other things that the system is likely
to
provide more efficient, economical, and effective administration of
the
State plan, the system meets the system requirements and
performance
standards in Part 7-71-00 of the Medical Assistance Manual, and
the
system has been operating continuously during the period for which
FFP
is claimed. 42 CFR 433.113(b), (c) and (d).
The regulations are supplemented by Chapter 11 of the State
Medicaid
Manual (SMM or Manual).y 3/ The Manual provisions are
important in the
analysis here. Section 11110 E of the Manual defines
"Certification
Review" as follows:
. . . the approval process by
which HCFA determines if a State
satisfies the approved APD [Advanced Planning Document],
and/or
if a State's title XIX mechanized
claims processing and
information
retrieval system is operational and
continuously
meets requirements for FFP,
as defined in section 1903(a)(3) of
the
Act, 42 CFR 433 Subpart C and Part 11 of the State
Medicaid
Manual.
The Manual further provides the basis at section 11260 for retroactive
75
percent FFP. The Manual states:
A. General. Section
1903(a)(3) provides for an effective
date
of July 1, 1971 and section
1903(r)(3) further defines
retroactive
payments. A claim for retroactive FFP may be
made
for systems operations begun during
any period on or after July
1,
1971. The State can obtain increased operational
FFP
retroactive to the first quarter
beginning after the date
established by
the Secretary that the system became
operational.
HCFA will conduct a
certification review prior to
authorization
of retroactive FFP.
The State in making a claim for
retroactive
FFP must submit a written
statement to the effect that its system
operations have been reviewed by HCFA and meet all
requirements
in section 11210 and 11215,
which include the system requirements
and performance standards of Chapter 3 of this manual.
The
identity of the reviewer and date of
review must be stated. This
statement must include the following:
1. The
date the complete system was officially accepted
as
operational;
2. The dates of the period of operations claimed;
3.
Certification that the requirements have been met for
the
entire period for which 75 percent is being claimed; .
.
. .
(Emphasis added.)
The Manual also specifies at section 11255 that there is a
transition
period of funding a MMIS system from the 90 percent FFP rate
available
under section 1903(a)(3)(A)(i) for design, development, or
installation
of a MMIS and 75 percent FFP rate and that "FFP at the 50
percent level
is available for operation of any subsystem from that point
that 90
percent FFP ceases until the complete system is fully operational
and
meets the requirements of section 11210 of the SMM." Section 11255
C.
of the SMM (emphasis added). Paragraph D of that section
further
provides that 75 percent FFP is available once the complete
approved
system is determined to be fully operational and meets all
requirements
as defined in section 11210 of the SMM.
II. Statement of Case
Georgia originally began operating a MMIS in March, 1976, that
was
certified in August, 1977. In March, 1983, Georgia submitted an APD
to
HCFA detailing the State's intention to replace its old system with
a
new MMIS system to be operated by a private contractor as the
State's
fiscal agent. Appellant's Appeal File, Exhibit (Ex.) 1.
HCFA approved
the State's request for proposal for the MMIS fiscal agent
contract in
June, 1983. Appellant's Appeal File, Ex. 2.
Meanwhile, Georgia's original MMIS system continued to operate and
receive
75 percent operational funding. In fact, HCFA notified the
State on
October 1, 1984 that its old system was reapproved through June
30,
1984. Appellant's Appeal File, Ex. 8. In that same letter,
HCFA
acknowledged that effective July 1, 1984, the old system had
been
replaced with a new MMIS. HCFA stated that "until that new system
is
approved you may claim Federal financial participation at only the
50
percent level." HCFA indicated, however, that should the State
choose
after October 1, 1984 to reinstate the discontinued system, the
FFP
available for its operations, since already approved, would be at
the
full 75 percent rate.
In November, 1984, HCFA notified the State that upon review of the
State's
claim for expenditures for the quarter ended September 30, 1984,
HCFA had
determined that the State claimed all of its MMIS costs at the
75 percent
rate. HCFA notified the State that:
Since your Department's new fiscal agent
. . . commenced
operations on June 30,
1984 your MMIS must be recertified to be
eligible for 75 percent FFP. . . .
Appellant's Appeal File, Ex. 10.
Similar letters for subsequent quarters were sent to the State by HCFA
in
March, 1985, June, 1985 and September, 1985. Appellant's Appeal
File,
Exs. 11, 12 and 13. Georgia made a formal request for
certification
review of its new MMIS on May 3, 1985. Appellant's Appeal
File, Ex. 14.
On December 16, 1985, HCFA transmitted to the State the
results of its
certification review in accordance with the State's
request for FFP for
operation of its MMIS retroactive to June 30, 1984.
After identifying
problems with the State's system, HCFA stated that
"the Georgia MMIS is
approved with an operational date of March 31,
1985." As a result, HCFA
indicated that the State could claim FFP at
the 75 percent operational rate
for the replacement system effective
April 1, 1985. HCFA indicated that
the approval, however, was
contingent upon the shortcomings in the report
being corrected within a
reasonable time. Appellant's Appeal File, Ex.
15. In accordance with
HCFA's instructions, the State submitted a
corrective action plan to
HCFA on March 11, 1986 (Ex. 16), and HCFA
acknowledged receipt of the
plan on May 1, 1986, indicating that HCFA would
require verification
from the State after the completion of the scheduled
changes that the
corrections had been made to the system and that all
outstanding issues
had been completely resolved. Appellant's Appeal
File, Ex. 17. On the
basis of such a verification, HCFA notified the
State on July 22, 1986
that "the contingencies for certification approval are
satisfied and the
Georgia MMIS is approved for enhanced funding effective
April 1, 1985."
Appellant's Appeal File, Ex. 18.
Shortly after this letter was sent, HCFA sent a program memorandum to
all
Regional Administrators dated July 25, 1986 to inform them that HCFA
would be
discontinuing its practice of conducting an on-site
certification review of
replacement systems. Appellant's Appeal File,
Ex. 19. HCFA
indicated that, with elimination of the on-site
certification review, a
state's MMIS will be approved or disapproved on
the basis of the annual
Systems Performance Review. HCFA further stated
that the ongoing rate
for FFP for operation for the replacement system
will be the rate for the
replaced system.
On November 7, 1986, HCFA issued a final decision disallowing the
State's
claim for retroactive FFP at the 75 percent operational rate for
the period
July 1, 1984 through March 31, 1985. HCFA indicated that the
State's
MMIS was conditionally determined to be operational and
certifiable beginning
April 1, 1985 inasmuch as the certification
reviewers determined that the
State's MMIS did not meet the conditions
for certification for the period
July 1, 1984 through March 31, 1985.
Accordingly, the Agency allowed the
State's claim for this period only
at the 50 percent general administrative
rate.
III. Discussion of the State's Arguments
a. Whether HCFA exceeded its statutory authority.
The central argument made by the State was that HCFA exceeded
its
statutory authority and violated the provisions of the Social
Security
Act when it denied the State's retroactive claim for this
period.
The State contended that under the provisions of sections
1903(a)(3)(B)
and 1903(r)(3)(A), the State was entitled to 75 percent funding
as of
July 1, 1984, the beginning of the calendar quarter after the
system
allegedly became operational. The State disagreed with the
operational
date of March 31, 1985 established by HCFA and made the
following
arguments:
* The operational date is
established at the time the APD
is
approved by HCFA;
it is not the date established by HCFA
in
its certification
review.
* Under section 1903(r) of the
Act, the date a system
becomes
operational is
not determined by the standards used
to
determine whether a
system is approved.
* The date an MMIS becomes
operational is the date it
starts
processing
claims in accordance with the definition
of
operation in 42 CFR
433.111.
* The state would not have risked
the 75 percent it was
already
receiving for
its old system unless it believed that it
would
still receive 75
percent upon start-up of the
replacement
system.
* The legislative history to
section 1903(r) shows that
HCFA's
action was
contrary to the intent of Congress.
We do not agree with the State that the statute here mandates that as
a
matter of law the State should receive FFP at the 75 percent
operational
rate retroactive to July 1, 1984. Acceptance of the State's
position
would require the Board to ignore the clear import of the
applicable
statute, regulations, and Manual provisions.
The State argued that the operational date of the MMIS is established
at
the time the APD is approved. The statute, however, clearly
provides
that the Secretary determines when a State's MMIS becomes
operational.
Section 1903(r)(2)(B). Consequently, the prospective date
specified in
the approved APD as the date a system becomes "operational" or
the date
the State indicated the system "commenced operations" is not
necessarily
the date the system becomes "operational" under the statute.y 4/
The APD
is only the State's written plan of what it intends to do in the
future.
Thus, while an APD which was approved by HCFA may specify a date for
the
system to be operational, this does not mean that the State actually
had
a system entitled to enhanced funding by that date. Similarly,
the
State's claim that its MMIS commenced operations on a specific date
does
not mean that all aspects of that system were working satisfactorily
on
that date so that the system was "operational" within the meaning
of
section 1903(r) of the Act. If we were to accept the State's
argument
that the operational date is established at the time the APD
is
approved, the Agency could pay an enhanced FFP rate for systems
which
are clearly deficient.
In the alternative, while the State did admit that even if the
Secretary
has authority under the statute to determine when a system
becomes
operational under section 1903(r)(2)(B), it argued that the
Secretary
does not have authority to apply the same standards for determining
the
operational date as the standards for initial approval under
section
1903(r)(5). Transcript, p. 19. The statute, by
specifically providing
that the Secretary should determine when a system
becomes "operational,"
implies that HCFA, using some sort of standards, must
make a
determination as to how the system is working. Section 1903(r)
does
refer to two dates, namely the date a system is determined
operational
and the date the system is initially approved. We, however,
do not
accept that the logical conclusion here is that the Act then
compels
different standards to be used. As the State conceded, the
statute does
not specify that the Secretary develop separate standards
for
determining when a MMIS is operational. The use of two dates
simply
recognizes that certification review would not normally take
place
immediately after a system is operational. Indeed, the
statute
contemplates performance standards which assess "systems in
operation"
(section 1903(r)(6)), which could not be applied immediately
upon
operational status. Moreover, since FFP is available under
section
1903(a)(3)(B) only for operation of an approved system, it makes
sense
to read the provisions together to mean that the 75 percent rate
is
available only from the time an approvable system is fully
operating.
Thus, what the Agency did here is consistent with the statute,
read as a
whole, and best effectuates its purposes.
Moreover, the State had notice of HCFA's interpretation. Although
the
State chose to ignore the SMM, the SMM is a
contemporaneous
interpretation not only of section 1903(a)(3)(B) but also
section
1903(r). Section 11260 of the SMM provides specific information
and
instructions for claiming 75 percent FFP pursuant to section
1903(r)(3)
of the Act.y 5/ The provisions set forth clearly and
unambiguously just
how a state may claim retroactive FFP, what is required to
receive
enhanced funding and what standards should be used in
determining
whether a system is operational. The SMM provides that a
state can
obtain 75 percent FFP for operations of a MMIS "retroactive to the
first
quarter beginning after the date established by the Secretary that
the
system became operational." Emphasis added. The SMM
provisions quoted
above make it clear that the date which the Secretary will
establish as
the date the system became operational will be the date on which
the
conditions for approval were met and that the State may
claim
retroactive FFP at the operational rate of 75 percent only from
that
date forward.
These SMM provisions also explain what is implicit in the Act: that
the
same standards are used for determining when a system is operational
as
are used for initial approval because the Secretary's determination
of
when a system became operational is necessarily made
retroactively.
When a state asks HCFA to perform a certification review so
that it may
receive FFP, it must already have an operating system.
Thus, the Act,
in allowing for retroactive FFP, allows the Secretary to make
a
retroactive determination as to when a system meeting the
requirements
of 1903(a)(3)(B) of the Act, 42 CFR 433.113 and Part 11 of the
SMM
became operational. As a result, the SMM provisions support
the
conclusion that the Agency used the correct standards in
determining
when the State's system became "operational."
The State contended that the date an MMIS becomes operational is a
matter
of fact; it becomes operational when it starts processing claims.
The State
based its arguments on the definition of "operation." The
SMM, however,
indicates that 75 percent FFP for operation of a MMIS is
not automatic; it
does not become available by merely turning on the
system. The SMM sets
forth that the State must first notify HCFA that
the system has been tested
and is ready for certification review in
order to receive operational
FFP. Section 11237 D of the SMM. Next,
HCFA performs its
three-stage certification review, consisting of:
preliminary evaluation of
State-furnished information and system
documentation; HCFA on-site
observation of on-going system operations;
and post-site evaluation report of
the findings of the review team.
Sections 11240 and 11241. The SMM also
suggests at section 11255 that
there may be a period after the system is
designed, developed, and
installed but before the system is fully operational
when the State may
only receive FFP at the 50 percent rate. This
provision explains that
90 percent FFP for design, development, and
installation terminates on
the date the system is fully tested and accepted
by the State. Thus,
the SMM provides that "FFP at the 50 percent rate
is available for
operation of any subsystem from the point that 90 percent
ceases until
the complete system is fully operational and meets the
requirements of
section 11210 of the SMM." These provisions then must
be read together
with the definition of "operation" in 42 CFR 433.111 as well
as the
regulation at 42 CFR 433.113 providing for 75 percent FFP
for
operations. As a result, we cannot agree with the State
that
"operation" for purposes of 75 percent retroactive FFP means when
the
system first begins to process and pay claims. The regulation at 42
CFR
433.111 merely provides a definition of operation of a system.
That
definition, however, does not set forth the conditions which must be
met
in order to receive 75 percent FFP for operations. Those are
clearly
set forth at 42 CFR 433.113. Thus, the date a system begins
"operation
in fact" is not necessarily the same as the date a system
becomes
"operational" for purposes of 75 percent retroactive FFP.
Furthermore, there is every indication here that the State was aware
of
the difference. As early as October 1984, the State knew that until
its
replacement system was certified, it could receive FFP at only the
50
percent level. Appellant's Appeal File, Ex. 8. The record
shows that,
consistent with the SMM and repeated notice from HCFA as outlined
above,
the State on May 3, 1985 requested that HCFA perform a
certification
review of the State's new system. On June 28, 1985, HCFA
notified the
State that the on-site certification review was scheduled and
reminded
the State of the purpose of that review. HCFA stated:
As you know the purpose of the on-site
review is to determine if
the Georgia
MMIS meets the minimum requirements of the
MMIS
General Systems Design (GSD) and
Part 11 of the State Medicaid
Manual,
and to verify that the system is operating in
compliance
with current regulations and
policy. In order to qualify for
retroactive certification the State must produce
documentation
showing evidence of the
operational status of the MMIS since the
operational date claimed (i.e., June 30, 1984). This means
that
the documentation presented must
demonstrate that the entire
system (all
subsystems and claim types) has been fully
functional
from that date forward.
Respondent's Appeal File, Ex. 2. This letter proceeds to provide
the
State with specific information about the review, including
what
information the State should furnish and what State personnel should
be
available during the review.
The State did not deny that it had notice of the SMM provisions.
Moreover,
as the record indicates, HCFA notified the State countless
times that the
State's MMIS needed to be certified in order to receive
75 percent for
operation of the MMIS and that, in order to qualify for
retroactive FFP, the
State must demonstrate that its MMIS was fully
operational from the
operational date claimed. Otherwise, reimbursement
would be at the 50
percent general administrative rate. In addition,
the State did not
deny that the provisions of the SMM were intended as a
contemporaneous
interpretation not only of section 1903(a)(3)(B) but
also of section 1903(r),
which was enacted in October, 1980. The Board
has held previously that
actual notice of the Agency's policy
interpretation, if reasonable, is
sufficient to bind a state to its
terms. See Maine Department of Human
Services, Decision No. 712,
December 11, 1985; New York State Department of
Social Services,
Decision No. 520, February 29, 1984; and Social Service
Board of North
Dakota, Decision No. 166, April 30, 1981. The State has
not shown why
this should not be true here.
The State argued that it would not have risked the 75 percent FFP it
was
receiving for its old system unless it believed it would receive
75
percent FFP upon start-up of the new system. The record, however,
shows
that when the State first submitted its APD for a replacement system
in
March, 1983, its old system was in a "non-approved status" for
fiscal
year 1983. Thus, in order to maintain an approved MMIS and to
avoid
funding reductions, the State determined it was necessary to replace
the
old system to resolve these problems. Appellant's Appeal File, Ex.
1,
p. 2. Therefore, the record does not support the State's
contention,
because at the time it submitted its APD in 1983, the State was
not
certain of receiving 75 percent FFP.
The State also contended here that the SMM provisions render
section
1903(r) of the Act meaningless in that the SMM provisions take away
the
states' incentive to get their MMIS operational. The State
contended
that under section 1903(r)(2)(B) states have a grace period of a
year
from the date the system is determined operational before the
system
must receive initial approval, during which time the states
could
receive full FFP at the operational rate without penalty.
The legislative history shows that section 1903(r) was enacted for
the
purpose of ensuring that states install MMIS systems by
specific
deadlines and that MMIS systems continue to operate effectively
once
installed, by establishing penalties for failure to do so. 126
Cong.
Rec. 19490 (July 24, 1980) (remarks of Senator Schweiker).
The
enactment of this section was meant to respond to two
perceived
problems. First, some states had not yet taken advantage of
the
enhanced FFP rates provided by sections 1903(a)(3)(A)(i) and (B)
to
develop and operate MMIS systems. Second, several states were
abusing
these incentives by pledging in APDs to install MMIS systems within
a
short period of time, yet years later still did not have an
operational
MMIS but continued to receive FFP at the 90 percent rate for
their
alleged efforts. The means Congress chose to provide an incentive
was
to reduce funding for states which did not meet the specified
deadlines
and other requirements. Nothing in the statute or legislative
history
indicates that the provision on retroactive FFP was intended to be
an
incentive to move from developmental to operational status, as the
State
contended here. The SMM provisions do not take away the
states'
incentives to get their MMIS operational. The mere fact that a
state
would suffer a reduction in funding if the system is not operational
by
a specified date is reason enough to make sure the system
is
operational. The SMM then only makes clear what the statute
provides:
that operational FFP, whether retroactive or not, is available only
from
the date the Secretary determines the system is operational;
otherwise,
reimbursement is only at the 50 percent rate.
After a careful consideration of all these factors, we conclude that
HCFA
acted within its statutory authority in determining when the
State's MMIS
became operational.
b. Whether HCFA's action was contrary to its announced policy.
The State argued that before HCFA rendered a final decision on
Georgia's
replacement system, HCFA had issued a policy memorandum to all
HCFA
Regional Administrators. This memorandum, dated July 25,
1986,
implemented HCFA's policy of discontinuing its practice of conducting
an
on-site "certification review" of a replacement system. The
memorandum
also stated that the "ongoing rate of Federal financial
participation
for operation of the replacement system will be at the rate for
the
replaced system." The State contended that the disallowance here
is
contrary to HCFA's announced policy, because the announced policy
would
grant Georgia 75 percent FFP for its replacement system.
Contrary to the State's arguments, there is no reason to apply this
policy
statement retroactively to the State's MMIS. In the instant
case, the
State's system had already undergone the on-site certification
review and the
Agency had found defects in the State's system. Also,
there is nothing
on the face of the policy statement to suggest that
where a certification
review had already been performed, the Agency
should overlook that review. If
that were the case, the Agency could be
required to overlook serious defects
in a state system. Thus, HCFA's
action was not contrary to its
announced policy.
c. Whether the disallowance involves a reduction in FFP
under section
1903(r)(4)(B).
The State argued that the Agency was attempting to impose a 25
percent
penalty on Georgia's right to receive operational reimbursement for
its
improved MMIS. The State argued that since its old system
received
approval for 75 percent operational funding, the replacement MMIS
was
also entitled to receive 75 percent funding. The State then
contended
that under section 1903(r)(4), HCFA may not reduce FFP from the
existing
75 percent level to the minimum level of 50 percent, but is
restricted
to a maximum reduction of 10 percent for any four-quarter
period. The
State contended that the since the old MMIS was fully
approved, the new
MMIS was subject only to annual reapproval reviews, for
which the
statute restricts reductions in FFP in the event of disapproval to
a
maximum of 10 percent in any year.
The situation here is a question of whether the State was entitled to
the
enhanced rate of 75 percent FFP for operation of a MMIS, as opposed
to the 50
percent administrative rate generally available. The Board
has held
that where a State is claiming reimbursement of costs at a rate
higher than
the 50 percent rate generally available for expenditures
necessary under
section 1903(a)(7) of the Act, the State has the burden
to show that the
costs claimed are entitled to the higher rate of
reimbursement. See
Missouri Department of Social Services, Decision No.
395, February 28, 1983,
p. 6, and cases cited therein. The State has
not shown that this
principle is not controlling here. The disallowance
letter indicates
that the Agency denied the State's claim of enhanced
FFP at the 75 percent
rate for operation of its MMIS for the period July
1, 1984 through March 31,
1985; it instead allowed the costs at the
general administrative rate of 50
percent. Thus, HCFA did not impose a
penalty; rather, the State had not
shown that it was entitled to the
enhanced rate of 75 percent FFP during the
period in question for
operation of its new MMIS.
Besides, the reductions specified in section 1903(r)(4)(B) apply only
when
a MMIS has been approved and then subsequently disapproved for
failure to
pass an annual systems performance review. While the State
argued that
HCFA cannot reduce FFP from the 75 percent level because of
the limitation on
reduction of FFP in section 1903(r)(4)(B), the State
has failed to show any
legal authority which was in effect either during
the time period in question
or at the time of the certification review
to indicate that the State's new
replacement MMIS was entitled to 75
percent FFP simply because the State's
old system had received approval
for 75 percent operational funding. In
the absence of such authority,
there is no basis to conclude that the
provisions of section
1903(r)(4)(B) are applicable here. Consequently,
the record does not
support the State's contention that HCFA was imposing a
25 percent
penalty on the State's right to receive FFP at the 75
percent
operational rate for its new MMIS.
d. Whether this disallowance is affected by the
Consolidated Budget
Reconciliation Act of
1985.
The State argued that because section 9518 of the Consolidated
Budget
Reconciliation Act of 1985 (COBRA) extended the deadline for states
to
have an operational MMIS until September 30, 1985, the states
under
section 1903(r)(2) are not required to have such a system
initially
approved until September 30, 1986. The State then argued
that, under
the literal terms of the statute, the State is not subject to
any
reduction in the 75 percent rate because the State met the
deadlines
established by COBRA.
The COBRA amendments are not relevant to this dispute. Those
amendments
merely extended the deadline by which states must have their
MMIS
operational in order to avoid percentage reductions in FFP under
section
1903(r). The COBRA amendments, however, are not relevant to
the
question of whether the State system is entitled in the first
instance
to 75 percent reimbursement for operation of an MMIS. The
Agency has
not questioned that the State's system was operational by the
required
deadline. Thus, we conclude that the COBRA amendments have no
effect on
this dispute.
Conclusion
For the reasons stated above, we find that HCFA acted within its
legal
authority in denying the State's claim at the 75 percent
operational
rate for the period July 1, 1984 through March 31, 1985.
Further
proceedings will be discussed in separate correspondence.
_____________________________ Judith
A.
Ballard
_____________________________ Alexander
G.
Teitz
_____________________________ Norval
D.
(John) Settle Presiding Board Member
1. In granting the State's request to separate the
issues, the Board
indicated that if the Board ruled against the State here,
the State
would be allowed to present further arguments on the issue of
whether
Georgia in fact met HCFA's standards. The next steps in this
case will
be discussed in separate correspondence.
2. The regulations at 42 CFR Part 433, Subpart C,
were amended in
1985 to include specific provisions applicable to new systems
intended
to replace old systems. The final rule was published July 30,
1985 with
an effective date of August 29, 1985. Since the amended
regulations
became effective after the time period in dispute (July 1, 1984
through
March 31, 1985) and after the certification review was performed,
the
parties agreed that the amended regulations were not applicable to
this
dispute. Thus, our analysis here is based on the statute,
regulations
and State Medicaid Manual provisions in effect during the time
period in
question.
3. The regulation at 42 CFR 433.110 (1980) explicitly
made the
provisions of the Medical Assistance Manual applicable in
implementing
the regulations. The Medical Assistance Manual was
replaced by the
State Medicaid Manual in July 1981. Chapter 11 of the
Manual covers
mechanized claims processing systems.
4. The State contended that HCFA had acknowledged in
correspondence
with the State that the MMIS commenced operations on June 30,
1984. As
an example, the State quotes the following language from a
November 30,
1984 letter from HCFA to Georgia which states:
Since your Department's new fiscal agent, The
Computer Company
(TCC), commenced operations on June
30, 1984, your MMIS must be
recertified to be
eligible for 75 percent FFP.
Appellant's Appeal File, Ex. 10. This language, however, clearly
shows
that the Agency was not recognizing that the system was
operational
within the meaning of the statute; rather, the statement
merely
recognized that TCC as fiscal agent began to run the MMIS in lieu of
the
State at that time. This conclusion is supported by the remainder
of
the letter which states:
Since your Department's MMIS is new and has not been
approved by
the Administrator, it is only eligible
for 50 percent FFP.
Ibid.
5. As indicated above, the regulations at 42 CFR
433.110 made the
provisions of the SMM applicable also to
these