DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Michigan Department of Social Services
Docket No. 86-104
Decision No. 863
DATE: April 22, 1987
DECISION
The Michigan Department of Social Services (State) appealed a decision
by
the Health Care Financing Administration (HCFA or Agency)
disallowing
$2,210,007 in federal financial participation (FFP)
representing
staffing costs claimed at a 75 percent enhanced FFP rate under
the
Medicaid program for the period October 1, 1977 through September
30,
1981. The disallowance was calculated as the difference between
the
normal 50 percent FFP rate, allowable for administrative costs, and
the
enhanced 75 percent FFP rate, allowable for costs attributable to
the
operation of the Medicaid Management Information System (MMIS).
The
State claimed 75 percent FFP for staff in its Bureau of
Medicaid
Institutional Review, Medical Services Administration (BuMIR),
because
it contended that these staff activities were part of the operation
of
the MMIS. The State's claims and claim adjustments for the
questioned
staffing costs for the disallowance period were made on
quarterly
expenditure reports (QERs) for the quarters ended December 31,
1977
through December 31, 1982. 1/
As discussed below, we find that the staffing costs were not
attributable
to the operation of the MMIS and, therefore, were not
entitled to be
reimbursed at the enhanced FFP rate. Accordingly, we
uphold the Agency's
disallowance.
I. Applicable Authority
The Medicaid Program was enacted in 1965, as Title XIX of the
Social
Security Act (Act), and is administered by.each state according to
an
approved state plan. In Michigan, the State's Medicaid program
is
administered by the Department of Social Services.
Under sections 1903(a)(3)(A) and (B) of the Act, FFP is available in
the
costs of a mechanized claims processing system at the rate of 90
percent
for design, development, or installation of a system and at the rate
of
75 percent for costs attributable to the operation of the
system;
otherwise, administrative costs are reimbursed at a 50 percent
rate.
Section 1903(a)(7).
The Agency regulation at 42 CFR 433.111 (1980) provides
definitions
applicable to MMIS. 2/ Definitions relevant here are:
"Mechanized claims processing and
information retrieval system"
means a
system of software and hardware used to process
Medicaid
claims, and to retrieve and
produce utilization and management
information about services that is required by the
Medicaid
agency or Federal Government
for administrative and audit
purposes.
"Operation" means the automated
processing of claims, payments
and
reports. "Operations" includes the use of
supplies,
software, hardware and
personnel directly associated with the
functioning of the mechanized system.
(Emphasis added.)
The regulation at 42 CFR 432.50(b)(2) (1980) provides for FFP at a rate
of
75 percent for expenditures attributable to personnel "engaged
directly in
the operation of mechanized claims processing and
information retrieval
systems." The regulation also provides that rates
of FFP in excess of
50 percent are applicable only to those portions of
the individual's working
time that are devoted to the duties that
qualify for the enhanced rate of
reimbursement. 42 CFR 432.50(c)(1).
II. The State has not established that the BuMIR staffing
costs are
attributable to the operation
of the MMIS.
A. Field Audit Division and Cost and Rate Settlement Division
The State explained that the BuMIR unit is comprised of a Field
Audit
Division (FAD) and a Cost Settlement and Rate Setting Division
(CSRSD).
According to the State, its institutional providers are paid on a
cost
settlement basis. Under this system, invoices for services
provided
Medicaid recipients are submitted by providers to the State's
MMIS
system. The invoices are then processed and paid on an interim
basis.
At the end of each provider's fiscal year, the facility files a
cost
report which provides an accounting of the services provided and
the
cost of providing those services to Medicaid recipients. The FAD
is
responsible for on-site verification of the accuracy of the cost
report
and statistical data provided by the institutional provider. The
State
also alleged that the FAD monitors the accuracy of related MMIS
reports,
determines deviations or errors and reconciles MMIS records
with
provider records where necessary, and processes corrections
where
appropriate. State's brief, pp. 2-3. See also State's
Appeal File, Tab
3.
The State maintained that its CSRSD is responsible for processing
initial
settlements and subsequent final settlements on an annual basis
for
participating providers. Included in the responsibilities of
this
division are: reimbursement to providers (retrospective
and
prospective), operation of the Medicaid interim payment system,
and
review of the long term care facility's prospective
reimbursement
system. The CSRSD receives the FAD's final report of its
audit of each
provider's costs of providing Medicaid services to eligible
recipients.
From this information, the CSRSD develops the rate of payment to
be made
by the claims processing system and inputs that rate into the
provider
enrollment subsystem of MMIS. After final cost settlements
have been
calculated, this division inputs into the claims processing system
gross
adjustments correcting the temporary rates to reflect the
institutional
provider's final rate of reimbursement. State's brief,
pp. 3-5. See
also State's Appeal File, Tab 4.
The Agency disallowed the State's claim because it found that the
BuMIR's
staff performed the functions of rate-setting and audit and cost
settlement
for institutional providers, and that the staff was not
directly engaged in
the operation of the MMIS. It concluded,
accordingly, that the costs of
such staff did not qualify for the
enhanced rate of FFP. 3/
The State admitted that the BuMIR has two primary functions: rate
setting
for institutional providers and final adjudication of
institutional claims
through the cost settlement process. It argued,
however, that all of
the activities performed by the BuMIR have a direct
relationship with the
MMIS invoice processing system and adjudication
process. The State
contended that although most of the personnel for
whom 75 percent FFP is
sought are not engaged in the direct operation of
the computers which form
the heart of the State's MMIS, that does not
mean that those positions are
not entitled to FFP at the 75 percent
rate. The Agency argued that the
burden is on the State to justify its
claim for enhanced funding, and the
State has not justified its claim.
Further, the Agency argued that although
the State has described the
BuMIR positions in an attempt to qualify for 75
percent funding, the
descriptions are not supported by documentation in the
appeal file and
in many cases are inaccurate. The Agency maintained
that the statement
that the FAD also "monitors accuracy of related MMIS
reports and
determines deviation or errors and reconciles MMIS records
where
necessary" is not supported by the State's submission, at Tab 3,
and
there is no indication that this is an ongoing activity of the
FAD.
Instead, the Agency argued that Tab 3 indicates that the division
is
comprised primarily of auditors whose duties are to perform
on-site
audits. The Agency submitted workpapers to support its
position.
Agency Appeal File, Ex. 1. The only relation to MMIS is that
certain
data is input (not by auditors in the Field Audit Division) into
the
Long Term Care Cost History File, which is described as being
"resident"
in MMIS. The Agency argued that this cost settlement process
is part of
the approved State Medicaid Plan, not the MMIS.
Further, in regard to the CSRSD, the Agency maintained that the
rate
inputting is not done by BuMIR staff, although a limited number of
BuMIR
staff prepare the input documents, an activity which the Agency said
it
would accept for 75 percent FFP. See n. 3, supra. The
Agency
maintained that the primary functions of these two divisions are
related
to auditing of cost reports and setting of payment rates and
their
staffs are primarily comprised of auditors. The Agency argued
that the
fact that the State originally claimed FFP at the 50 percent FFP
rate
for administration of the Medicaid program is an indication that
the
State only belatedly came to the view that these positions are
MMIS
positions. 4/
The regulation at 42 CFR 432.50(b)(2) provides that in order to
qualify
for the 75 percent FFP enhanced rate, personnel must be
"engaged
directly in the operation of mechanized claims processing
and
information retrieval systems." We find that the
documentation
submitted by the State does not support its position.
Also, as the
Agency pointed out, the State described certain activities so
that there
would appear to be more direct contact with the MMIS than the
Agency's
review report or its review work papers would substantiate.
The State's
documentation consists largely of undated and
presumably
non-contemporaneous descriptions of the activities of FAD and
CSRSD.
The Board has previously found that while we will
accept
non-contemporaneous documentation, the sufficiency of the
documentation
will be carefully scrutinized. Indiana Department of
Public Welfare,
Decision No. 772, August 7, 1986. In the instant case,
the State has
not submitted any individual position descriptions or
other
contemporaneous documentation that would substantiate the State's
claim
that the staff at issue performed activities directly attributable
to
the operation of the MMIS. Conversely, the documentation appears
to
generally substantiate the Agency's arguments, based on its
financial
review, that the BuMIR was responsible for audit, rate setting, and
cost
settlement activities. See Workpapers for the Financial Review,
Agency
Appeal File, Tab. 1. We agree with the Agency that the State
"is
attempting to subsume these routine administrative costs into its
MMIS
system solely on the basis that certain rates and data developed
by
[BuMIR] are ultimately input into the MMIS system by other
non-BuMIR
staff." Agency Brief, p. 8.
Moreover, the State was aware of the Agency's position that the
BuMIR
employees were not engaged directly in the operation of the MMIS.
5/
The State had not claimed the enhanced rate until September 30,
1980,
when it first revised its QERs for the prior periods. The record
shows
that since 1979, the State attempted to get approval for the
enhanced
FFP rate for these and other activities, and the Agency
consistently
made its position clear that for personnel to receive the 75
percent
rate, they must be directly engaged in the operation of the
MMIS. See
State's Appeal File, Tabs B-E.
The Agency also maintained that the Board's decision in
Pennsylvania
Department of Public Welfare, Decision No. 832, February 20,
1987,
supported its argument that the costs of the staff at issue are
not
entitled to the enhanced FFP rate. Agency's supplemental brief, p.
1.
In reply, the State maintained that the decision in Pennsylvania
is
distinguishable from the present case. The State argued
that
Pennsylvania's Division of Provider Inquiry merely used the
information
provided by the state's MMIS. The State argued that in this
case, the
programs and employees for which it has claimed 75 percent FFP
actually
contribute information to the MMIS which benefits its ongoing
operation.
State's reply to supplement, p. 1.
We find that the reasoning used to reach the decision in Pennsylvania
is
applicable to this case as well. As we said in Pennsylvania:
. . . , functions which would occur
regardless of the MMIS,
simply because
providers submit claims, are not functions
which
directly benefit the MMIS and,
consequently, are not functions
which
warrant the incentive of an enhanced rate of reimbursement.
Similarly, the audit, rate setting, and cost settlement activities
at
issue here would occur regardless of the MMIS. The record in this
case
does not show any direct relationship between the auditing staff and
the
operation of the MMIS. Based on the above, we find that the
activities
of the BuMIR divisions at issue bear no more direct relationship
to the
MMIS than any other medical administrative function. It is
undisputed
that Congress did not intend to provide 75 percent reimbursement
for
general costs of administration. We find further that this is
an
instance where the State is attempting to unreasonably extend
the
availability of 75 percent FFP.
B. The decision reached in New Jersey is not applicable to this case.
The State maintained that its situation was identical to that presented
in
a prior proceeding before the Board, New Jersey Department of Human
Services,
Decision No. 648, May 17, 1985 (Decision affirmed in the
Board's Ruling on
Request for Reconsideration of Decision No. 648). The
Agency contended
that New Jersey was inapposite to the present case.
The State contended that HCFA raised essentially the same arguments in
New
Jersey that it has raised in the instant case to contest the
allowance of 75
percent FFP for the "statewide and department-wide
indirect costs" allocated
to New Jersey's MMIS. 6/ Further, the State
argued that since
essentially the same type of costs are involved in
both cases, the Board's
rationale and decision in New Jersey should
control the instant appeal.
In New Jersey, the Board reversed a decision by the Division of
Cost
Allocation that disapproved a portion of New Jersey's revised
Cost
Allocation Plan (CAP) that provided for 75 percent FFP for statewide
and
department-wide indirect costs allocated under OMB Circular A-87 to
the
operation of New Jersey's MMIS. In New Jersey, the Board concluded:
There is no dispute that the statewide
and department- wide
indirect costs in
question here are allowable and properly
allocated to the State's MMIS. The only issue is whether FFP
in
these costs is available at the
enhanced 75% rate for cost
"attributable
to the operation" of the MMIS or at the normal
50%
administrative rate under Title XIX
of the Act. The Agency
relied on a
policy clarification which is not an
adequate
statement of a policy to
preclude 75% FFP for such costs, in
light of prior policy statements and the applicable
cost
principles. In essence, if
the Agency intended such a policy, it
neglected to clearly inform the State. . . . [W]e determine
that
these costs are properly
attributable to the operation of the
MMIS and thus subject to enhanced FFP. Decision 648, p.
1;
affirmed in the Board's Ruling on Request
for
Reconsideration, November 22, 1985.
The Agency argued that the State's reliance on New Jersey is
misplaced,
and we agree. We see no parallel between the costs at issue
in New
Jersey, and the costs at issue in the present case. New Jersey
involved
indirect costs under an approved CAP. The CAP methodology was
not at
issue. Further, there was no dispute that the statewide
and
department-wide indirect costs in question were allowable and
properly
allocated to the state's MMIS. In that case, the Agency
attempted to
draw a distinction between "costs attributable to the MMIS" and
"costs
directly attributable to the MMIS." Moreover, we found that
because the
Agency had approved such costs in the past, the reasonableness of
the
Agency's interpretation was seriously undercut. In the present
case, we
are dealing with direct staffing costs, not statewide
and
department-wide indirect costs. Here, although the BuMIR costs
are
clearly allowable administrative costs of the Medicaid program,
properly
reimbursed at 50 percent, the Agency has never found these
costs
allocable to the MMIS and has consistently stated that the
BuMIR
personnel were not involved directly in the operation of the MMIS.
The State argued that, although not cited by the Board in New Jersey,
the
Board's interpretation is supported by the Comptroller General of
the United
States. 7/ The State argued that a report by the Comptroller
General
found that:
HEW has not developed adequate guidance
on what state
administrative costs are
proper for inclusion in the 75 percent
federal reimbursement level if the state has an approved
system.
HEW has been indecisive as to
what is and what is not allowable
as an
MMIS cost. The Comptroller General's Report,
HRD-78-151,
September 26, 1978, State's
brief, p. 15; reproduced at State's
Appeal File, Tab 6.
The Comptroller General's opinion is simply not relevant here. These
costs
are clearly not entitled to the enhanced FFP rate under the
regulatory
standard requiring personnel to be directly engaged in the
operation of the
MMIS, and there is not a question as to whether the
State was misled or
whether the applicable regulation has been
misapplied. Moreover, the
State did not point to any deficiency in
HCFA's guidance which might have
supported its position concerning the
activities at issue here.
Conclusion
Based on the foregoing reasons, we uphold the Agency's disallowance.
______________________________ Donald F. Garrett
______________________________ Alexander G. Teitz
______________________________ Cecilia Sparks Ford Presiding
Board
Member
1. The costs for fiscal years 1978, 1979 and 1980 were
originally
claimed at 50 percent FFP, but were adjusted to 75 percent by
claiming
an additional 25 percent on QERs for the quarters ending September
30,
1980 and September 30, 1981. The State claimed 75 percent FFP for
most
of the BuMIR costs for fiscal years 1978 and 1979 and all of the
BuMIR
costs for fiscal years 1980 and 1981.
2. We cite to the 1980 version of the regulations, as the
parties did
in their submissions. However, the MMIS regulations have
been codified
under various sections, but in substance have not changed since
1974.
Sections 250.90 and 250.120 of 45 CFR were redesignated as 42 CFR
450.90
and 450.120. 42 Fed. Reg. 52827, September 30, 1977. Section
450.90 of
42 CFR was redesignated as sections 433.111 - 433.114 of 42
CFR.
(Section 450.90(a) became section 433.111 and section
450.90(b)(2)
became section 433.113.) 43 Fed. Reg. 45176, September 29,
1978.
Section 450.120 of 42 CFR became section 446.175 of 42 CFR.
Section
446.175 of 42 CFR was added as part of Subpart B,
Personnel
Administration of Part 446, State Organization - Medical
Assistance
Programs. 42 Fed. Reg. 60564, November 28, 1977.
Section 446.175 was
redesignated as section 432.50 of 42 CFR. 43 Fed.
Reg. 45176,
September 29, 1978. Redesignations occurred after the
time period at
issue here, but are not relevant.
3. The Agency reviewers found that the costs for four clerks in
the
Cost Settlement and Rate Setting Division and the Data Systems
Analyst
in the Director's Office appeared to qualify for 75 percent FFP, if
the
State could identify and document, in readily reviewable form, the
MMIS
operational activities performed by these individuals. The
Agency
provided the State with the opportunity to submit such evidence.
Also,
the State could have provided such evidence during this appeals
process.
However, the State has neither provided such evidence nor indicated
an
intent to do so. Review of MMIS claims for BuMIR, State's Appeal
File,
Tab F, pp. 6 and 7; Disallowance Letter, State's Appeal File, Tab
1.
Consequently, in our analysis we do not distinguish these staffing
costs
from the other disallowed costs.
4. The State did not respond to the Agency's arguments. By
telephone
conversation on March 24, 1987, the State informed the Board that
it did
not wish to submit a full reply brief. The State did, however,
submit a
brief reply to the Agency's supplemental submission dealing
with
Pennsylvania Department of Public Welfare, Decision No. 832,
February
20, 1987.
5. In the disallowance letter, the Agency stated that it had
notified
the State of its long-standing policy that the disallowed costs did
not
qualify for an enhanced FFP rate because the costs were
for
audit-related activities. In fact, the Agency noted that the State
had
contacted the Agency in 1981 to request a digression from its
"long-
established policy not to allow higher FFP for any audit
related
activity." State's Appeal File, Tab C. In our
acknowledgment letter,
the Board requested the State to respond to the
Agency's statements.
However, the State elected not to comment.
6. In New Jersey, HCFA argued that the indirect costs at issue
there
were not entitled to the enhanced FFP rate, because they were too
remote
and thus not "directly" attributable to the operation of the MMIS.
7. We note that the State also argued that an opinion by the
Agency's
Office of General Counsel, Memorandum from Office of General Counsel
to
Bureau of Program Operations, October 20, 1980, and Action
Transmittal
HCFA-78-33 (State's Appeal File, Tab 5) support its
position. The
Agency argued that the OGC memorandum dealt with a
broader range of
costs than those here when recommending the issuance of
policy
clarifications and that the State has misconstrued the
action
transmittal as providing for enhanced reimbursement for
activities
indirectly related to the MMIS. The State did not respond to
the
Agency's points. Since we find the result here so clear cut we do
not
address these arguments