DAB Decision 83
February 25, 1980 New Mexico Human Services Department; Docket No.
79-8-NM-HC; Decision No. 83 Kelly, Bernard E.; Malone, Thomas Mason,
Malcolm S.
SUMMARY
(The following summary is prepared on the responsibility of the
Executive Secretary of the Board as a convenience to the interested
public. It is not an official part of the decision and has not been
reviewed by the Panel, Similar official summaries of earlier cases
appear in 45 CFR Part 16, Appendix.)
The State appealed from the determination of the Director, Medicaid
Bureau, Health Care Financing Administration, disallowing Federal
financial participation claimed for administering family planning
services under Title XIX of the Social security Act for the fiscal year
ended June 30, 1976. The State contended in part that this
determination was improper because nearly two years earlier, another HEW
official had advised it that the costs in question were allowable,
rejecting the recommendation of the Regional Audit Director that the
costs be disallowed,
The Board granted the appeal on the ground that the earlier decision by
the Acting Regional Commissioner, Social and Rehabilitation Service,
allowing the costs was a final decision by a cognizant official, and
that HCFA's re-opening of the matter was inconsistent with a clearly
defined procedure for the handling of audit recommendations. The Board
rejected the Agency's argument chat SRS and the HEW Audit Agency were
parallel agencies and that any differences between them had to be
resolved by a higher authority than the Regional Commissioner of SRS.
The traditional pattern, as yet unchanged, is for the Audit Agency to
express only an opinion while the determination is made by the cognizant
program official.
The Board stated, however, that if in a future case, the Agency were to
present a different, more convincing analysis, a different result night
be reached.
DECISION
The State appealed by letter dated January 16, 1979, from the
determination of the Director, Medicaid Bureau, Health Care Financing
Administration, dated December 18, 1978, disallowing Federal financial
participation in the amount of 54,634 claimed for administering family
planning services under Title XIX of the Social Security Act for the
fiscal year ended June 30, 1976. After being notified by the Board's
Executive Secretary that it had failed to attach to its appeal a copy of
the notification of disallowance in accordance with 45 CFR 16.6(a)( 2),
the State completed its application for review by filing that document
under cover of a letter dated February 7, 1979. The record in this case
includes the application for review, HCFA's response to the appeal dated
March 28, 1979, and the parties' responses to the Order to Show Cause
issued by the Board Chairman on November 16, 1979, dated December $ and
December 31, 1979, in the case of the State, and January 1, 1980, in the
case of HCFA.
Section 1903(a) (5) of the Social Security Act provides for go percent
FFP in expenditures attributable to the offering, arranging, and
furnishing (directly or on a contract basis) of family planning services
and supplies...." The State claimed a portion of the operational costs
of its Medicaid Management Information System (MMIS) as well as certain
MMIS supportive costs at a 90 percent rate of FFP on the ground that a
certain number of the Medicaid claims processed under the MMIS were for
family planning services. The Director of the Medicaid Bureau
determined, however, that the MMIS operational costs were reimbursable
instead at the 75 percent rate of FFP applicable to expenditures for the
operation of mechanized claims processing and information retrieval
systems under Section 1903(a)(3)(B) of the Act and that the MMIS
supportive costs were reimbursable under Section 1903(a) (7) of the Act
at the 50 percent rate of FFP applicable to all other expenditures
necessary for the proper and efficient administration of the State plan.
The Order to Show Cause called for briefing on this issue, which was
duly submitted by the parties. In addition, the Order called for
briefing on a threshold issue: whether the disallowance was properly
taken by the Director of the Medicaid Bureau in view of the fact that,
nearly two years earlier, another HEW official had made an apparently
final decision that the costs in question were allowable. That decision
was
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made by the Acting Regional Commissioner of the Social and
Rehabilitation Service (SRS), Region VI, in a letter dated "arch 23,
1977, in which he advised the State that he disagreed with the position
of the HEW Audit Agency--set forth in a January 25, 1977 letter from the
Regional Audit Director to the state-that the costs were not claimed at
the proper rate of FFP, and that since he had determined the costs to be
allowable, no further action by the state was reacquired. The State
argued that this letter "constituted waiver by HEW as to any further
claim," and further, that by not acting to disAllow the costs until
nearly two years later, HEW ratified its previous decision not to
disallow. (Application for review, p. 3.)
For the reasons stated below, we find that the Acting Regional
Commissioner's decision allowing the costs was a final determination not
subject to further review by the Director of the Medicaid Bureau. We
therefore do not reach the question whether the costs were claimed at
the proper rate of FFP.
HCFA argued initially on the question of the finality of the March 1977
decision of the Acting Regional Commissioner that he did not have the
authority to review audit findings, citing, among other things, a
memorandum of the Administrator of HCFA dated November 28, 1978 listing
those officials authorized to notify grantees of disallowances.
(Response to appeal, pp. 3, 9-10.) The Order to Show Cause, relying on
45 CFR 201.14(b)(1) and (c)(1) and 201.13(a), noted, however, that
before the Social and Rehabilitation service was abolished and its
functions with respect to the Medicaid program transferred to HCFA, the
Regional Commissioners of SRI were responsible for making determinations
as to the allowability of costs claimed under various titles of the
Social Security Act, including Title XIX, with any disallowances taken
by them subject to appeal by the State to the Administrator of SRI.
(Order, pp. 1-2.) The Chairman of this Board in certain cases and the
Board in others are successors to the authority of the Administrator of
SRS.
In its response to the Order, HCFA conceded that the Acting Regional
Commissioner of SRS was an authorized official and that there was no
provision for reconsideration of his decision disallowing FFP except at
the State's request. It advanced the new argument, however, that CRC
and the HEW Audit Agency- were "parallel agencies" and that where
there
were "substantive differences" between the Regional Commissioner of
SRS
and the Regional Audit Director "regarding fiscal compliance as it
related to interpretation of regulations governing Federal financial
participation," the matter had to be resolved by "higher authority
within the structure of central administration responsible for
resolution of intra agency conflicts." In this case, according to HCFA,
the responsibility for resolving the conflict devolved upon the Director
of the Medicaid Bureau. (HCFA's response to Order, pp. 2-4.)
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We do not find HCFA's argument persuasive. It is contrary to the
traditional relationship of auditor and program official. The auditor
states an opinion and a recommendation. Re does not me a determination.
Responsibility for determinations rests with the cognizant program
official. This was the pattern in HEW at the tine of the events in
question, and it is still true as far as has been shown. (Office of the
Assistant Secretary, Comptroller, Statement of Organization, Functions,
and Delegations of Authority, 39 FR 42403, 42408-9; Office of Inspector
General, Statement of Organization, Functions, and Delegations of
Authority, 42 FR 17530, 17531-2 (April 1, 1977).) Although some
suggestions for changes in this pattern have been made, they have not as
yet been adopted. (F.g., Issue Paper on Draft GAM Chapter on Audit
Resolution, Organizational Level of Action Officials and Approving
Officials, draft dated 5/31179.)
45 CFR 201.12 provides in pertinent part that
"(a) Annually, or at such frequencies as are considered
necessary and appropriate, the operations of the State Agency are
audited by representatives of the Audit Agency of the
Department....
(b)Reports of these audits are released by the Audit Agency
simultaneously to program officials of the Department, and to the
cognizant state officials. These audit reports relate the opinion
of the Audit Agency on the allowability of costs audited at the
State agency. Final determinations as to actions required on all
matters reported are made by cognizant officials of the
Department." 35 FR 12180, 12182 (July 29, 1970).
This clearly reflects the traditional pattern: the Audit Agency states
a opinion, not a determination. The determination is made by a
cognizant official.
A notice subsequently published in the Federal Register describing the
organization and functions of SRS clearly indicated that the Regional
Commissioners of SRS were cognizant officials of the Department
authorized to make final determinations regarding costs questioned by
the Audit Agency. The notice states that there is an SPA Regional
Office in each of the ten HEW regions, each office being under the
direction of a Regional Commissioner. It further states that "(t)he
Regional Commissioner directs all SRS programs, personnel, funds and
resources for the region," and, more specifically, that each Regional
Office "reviews and approves formula grant awards and expenditures."
(Social and Rehabilitation Service, Statement of Organization,
Functions, and Delegations of Authority, 41 FR 53137, 53133 (December 3,
1976).)
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Accordingly, we conclude that the decision of the Acting Regional
Commissioner allowing the costs at the 90 percent rate of FFP claimed by
the State was final, and that the appeal should be granted. HCFA's
reopening of the matter was inconsistent with a clearly defined
procedure for the handling of audit recommendations. That there was as
HCFA argues no harm to the state in this case from the delay in taking a
disallowance, if true, would not be a sufficient reason for permitting
the Agency to disregard this procedure.
We reach this conclusion in part because of the inadequacy of HCFA's
briefing on this issue, which may perhaps be explained by the small
dollar amount in dispute. If in a future case, the Agency were to
present a different, more convincing analysis, a different result might
be reached. The record in this case as made by the Agency, however,
compels the conclusion we have reached here. The determination dated
December 18, 1978 by the Director, Medicaid Bureau, HCFA, is
unauthorized and is set aside. D11 May 21, 1992