New York State Department of Social Services, DAB No. 1146 (1990)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: New York State Department

DATE: April 11, 1990
of Social Services Docket No. 89-133
Decision No. 1146

DECISION

The New York State Department of Social Services (New York or State)
appealed a determination by the Health Care Financing Administration
(HCFA) disallowing $565,638 in federal financial participation (FFP)
claimed by the State under Title XIX of the Social Security Act
(Medicaid), for the period July 1, 1986 through September 30, 1987. The
disallowed claim was for costs of training provided to personnel in
county- or city- owned and operated nursing homes, hospitals, and
homeless shelters.

In a previous case involving the same claim, the Board held that the
claim was not allowable at the 75 percent rate of FFP available under
section 1903(a)(2) of Title XIX for costs of training skilled
professional medical personnel (SPMP) necessary for the administration
of the State Medicaid plan, and supporting staff. New York State Dept.
of Social Services, DAB No. 1008 (1989). The Board found that the
employees were not qualifying SPMP because they were not engaged in
administering the Medicaid program itself. The Board remanded the claim
because it was not clear on that record whether HCFA would allow FFP at
the 50 percent rate generally available for administrative costs of the
Medicaid program. HCFA subsequently reaffirmed its disallowance of the
entire claim on the basis that New York was obliged to treat these costs
as services costs properly claimed through the facilities' per diem
services rates. This appeal followed.

Based on the record developed in both proceedings, we uphold the
disallowance. We first find that these costs are not the type of
training costs specifically recognized as allowable under HCFA's
regulations. Thus, the issue becomes whether HCFA reasonably determined
that these costs were not necessary for the proper and efficient
administration of the State plan. We conclude that HCFA reasonably
determined that these training costs were related to service delivery
rather than program administration so that they could be claimed for FFP
only by means of the rate-setting mechanism established for
reimbursement of the costs of facility services. We note that this is
not a mere bureaucratic classification exercise. The proper focus here
is on the State's obligation to pay for services provided to Medicaid
recipients by means of the facilities' per diem services rates. It
would undercut the objectives of the established rate-setting system to
allow the State to claim separately even State-incurred costs for
activities properly regarded as a facility responsibility.

Relevant Statutes and Regulations

Title XIX authorizes federal grants to aid in financing state programs
which provide medical assistance and related services to needy
individuals, in accordance with a state plan. The Secretary of Health
and Human Services is required to pay each state "the Federal medical
assistance percentage (FMAP)" (in New York 50 percent) of the amounts
expended as "medical assistance under the State plan" and 50 percent of
the amounts expended which are "found necessary by the Secretary for the
proper and efficient administration of the State plan" and which are not
subject to any of Medicaid's enhanced reimbursement rates for
administrative costs. Section 1903(a)(1) and (a)(7).

State Medicaid plans are required to provide for payment for Medicaid
services in hospitals and long-term care facilities (nursing homes)
through the use of rates determined in accordance with methods and
standards developed by the state. A state must find these rates
"reasonable and adequate to meet the costs which must be incurred by
efficiently and economically operated facilities. . . ." Section
1902(a)(13)(A); 42 C.F.R. 447.252 and 447.253. 1/ There is no specific
provision in the Medicaid program for payment for homeless shelter
services.

Case Background

At issue are the costs of three contracts for training nurses and other
medical personnel in nursing homes, discharge planners in hospitals, and
staff and volunteers working at homeless shelters. Training provided to
nursing home personnel dealt with working with the mentally impaired.
Training for hospital discharge planners was designed to implement a
model curriculum in discharge planning. New York Exhibits (Exs.) 1 and
2. The nature of the training provided in homeless shelters was not
clear from the record.

The State asserted that the total costs of the contracts were
distributed among various programs, including Medicaid, based on the
type of training involved. New York alleged that FFP was thus claimed
only for costs of training related to Medicaid. Thus, for example, New
York asserted that Medicaid was charged for only five percent of the
total cost incurred under Contract C-1753 for training personnel at
homeless shelters, the proportions attributed to the training of dental
professionals and to the assessment of the need for such training in
hospital emergency rooms. New York Reply Brief, p. 4; New York Ex. 1
for Docket No. 88-153 (DAB No. 1008); New York Supplemental Statement of
Facts, p. 2. 2/

The State asserted that the Department of Social Services (the single
State agency administering the Medicaid program) designed the training
at issue, entered into the training contracts, and incurred the costs.
The State alleged that the training projects were developed separately
from the facilities' in-service training programs based on a "facility
needs assessment which determined that this training was needed and was
not being provided." New York Initial Brief, p. 5, quoting Docket No.
88-153, Ex. 1.

New York further alleged that the costs were not required to be
allocated to the facilities and, indeed, could not be allocated to the
facilities under existing cost allocation plans. Training was provided
in county- and city-owned, but no State-owned facilities, and New York
explained that since the Department of Social Services is
organizationally separate from the facilities it had no means to step
down costs to them. New York also explained that a cost allocation
methodology was inappropriate since the costs were not regularly
incurred, but were incurred only as a special project based on an
identified need. Additionally, New York argued that, even if so
allocated, the costs could not be included in the cost base for each
facility in calculating the per diem rate because, under New York's
reimbursement methodology, cost bases were developed in prior years
without consideration of these types of training projects. Also, New
York asserted that since expenditures claimed benefited only the
Medicaid program there would be no way for the State Medicaid agency to
fully recover its costs through the rate system.

Discussion

I. The training costs were not related to administration of the
Medicaid plan, but to facility services.

Although the disputed training costs were incurred by the single State
agency administering the Medicaid program, the scope of individuals
trained and the nature of the training support HCFA's finding that the
costs were not general administrative costs of the Medicaid program.
Below we consider whether the training costs were authorized under any
direct training provisions for administrative personnel or under
provisions for consultative services to providers. We conclude that
HCFA reasonably determined that these costs were costs of facility
services since the training was intended to fill gaps in the in-service
training and enhance the service delivery capability of the personnel
only at certain public facilities.

a. The employees trained were not Medicaid agency personnel or
volunteers.

Training costs may indeed be properly claimed as administrative costs of
personnel administration in some circumstances. HCFA regulations
provide that training must be provided to state Medicaid agency
personnel (or staff of other public agencies providing services to the
Medicaid agency whose duties are directly related to administration of
the state Medicaid plan). 3/ A state plan must provide for a program of
training of Medicaid agency personnel. 42 C.F.R. 432.30. Training of
"subprofessional" community service aides (employed by the Medicaid
agency) is authorized by 42 C.F.R. 432.31. See also 42 C.F.R. 432.2.
Training for non-paid and partially paid volunteers "providing services
to applicants and recipients" through a Medicaid agency volunteer
program is also required. 4/ 42 C.F.R. 432.32. Under 42 C.F.R. 432.50,
federal funding is available for training Medicaid agency staff at
various rates depending on the individual's position, including a 75
percent rate for skilled professional medical personnel (SPMP). The
SPMP rate applies only for personnel engaged in the administration of
the program who are employed by the Medicaid agency or by another public
agency under a written agreement with the Medicaid agency. 42 C.F.R.
432.2 and 432.50(b). 5/

Although New York asserted that it relied on these regulations, New York
admitted that the training at issue was not provided to either regular,
subprofessional, or volunteer Medicaid agency personnel (or staff of
another public agency whose duties directly related to administration of
the State plan). New York Supplemental Statement of Facts. New York
admitted that the training was furnished to employees of publicly
operated facilities providing direct services to recipients. Id. As we
pointed out in Decision No. 1008, the record contains no evidence that
the employees trained had any direct administrative responsibilities for
the Medicaid program or a direct employment relationship with the
Medicaid agency. DAB No. 1008, p. 9.

The regulations on personnel administration provide no general authority
to claim as an administrative cost training for employees of individual
service providers. While these employees may interact with the Medicaid
program and may have to provide services which meet Medicaid standards,
they perform these functions in the course of facility operation, not in
the course of administering the State plan.

b. The training was not provided as part of a general program of
consultation with providers.

Training that constituted outreach or education programs might be
authorized as part of a State's responsibility to provide consultative
services to aid providers in qualifying for Medicaid payments and
maintaining adequate records. Section 1902(a)(24); 42 C.F.R. 431.105.
However, New York did not rely on its general obligation to provide
consultative services. Moreover, the fact that New York provided
training only to employees at county or city facilities is evidence that
the training was primarily related to services at particular facilities
rather than to general program administration.

New York did not assert that the costs of similar training were
reimbursed separately from the facility rate (or furnished as a free
service) for private providers. Private providers which furnished their
employees such training in the course of normal facility operations
could be reimbursed only through the per diem rate. In not providing
this training to employees of all facilities, public or private, New
York recognized that this type of training was a normal responsibility
of facility operation. The fact that the single State agency contracted
and paid for this training for certain public facilities does not change
the character of the expenditure from a services cost to an
administrative cost.

New York cited nursing aide training as analogous and argued that this
disallowance was inconsistent with current policy. New York Reply
Brief, p. 5; New York Ex. 11. 6/ In contrast to the circumstances here,
however, nursing aide training is required to be provided statewide to
all service personnel, public or private, and is reimbursed as an
administrative cost based on a specific statutory exception to the
normal treatment of training costs for facility staff. In the letter
New York submitted as Exhibit 11, HCFA specifically cited nursing aide
training as an exception to the general rule that training of facility
employees could be reimbursed under Medicaid only through facility rates
as a cost of providing medical assistance. This view is borne out by
the unique reference to reimbursement of nursing aide training as an
administrative cost (without reference to other training) in section
1903(a)(2)(B), as amended by the Omnibus Budget Reconciliation Act of
1989, Pub. L. No. 101-239, section 6901(b)(5)(A).

c. The training courses related to direct service
responsibilities of facilities and did not directly further
the State's administration of its Medicaid plan.

The nature of the training also shows that the training was not directly
related to administration of the State plan, but was instead related to
facility responsi- bilities. The training courses focused on direct
service responsibilities of the facilities, not on elements related to
plan administration. For example, courses were offered on hospital
discharge planning, and working with the mentally impaired in nursing
facilities. New York, Exs. 1 and 2. These courses were apparently
designed to improve the quality of direct services provided by the
facility employees trained, and not to improve the quality of the
State's administration of the Medicaid program. The State found that
the facilities' in-service training did not provide training that was
needed in certain city- and county-owned facilities. These training
contracts may have been an efficient way to address overall training
needs and permit coordination of training activities of state
administrative and survey personnel. New York Ex. 1 for Docket No.
88-153 (DAB No. 1008) Nevertheless, the State did not connect the
training to the State's objectives in administering its State plan and
it is reasonable on this record for HCFA to conclude that costs of
training intended to affect services provided are services costs.

II. The training costs may not be characterized as administrative
costs simply for convenience.

The mere fact that the State Medicaid agency paid for costs related to
the services provided by public facilities, which would otherwise be the
responsibility of the facilities themselves, does not make the costs
into administrative costs of the Medicaid program. New York's argument
that, as a practical matter, it had no other way to recover these costs
cannot change the character of the costs to justify claiming them as
administrative costs. New York confuses the question of whether the
costs are allocable to facility services (i.e., whether they benefit the
cost objective of providing services) with the question of whether the
State has in place procedures which will permit it to allocate the costs
to the facilities and recover the costs through the facilities' rates.
We conclude that HCFA reasonably determined that the costs were
allocable to facility services, rather than State plan administration,
even though the State did not have in place the mechanisms to recover
the costs.

The Board has held in prior cases that, because section 1903(a)(13)
requires reimbursement of medical assistance costs through rates set in
accordance with the state plan, centrally incurred costs attributable to
medical assistance at particular facilities must be reimbursed only
through the rate methodology in that plan. See, e.g., California Dept.
of Social Services, DAB No. 1028 (1989). It is not necessary in this
case to set forth a detailed explanation of facility rate-setting
methodologies. It is sufficient here to note that a facility's actual
costs to provide services are not simply accumulated in order to set the
rate. Also, there are certain limits on rates that the State may pay as
well as ways of grouping facilities for purposes of setting rates that
further distance the rate from the facilities' underlying costs. 42
C.F.R. 447.271 and 447.272. Thus, the effect on the amount of the per
diem rate for any particular facility had these contract costs been
reflected in the rate calculation is unclear. If a state pays for the
costs associated with facility services, outside the rate system, then
there is no way to assure that any upper limit requirements which apply
are met or to assure that the amount actually paid for services at a
particular facility is at the appropriate level. Accordingly, it is
not a factor in New York's favor here that its FMAP rate and the
administrative cost rate are both 50 percent. New York cannot simply
charge as administrative costs the costs of providing medical services
which are required by statute and regulation to be paid by a rate.

Consistent use of rate methodologies to reimburse facilities for
Medicaid services is essential to ensure the integrity of the entire
reimbursement system, and is not a mere technical requirement. Unless
the rate system is utilized, a state cannot meet its responsibility to
determine whether the rates are "reasonable and adequate to meet the
costs which must be incurred by efficiently and economically operated
facilities" under section 1903(a)(13)(A). Furthermore, unless all
medical care costs are reimbursed through the rate system, a state
cannot compare its costs at different facilities to determine the most
economical means of providing Medicaid services.

New York appears to be attempting to circumvent the rate reimbursement
process for public facilities by claiming training costs (of a type
reimbursed through the rate process for private facilities) as an
administrative cost. If it is true that New York's rate methodology
would not permit Medicaid reimbursement for these training costs, then
the remedy may be for New York to consider whether revisions to its rate
methodology would be appropriate. Simply because New York, in essence,
failed to anticipate the need to itself bill or otherwise distribute
these training costs to the facilities and in turn make sure that these
costs were reflected in the facility rates does not enable the State to
change the character of the expenditure from a services cost to an
administrative cost. Conclusion

For the reasons discussed above, we uphold the disallowance in the full
amount of $565,638.

Judith A. Ballard

Alexander G. Teitz

Cecilia Sparks Ford Presiding Board Member

1. New York would determine the amount of Medicaid reimbursement for
each facility by multiplying a per diem rate by the number of Medicaid
patient-days of service provided at the facility during the relevant
time period.

2. It is unclear on this record precisely how the State determined
the allocation of its overall contract costs to Title XIX. HCFA did not
specifically contest the validity of the allocation in this proceeding.
Moreover, as we discuss below, the effect on the amount of the per diem
rate for any particular facility had these contract costs been reflected
in the rate calculation is equally unclear.

3. Since New York's Medicaid program is state supervised but locally
administered, training authorized as an administrative responsibility
under these regulations may include both employees of the single State
Medicaid agency and employees of local agencies to the extent the
employees administer the Medicaid program, but there is no authority to
include facility staff with functions not directly related to the
administration of the Medicaid program.

4. Section 1902(a)(4)(B) requires that a state plan for medical
assistance provide "for the use of nonpaid or partially paid volunteers
in a social service volunteer program."

5. These regulatory provisions were incorporated by reference,
without substantive change, in the State plan. New York Ex. 9.


6. HCFA moved to strike New York Exhibits 10 and 11 from the record,
on the basis that the exhibits were untimely submitted and because
Exhibit 11 was not relevant. In a March 16, 1990 telephone conference,
New York explained why these exhibits were not submitted until the reply
brief. New York explained that the list of facilities where the
training in question had been provided, in Exhibit 10, had been in
storage and was only recently located. New York also explained that the
letter submitted as Exhibit 11 was not received until February, 1990.
In light of this explanation, we rule that the exhibits were not
untimely. With respect to the relevance of Exhibit 11, which concerns
nursing aide training, we explain above our finding that nursing aide
training is not analogous to the training at issue here. Furthermore,
Exhibit 11 sets out a policy applicable only after July 1, 1988. While
Exhibit 11 is thus not directly germane to the issue before us, it
presents an instructive contrast and we do not strike it from the