New York State Department of Social Services, DAB No. 1405 (1993)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT:  New York State Department  of Social Services

DATE: April 19, 1993
Docket Nos. A-93-57 and A-93-126
Decision No.   1405

   DECISION

The New York State Department of Social Services (State or NYSDSS)
appealed disallowances by the Health Care Financing Administration
(HCFA) totalling $10,955,355 in claims for federal financial
participation (FFP) under title XIX (Medicaid) of the Social Security
Act (Act).  Most of the disallowances were originally appealed to the
Board in a series of cases which were dismissed without prejudice
pending a review by HCFA.  After HCFA completed the review, the State
reopened its appeal of the amounts listed in the Appendix to this
decision, which have now been joined under a single docket number
(A-93-57).  In addition, appeals from disallowances for quarters
subsequent to those involved in the disallowances in the dismissed cases
have been consolidated and are also listed in the Appendix under either
the same docket number or a subsequent one (A-93-126).  All of the
appeals involve the same issues at this stage.

The State claimed FFP at an enhanced rate for certain administrative
costs associated with its Welfare Management System for Upstate New York
(WMS/Upstate) and its Welfare Management System for New York City
(WMS/NYC), both of which are automated eligibility determination
systems.  The amount in dispute here is the difference between FFP at
the 75% enhanced funding rate (available for operational costs
attributable to an approved mechanized claims processing and information
retrieval system and FFP at 50% (the rate generally available for
administrative costs of the Medicaid program).  As of November 1989,
HCFA terminated enhanced funding for eligibility determination systems
on the basis that they were not in reality part of an approved
mechanized claims processing and information retrieval system.  See  54
Fed. Reg. 41,966 (Oct. 13, 1989).

The State raised two issues which remain in dispute:

 (1)  Do the regulations terminating enhanced funding for
 eligibility determination systems properly apply to the State's
 WMS systems?

 (2)  Even if the regulations do apply, are some of the costs of
 the WMS systems nevertheless still eligible for enhanced funding
 because they are attributable to the MMIS? 1/  In that regard,
 the State pointed to what it called "post-eligibility
 determination functions" performed by the WMS systems and to the
 role of the WMS systems in managing data relating to third party
 liability (TPL).

For the reasons stated below, we uphold the disallowances of enhanced
rates for the costs of operating WMS as an eligibility determination
system and for most of the costs of post-eligibility and TPL functions
claimed by the State (except for any costs preceding November 11, 1989,
when the regulations became effective).  However, we conclude that
certain functions which would not be performed but for the existence of
a mechanized claims processing and information retrieval system, such as
the input of data into the MMIS by electronic data transfer, qualify for
enhanced rates.  We remand to HCFA to permit the State an opportunity to
identify and document the narrow category of costs which qualify for
enhanced funding as explained below.

I.      Procedural Background

The Board has considered issues relating to the State's WMS system in
the past.  See, e.g., New York State Dept. of Social Services, DAB No.
1145 (1990).  In DAB No. 1145, the Board reviewed disallowances of
enhanced funding for operational costs for WMS/NYC.  HCFA denied
enhanced funding on the basis that WMS/NYC had never been reviewed and
approved as required.  The Board held that HCFA acted reasonably in
delaying its review until WMS/NYC was fully operational city-wide.  Id.
at 13-14. 2/  The Board noted that one of the main benefits expected
from the implementation of WMS/NYC was an integrated database compatible
with the MMIS without intermediate translation and edit functions then
being performed by the MMIS Interim Recipient Eligibility File (IREF).
Id. at 14.

In its notice of appeal in Docket No. 91-1 (relating to WMS/NYC), the
State asserted that some of the costs disallowed for enhanced funding in
DAB No. 1145 should be eligible for the enhanced rate.  The State
asserted that it had advised HCFA that WMS/NYC became fully operational
city-wide as of June 1989 at which date "a direct electronic interface
[existed] between WMS and MMIS" and reliance on IREF to translate data
from New York City's data files, known as the Medicaid Eligibility File,
was eliminated.  The State asserted that all the claims disallowed in
DAB No. 1145 should be allowed at enhanced funding, and in particular
the portion of the claim relating to the quarter after June 1989 (when
the State asserted that WMS/NYC became fully operational).

In Board Docket No. 91-1, the Board declined to reopen any of the issues
decided in DAB No. 1145.  However, the Board agreed to consider whether
HCFA should conduct a review of WMS/NYC to determine the date on which
WMS/NYC became fully operational and whether, as HCFA contended, a
direct electronic interface between WMS/NYC and MMIS was a prerequisite
for conducting such a review.  After briefing and a hearing in Board
Docket No. 91-1, a stipulation (the terms of which are explained below)
was entered in that case, as well as in a series of subsequent appeals
relating to WMS/NYC costs for later quarters, and in Board Docket No.
90-121 (discussed below, which related to WMS/Upstate), as well as in a
series of subsequent appeals relating to WMS/Upstate costs for later
quarters.

The State's notice of appeal in Board Docket No. 90-121 (relating to
WMS/Upstate) alleged that HCFA had acted improperly in revising the
regulations to change the federal share available for eligibility
determination systems.  The Board ordered the State to show cause why we
should not dismiss on the basis that the Board is bound by applicable
regulations, pursuant to 45 C.F.R. . 16.14. 3/  The State did not
contest further the validity of the regulations, reserving the right to
pursue that issue elsewhere, but asserted that some portion of its
claims included costs of TPL activities under WMS/Upstate which
qualified for 75% funding as operational costs of an MMIS even under the
revised regulations.  The question of what portion of the costs can be
documented as TPL-related was deferred, since it is significant only if
such costs are eligible for enhanced funding at all.

The stipulation entered in all these cases, executed August 3, 1992,
provided that HCFA would perform a review of WMS/NYC.  After this
stipulation, the Board dismissed all the appeals without prejudice to
the right of either party to reinstate the appeals after completion of
the review.  The State was notified of the results of HCFA's review on
November 25, 1992.  HCFA determined that WMS/NYC was fully operational
as of June 30, 1989 and that its costs qualified for enhanced funding
for the period from June 30, 1989 through November 13, 1989.  Thus, the
dispute which the Board agreed to hear in Docket No. 91-1 was resolved.
However, the State asked to return the remaining appeals (listed in the
Appendix to this decision) to the Board's docket, in order to resolve
its claims that some or all of its WMS costs continued to qualify for
enhanced funding after November 13, 1989 because (1) WMS is not the type
of eligibility determination system for which the regulations were
revised to deny enhanced funding after November 13, 1989, and (2) even
if it is such a system, some WMS costs are so closely associated with
MMIS that they should continue to qualify for enhanced funding.

The record in the case before us includes all the submissions and the
transcript of the hearing in Board Docket No. 91-1 (including parts of
the record leading to DAB No. 1145 which were incorporated into the
record in Board Docket No. 91-1), as well as submissions in Board Docket
Nos. 91-36 and 90-121.  At a telephone conference held in the
consolidated cases on January 22, 1993, both parties agreed that no
additional briefing was required.  .II.  Statutory and Regulatory
Background

 A.  MMIS

Under section 1903(a)(3) of the Act, the federal government offered an
incentive to the states to develop and operate certain kinds of
mechanized Medicaid claims processing and information retrieval systems
(MMIS) by providing enhanced FFP rather than the usual administrative
rate under section 1903(a)(7).  The objective of this incentive is to
use automation to achieve "more efficient, effective, and economical
administration" of state Medicaid programs, and to reduce costs and
improve services.  State Medicaid Manual (SMM), . 11105 (June 1990),
made applicable by 42 C.F.R. . 433.110(a)(1).  The 75% rate applies to
such "sums expended . . . as are attributable to the operation" of the
MMIS.  Section 1903(a)(3)(B) of the Act.  "Operation" means "the
automated processing of data."  45 C.F.R. . 95.605; 42 C.F.R. .
433.111(a).  To qualify for the 75% enhanced rate for operation of an
MMIS, the system must be approved by HCFA.  42 C.F.R. . 433.116(a); see
also 45 C.F.R. . 95.605, made applicable to MMIS by 42 C.F.R. .
433.110(a).

The system eligible for enhanced funding is defined as follows:

    "Mechanized claims processing and
    information retrieval system" or
    "system" means the system of software
    and hardware used to process Medicaid
    claims from providers of medical care
    and services furnished to recipients
    under the medical assistance program and
    to retrieve and produce service
    utilization and management information .
    . . . The system consists of (1)
   Required subsystems specified in the State Medicaid Manual;
   (2) Required changes to the required system or subsystem . . .
   ; and (3) Approved enhancements to the system.  Eligibility
 determination systems are not part of mechanized claims
 processing and information retrieval systems or enhancements to
 those systems.

42 C.F.R. . 433.111(b) (emphasis added); see also 42 C.F.R. . 433.112(c)
(directly reducing funding rates for eligibility determination systems).
The highlighted language was added as part of the final rule terminating
enhanced funding for eligibility determination systems effective
November 13, 1989, discussed below.  54 Fed. Reg. at 41,969.  The six
required core subsystems for an MMIS specified in the SMM are:
recipient; provider; reference file; claims processing; surveillance and
utilization review; and management and administrative reporting.  SMM,
.. 1111O(N) and 11310 (June 1990).  Additional subsystems which are
optional but which qualify for enhanced FFP as system enhancements when
they are added to a state's MMIS are Long Term Care and Early and
Periodic Screening, Diagnosis, and Treatment.  A TPL subsystem was
previously optional, but is now required to be an integrated part of the
MMIS, as discussed further below.  It is undisputed that New York State
has a fully-approved MMIS, with all the subsystems mentioned here.  HCFA
Brief (Br.) in Docket No. 91-36, at 4.

 B. TPL

States having Medicaid programs are required to identify and pursue
third parties having legal responsibility for medical claims of
recipients, such as health or accident insurers or absent parents.
Thus, section 1902(a)(25)(A) of the Act requires that a state Medicaid
plan provide: 4/

 that the State or local agency administering such plan will take
 all reasonable measures to ascertain the legal liability of
 third parties . . . to pay for care and services available under
 the plan, including -- (i) the collection of sufficient
  information (as specified by the Secretary in
  regulations) to enable the State to pursue claims
  against such third parties, with such information being
  collected at the time of any determination or
  redetermination of eligibility for medical assistance,
  and (ii) the submission to the Secretary of a plan
  (subject to approval by the Secretary) for pursuing
  claims against such third parties, which plan shall --
   (I) be integrated with, and be monitored as a
   part of the Secretary's review of, the state's
   [MMIS] . . . under section 1903(r) . . .

TPL regulations were amended in 1990 to add 42 C.F.R. . 433.138(k) to
implement the 1985 amendments at section 1902(a)(25)(A)(ii) requiring
states to develop TPL action plans integrated with MMIS.  55 Fed. Reg.
1,423 (Jan. 16, 1990). 5/   The new regulation requires that any state
with an MMIS "must have an action plan for pursuing third party
liability claims and the action plan must be integrated with" the MMIS.
42 C.F.R. . 433.138(k)(1).  Further, the "portion of the plan which is
integrated" with the MMIS will be monitored as part of the MMIS review
process.  Id. at . 433.138(k)(3).  The preamble to the new regulations
describes the TPL "system" as possessing three capabilities:  (1) "to
receive and maintain identification of third party resources from all
sources;" (2) "to identify, control and adequately account for"
cost-avoided claims; and (3) "to identify and control and accurately
account for" claims for which Medicaid must seek recovery.  55 Fed. Reg.
at 1,425; see generally SMM, .. 3902.3; 11315; 11420.

The statute does not specify any enhanced funding for TPL activities
apart from the provisions for enhanced funding for MMIS which includes
the integrated TPL system.  The TPL regulations at 42 C.F.R. Part 433,
Subpart D, specify that "FFP is available at the 50 percent rate for the
agency's expenditures in carrying out the requirements of this subpart."
42 C.F.R. . 433.140(b).

It is undisputed that New York has an approved TPL subsystem within its
MMIS, and enhanced funding for that subsystem is not at issue.  HCFA Br.
in Docket No. 91-36, at 5.

 C. Eligibility Determination Systems

During the initial planning and development of WMS, eligibility
determination systems were considered to be enhancements to MMIS and
eligible for enhanced funding on that basis.  However, HCFA regulations
were revised to reduce the matching rate for the title XIX share of the
operational costs of eligibility determination systems such as WMS from
75% to 50% effective November 13, 1989. 54 Fed. Reg. 41,966.  The reason
given in the preamble for the revision is that eligibility determination
systems "do not meet the definition of" an MMIS "or of an enhancement
to" an MMIS.  Id.

It is undisputed that WMS is an automated eligibility determination
system.  However, the State contended that WMS is not the kind of
eligibility determination system to which the reduction in FFP was
intended to apply.

III.  Factual Background

WMS collects data on applicants for various aid programs, including
Medicaid, and processes it in order to determine eligibility for program
services and to provide information about eligible recipients for
program purposes.  In the case of the Medicaid program, data on
recipients is required in order to properly process claims presented for
medical assistance services rendered to recipients.

The Medicaid data from WMS is transferred to data files within the MMIS
Recipient Subsystem.  During earlier proceedings, considerable dispute
arose over this process.  The State witnesses, Bernard Noonan (Director
of MMIS) and David T. Meek (Director of Medicaid Systems Development),
described the database within the MMIS Recipient Subsystem in which data
from both WMS systems is collected as the MMIS IREF.  Hearing
Transcript, Docket No. 91-1, held September 26, 1991 (Tr.), at 310-311,
349-350, 369-370.  The Board has characterized the IREF as the "point of
interface" between WMS and MMIS.  DAB No. 1145, at 4.

The federal court described the relationship between MMIS and WMS as
follows:

 Upstate WMS and WMS/NYC are not part of New York's existing
 MMIS.  Rather, Upstate WMS and WMS/NYC interface with New York's
 MMIS to provide data on individuals eligible for Medicaid in New
 York State.

3 MMLR . 123, at 540.

In addition to the data it receives from the two WMS systems, the IREF
receives data relating to possible third party coverage from other
sources.  Tr. at 403-4.  The hardware in which the IREF resides, along
with three of the MMIS subsystems, is a mainframe computer operated by
the NYSDSS in Albany. 6/  The data in the IREF has to be reformatted in
various ways when it is required for claims processing, because the MMIS
subsystems performing claims processing reside on a different mainframe
computer operated by the State's fiscal agent and using a different
computer language.  Tr. at 305-312, 359-362. MMIS handles all claims
processing for Medicaid claims in New York. 7/

The data collected by WMS and then transferred to MMIS concerning
Medicaid recipients include any information obtained about possible TPL
coverage, such as insurance coverage, which is collected during the
eligibility determination process.  The role of WMS in relation to TPL
is data collection and transfer. 8/  The role of MMIS is to receive and
maintain the information needed to establish whether any third party may
be liable for a particular claim and to process the claim appropriately,
for which it uses data obtained from many sources, including information
such as recipients' insurance numbers obtained from WMS.

The State asserted that the costs at issue do not include the costs of
"actual eligibility determinations," such as the personnel costs for
eligibility workers, because the General System Design provided by the
federal government for states to use in planning MMIS systems provided
that --

 The certification and recertification of public assistance
 recipients for assistance payments and Medicaid eligibility is a
 Social Services and SSI [Supplemental Security Income program]
 as opposed to a Medicaid function.

State Ex. 25, in Docket No. 91-36, at II-7.  Therefore, the State
conceded that the costs of actual eligibility determinations are not
eligible for 75% FFP.  State Br. in Docket No. 91-36, at 13.  The costs
at issue for which the State seeks enhanced FFP were described by the
State as processing costs (hardware, telephones, supplies) and
reprogramming costs (personnel services to continuously reprogram for
changes in legal eligibility requirements or for new principal or
prepaid providers) that are allocable to Medicaid.  HCFA did not dispute
this characterization of the costs at issue.

I.  Analysis

 A.  WMS is an eligibility determination system and is not
 eligible for enhanced funding.

The State argued that the reduction in funding level was intended to
apply only to certain kinds of eligibility systems and only to those
functions of an eligibility determination system directly related to
determining eligibility.  We discuss here whether WMS is an automated
eligibility determination system under 42 C.F.R. . 433.112(c) and
determine that it is. 9/  We address in a later section whether some
functions of WMS are nevertheless eligible for enhanced funding.  .While
it is true, as the State pointed out, that the regulations do not define
"automated eligibility determination system," we find that the plain
meaning of the term encompasses a computer system such as WMS which
accepts data relating to individuals seeking Medicaid coverage and is
programmed to determine whether they are eligible for Medicaid services
(as well as other programs' services).

However, the State argued that the funding restriction was more narrowly
directed at Family Assistance Management Information Systems (FAMIS),
under sections 402(a)(30) and 403(a)(3)(B) of the Act.  State Br. in
Docket No. 91-36, at 16.  Such systems are eligible for enhanced funding
under section 402(a)(30) of the Act.  The State argued that a FAMIS
system does not include certain Medicaid-related functions, such as
issuing medical assistance identification cards, collecting data on
restrictions on services to particular recipients, or other activities
which the State claimed that WMS performed.  State Br. in Docket No.
91-36, at 11-12; see our discussion of "post-eligibility determination
functions" below.

By contrast, the State contended that WMS was designed around the
requirements of MMIS, because Medicaid accounted for the largest number
of recipients, and that "WMS' primary purpose was to support the MMIS."
State Br. in Docket No. 91-36, at 10; State Ex. 25 in Docket No. 91-36
(WMS Advance Planning Document, August 1976).  For example, according to
the State, WMS, unlike FAMIS, performed functions relating to
identifying TPL sources and other post-eligibility determination
functions relating to Medicaid.  We discuss these functions in more
detail in relation to the State's argument that some WMS costs are so
associated with MMIS that they should continue to receive enhanced
funding even if the WMS system as a whole no longer qualifies.  However,
the State also relied on the level of support provided by WMS to MMIS as
evidence that WMS "is not the type of eligibility determination system
contemplated in the Secretary's new policy."  State Br. in Docket No.
91-36, at 15.

The Board has previously rejected a similar claim that components of an
eligibility determination system should be eligible for enhanced funding
because they support the operation of an MMIS even where the system
itself is not eligible for enhanced funding.  Pennsylvania Dept. of
Public Welfare, DAB No. 996, at 3 (1988).  In Pennsylvania, the reason
that the eligibility determination system was not eligible for enhanced
funding was because it was not fully operational (whereas here the
funding was reduced by regulations).  However, the Board's analysis
rejecting enhanced funding for components of an eligibility
determination system sought solely on the basis that those portions of
the system were useful to the MMIS applies equally to the present case.
We do not find the fact that parts of WMS "support" the MMIS sufficient
to persuade us that WMS is exempt from the funding reduction. 10/

The State also relied on the preamble to the rule discontinuing enhanced
funding for eligibility determination systems, which noted that FAMIS
systems have been eligible for enhanced funding since 1981 under title
IV-A of the Act.  The State quoted the preamble language that "[a]n
automated eligibility determination system such as . . . [FAMIS] . . .
is in reality not part of" an MMIS to show that the rule was only
intended to impact FAMIS systems, because those systems were eligible
for enhanced funding from other sources.  54 Fed. Reg. at 41,968; see
State Br. in Docket No. 91-36, at 16. 11/  The State argued that
application of this funding reduction to WMS was contrary to the
intention of the rule since WMS is not eligible for enhanced funding
under title IV-A.

HCFA responded that the reference to FAMIS systems was merely an example
of automated eligibility determination systems.  Further, HCFA contended
that singling out FAMIS systems as an example was sensible because most,
though not all, of the states with systems in development or operation
that would be affected by the reduced funding had FAMIS-type systems.
HCFA Br. in Docket No. 91-36, at 12. 12/  Nevertheless, HCFA asserted
that neither the preamble nor the revised regulations distinguished
among different kinds of automated eligibility determination systems or
excluded those that exceeded the functions of a FAMIS system.

Reading the preamble as a whole, we find that HCFA's explanation of the
references to FAMIS systems is credible.  The reduction of funding is
not based on the references to other sources of FAMIS funding alone, but
also on HCFA's conclusion that eligibility determination systems are not
really a part of Medicaid's mechanized claims processing and information
retrieval systems.  Further, the regulations themselves do not include
any restriction to, or even reference to, FAMIS systems.  Therefore, we
conclude that the regulatory change was intended to apply to all
automated eligibility determination systems, not just FAMIS systems.

The State also contended that HCFA's denial of enhanced funding to
eligibility determination systems other than FAMIS systems which receive
such funding under other authority "violates a basic principle of
claiming FFP," i.e., that costs should not be shifted to non-benefitting
federal programs.  State Br. in Docket No. 91-36, at 17, n.13, citing
Office of Management and Budget Circular A-87, Attachment A.C.2.  This
contention is unpersuasive for several reasons.  First, HCFA did not
deny FFP for WMS Medicaid-related costs; HCFA simply applied the
standard 50% rate rather than an enhanced rate.  Second, the
Medicaid-related costs are not being shifted to any other federal
program; they are simply being borne by Medicaid at a lower rate.

Having concluded that the reduction in FFP applies to eligibility
determination systems like WMS, we turn to the State's arguments that
some portion of WMS's costs should nevertheless continue to receive
enhanced funding.

 B.  Enhanced funding is available only for WMS costs which would
 not be incurred but for the operation of the MMIS.

  1.  TPL

HCFA acknowledged that enhanced funding is available for certain TPL
expenses, i.e., those incurred by the TPL subsystem which is an
integrated part of the MMIS.  It is undisputed that New York has an
approved MMIS and has a TPL subsystem integrated into that MMIS for
which the State receives 75% reimbursement.  However, HCFA argued that
the WMS's TPL activities at issue here are not associated with the MMIS'
TPL subsystem and do not qualify for the MMIS funding rate.

The State argued that the statute provides for an enhanced rate for TPL
activities.  State Br. in Docket No. 90-121, at 6.  However, the State
relied only on subsection 1903(a), cited above, which provides enhanced
rates for approved MMIS systems but does not specifically mention TPL
activities.  This section thus does not support enhanced funding for TPL
apart from MMIS.  The regulations provide that funding for TPL
activities generally is at the 50% rate.  42 C.F.R. . 433.140(b). 13/
The eligibility of certain TPL system costs for enhanced funding thus
derives from their association with the MMIS system. 14/

Some confusion in this case was created because certain TPL costs not
within the integrated TPL subsystem of MMIS previously were reimbursed
at enhanced rates.  However, the enhanced rates applied only because of
the association of these TPL costs with WMS, which formerly qualified
for 75% funding as an enhancement to the State's MMIS.  This status of
the WMS as an enhancement to the approved MMIS ended on November 13,
1989, when the regulations became effective reducing the FFP rate for
eligibility determination systems.  After this regulatory change, the
prior rationale for 75% funding for these TPL costs as a part of the WMS
enhancement to MMIS was no longer valid.  The State provided no valid
alternative rationale or authority to support 75% funding for TPL data
collection and handling within WMS.

The distinction between data collection activities related to TPL (which
are funded at 50%) and the TPL subsystem for pursuing claims (which is
integrated with MMIS and funded at 75%) reflects the division between
subparts (i) and (ii) in section 1902(a)(25)(A), quoted above. 15/  The
collection of data is intended to occur as part of eligibility
determination, according to section 1902(a)(25)(A)(i), 16/ while only
the plan for "pursuing claims" is expected to "be integrated with" the
State's MMIS, and therefore eligible for the MMIS' enhanced rate,
according to Section 1902(a)(25)(A)(ii) of the Act.

It is thus clear that the only TPL activities eligible for enhanced
funding under the revised regulation are those "integrated with" the
MMIS.  The next question must then be whether WMS, or its TPL portion,
is integrated with MMIS.  The TPL activities housed in WMS received
enhanced funding while WMS itself qualified for such funding as an
enhancement to MMIS, but WMS was never integrated with MMIS.  Rather,
WMS "interfaces with" MMIS in order to transfer database information to
it.  New York State Dept. of Social Services, DAB No. 1145, at 4 (1990).
We reached this decision in the context of the WMS/NYC, but the parties
have not identified any difference in the relationship between
WMS/Upstate and MMIS and between WMS/NYC and MMIS which would lead to a
different conclusion regarding WMS/Upstate.  Thus, for example, the
State did not contend that, in processing a provider claim, MMIS has
direct access to WMS, as opposed to relying on data from the Recipient
Subsystem of MMIS itself which contains data received from WMS, as well
as other sources, in its database.  See generally 54 Fed. Reg. at 41,971
(rejecting comments that equated eligibility determination systems with
the MMIS recipient subsystems and distinguishing data transfer from
direct access during individual claims processing).

At several points, the State suggested that denying enhanced funding for
TPL activities because they were housed in WMS rather than in MMIS was
inequitable, since the State had constructed its systems with federal
approval and in response to federal guidelines.  Thus, the State
submitted a portion of the federal 1973 guidelines for MMIS development
which suggests that having the eligibility caseworker ascertain and code
the existence of a TPL source is a "more effective way" of controlling
TPL than getting the information only from provider claims.  State Ex.
4, in Docket No. 90-121, at II-12.  The State then pointed out that
using WMS as "the first step in the MMIS TPL process" was in accord with
this recommended approach.  The State argued that the same functions
would otherwise have to be accomplished more expensively by collecting
data and entering it directly into MMIS.  State Reply Br. in Docket No.
90-121, at 2.  Similarly, in the telephone conference in Docket No.
90-121, the State argued that the TPL data collected by WMS is essential
to MMIS functions.  According to the State, it is unfair for HCFA to
require collection of TPL data on applicants without paying 75% FFP for
its entry into WMS.  State Reply Br. in Docket No. 90-121, at 3, citing
42 C.F.R. . 433.138.

We see no inequity here.  TPL data certainly is essential to claims
processing by MMIS as is much other raw data from many sources, and its
collection at eligibility determination is now required rather than
recommended.  HCFA shares in these data collection costs, but offers
enhanced rates only for MMIS costs, not for all costs relating to
identifying and pursuing TPL sources.  We have held before that
eligibility for enhanced funding is "special," must be provided for
specifically by statute or regulation, and is available only when the
state has shown that it meets all the qualifications for enhanced
funding.  Pennsylvania Dept. of Public Welfare, DAB No. 996, at 3
(1988); Missouri Dept. of Social Services, DAB No. 395, at 6 (1983).
Further, the statute and regulations have narrowly defined the
integrated TPL system eligible for enhanced funding as part of MMIS, and
the State has neither met the burden of proving that the TPL functions
of WMS fulfill the necessary qualifications nor shown any other specific
authority for enhanced funding.

The statute makes enhanced funding available only for costs
"attributable to" MMIS.  Section 1903(a)(3).  The purpose of offering
higher rates for such costs is to encourage states to automate their
claims processing and information retrieval functions.  HCFA's
long-standing "overall policy" has been to consider as costs
"attributable to the operation of the MMIS," and therefore eligible for
enhanced funding, only "a relatively narrow and circumscribed group."
New York State Dept. of Social Services, DAB No. 1023, at 8-9 (1989);
New York State Dept. of Social Services, DAB No. 1205, at 3 (1990).  The
State would have had to collect TPL data regardless of whether it had an
automated system for using that data in processing claims.  Thus, HCFA
could reasonably determine that the costs of TPL data collection were
not "attributable to" MMIS.

The State also referred generally to the preamble to the final rule
denying enhanced funding for eligibility systems as supportive of its
claims for WMS TPL costs.  The language to which the State apparently
referred responds to comments asking the "effect of the revisions on the
. . . [TPL] subsystem," and assures states of continued enhanced funding
for any changes to "the required system."  54 Fed. Reg. at 41,969.  The
State read this to mean that --

  the regulations do not limit to 50% TPL activities not
  part of MMIS.  All that is required is a plan of action
  for TPL and that the State use its system to carry out
  such plan. . . . Since the federal agency has already
  approved the State's method for conducting TPL
  activities . . . [i.e., through its approval of WMS],
  the State has met federal regulatory requirements.
.State Br. in Docket No. 90-121, at 8 (citations omitted). 17/

The essential flaw in this reasoning is that, as the discussion above
revealed, the "required system," the funding of which is continued at
75%, is the TPL system integrated in the MMIS.  Neither the quoted
language, nor any other provision in the preamble or the new
regulations, in any way suggests that parts of eligibility determination
systems that collect TPL data are to be exempted from the funding
reduction.  The State's argument also ignores the continued existence of
regulations that do in fact explicitly limit FFP to 50% for the costs of
"carrying out the requirements" of TPL determinations.  42 C.F.R. .
433.140(b).

Furthermore, other language in the preamble directly contradicts the
State's position.  The preamble states that under the 1985 amendments
states must have an approved TPL action plan and must "use the system to
carry out the plan of action."  54 Fed. Reg. at 41,967. 18/  Also,
"these statutory TPL changes" are considered part of the "core system"
for which enhanced funding is available.  The preamble also points out
that the term "system" replaces "MMIS" as the official short form for
the "mechanized" claims processing and information retrieval system."
Id.; 42 C.F.R. . 433.111(b).  The mandate that the State "use its
system" to pursue TPL claims thus must be read in this context to mean
that states must use MMIS to carry out TPL claims pursuit and will
receive enhanced funding if necessary to modify an MMIS to do so.  The
reference to "system" in that context cannot reasonably be understood to
make data collection in the eligibility determination process part of
the integrated TPL subsystem.

The State contended that the TPL component of WMS was covered by a
provision in the SMM making "other mechanized information retrieval
systems under Title XIX," such as Early and Periodic Screening,
Diagnosis, and Treatment, Long Term Care, and TPL eligible for enhanced
rates, not as "part of the required MMIS" but as "optional integral
components" if they meet certain conditions.  SMM Revision (Rev.) 8 at .
11125 (July 1986).  However, TPL has been deleted from the current
version of the provision.  SMM Rev. 11 at . 11125 (June 1990).  Under
the 1985 amendments, the TPL system must be integrated into the required
MMIS and so can no longer be considered an optional component.  The
version on which the State relied was simply outdated, and could not
provide an alternative option for structuring the State's TPL subsystem,
since the statute now directly requires an integrated system as part of
the core MMIS.

The State charged that the denial of an enhanced rate for TPL costs
within WMS violates the requirement that grantees "have the primary
responsibility for employing whatever form of organization and
management techniques may be necessary to assure proper and efficient
administration."  Office of Management and Budget Circular A-87,
Attachment A, A.2.c; State Br. in Docket No. 90-121, at 7.  However, we
find that this policy guideline is not violated here, since HCFA did not
dictate any particular form of organization or technique of management
to the State.  Certain TPL activities are required by law to be
integrated with the MMIS and are reimbursed at an enhanced rate.  Those
TPL activities which are not part of the required MMIS may be carried
out as the State sees fit and are reimbursed at the standard rate.  The
placement of those functions, or some portion of them, in the WMS
framework is within the State's discretion.

The State also complained that the decision to use WMS for certain
functions, such as TPL data collection, was made when WMS was eligible
for enhanced funding, and that redesign would be too expensive.  State
Br. in Docket No. 90-121, at 7; Letter from State counsel to DAB, dated
Aug. 9, 1991, at 2.  First, this argument overlooks the fact that the
State has a TPL system which is already integrated into its MMIS as
required by law, so no redesign is necessary.  Second, the State did not
demonstrate that WMS performed any functions in regard to TPL which the
1985 amendments would require to be part of the integrated system, so
again no redesign is required.  Third, to the extent that the regulatory
changes regarding eligibility determination systems and TPL systems
affected the requirements for MMIS funding, the regulations inform
states that such changes may occur and that states will be given notice
and an "appropriate period" to come into compliance.  42 C.F.R. .
433.123.  The regulations clearly do not contemplate that choices made
by states in designing their MMIS systems will preclude HCFA from
enforcing future changes to its requirements for enhanced funding.
Finally, in its WMS Advance Planning Document of August 1976, the State
expressly agreed "to abide by existing and future federal regulations
pertaining to programs affected by the development of" WMS.  State Ex.
26, in Docket No. 91-36, at 38.

For the reasons explained above, we conclude that the WMS costs related
to TPL are not independently eligible for enhanced funding.

  2.  Other post-eligibility determination functions

The State asserted that some of the functions performed by WMS occurred
after eligibility was determined and were actually MMIS functions that
the State had chosen to perform in its WMS systems.  State Br. in Docket
No. 91-36, at 7.  Among the functions which the State characterized as
MMIS or post-eligibility determination functions of the WMS are the
following:

 a.  WMS provides uniform formatting, editing for completeness
 and validity, and overall State control of data on recipients to
 update MMIS so that "part of the computer control that the MMIS
 Recipient System is required to possess is built into WMS."
 State Br. in Docket No. 91-36, at 7.

 b.  WMS is used by 20 of the State's social service districts in
 paying claims for transportation services which are not paid
 through MMIS, which the State characterized as "WMS and the
 district[s] . . . acting together as a mechanized claims
 processing and information retrieval system."  Id. at 9.

 c.  WMS contains files not used in determining eligibility but
 needed for MMIS claims processing, such as the restricted
 recipient file (to identify those eligible for some but not all
 Medicaid services), the principal provider file (for payments of
 nursing home care), and the pre-paid capitation file (for
 recipients in managed care programs).  The data in these files
 is important in the later processing of specific categories of
 claims by MMIS.  Id. at 10-11.

 d.  WMS collects data on recipients to be used for the
 Electronic Medicaid Eligibility Verification System (EMEVS),
 which is a part of MMIS.  The State asserted that "EMEVS, like
 the MMIS, has some of its operational functions organized in
 WMS," including TPL, "principal provider," and "restricted
 recipient" information.  EMEVS involves issuing cards to
 recipients which can be read electronically by special equipment
 in providers' offices to immediately verify the cardholder's
 status.  Without WMS, EMEVS would have to replicate the data
 collection, editing, updating and storage facilities that WMS
 now provides.  Id. at 9-10.

The State further argued that the functions of WMS and MMIS "are so
merged that it is now unreasonable to conclude that all of WMS in
reality is not part of the mechanized claims processing and information
retrieval system."  State Br. in Docket No. 91-36, at 16.  In support,
the State cited DAB No. 1145 as holding that "WMS, which produces
Medicaid related information, is a mechanized claims processing and
information retrieval system covered by the" SMM.  State Br. in Docket
No. 91-36, at 16-17, citing DAB No. 1145, at 6-7.  This assertion
misreads the Board's decision.  In the cited portion of DAB No. 1145,
the Board rejected the State's argument that WMS/NYC was eligible for
enhanced funding but was not subject to the HCFA review requirements
relating to mechanized claims processing information retrieval systems.
The Board concluded that WMS/NYC had been eligible for enhanced funding
for its developmental costs only because HCFA then considered it to be
an enhancement to the MMIS.  As such, WMS/NYC must also be subject to
the review requirements applicable to MMIS and enhancements thereto.
Nothing in DAB No. 1145 purported to prevent HCFA from changing its mind
about whether eligibility determination systems in general, or WMS in
particular, should be considered part of MMIS.  The disallowances
appealed in DAB No. 1145 were all for quarters before the regulations
reducing funding for eligibility determination systems were adopted.

Generally, HCFA's position was that no function performed by WMS can be
an MMIS function because "only the MMIS itself can perform MMIS
functions."  HCFA Br. in Docket No. 91-36, at 14.  Therefore, HCFA
argued that no costs of WMS could be eligible for enhanced funding
whether they were incurred before or after eligibility determination.
As discussed above, the statutory determinant of enhanced funding is
whether costs are "attributable to the operation of" an automated claims
processing and information retrieval system, i.e., MMIS.  Section
1903(a)(3)(B) of the Act.  HCFA has some flexibility to define in policy
its reasonable interpretation of what costs are "attributable to the
operation" of an MMIS.  Compare New York State Dept. of Social Services,
DAB No. 1023, at 7 (1989) (upholding disallowance after HCFA's issuance
of a policy defining which indirect costs are eligible for enhanced
funding) to New Jersey Dept. of Human Services, DAB No. 648 (1985)
(reversing disallowance of similar costs on grounds that HCFA had not
adequately articulated a policy limiting eligible indirect costs to
those "directly" attributable to the operation of an MMIS).  HCFA has
exercised that flexibility here to reclassify the costs of operating
eligibility determination systems as no longer attributable to operation
of an MMIS.

In looking at the costs which the State grouped as post-eligibility
determination functions, we think it is significant that MMIS in New
York City was implemented before WMS became fully operational.
Consequently, some elements of WMS may well have been designed to
operate efficiently with the MMIS, but MMIS met all required system
capabilities without WMS.  Furthermore, the State did not point to any
evidence that HCFA ever approved the use of WMS as a part of the MMIS
Recipient Subsystem, and HCFA denied that such approval was ever
granted.  HCFA Ex. R-6 in Docket No. 91-36, at 6 (Declaration of Jim
Bernschein).  When WMS was approved for 75% FFP, it was deemed an
enhancement to MMIS as an eligibility determination system, not as a
part of the Recipient Subsystem.  We therefore reject the State's basic
contention that WMS has somehow become merged with the Recipient
Subsystem.  We turn next to the specific costs to which the State
pointed as eligible for enhanced funding.

In regard to the allegation that WMS provides data in formats necessary
for MMIS' computer control, the record indicates that not all Medicaid
data in WMS is coded in a manner compatible with MMIS.  See, e.g., Tr.
at 322, 346, 372.  To the extent that WMS was designed with formats
compatible with MMIS (or MMIS was planned to accept WMS formats), it is
reasonable to assume that maximizing compatibility was a sensible design
choice.  See, e.g., Tr. at 394. 19/  However, the need to collect and
store the data required by the eligibility determination system would
exist regardless of whether that data would be used in automated or
manual claims processing.  The State provided no evidence that the use
of some uniform formats resulted in additional costs attributable to the
operation of an MMIS.

In regard to the use of WMS by social services districts in
transportation claims processing, the State did not allege that WMS
processed these claims, but only that the districts used data "derived
from WMS" in making payments.  State Br. in Docket No. 91-36, at 9.  The
State did not demonstrate that HCFA's approval of an Advanced Planning
Document for WMS including its collection of data for this purpose could
properly be treated as approval of the process of districts using WMS
data to make direct payments for transportation costs as a mechanized
claims processing and information retrieval system separate from MMIS.
Cf. SMM . 11225.  Basically, the State here attempted to recast anything
other than or more than pure eligibility determination housed in the WMS
as eligible for enhanced funding.  However, in setting FFP rates, the
statute and regulations nowhere distinguish between costs on the basis
that they were incurred before eligibility determination or were
incurred afterward.  The State did not tie these costs into the
operation of an MMIS, nor cite to any HCFA policy defining these costs
as attributable to the operation of an MMIS, which is the applicable
standard.

In regard to the various files for which data is collected in WMS
although not required for making eligibility determinations, these are
best described as databases, not functions.  The State did not contend
that these databases are accessed directly by MMIS, as opposed to being
transferred to the MMIS, through IREF, along with other Medicaid-related
data which was used in eligibility determinations. 20/  The data on
these subjects, like that related to TPL, is appropriately gathered at
the time of collecting eligibility information from an applicant.  This
data would be necessary for the Medicaid agency to collect regardless of
whether claims processing was automated in an MMIS or performed
manually.  Again, the State did not identify any policy making the
collection or housing of this data attributable to the operation of an
MMIS.

In regard to EMEVS, the State did not demonstrate that WMS was
performing functions of the EMEVS.  Although the State referred to
"operational functions" of EMEVS being performed by WMS, the State did
not describe specifically any functions being performed by WMS that are
necessary functions of an EMEVS.  The role of WMS relative to EMEVS, as
with the databases discussed above, appears to be no more than data
collection, editing, update and storage.  The role of MMIS is to receive
this data and use it in performing the EMEVS functions.  Although the
State referred to the nightly updating of EMEVS data, the frequency with
which the database is updated is irrelevant to this role division.
Furthermore, the SMM specifically provides that enhanced FFP is not
available when the eligibility determination system is used for EMEVS
processing.  SMM, . 11281; see also SMM, . 11281.1(A).

For the reasons explained above, we conclude that none of the costs
which the State characterized as post-eligibility determination
functions are independently eligible for enhanced funding.

  3.  Data transfer to input data into MMIS

Finally, we turn to the costs incurred by WMS in the process of
transferring its databases into the MMIS for use by MMIS in claims
processing and other functions.  Unlike the costs discussed above, these
costs would not necessarily be incurred by the Medicaid agency but for
the operation of an MMIS.  To understand this distinction, it is useful
to imagine the situation if no MMIS were operating in New York.  In that
case, the law would still require that data on recipients, on TPL, and
on the information needed to restrict coverage when appropriate be
collected, organized and stored.  See, e.g., section 1902(a)(8), (10),
(19) and (25).  Once stored (whether in manual files or computer
databases), the data would be used by claims processing workers to make
determinations manually.  However, because the claims processing and
information retrieval process has been computerized, the data must
instead be inputted into the MMIS before it can be used.  Thus, the
input of the data is attributable to operation of an MMIS.

In New York, the input is accomplished by the nightly transfer of the
WMS database into the MMIS IREF.  HCFA did not dispute that the costs of
receiving the data transfer into MMIS are eligible for enhanced funding.
Although HCFA asserted that data transfer was not eligible for enhanced
funding until the data was received into MMIS, it pointed to no
authority articulating this policy.  In fact, there is authority to the
contrary.  The preamble to the rule reducing funding for eligibility
determination systems states that "[o]nce eligibility determinations are
made the input and use of data on the recipients by the approved MMIS
system" is eligible for enhanced funding.  54 Fed. Reg. at 41,971
(emphasis added).  Had the Secretary intended to restrict enhanced
funding for data transfer to the costs incurred within the MMIS system,
the preamble would have referred to the receipt of data rather than
input of data. 21/  Furthermore, the language cannot logically be read
to mean the input of data by MMIS, since the data involved would have to
be transferred from the eligibility determination system into MMIS.  The
phrase "by the approved MMIS system" must therefore modify only the use
of the data.  We conclude, absent explicit HCFA policy statements
stating otherwise, that the Secretary did not intend for the reduction
of enhanced funding for eligibility determination systems to prevent
enhanced funding for the input of data into MMIS after eligibility
determinations are made.

HCFA did not deny that enhanced funding would be available for the (much
higher) costs of the alternative of manually entering into MMIS data now
provided electronically to MMIS by WMS.  The SMM specifically lists
among operational costs of an MMIS eligible for enhanced funding "entry
. . . of provider enrollment data," staff costs for data entry
generally, and "other direct non-personnel costs."  SMM, . 11276.11.
None of HCFA's arguments persuasively explains why manual data entry
would be eligible for enhanced funding while computerized data entry
would not. 22/ .If the MMIS did not receive data input from WMS, the
same data would have to be entered manually from the original
applications for assistance or from a printout, which would be a
duplicative exercise involving considerable cost.  State Ex. 3 in
90-121, at 2-3 (Affidavit of Raoul Anderson).  HCFA was aware that WMS
was substituting for other means of data input into MMIS at substantial
costs savings.  For example, the Supplemental Planning Document for
WMS/Upstate dated December 1980, approved by HCFA, states that --

 The interface relationship provides Medicaid recipient
 eligibility data directly from the Welfare Management System to
 the Medicaid Management Information System. . . . This interface
 capability results in the significant reduction of data
 collection and entry by local district staff which would
 otherwise be required.

State Ex. 1, in Docket No. 90-121, at 23.

The State asserted that the costs of data entry into other MMIS
subsystems were reimbursed at 75%, such as the input of data on
providers' licenses, medical specialties, and diagnoses and procedures.
Telephone conference in Docket No. 90-121; Letter to DAB from counsel
for State, dated June 20, 1991; State Exs. 5 and 6, in Docket No.
90-121.  Bernard Noonan, Director of the State's MMIS, described the
input process for various kinds of data.  State Ex. 5, in Docket No.
90-121, at 2-5.  For the MMIS Provider Subsystem, data input included
magnetic tape transmission of medical specialty information from the
Department of Health (DOH) and provider licenses from the Education
Department to NYSDSS for entry into MMIS, as well as data from the
NYSDSS Division of Audit and Quality Control on provider ownership
entered by MMIS staff.  For the MMIS Reference Subsystem, data input
included manual keying of fee and rate information (except for nursing
home rates which are transmitted from DOH on tape), pharmaceutical
formularies, and DOH diagnoses files.  Roger Nelligan, Chief of NYSDSS
Cost Allocation, described the FFP rates charged for these data
transmission efforts.  State Ex. 6, in Docket No. 90-121, at 2-5.  For
Education Department license data, the cost of collecting the data is
not charged to HCFA.  However, the computer time used in reading the
magnetic tape into the Provider Subsystem is used to calculate a
percentage of computer operation costs to be charged at 75%.  For the
entry of ownership data and other data from manual sources, MMIS staff
time is charged at 75%.  For the data from DOH, DOH accounts for its
costs in preparing and transmitting the data and charges it at 75% FFP,
while the costs of reading the tapes into the MMIS are accounted for as
described for license data.

HCFA denied that it knowingly paid enhanced FFP for "preliminary
functions," such as setting provider rates and fees or dealing with
licensure.  Letter to DAB from counsel for HCFA in Docket No. 90-121,
dated July 12, 1991.  Further, HCFA stated that "the data transfer
function to the provider and reference files of MMIS is considered a
preliminary function, which is not eligible for enhanced FFP."  Id. at
1.  Rather, HCFA contended, enhanced FFP would be available only for use
of the data after it was received into MMIS.  However, HCFA stated that
the entry of data into the computer by MMIS staff is eligible because
"this information is considered to have been received by MMIS."  Id.;
HCFA Ex. 1 to that letter (Dunstan affidavit, July 12, 1991).  HCFA did
not cite any authority to support its conclusion that data being
manually keyed in is considered already received, while data being read
electronically is not.

We agree that preliminary functions which would have to be performed in
any case, such as determining rates for medical services, licensing
providers, or obtaining health insurance information from applicants,
are not attributable to the operation of an MMIS.  On the other hand,
the input of the data into MMIS for its use, whether by manual keypunch
by MMIS staff, by magnetic tape or by electronic transmission, occurs
only because of the operation of MMIS. 23/

In its submissions, the State did not distinguish clearly between the
costs of entering data into WMS and of transferring data from WMS to
MMIS.  See, e.g., Letter to DAB from counsel for the State, dated August
9, 1991, at 2.  We agree with HCFA that the cost of entering data into
WMS is a cost of the eligibility determination system that would be
incurred regardless of whether the claims processing methods were
automated.  However, transferring the data to MMIS would not be
necessary but for its use in MMIS, yet may involve some costs to the WMS
system.  We therefore conclude that the State should.have a further
opportunity to demonstrate whether it can identify costs of the WMS
system which result from the transfer of data to MMIS.

Conclusion

For the reasons explained above, we conclude that the regulations
eliminating enhanced funding for eligibility determination systems apply
to WMS and that the TPL and other post-eligibility determination costs
of WMS described by the State do not independently qualify for enhanced
funding.  However, we conclude that some portion of the costs at issue
pertaining solely to the input or transmission of data to the MMIS (as
opposed to its collection, storage, or use in WMS) is eligible for
enhanced funding.  We therefore remand to HCFA to permit the State to
provide any documentation of what costs, if any, relating to data input
or transmission into MMIS may be allowable.  We uphold the disallowances
of all other costs at issue, subject to adjustment to the extent that
any portion of the disallowances precedes the effective date of the
regulations.  The State may return to the Board within 30 days of HCFA's
written determination as to the amount of data input or transmission
costs, if any, that can be identified as allowable, on that issue only.

   ___________________________ Judith A. Ballard

   ___________________________ Norval D. (John)
   Settle

   ___________________________ M. Terry Johnson
   Presiding Board Member

1.   MMIS is an abbreviation for Medicaid Management Information System,
which was the prototype for Medicaid mechanized claims processing and
information retrieval systems, and has been commonly used as a shorthand
reference to the State's system by both parties.

2.   The Board's decision was affirmed in State of New York Dept. of
Social Services v. Sullivan, Civ. No. 91 CIV 8300(KC), 3 MMLR . 123
(S.D.N.Y., Jan. 29, 1993).  The court upheld HCFA's authority to deny
enhanced funding for WMS/NYC until the State could demonstrate that it
was fully implemented city-wide.  Id.

3.   All citations to the Code of Federal Regulations are to the 1991
Revision.  Where relevant changes in regulations occurred during the
period at issue, they are discussed in the text.

4.   This section was amended by section 9503 of the Consolidated
Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272 (1986).

5.   This revision was not effective until February 15, 1990 and part
ofthe disallowance period precedes this effective date.  However, both
parties relied on the regulatory provision at 42 C.F.R. . 433.138(k),
and the outcome here would not have been different under the statute
even before this revision of the regulations.

6.   The State asserted that WMS shares the same mainframe computer and
that data is transmitted to the MMIS IREF within the mainframe.  State
Br. in 91-36, at 8.  HCFA contended that the MMIS was housed solely on
the fiscal agent's computer, while WMS was located in the State's
mainframe.  HCFA Br. in 91-36, at 6, n.4.  The issues before us do not
turn on which hardware is used for each system, but rather on whether
particular costs were attributable to the operation of the MMIS.

7.   It was not disputed that WMS has no claims processing capacity and
MMIS does not perform eligibility determination functions.  HCFA Br. in
Docket No. 90-121, at 6; Dunstan affidavit, Jan. 31, 1991, at 12; Tr. at
373.

8.   The State often referred in its submissions to TPL "functions" in
WMS, but its descriptions of the actual involvement of WMS in the TPL
process related only to elements of data collected in WMS and later
relayed to the MMIS.  See, e.g., State Br. in Docket No. 90-121, at 5;
State Ex. 3, in Docket No. 90-121, at 2-3 (Declaration of Raoul
Anderson).  This confusion of "functions" with "databases" or "files"
which maintain data but do not perform functions using the data
persisted throughout the State's briefing in relation to its claims
relating to "post-eligibility determination functions."  Since the State
had the burden of supporting its claims, wherever the State failed to
demonstrate that WMS was in fact performing specific functions as
opposed to housing databases or files, we have construed the absence of
specific evidence on WMS "functions" against the State.

9.   We note that one disallowance period partially precedes the
effective date of this change in the regulations.  The issue was raised
during a telephone conference in Docket No. 90-121, and HCFA never
offered any basis for disallowing WMS costs before November 13, 1989.
We therefore presume that HCFA will correct the amount of the
disallowance, if necessary, to reflect any portion attributable to the
period before the regulations became effective.

10.   We discuss below those costs which are actually attributable to
the operation of an MMIS, as opposed to the costs referred to here which
would be incurred by WMS regardless of the existence of an MMIS but
which may be useful to or supportive of MMIS functions.

11.   Actually, the State asserted that the "Secretary stated that FAMIS
systems were `in reality not part of'" a Medicaid MMIS, omitting the
reference to eligibility determination systems such as FAMIS at the
beginning of the sentence from the preamble.

12.   The State questioned whether New York was treated differently than
other States in regard to the reduction of funding for eligibility
determination systems.  Specifically, the State raised questions as part
of its discovery efforts about (1) whether the only eligibility systems
for which funding was reduced in other states were FAMIS-type systems
and (2) what functions of those systems lost enhanced funding.  State
letter to HCFA counsel, dated September 6, 1991.  HCFA responded with
copies of letters to six states reducing funding for eligibility
determination systems and noting that "the entire systems lost 75%
federal funding, not solely specific functions."  HCFA pointed to North
Dakota as a state that, like New York, lost 75% FFP for operating its
eligibility determination system, which was not a FAMIS system.  HCFA
Br. in Docket No. 91-36, at 12.  The State did not demonstrate that HCFA
made any distinction among state eligibility determination systems or
among the functions performed by those systems.

13.   The changes in the TPL regulations discussed above did not affect
42 C.F.R. . 433.140(b).  Costs of TPL activities have never qualified
for an enhanced rate independently, but have received enhanced funding
only to the extent that they qualified under the MMIS provisions, i.e.,
as costs of optional (now required) MMIS subsystems.

14.   Further, the SMM points out that, in "a systems context, TPL
usually refers only to those automated, TPL related activities which are
contained in core parts of the MMIS."  SMM Rev. 11 at . 1111O(Y) (June
l99O) (emphasis added).  Thus, where HCFA uses the abbreviation "TPL" in
the context of references to systems or to MMIS, it is to be understood
as referring not to all activities undertaken in an effort to identify
possible alternative payors, but rather only to the automated TPL claims
pursuit efforts required to be integrated into the core MMIS, called the
"TPL system."

15.   Thus, it is not significant that the clarification of the meaning
of TPL "in a systems context" (described in the prior footnote) was
added to SMM in the June 1990 revision.

16.   In regard to HCFA's expectation that TPL data collection should
begin with eligibility determination, while the MMIS Recipient Subsystem
should receive and use the data obtained through eligibility
determination efforts as well as other sources, see SMM .. 3902, 3903.1,
and 11315.

17.   The State's reference to federal approval was based on an approved
advance planning document for WMS submitted as evidence that HCFA
approved of housing certain TPL activities there.  State Ex. 1, in
Docket No. 90-121.  However, all automated data processing systems must
have an approved advance planning document in order to receive any FFP;
such approval does not automatically guarantee future enhanced funding.
See 45 C.F.R. Part 95, Subpart F.  MMIS systems must meet all the
general requirements for data processing systems, as well as specific
additional statutory and regulatory requirements.  45 C.F.R. . 95.601.
The State's TPL subsystem within MMIS meets these requirements; WMS does
not.

18.   New York apparently has never submitted a plan of action for its
TPL system in response to the 1985 amendments.  New York argued that its
TPL system already is integrated with its MMIS, and therefore no new
action and no action plan are needed.  Its plan consists of the
TPL-related references in the advance planning documents for WMS and
MMIS, the State alleged during the telephone conference in Docket No.
90-121.  HCFA disagreed, asserting that the 1985 amendments required an
action plan distinct from other planning documents and regardless of the
existing integration of the State's TPL system.  Such a document might
have been helpful here, since no one document describes how New York's
TPL process is performed.  However, HCFA did not base the disallowances
on the absence of an action plan, and our decision is not affected by
it.

19.   We also note that the developmental costs of WMS were funded at a
90% enhanced rate of FFP because of its former status as an enhancement
to MMIS, so any developmental costs resulting from the need to maximize
uniformity in codes between WMS and MMIS have already been recouped by
the State.

20.   We discuss in the next section the costs of the actual transfer of
the data into MMIS for its use, which may cut across several of the
post-eligibility functions.

21.   The preamble also states that in those cases where the MMIS
directly accesses an "integrated" eligibility determination system to
obtain data HCFA will pay 75% FFP for "the cost of gaining access to or
obtaining these data."  However, the preamble comments that "[m]ost
State eligibility determination systems send data to MMIS recipient
subsystems on a regular basis" and "[f]ew if any MMIS systems gain
access to the eligibility determination systems directly during the
processing of each claim."  54 Fed. Reg. at 41,971.  It is not clear
what the references to direct access to an integrated eligibility
determination system means.  In the context of a discussion of cost
allocation between Title IV and Title XIX, "integrated eligibility
determination systems" would appear to refer to those that handle
eligibility data for various aid programs in an integrated manner,
rather than to integration with an MMIS.  To the extent that "direct
access" may have been meant to refer to case-by-case data access, we see
no distinction for funding of data transfer costs between an eligibility
determination system that provides data for MMIS to use in processing
each claim and transferring it into MMIS and one that electronically
transfers batch data to MMIS each night.  The regulations are clear that
neither eligibility determination system is to be treated as a part of
or enhancement to an MMIS.  If the cost to the eligibility determination
system of providing data input to the MMIS case by case is eligible for
enhanced funding, the cost of nightly data transfer should be similarly
funded.  We therefore decline to interpret this ambiguous language to
reach a result inconsistent with the clearer language on the same page
providing enhanced funding for data input.

22.   The SMM specifically states a preference for minimizing manual
processing costs, since "[o]ne of the aims of system improvements is the
mechanization of front-end manual editing operations to achieve . . .
the reduction of clerical workload."  SMM, .. 11276.3 and 11276.6.

23.   As noted, HCFA did not cite to any authority to support its
references to whether data had been "received" into MMIS.  We therefore
refer to the statutory criteria of whether a cost was attributable to
operation of an