DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Washington State Department of Social and Health Services
Docket No. 87-131
Decision No. 924
DATE: December 11, 1987
DECISION
The Washington State Department of Social and Health Services
(State)
appealed a determination by the Health Care Financing
Administration
(HCFA) disallowing $4,259,991 claimed by the State as federal
financial
participation (FFP) under Medicaid (Title XIX) of the Social
Security
Act (Act). The claim was for FFP in the cost of administering
Medicaid
eligibility determinations during the period October 1, 1983
through
December 31, 1985.
HCFA determined that the State's claim was not properly documented
in
accordance with the State's approved cost allocation plan (CAP)
in
effect during the period and, in addition, that $351,770 of the
amount
claimed was untimely filed. Based on our analysis below, we uphold
the
entire disallowance.
Factual Background
The $4,259,991 disallowed by HCFA includes two separate sets of
claims.
One set, totalling $4,153,147, involves retroactive cost
adjustments
resulting from changes in the State's CAP with respect to
allocating
administrative costs among income maintenance programs. A
second set,
totalling $106,844, involves retroactive cost adjustments
resulting from
the application of the new CAP methodology to allocate
administrative
costs among the social service block grant program (Title XX
of the
Act), the Aid to Families with Dependent Children program (Title IV-A
of
the Act), and the Medicaid program. The $106,844 is the amount
of
adjusted costs attributable to Medicaid.
1. The $4,153,147 set of claims
The Food Stamp Act of 1977 required the U.S. Department of
Agriculture
(USDA) to begin paying the costs of determining eligibility for
food
stamps which had previously been paid by the Aid to Families
with
Dependent Children (AFDC) program. An Action Transmittal of the
Office
of Family Assistance (OFA) required states to amend their CAPs
effective
October 1, 1983, to differentiate between the costs of food stamp
and
AFDC eligibility determinations. 1/ SSA-AT-83-14; HCFA
Brief,
Attachment B. There was no reference in the Action Transmittal
to
allocating costs of determining Medicaid eligibility. However, when
the
State first amended its CAP, it changed a form used to report
income
maintenance worker contacts with Medicaid recipients, in addition
to
persons assisted by the other programs. Appeal File (AF) Exhibit
(Ex.)
3. During the period from 1983-1985 the State was paid
$39,351,412 FFP
for Medicaid administrative costs calculated using the
allocation
methodology in the State's Octobr 1, 1983 approved CAP.
Despite the CAP amendment, costs which should have been charged to
the
Food Stamp Program continued to be charged to AFDC after October
1,
1983. After an unspecified number of unsuccessful attempts to
implement
the Action Transmittal, the State finally formulated a new
allocation
methodology. This was submitted to the Regional Director of
the
Division of Cost Allocation (DCA) in October 1985. He approved
the
amended CAP with the new methodology, as of the effective date
requested
by the State, namely, November 1, 1985. AF Ex. 7.
Although there was no mention of any retroactive application in the
CAP
amendment, OFA and USDA and the State worked out an arrangement to
use
the new allocation methodology using a sample base of November
1985
through February 1986. This was then applied retroactively
to
reallocate costs for the months of October 1983 through December 1985.
HCFA refused to participate in the retroactive allocation of costs.
The
State then asked the DCA Director to resolve the differing
positions.
He refused to do so for the reasons that an approved CAP was in
place
from 1983-1985 and multiple program changes had occurred during
that
period. He recognized that OFA and USDA could agree to use post
period
data to apportion costs between themselves, if they thought this
would
satisfy the intent of the Action Transmittal. However, he did not
agree
that the retroactive application was a more valid measure of benefit
to
any program not affected by that transmittal, i.e., Medicaid.
The State nevertheless continued to file claims for increasing
adjustments
to prior quarter claims for Medicaid administrative costs.
The State computed
these by applying the revised CAP methodology to post
period data and the
percentage thus calculated retroactively to the
period covered by the
disallowance.
The $351,770 which HCFA contended was untimely filed was part of this
set
of claims. By statute and regulation (discussed later in
this
Decision), there is a two year limit on filing claims. The $351,770
was
in a claim dated December 19, 1986, as a revision to the report for
the
quarter ending September 30, 1986. The revised claim was for
costs
expended during the fiscal year which ended September 30, 1984.
2. The $106,844 set of claims
This dispute stems from the alleged discovery by the State in 1985 that
it
had been incorrectly attributing to the social service block grant
program
administrative costs which it contended should have been charged
to AFDC and
Medicaid. The adjusted claims were based on a revised
allocation
methodology implemented January 1, 1986, using data collected
from April 1986
through March 1987. AF Ex. 14, 15.
Analysis
Although there are slightly different circumstances underlying the
two
sets of claims, the issues mostly were similar and the parties made
the
same arguments for both sets. 2/ As noted above, the timely
claims
issue is present only in the $4,153,147 set.
1. HCFA did not err in refusing to accept the results of
the
retroactive application of an amended
allocation methodology.
The regulations provide that a state must claim FFP associated with
a
program only in accordance with its approved CAP. 45 C.F.R.
95.517(a).
If costs under a public assistance program (including Medicaid)
are not
claimed in accordance with an approved CAP, the costs improperly
claimed
may be disallowed. 45 C.F.R. 95.519.
The State, however, contended that retroactive application of a CAP
or
plan amendment is permissible under 45 C.F.R. 95.515(a) and
the
decisions of this Board. The State argued that retroactive
application
was necessary here to avoid a significant inequity to the State,
USDA,
and OFA. The State alleged that the Regional Division of
Cost
Allocation had approved, and USDA and OFA had agreed to, the
retroactive
application of the amended CAP as requested here, and that
pursuant to
that agreement USDA had transferred (through the State) to
OFA
$13,478,996, which represented adjusted administrative costs for
the
food stamp program. AF Ex. 8, 10, 11, 16. The State contended
that as
a result of HCFA's not paying its share of the adjusted costs, OFA
was
seeking to disallow an additional $1,230,220 from the State.
3/ The
$1.2 million represents the balance of reimbursement allegedly
due OFA
of its share of the adjusted costs previously improperly attributed
to
AFDC under the old CAP.
HCFA contended that the State had not properly documented its
amended
claims. HCFA argued that the use of documentation based on
estimates
was expressly prohibited by a HCFA Action Transmittal and the
State
Medicaid Manual. The allocation methodology used by the State
in
documenting $11,380,266 of the $39,351,412 previously paid the State
by
HCFA, as well as the $4,259,991 at issue here, is a time study
sampling
procedure, known as Random Moment Time Study (RMTS). This
consists of
choosing, at random, a series of moments within a specific time
frame
and at each of the moments checking the activity of randomly
selected
staff. The number of times the staff person is engaged in the
defined
activity of interest is counted, and the count, divided by the number
of
moments, is taken as an estimate of the proportion of the time that
the
sampled class of employees was engaged in the defined activity
during
the specified period.
Inasmuch as it had accepted earlier claims by the State for
Medicaid
administrative costs calculated by use of an RMTS methodology,
HCFA's
contention that sampling-based estimates were not proper
documentation
did not preclude the use of RMTS per se. 4/ Rather,
HCFA argued that
the use of RMTS methodology to support the claims at issue
here was
flawed because significant changes had taken place in the
Medicaid
program and thus the program and activities for the sampled
period
(subsequent to November 30, 1985) were not identical to those of
the
period represented by the claims (October 1983 - December 1985).
HCFA
contended that in order for the State to appropriately utilize
the
results of the current RMTS (effective November 1, 1985) to
allocate
costs during the prior period, the conditions in the sampled period
must
be similar to the claim period. In support of its allegation
that
significant changes had occurred, HCFA submitted an excerpt from one
of
the State's reports showing that medical assistance payments were
37.2
percent greater in the quarter ended December 1985 ($80,608,471)
than
they were in the quarter ended December 1983 ($58,749,010) and
that
Medicaid administrative expenses were 34.6 percent greater
($4,662,386
v. $3,464,712). Affidavit of Jack T. Covello
(attached to HCFA's
brief), p. 3.
HCFA argued that the two periods were dissimilar also because the
RMTS
methodology itself was different. On November 1, 1985, the
RMTS
methodology changed from identifying the "random moment" by the type
of
case worked, the "primary program," or "common activity," to
identifying
it instead by the specific activity being worked, the
"benefitting
program," or "individual activity." State Brief, p. 2; AF
Ex. 7, 16;
Covello Affidavit, p. 2. AFDC is the program for
which
eligibility/non-eligibility is first determined, and thus the
"primary
program" methodology resulted in a disproportionate and incorrect
share
of administrative costs being attributed to AFDC. AF Ex.
16. The RMTS
methodology which corrected this problem reallocated to
USDA most of the
costs previously incorrectly attributed to AFDC, but also
resulted in an
increase (14.69 percent v. 9.1 percent) in costs attributed to
Medicaid.
Covello Affidavit, p. 4. 5/ There was a 4.5 percent decrease
in costs
attributed to the State. Id.
The record does not show why the allocation of costs changed to
increase
the federal share of Medicaid and to decrease the State's
share. As
noted above (n. 5), the parties' explanations were not
definitive. It
is not disputed that there was a substantial shift in
the allocation of
administrative costs. There is some indication that another
$1.2 million
apparently incorrectly previously attributed to the cost
of
administering the AFDC program should perhaps have been attributed
to
Medicaid, but neither HCFA nor the Board has been given any basis
(other
than the revised RMTS calculations) for the balance of approximately
$3
million which apparently would be retained by the State if HCFA paid
the
State's claims. We agree with HCFA that the State was required to
prove
that the Medicaid program "has remained so constant that there are
no
significant differences between the data" for the 1983-85 period and
the
post-November 1985 sampled periods. Ohio Dept. of Human Services,
DGAB
No. 900 (1987), p. 11. As noted above, the State's own figures
indicate
that Medicaid payments increased by over one-third between 1983
and
1985, pointing to the likelihood of significant changes in the data
for
the two periods. The State did not dispel this likelihood, nor did
it
show that the program had remained constant. It was not enough for
the
State to attempt to rebut HCFA's examples of significant changes; it
was
obliged to affirmatively show why its calculations were acceptable.
It
did not do this and thus failed to properly document its claims.
The State relied, mistakenly we think, on Iowa Dept. of Human
Services,
DGAB No. 624 (1985) and a footnote in Pennsylvania Dept. of
Public
Welfare, DGAB No. 293 (1982). In Iowa, we concluded that Iowa
could
include allowable central services costs in calculating
reimbursement
rates for State institutions participating in the Medicaid
program, and
could retroactively apply a CAP methodology, where Iowa was
"attempting
to merely fill an alleged gap in the existing CAPs." Iowa,
p. 10.
Unlike here, we were "not faced with a situation in which Iowa
was
allocating costs by employing a methodology different from,
or
inconsistent with, that specified in a CAP." Id. Thus, Iowa
does not
support retroactive application of a different RMTS methodology
where,
as here, the State has not shown the sample period data base to
be
similar to that of the claim period. In Pennsylvania (p. 5), we
upheld
a disallowance where the claimed administrative costs had
been
overlooked by Pennsylvania when it submitted its CAP. Neither
our
holding nor the cited footnote supports the State's position here,
where
the State claimed and was paid its Medicaid administrative costs
under
an approved 1983 CAP. 6/
2. The cost principle that all federally assisted programs
bear their
fair share of costs has not been
shown to be violated by the
result here.
Both parties argued that their position honored the cost principle
that
all federally assisted programs bear their fair share of costs, and
that
a decision in favor of the other party gave that party an
unmerited
windfall. The cost principle is set out in Office of
Management and
Budget (OMB) Circular A-87, Attachment A, Par. A 1. 46 Fed.
Reg. 9548
(January 28, 1981).
The State also relied on a statement from the OMB Circular that the
cost
principles "are designed to provide a basis for a uniform approach
to
the problem of determining costs and to promote efficiency and
better
relations between grantees and the federal government." 46 Fed.
Reg.
9548. The State alleged that USDA and OFA had approved the
retroactive
application of the revised RMTS methodology to a post period data
base,
and that USDA had paid $13 million in adjusted claims on that
basis.
The State contended that HCFA's refusal to approve use of the
revised
RMTS methodology in this manner deprived the State, and the
other
federal agencies involved, of HCFA's fair share and thus gave HCFA
a
windfall to which it was not entitled.
HCFA argued that it had met the "fair share" principle when it
previously
reimbursed the State $39,351,412 for the 1983-85 period.
HCFA contended that
the State's Medicaid administrative costs were not
increased, nor was the
Medicaid program affected, by the discovery that
USDA was not paying its fair
share of administrative costs and by the
transfer of funds between USDA and
OFA to correct that problem. Thus,
HCFA concluded, the State is not
entitled to "profit" by claiming more
funds from Medicaid.
The State elected to make its CAP revising its RMTS methodology
effective
November 1, 1985, not October 1, 1983. USDA and OFA, the
federal
agencies directly involved in the 1983 Action Transmittal which
prompted the
revision, agreed to retroactive application of the CAP to
post period
data. HCFA did not. The State turned to the Regional
Division of
Cost Allocation to resolve the State's dispute with HCFA,
but DCA told the
State that DCA could not support the State's proposal
to use post period
statistical sampling to retroactively amend claims
for FFP, although DCA
declared "it may be appropriate" to use post
period data to apportion costs
between USDA and AFDC if those agencies
agree. AF Ex. 11.
The State has not proved that HCFA is not bearing its fair share
of
administrative costs where the State did not show that
similar
conditions existed in the claim period and the sample periods.
The
agreement between USDA and OFA does not necessarily establish
that
conditions were similar, but only that these agencies found that
the
result satisfied "the intent of SSA-AT- 83-14." AF Ex. 11.
Thus, on
this record, the cost principles have not been shown to be
violated.
Even if they had been, the State did not demonstrate that we have
the
authority to require HCFA to accept amended claims based on a
CAP
methodology applied retroactively to post period data.
3. $351,770 of the amount disallowed was not timely filed.
HCFA argued that $351,770 of the amount claimed should be disallowed
also
because it was not timely filed. The claim in question was for
the
fiscal year which ended September 30, 1984. The claim was dated
December
19, 1986.
The State contended that it preserved the claim in question from
the
two-year limitation by filing claims for the period ending December
31,
1983 starting in the report for the quarter ending December 31, 1985
and
every subsequent quarter (through December 31, 1986). The State
argued
that these claims merely supplemented earlier claims which were
filed
within the two year limitation and that those earlier claims were
still
unresolved when the supplements were filed.
In the preceding discussion, we concluded that HCFA did not err
in
disallowing the State's entire claim at issue. Thus, we do not need
to
reach the timely filing issue, which involves only part of that
claim.
We discuss it here because we conclude that the claim for $351,770
was
not timely filed, reinforcing our decision to uphold the
disallowance.
Section 1132(a) of the Social Security Act requires claims by states
for
expenditures during a calendar quarter under the various
public
assistance programs to be filed "within the two year period which
begins
on the first day of the calendar quarter immediately following
such
calendar quarter," or payment will not be made. It further
provides
that this requirement is not to be applied "so as to deny payment
with
respect to any expenditure involving court-ordered retroactive
payments
or audit exceptions, or adjustments to prior year costs."
(Emphasis
added).
These statutory provisions are implemented by 45 CFR Part 95.
The
regulatory provisions on time limits in general track the
statutory
requirements; the exceptions in the statute are restated in 45
C.F.R.
95.19. The term "adjustment to prior year costs" is defined as
"an
adjustment in the amount of a particular cost item that was
previously
claimed under an interim rate concept. . . ." 45 C.F.R.
95.4. The
claims at issue were not adjustments of administrative costs
previously
claimed under an interim rate concept; only in retrospect could
the
previous claims or RMTS methodology be considered "interim," and that
is
not what the definition covers. Thus, the claim at issue ($351,770)
does
not come within this statutory exception.
The State filed all of the other "supplemental" claims at issue within
the
time limit. The record indicates that, long before the two-year
cutoff,
the timing of the claims at issue was within the sole control of
the State
and the State did not supply any reason for delaying until
December of 1986
to file the $351,770 claim. The exceptions to the
two-year limit were
intended to "take care of those cases where it would
be patently unfair to a
state to outlaw its claim merely because of the
passage of time." New
York State Dept. of Social Services, DGAB No.
521 (1984), p. 8; see also
Massachusetts Dept. of Public Welfare, DGAB
No. 796 (1986), p. 7. The
State did not show that the circumstances
here fit within either the design
or intent of the exceptions, and thus
the State should be bound by the
two-year limit. If a State could
merely file a claim for any amount
within the limitation period and then
"supplement" that claim after the
two-year period had run, then the main
purpose of the limitation to provide
certainty in budgeting would be
defeated. Thus, in Massachusetts, we
upheld a disallowance where the
State submitted "reprocessed" claims after
the filing deadline and
argued that they should be considered as filed when
the original claims
were submitted.
Conclusion
For the reasons stated above, we uphold the disallowance in full.
________________________________
Cecilia
Sparks Ford
________________________________ Norval
D.
(John) Settle
________________________________ Alexander
G.
Teitz Presiding Board Member
1. OFA administers the AFDC program.
2. The record does not show whether the CAP
methodology used to
calculate the claims totalling $106,844 was the same as
the revised CAP
methodology which was the basis for the claims totalling
$4,153,147.
The parties treated the two methodologies as one in their
arguments.
3. OFA requested that DCA commence such a
disallowance action, but
our record does not indicate that DCA has yet acted
on OFA's request.
The Board's docket does not reflect an appeal filed from
such a
disallowance.
4. HCFA attached to its brief the affidavit of one of
its auditors,
who characterized the RMTS in use prior to November 1, 1985 as
an
"approved statistical tool" which had been used to document
and
calculate administrative costs. Affidavit of Jack T. Covello, p.
4.
The disallowance letter also acknowledged the use of RMTS to
allocate
Medicaid administrative costs.
5. The parties' attempts to explain these differences
were largely
inconclusive. The HCFA auditor alleged that the increase
in Medicaid
costs occurred because the revised (post-November 1, 1985) RMTS
form
listed 14 primary activities, of which three were Medicaid
related,
whereas the prior RMTS form listed 18 primary activities, of which
only
one was Medicaid related. The State indicated in its reply brief
that
the revised RMTS form had one medical section listing the three
medical
programs which had been set out separately in the prior RMTS form.
Thus,
contended the State, the difference is one of format and would not,
in
itself, cause an increase in activity attributed to Medicaid. HCFA
also
had alleged that the State had submitted 28 amendments to its CAP in
the
process of revising the RMTS "because of the numerous
administrative
changes, Medicaid program changes and departmental
reorganizations."
HCFA Brief, p. 12. The State countered by alleging
that only three of
the 28 amendments involved Medicaid, and the impact on the
RMTS results
was "very limited." State Reply Brief, p. 1.
6. The cited footnote (p. 5, n. 3) states:
Although the cost allocation regulations do not
explicitly preclude
retroactive revision of an
approved CAP in cases where a state
might have
amended the CAP but did not, it is possible the
regulations as a whole would require that result. In any
event,
the State did not submit a proposed
retroactive revision for Agency
consideration, and
this issue is not raised by this appeal. . .