Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: California Department of Health Services
DATE: June 12, 1991
Docket No. 90-49
Decision No. 1256
DECISION
The California Department of Health Services (State) appealed
a
determination by the Health Care Financing Administration (HCFA)
to
disallow federal financial participation (FFP) in the amount of
$321,168
claimed under Title XIX of the Social Security Act (Medicaid).
The amount disallowed was for county administrative expenditures for
the
California Child Health and Disability Prevention Program for the
period
July 1, 1984 through June 30, 1987. HCFA disallowed $246,788
for
workers in early and periodic screening, diagnostic, and
treatment
(EPSDT) units based in welfare departments in ten counties.
The amount
disallowed represented the difference between the enhanced FFP
rate of
75% applicable to certain costs attributable to skilled
professional
medical personnel (SPMP), which the State claimed, and the 50%
rate
generally applicable to administrative costs under the Medicaid
program.
Additionally, HCFA disallowed $74,380 in federal funding claimed at
the
50% rate for local agency departmental overhead costs in five
counties.
HCFA determined that the State's claims for those costs were not
based
on required indirect cost proposals.
For the reasons explained more fully below, we conclude that the State
was
entitled to FFP at the enhanced rate of 75% for its EPSDT worker
costs under
the standards that applied during the disallowance period.
While HCFA cited
the proper standards, its determination improperly
reflected the requirements
of later revised regulations which require
closer scrutiny of each position
claimed for enhanced funding.
Accordingly, we reverse the $246,788
disallowance, subject to any
adjustment .necessary to reflect costs other
than those authorized by
statute for the enhanced rate. 1/ We also
conclude that the State's
claim for indirect costs for one county health
department was based on
the required indirect cost proposal; we therefore
reverse the
disallowance of $56,350 for that county. However, we
conclude that four
of the counties at issue did not have the required
indirect cost
proposals to support claims for local health department
overhead costs,
and we therefore uphold $18,030 of the disallowance.
I. EPSDT Staff
Background
Section 1903(a) of the Act provides for variable federal matching rates
to
states for administrative functions under Medicaid. The majority
of
activities that are necessary for the proper and efficient operation
of
a state Medicaid plan, including compensation and training for most
of
the agency's staff, are financed at the FFP rate of 50%.
However, section 1903(a)(2) of the Act provides for federal matching
at
75% for compensation and training of SPMP and supporting staff. It
also
provides for 75% FFP for SPMP and supporting staff of other
public
agencies with which the Medicaid agency contracts for administration
of
the medical phases of the Medicaid program. HCFA's
implementing
regulations, 42 C.F.R. Part 432, also provide 75% FFP for
skilled
professional medical personnel and supporting staff. See 42
C.F.R.
432.50(b)(1) (1985).
.In 1967, Congress enacted section 1905(a)(4)(B) of the Act requiring
each
state to provide "early and periodic screening and diagnosis" to
persons
under the age of 21 and eligible for Medicaid, to ascertain any
physical or
mental defects. The law also required each state Medicaid
plan to
provide a means for informing all persons under 21, who were
eligible for
Medicaid, of the "availability of early and periodic
screening, diagnostic,
and treatment" services. See section 1902(a)(43)
of the Act. The
implementing regulations on EPSDT are at 42 C.F.R. Part
441, subpart B.
The regulations on SPMP and EPSDT were supplemented by the
Medical
Assistance Manual (Manual). Part 2-41-20 of the Manual was
issued in an
Action Transmittal by the Social and Rehabilitation Service
(predecessor
agency to HCFA) in July 1975, as SRS-AT-75-50, and contains
principles
to be used to assess the validity of claims for SPMP staffing at
75%
matching. A later Action Transmittal, HCFA-AT-79-101 (October
30,
1979), contained clarification of the circumstances under which 75%
FFP
was available for salary and other costs of SPMP and staff of
public
agencies providing direct support to the Medicaid agency in
the
administration of the EPSDT program. 2/
In California, the EPSDT program is administered under the Child
Health
and Disability Prevention (CHDP) Program by the Department of
Health
Services (Health Services). County health departments implement
these
programs and are responsible for informing, screening, diagnosing,
and
treating children eligible for the EPSDT program. See 42 C.F.R.
441.56.
Some county health departments had interagency agreements with
county
welfare departments to perform outreach activities, and to inform
and
refer eligible recipients to the county health departments'
EPSDT
programs. See State's Opening Brief (Br.), pp. 5-6; 42
C.F.R.
441.56(a)(1); Manual, section 2-41-20(G)(3); State's Exs. 3-12.
HCFA
disallowed .reimbursement at the enhanced 75% rate for EPSDT workers
who
performed outreach activities in ten county welfare departments, on
the
basis that these workers did not meet the criteria for SPMP or
direct
support staff.
The State asserted that HCFA was retroactively applying
regulations
effective in 1986. The State asserted that HCFA's policy
during the
disallowance period emphasized the function of a position as
the
principal basis for determining eligibility for enhanced FFP.
See
Manual, section 2-41-20(B)(1)(a); State's Reply Br., p. 3.
The State argued that: (1) section 2-41-20(G)(3) of the
Manual
recognized that support staff in a public agency could perform
outreach
activities; (2) each of the interagency agreements for the ten
counties
complied with section 2-41-20(G)(3)(a)(1), which provided
requirements
for informing, referring, and monitoring an individual's
participation
in the EPSDT program; and (3) the EPSDT workers here qualified
for
enhanced funding as supporting staff under section 2-41-20(G)(2).
The State also maintained that HCFA's predecessor federal agency
had
contracted with Community Health Foundation (Community) to
provide
technical assistance to Health Services for administering the
EPSDT
program, and that the State had relied on recommendations by
Community
in placing EPSDT workers in county welfare departments.
State's Reply
Br., p. 6. In support of its position, the State
submitted a copy of
Community's "California County EPSDT Functional Design"
for qualifying
EPSDT workers for enhanced FFP. See State's Ex. 30.
Applicable law
It is undisputed that "over the years, there has been diversity
in
interpreting and applying the criteria used to determine what types
of
personnel and job functions qualify for 75% FFP . . . ." 49 Fed.
Reg.
23080 (1984). There is no question that later revisions of
the
regulations substantially narrowed the standards used to evaluate
a
position's status as SPMP or supporting staff. See Oregon Dept.
of
Human Resources, DAB No. 729 (1986). However, HCFA specifically
denied
that later revised regulations or policies were used as a basis for
the
disallowance here. Moreover, HCFA acknowledged that the
provisions
contained in both SRS-AT-75-50 (1975) and HCFA-AT-79-101 (1979)
were
applicable in assessing the State's claims for enhanced funding.
HCFA's
Br., pp. 4-6.
SRS-AT-75-50 (1975) added section 2-41-00 to the Manual and
provided
principles to be used to assess the validity of claims for staffing
at
75% matching. It also contained examples of organizational
functions
needed to operate Title XIX programs and the expected level of
federal
matching.
Section 2-41-20(C)(7)(a) was directed at services under EPSDT and
provided
that where individuals performing EPSDT outreach activities
meet the
qualifications for SPMP or personnel directly supporting such
SPMP, their
salaries could be matched at 75%, if:
the health-related administrative services in support of
EPSDT
are those that assist in effective utilization of health
care
available under EPSDT or arrange for the availability
and
accessibility of EPSDT services.
Section 2-41-20(B)(2)(c) stated that "support positions claimed at
75
percent matching must directly support skilled professional
medical
personnel functions" and that "support staff must be in work
assignments
related in an immediate way to the direct completion of the work
of such
professional medical personnel." However, a later action
transmittal,
SRS-AT-76-66 (1976), provided additional explanation of
circumstances
under which 75% FFP would be available for salary and other
costs of
staff providing direct support to SPMP in the administration of
Title
XIX programs. It provided that:
A supervisory relationship on a day-to-day basis
between the
skilled medical professional and support
staff is not necessary and
not always
relevant. The critical factor determining
direct
support is that the non-professional staff be
responsible for
performing functions directly
necessary for the carrying out of the
professional's
duties . . . .
When support staff/and or skilled professional
medical personnel
for whom the increased match is
being claimed are employed by a
public agency other
than the Title XIX agency, an interagency . . .
agreement would be necessary . . . . Such an agreement
must
specifically demonstrate that the non-Title XIX
staff (whether the
professional, the support staff
or both) are directly assisting the
skilled .medical
professional employed by Title XIX or that both
the
professional and support staff are directly assisting the
Title
XIX agency in the administration of the
functions matched under
Title XIX at the 75 percent
rate . . . .
A later action transmittal, HCFA-AT-79-101 (1979), added
section
2-41-20(G), entitled "Staff of Other Public Agencies - EPSDT," to
the
Manual. The definition of SPMP contained in section 2-41-20(G)
included
physicians, other health practitioners, medical social workers,
and
other specialized personnel in the field of medical care,
including
medical administrators.
Section 2-41-20(G) also provided that the SPMP must be employed by
the
public agency at the state or local level and be identified by either
an
interagency or intra-agency agreement to provide: (1) direct
assistance
to the skilled medical professional employed by the Title XIX
agency; or
(2) direct assistance to the Title XIX agency in the
administration of
health-related services in support of EPSDT.
The SPMP also had to perform, supervise, or be ultimately responsible
for
health-related administrative services in support of EPSDT, and the
SPMP who
supervised or was ultimately responsible for functions
performed by
nonprofessional supporting staff had to: (1) define their
positions and
functions to be performed; (2) provide for their training;
and (3) monitor
and evaluate their activities.
With respect to supporting staff, section 2-41-20(G) provided that
the
staff had to be employed by the public agency at the state or
local
level, perform health-related administrative services in support
of
EPSDT, and be supervised or under the ultimate responsibility of a
SPMP
employed either by the public agency or the Title XIX agency.
The
support staff also had to be identified by interagency or
intra-agency
agreement to provide: (1) direct assistance to the SPMP
employed in the
public agency; or (2) direct assistance to the SPMP employed
in the
Title XIX agency, in which case no SPMP was required in the
public
agency.
Section 2-41-20(G) also provided that the SPMP and supporting staff had
to
perform or supervise health- related administrative services in
support of
EPSDT, but that the specific services could be determined by
each State based
on its administrative structure, capacity for program
operation, and
available resources.
Outreach activities were specifically included as
health-related
administrative services and defined as:
Actions taken by a public agency at the State or
local level to
assure that families are informed
about the EPSDT program, are
helped to understand
its importance, and are encouraged and
assisted to
seek EPSDT services from available health care.
Manual, section 2-41-20(G)(3)(a).
EPSDT Functional Design
The "California County EPSDT Functional Design" (design) was a
42-page
document which included outlines and flow charts, tracked the
Manual
provisions, and explained how the State's EPSDT program should
be
structured in order to comply with applicable regulatory and
Manual
provisions for enhanced reimbursement. See State's Ex. 30.
Two concepts were introduced in the design: that of unit as
indicating
"a set of identifiable functions rather than the arrangement of
or
location of workers responsible for the functions" and EPSDT workers
as
a "general term used to identify those workers in county health
and
welfare departments who will be assigned to the activities described
in
the functional design that will qualify for the increased
federal
matching funds." State's Ex. 30, pp. 3-4.
Fact sheets for EPSDT unit functions such as informing,
screening,
follow-up, outreach, and resource development, with short
narratives for
each function, were also contained in the design, along with a
flow
diagram narrative with a step-by-step explanation, recommendations
for
procedures, and a diagram which illustrated the relationship among
all
the activities.
Discussion
The State submitted interagency agreements for each of the ten counties
at
issue. 3/ After a review of these agreements, we conclude that
they
were substantially the same and consistent with the State's design
for
EPSDT services. Thus, rather than address each agreement
specifically,
we will refer to them generally in our discussion below.
First, we find that these agreements met the requirements for
interagency
agreements specified in section 2-41-20(G) of the Manual.
The interagency
agreements generally provided for: (1) the mutual
objectives and
responsibilities of each party; (2) services to be
provided by each party;
(3) methods for early identification of
individuals under 21 in need of
medical and remedial services; (4)
procedures to link families requesting
EPSDT services to the Title XIX
agency or appropriate referral of service
delivery system; and (5)
procedures for recording and reporting requests and
documentation to the
SPMP, and exchanges of reports. See Manual,
section
2-41-20(G)(3)(a)(1).
The agreements also provided for EPSDT units within the county
welfare
departments to carry out the county health departments'
responsibilities
with respect to outreach activities for the EPSDT
program. They
identified and set forth in detail the functions of the
EPSDT workers,
and contained flow charts which illustrated: (1) the
relationship
between the health department and welfare departments; (2) lines
of
supervision between the health department and EPSDT units; and (3)
the
steps taken by EPSDT workers in performing outreach activities.
See
State's Ex. 7.
One of the flow charts in the agreements indicated that the EPSDT
units
reported to the CHDP program director, and that this director
was
ultimately responsible for EPSDT services under the CHDP program.
See
State's .Ex. 7, pp. 1-3. Since this director was required to be
a
physician under State law (see State's Reply Br., 5), it was
undisputed
that he qualified as a SPMP under the applicable regulatory and
Manual
provisions.
Moreover, we find that under the State's CHDP program structure, the
EPSDT
workers performed functions which directly assisted the CHDP
director's
duties and responsibilities with respect to EPSDT services,
and that this
director was ultimately responsible for the work performed
by the EPSDT
workers. Therefore, we conclude that the State
demonstrated the
necessary connection to SPMP functions as required by
the applicable
regulatory and Manual provisions to support enhanced
reimbursement.
Manual, section 2-41-20(G)(1) and (2).
We also conclude that since the Manual provisions defined
outreach
activities as health-related administrative services, the State
was
reasonable in determining that EPSDT workers who were
performing
outreach activities, whether SPMP, supporting paraprofessional,
or
clerical personnel, and whose functions and lines of supervision
were
detailed in these agreements, met the requirements for enhanced
funding
for the portion of the time they performed these activities.
See Manual
section 2-41-20(G)(1) and (2).
Although HCFA admitted that some of the EPSDT workers were social
workers
and may have qualified as SPMP, HCFA argued they could not be
considered
supporting staff. 4/ HCFA also argued that the State had
failed to show
that other EPSDT workers met the criteria for supporting
staff. See
HCFA Br., pp. 17-20.
In this proceeding, HCFA defended its determination using the
regulations
and Manual provisions which were properly applied to
evaluate SPMP or support
positions during the .disallowance period.
Nevertheless, this does not
dispose of the question presented. HCFA's
arguments reflect a
philosophical bias derived from the revised SPMP
regulations which require
closer scrutiny of each position claimed at
the enhanced rate. The
regulations and Manual provisions applicable to
this time period do not
support HCFA's position. Consequently, we find
that the State's EPSDT
unit workers, who were directly assisting in the
administration of Title XIX
in accordance with the interagency
agreements, clearly qualified for enhanced
funding based on the
applicable program standards. 5/
In light of the definition of SPMP set forth at 42 C.F.R. 432.2,
which
specifically included medical social workers, the evidence here
was
adequate to support the conclusion that social workers
performing
health-related administrative outreach services were SPMP in their
own
right and were, moreover, providing direct assistance to the Title
XIX
agency in the administration of health-related services in support
of
EPSDT. See Manual, section 2-41-20(G)(2).
.Moreover, whether an individual qualified as direct support staff
under
the revised regulations is irrelevant here. As discussed above,
the
title of a position was not the decisive criterion under the
earlier
provisions. If a unit worker performed EPSDT outreach
activities in the
context of an interagency agreement meeting the
requirements spelled out
in the Manual, then the State was entitled to claim
enhanced funding for
the portion of time spent performing these
activities. The State did,
of course, have to document the percentage
of time each worker spent
performing these activities and did so
satisfactorily here. 6/
Accordingly, we reverse the disallowance of administrative costs
for
county welfare department ESDPT unit workers performing Title
XIX
outreach services under interagency agreements, except to the extent
the
State's claim included expenditures other than "salary or
other
compensation, fringe benefits, travel, per diem, and training" for
EPSDT
workers. See 42 C.F.R. 432.50(a).
II. Indirect Cost Proposals
Background
HCFA determined that $74,380 in federal funding was unallowable
for
"internal local agency departmental overhead costs in five
counties,
because the claims for those costs were based on informal or
unapproved
cost allocation plans." The amount disallowed represented
indirect
costs claimed for CHDP programs by the health departments in
five
counties: Fresno, Merced, Madera, El Dorado, and Yuba.
State's Ex. 1,
pp. 1-2, and Ex 2, pp. 13-14. 7/
The disallowance was based on a HCFA review report finding that these
five
counties did not have cost allocation plans "either available for
review or
approved by a cognizant Federal agency" for the period July 1,
1984 through
June 30, 1987 (fiscal years (FYs) 1985 through 1987). The
reviewers
found that while Fresno County utilized a cost allocation
plan, its plan had
not been reviewed or approved by a cognizant federal
agency. In
contrast to the findings for Fresno County, the HCFA
reviewers did not find
that the other four counties used a cost
allocation plan. The review
report stated that -- (1) Merced County
used an "informal cost allocation
methodology"; (2) Madera County
"charged general county overhead costs . . .
based on estimates"; (3) El
Dorado County "estimated internal overhead costs
at . . . 5.5%"; and (4)
Yuba County distributed indirect costs based on the
number of "CHDP
employees to the total health department employees".
State's Ex. 2, pp.
13-14.
During the Board proceedings, HCFA conceded that, to support its
indirect
cost claim, a local government agency was required only to
develop a cost
allocation plan and retain that plan for audit, not to
submit its plan for
approval by a cognizant agency. HCFA's Br., p. 47.
Despite the HCFA
reviewers' misapplication of the federal requirements,
the Agency maintained
that the disallowance was appropriate on the basis
that "none of the five
counties produced such an indirect cost proposal
for review." HCFA's
Br., p. 48.
Indirect Cost Proposal Requirements
The allocability of indirect costs to Medicaid is governed by the
cost
principles set forth in Office of Management and Budget (OMB)
Circular
A-87, made applicable by 45 C.F.R. 74.171 (1984). OMB A-87
provides
that a plan for allocation of costs is required to support
the
distribution of any joint costs, and that:
the allocation plan of the grantee department should
cover all
joint costs of the department as well as
costs to be allocated
under plans of other agencies
or organizational units which are to
be included in
the costs of federally-sponsored programs . . . .
OMB A-87, Attachment A, section J.2. Cost allocation plan is defined
as
"the documentation identifying, accumulating, and distributing
allocable
costs . . . together with the allocation methods used." OMB
A-87,
Attachment A, section B.2.
The procedures for establishing cost allocation plans to support
costs
claimed under grants with the federal government are contained
in
OASC-10, A Guide for State and Local Government Agencies
(1976).
OASC-10 states that costs incurred by a state or local government
in
connection with programs sponsored by the federal government
are
categorized in two ways: (1) by organization level, those incurred
by
the department performing the grant and those incurred by one or
more
central support organizations serving the department; and (2) by
type,
direct and indirect. OASC-10, p. 2.
OASC-10 provides that cost allocation plans are "the means by
which
[joint] costs are identified in a logical and systematic manner
for
reimbursement under Federal grants and contracts" (page 3).
OASC-10
describes two types of plans. The central service cost
allocation plan
is a state-wide or county-wide plan which identifies and
distributes the
costs of services provided by support organizations to the
departments
or units performing federal grants. The second type of plan
is termed
an "indirect cost proposal." An indirect cost proposal
distributes to
all work performed by a department both the administrative or
joint
costs incurred within that department and the costs of
services
allocated to it under the central service cost allocation
plan.
OASC-10, pp. 2-3.
OASC-10 explicitly requires that cost allocation plans be
prepared
annually (page 3). It further specifies that a performing
department's
indirect costs include both overhead costs originating in
that
department as well as allocated central service costs. Indirect
costs
are normally charged by means of a rate that represents the
percentage
relationship of indirect costs to a direct cost base such as
total
direct cost. An indirect cost proposal is the computation of a
rate
supported by workpapers and other documentation as specified in
OASC-10.
A county department that wishes to claim indirect costs for
federal
reimbursement may do so only in accordance with its indirect
cost
proposal. There must be a separate proposal for each fiscal year
which
must be available as substantiation at the time the claim is
made.
While local county departments need not submit indirect cost
proposals
for federal approval, they must retain an indirect cost proposal
for
federal review. OASC-10 provides in part that:
Indirect cost proposals that must be prepared and
retained, but
which do not have to be submitted, are
subject to review by the
Federal Government to
determine [among other things] that, (1) the
distribution of indirect costs is based on a method which
is
reasonably indicative of the amount of services
provided to
Federally supported activities and all
other activities of the
department or unit . . .
.
OASC-10, p. 11.
Discussion
The State initially argued that the indirect costs of the five
county
health departments had been claimed in accordance with Health
Services'
cost allocation plans which had been approved by the State
Controller 8/
for fiscal years 1983 through 1987 and which provided for an
indirect
cost rate. Thus, the State argued that it had complied with 45
C.F.R.
95.517(a). 9/
In support of its position, the State submitted cost allocation plans
for
each of the five counties. See State's Exs. 24-28. However,
during
the proceedings it became apparent that the State's submissions
were
negotiation agreements for central service cost allocation plans,
i.e.,
county-wide cost allocation plans, rather than indirect cost
proposals
for the individual health departments. 10/ See Telephone
Conference
tape of March 14, 1991. These plans, although approved by
the State
Controller, did not satisfy the requirement that the county
health
departments allocate central service costs as well as internal
overhead
costs by means of an indirect cost proposal. See State's
Exs.
23(a)-23(c); OASC-10, p. 7; HCFA's Ex. 2.
.The State asserted that approval of the central service plans
was
approval of the county health departments' indirect costs under
45
C.F.R. 74.177(a). The State also submitted documentation which
it
asserted constituted indirect cost proposals. With respect to
this
documentation, the State argued that if the Board decides that "the
rate
used to calculate internal overhead costs required
documentation
different from that for external overhead costs" the Board
should
determine the "reasonableness and necessity of the costs," citing
45
C.F.R. 74.177(c) and OMB Circular A-87 [Attachment A, section
C.1.a.].
State's Opening Br., p. 17. The State asserted that we should
reverse
the disallowance since the State had approved central service plans
to
support the external overhead costs and its methods for
claiming
internal costs met the applicable reasonableness and
necessity
standards.
At the outset, we note that the regulations at 45 C.F.R. 74.177 apply
not
to costs in general, but only to types of costs that in accordance
with the
cost principles require specific prior approval for
allowability because of
their nature or amount. As provided for in 45
C.F.R. 74.177(a),
approval of a cost allocation plan including such
costs satisfies the
requirement for prior approval. Moreover, 45 C.F.R.
74.177(c) provides
that the grantor agency may waive a prior approval
requirement but that such
a waiver does not affect other requirements
for allowability such as
reasonableness and necessity (i.e., even if a
grantee by means of a waiver is
permitted to incur a type of cost
without the prior approval that would
otherwise be required, that cost
must still meet other requirements for
allowability).
The question here is whether the counties developed and
retained
documentation of allocation methods consistent with
federal
requirements. Since we are not concerned with whether specific
cost
items were allowable types of costs, we fail to see the relevance of
45
C.F.R. 74.177. Prior approval of types of costs claimed as indirect
by
the county health departments was not an issue and the
approved
county-wide plans did not fulfill the requirement for plans to
support
the health departments' indirect cost claims.
We now examine the record with regard to whether any of the five
counties
met the applicable indirect cost proposal requirements.
Fresno County
The record shows conclusively that Fresno County prepared and retained
an
indirect cost proposal for the FYs in question. Not only did
the
reviewers find that Fresno utilized a cost allocation plan, but
the
State also asserted in response to the HCFA report that the
State
disagreed with the review findings for Fresno County since it had a
plan
based on OASC-10 and OASC-10 required only that such plans be
retained
for review. 11/ See State's August 26, 1988 response to the
draft
review report, Attachment A to State's Ex. 2. Moreover, letters
from
the Fresno County Department of Health and from the Fresno
County
Auditor-Controller/Treasurer (who approved the health
department's
proposal within the county) confirm that the County followed
the
applicable requirements from OMB A-87 and OASC-10 and had its
plans
available for review for the FYs in question. State's Exs. 34a
and 39.
HCFA presented no evidence which directly contravened the
statements
made in these letters; it relied only on its arguments concerning
the
counties' failure in general to have the required plans. The
record
also contains some contemporaneous documentation concerning the
rate
calculations for these years. State's Ex. 34b. Accordingly,
in light
of the limited finding made by the HCFA reviewers, that Fresno
County
was operating under an unapproved plan, we reverse the disallowance
for
Fresno County since there was no requirement for approval.
Moreover,
while HCFA briefed issues concerning the implementation of the
indirect
cost proposal by Fresno County, the record before us is not
adequate
either to raise or to resolve those issues. 12/ The HCFA
review report
contained no finding impugning either the adequacy of the
County's plan
or its implementation. Moreover, the HHS Grants
Administration Manual
(GAM) provides that:
Where an audit of a local government agency's
indirect cost
computation results in a disagreement
between the agency and the
auditor, the disagreement
will be resolved by the cognizant Federal
negotiation agency.
GAM 6-100-50 A.5. There is no indication that there has been
a
determination by the cognizant federal agency that the County's
indirect
cost claims did not comport with its plan or were otherwise
unallowable.
While HCFA is certainly free to further examine Fresno County's
claims
for indirect costs and issue an additional determination, there is
no
basis on this record to uphold the disallowance of all claimed
indirect
costs. 13/
Merced, Madera, El Dorado, and Yuba Counties
For Merced, Madera, El Dorado, and Yuba counties, the HCFA
reviewers
simply described the methods used to calculate claims for
indirect
costs. For these counties, there is no reason based on the
record here
to question the reviewers' finding that indirect cost claims
were
unallowable because based on informal methods. The
State's
documentation for these four counties consisted not of indirect
cost
proposals, but rather, of letters which recited how the indirect
cost
rates had been determined. See State's Exs. 35-38. The State
asserted
only that the disallowance should be reversed because the actual
claims
were for reasonable and necessary costs.
The State's documentation consisted of letters dated from November
and
December 1988 which were obviously prepared in response to the
review
report, not at the time the State allocated these indirect
costs. These
letters included documentation, some of which was
contemporaneous, which
explained the counties' methods for calculating
indirect costs and/or
gave the calculation.
The counties were required to claim indirect costs based on
proposals
which identified, accumulated, and distributed allocable costs
in
accordance with a specified allocation method. See OMB A-87,
Attachment
A, section J.2. As we noted above, although indirect cost
proposals may
not have to be approved, they must be prepared, retained, and
be
available as of the time a claim is made. Moreover, they are subject
to
review to determine that the distribution of indirect costs is based
on
a method which reasonably indicates the amount of services provided
to
federally supported activities and all other activities of
the
department or unit. See OASC-10, p. 11.
Since the State failed to produce evidence, either during the HCFA
review
process or during these appeal proceedings, that these four
counties had and
retained the required indirect cost proposals, the
State has failed to
support its claims for federal funding for county
health department overhead
costs. We need not consider, as the State
urged, whether the methods
used appeared reasonable notwithstanding the
counties' failure to have
indirect cost proposals. The OASC-10
guidelines expressly condition
indirect cost reimbursement on the
existence of a plan which meets certain
requirements. OASC-10, pp. 2-3
and 10-11. This is not merely a
technical requirement which can be
overcome simply with .evidence of the
reasonableness or necessity of
certain costs. Cost allocation plans are
required to establish
consistency of treatment of costs and the correctness
of claims made for
federal reimbursement. Accordingly, we uphold the
disallowance for
these counties.
Conclusion
For the reasons stated above (1) we reverse the disallowance of
$246,788
for county welfare department EPSDT costs, subject to any
necessary
adjustment as explained above on pp. 1-2 and 11; (2) we reverse
the
disallowance of $56,350 for county health department overhead costs
for
Fresno County, noting HCFA's further opportunity for review,
as
explained above on p. 17; and (3) we uphold the disallowance of
$18,030
for county health department overhead costs for Merced, Madera,
El
Dorado, and Yuba Counties.
___________________________
Judith
A. Ballard
___________________________
Norval
D. (John) Settle
___________________________
Cecilia
Sparks Ford
Presiding Board Member
1. Although HCFA's review report stated that the State claimed 75%
FFP
in county welfare department administrative expenditures that
included
"other general administrative costs such as supplies, equipment,
travel,
utilities, etc." (State's Exhibit (Ex.) 2, p. 9), this point was
not
addressed in the parties' submissions. Since section 1903(a) of
the
Social Security Act (Act) and implementing regulations
authorize
enhanced funding only for salary or other compensation, fringe
benefits,
travel, per diem, and training costs, an adjustment may be
necessary so
that other types of costs would be reimbursed only at the 50%
rate.
2. HCFA subsequently amended its regulations governing the
requirements
for enhanced funding for SPMP. The amended regulations were
effective
July 1, 1986, and were therefore applicable from July 1, 1986
through
June 30, 1987. However, the State voluntarily conceded that
under the
revised regulations it could not claim enhanced FFP in the
compensation
and related costs of its county EPSDT workers. Thus, the
amount in
issue does not include any costs for that period of time.
3. Although in its brief HCFA argued that the State had not
submitted
interagency agreements for all of the time periods, there was
nothing in
HCFA's Review Report to suggest that the State did not have
agreements
for each of the fiscal years in issue. Page 11 of the report
notes the
State's assertion that "an interagency agreement is in place
between
each local health department and welfare department." HCFA's
rebuttal
did not dispute this fact, but instead, reiterated the auditors'
doubts
as to the qualifications of the State's personnel with respect to
SPMP
criteria. See Review Report at State's Ex. 2, pp. 11-12. We
therefore
conclude that the State's documentation was sufficient evidence to
show
that it had interagency agreements in place during the time periods
in
issue. See Manual, section 2-41-20(G).
4. Citing Oregon Dept. of Human Resources, DAB No. 729 (1986),
HCFA
argued that the State had abandoned its right to claim any of
these
positions as SPMP since it argued generally that all EPSDT workers
were
supporting staff. See HCFA Br., p. 19. HCFA has misconstrued
the point
made in DAB No. 729 that a position will qualify either as SPMP
or
support dependent upon the actual personnel status of the position.
A
professional position which does not qualify as SPMP is not
then
considered for support status as an alternative. Here, the State
is not
precluded from receiving enhanced reimbursement simply by the wording
of
its argument.
5. As pointed out in HCFA's Financial Management Review Guide
for
Skilled Medical Personnel, at page 3 (June 1986), several
significant
changes were made in the new regulations. The definition of
SPMP was:
(1) clarified to specify that such personnel include only
professionals
in the field of medical care; and (2) revised to remove most
references
to specific job titles. The definition of "directly
supporting staff"
was clarified to indicate that such staff include only
secretarial,
stenographic, copying personnel, and file and records clerks
that
provide clerical services that are directly necessary for the
completion
of the responsibilities and functions of the SPMP. 42 C.F.R.
432.2.
The new regulations also explicitly provided that "directly
supporting"
meant that the SPMP must directly supervise the supporting staff
and the
performance of the supporting staff's work. 42 C.F.R.
432.50(d)(1)(v).
More importantly here, the Guide noted that "the [revised] regulations
no
longer allow any personnel to automatically qualify (e.g., Medicaid
Director,
EPSDT staff) as SPMP." The Guide explained that under the
new
regulations "personnel must meet all the applicable criteria."
6. Here, it appears that quarterly time studies were derived from
EPSDT
workers' time sheets. See State's Exs. 14a-22b. These time
sheets were
then used to develop quarterly time studies and ratios.
HCFA initially
and erroneously determined that the State's claims were based
on
estimates and should be disallowed on that basis. However, HCFA
later
advised the Board that it would not pursue this argument on
appeal. See
Telephone conference tape of March 14, 1991.
7. The State gave the disallowed amounts for each county as:
Fresno --
$56,350.05; Merced -- $5,179.50; Madera -- $5,198.25; El Dorado
--
$5,094.14; and Yuba -- $2,558.50. State's Opening Br., p. 17.
8. The State Controller was given the authority under a delegation
from
the Secretary of Health and Human Services to approve county-wide
cost
allocation plans. See HCFA's Ex. 2.
9. The regulations at 45 C.F.R. 95.517 provide that a state must
claim
FFP for costs associated with a public assistance program only
in
accordance with its approved cost allocation plan for such programs.
10. It is interesting to note that these agreements refer
to
departmental indirect cost proposals and state that they should
"clearly
identify those costs that have been distributed through Sections I
and
II of this agreement . . . ." See State's Ex. 24, p. 1.
11. The State in response to the review also made this assertion
for
Merced County. The State did not pursue this point before the
Board.
The reviewers had found that Merced County used an "informal
cost
allocation methodology" and there is nothing in the record before
the
Board to show that Merced in fact had the required indirect
cost
proposal to support its claims.
12. See HCFA's Ex. 3; State's Flanigan declaration submitted with
Ex.
34b of Appellant's Supplemental Reply Brief; and HCFA Response to
the
Supplemental Reply. For example, HCFA asserted that while Fresno
County
developed provisional rates these rates were never finalized.
HCFA
asserted that Fresno's claims were therefore unallowable
estimates. See
HCFA's Br., p. 52, and HCFA's Response to State's
Supplemental Reply, p.
4. We note that, even if HCFA is correct about
the use of provisional
rates, the county's claims are not unallowable
estimates. The
allocation process itself is an estimation of those
costs allocable to
certain objectives that has been agreed to because the
cost and effort
of determining the actual cost is unwarranted. While
there are various
types of indirect cost rates -- among them predetermined
rates whereby a
prior year's indirect cost experience is used to fix a later
year's
recovery and provisional rates which are later adjusted to finalize
a
particular year's recovery -- claims based on a provisional rate are
not
in toto unallowable as estimates even though once finalized the
actual
claims may need adjustment either upward or downward.
13. While the rationale stated in a notice of disallowance need
not
state or even anticipate every argument that may be properly made
to
support that disallowance, it is appropriate to limit the
issues
considered here for Fresno County in light of the limited nature of
the
HCFA review. This is a complex area. The arguments made by
the Agency
concerning the implementation by Fresno of its indirect cost
proposal go
beyond the scope of the HCFA review findings and are based on a
record
which appears incomplete in light of Fresno County's statement
that
further detail was on file concerning the contemporaneous
documentation
submitted to Agency in response to the review report. See
State's Ex.