Colorado Department of Social Services, DAB No. 1272 (1991)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT:  Colorado Department of Social Services

DATE:  August 19, 1991
Docket No. 90-155
Audit Control
No. A-08-89-00211
Decision No. 1272

DECISION

The Colorado Department of Social Services (State) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $792,966 in federal financial participation (FFP) claimed by
the State under Title XIX of the Social Security Act (Medicaid) for
payments made to Medicaid providers from October 1, 1985 to March 31,
1987.  The disallowance was based on a report issued by the Office of
Inspector General, Office of Audit, of an audit of Medicaid payments
made by the State's fiscal agent, Computer Sciences Corporation (CSC).
1/  CSC was under contract with the State to operate a Medicaid
Management Information System (MMIS) that would, among other things,
process claims submitted by providers for payment of services rendered
to Medicaid recipients.

For the reasons stated below, we uphold the disallowance on the basis
that excessive or improper payments to providers are not medical
assistance under the Act; to the extent the State received FFP in these
payments, the State has received an overpayment of federal funds, to be
adjusted under section 1903(d)(2) of the Act.  However, we agree with
the State that the amount of the disallowance should be recalculated to
take into account those payments which the Board finds were not made in
error (3 of the 24 sample payments at issue) and to reflect the proper
statistical method for projecting sample payment errors to the universe
of claims.

Background

On December 20, 1989, the Office of Inspector General (OIG), Office of
Audit, issued the final report of an audit of Medicaid payments made by
the State during the period October 1, 1985 through March 31, 1987.
State Exhibit (Ex.) 1.  The OIG audited a sample of Medicaid claims paid
during the relevant time period by the State's fiscal agent, CSC.  The
primary objective of the audit was to determine whether the provider
payments were allowable Medicaid costs.  State Ex. 1, p. 3.

The audit sample was divided into 12 strata, each stratum containing
claims submitted by different types of Medicaid providers, such as
pharmacies, physicians, and nursing homes.  A sample of 100 claims was
drawn from each stratum and audited to determine whether the amounts
paid on the claims were allowable.  In the final audit report, the OIG
listed 24 sample claims in which payment errors were found.  State Ex.
1, Ex. I.  The OIG had reduced the number from the 44 payment errors
previously found in the second draft report.  This reduction occurred
because the State was able to document 8 claims which previously had
been "missing" or inadequately documented, and because 12 other payments
to providers of nursing home services, or inpatient or outpatient
hospital services were in three claims strata which the State had
reprocessed.  See State Ex. 1, Exs. I and II.  The State identified
$15,598,510 in payment errors through the reprocessing and adjusted the
federal share ($7,799,255 in FFP).

HCFA's final determination on the findings contained in the audit report
was to disallow $792,966 in FFP, based on HCFA's projection of the
sample results to the universe of claims.  HCFA found sample payment
errors based on its conclusions that--

     1.  Claims or history documentation was missing and, therefore, was
     insufficient to support the claims;

     2.  Copayments were not deducted as required by the State Plan; and

     3.  Overpayments of the amount due, duplicate payments, and
     payments to the wrong provider are not considered "medical
     assistance" under the Act.

CSC Ex. 2.

The State and the intervenor (CSC) presented legal arguments regarding
the propriety of the disallowance action here.  They also raised
arguments relating to the findings on the 24 sample payments that were
identified as errors in the audit, and relating to HCFA's projection of
certain types of errors to the universe of claims.  CSC also challenged
the statistical validity of HCFA's method of projecting the sample
errors to the universe of claims.

Below, we first discuss the general legal issues raised.  We explain why
we conclude that no FFP is available generally under the Act for
excessive or improper payments to providers and that HCFA's disallowance
here is not arbitrary or contrary to its own regulations.  We then
present our analysis of the individual sample payments cited as errors
in the audit report.  We uphold HCFA's findings with respect to 21
sample payments and reverse HCFA's findings on 3 sample payments.  Next,
we explain why we conclude that HCFA properly projected manual claims
processing errors and Medicare "crossover" errors to the universe of
claims.  Finally, we discuss the statistical sampling issue and state
why we conclude that HCFA should recalculate the disallowance since
HCFA's calculations were not based on a statistically valid method.

Analysis

I.  General legal issues

 A.  Statutory background

Title XIX of the Act establishes the statutory context for determining
whether provider payments are allowable for federal reimbursement.
Title XIX of the Act authorizes federal grants to states to aid in
financing state programs which provide "medical assistance" and related
to services to needy individuals.  A state must have a state plan that
meets the requirements of section 1902(a) of the Act, including setting
forth the methods and procedures for payment for care and services
available under the plan.  Section 1902(a)(30).  Section 1903(a) of the
Act, the basic provision governing payment of FFP for Medicaid, requires
the Secretary to pay each state with an approved plan ". . . an amount
equal to the Federal medical assistance percentage of the total amount
expended during the quarter as medical assistance under the State plan .
. . ."  (Emphasis supplied.)  Section 1905(a) of the Act defines
"medical assistance" as "payment of part or all of the cost" of certain
covered services provided to eligible individuals.

States receive payments each quarter, based on estimates of their
expenditures.  Section 1903(d)(2)(A) provides:

  The Secretary shall then pay to the State, in such
  installments as he may determine, the amounts so
  estimated, reduced or increased to the extent of any
  overpayment or underpayment which the Secretary
  determines was made under this section to such State for
  any prior quarter and with respect to which adjustment
  has not already been made.

This Board and the courts have held that, under section 1903(d)(2), HCFA
may require adjustment of the grant award for the federal share of
firmly established overpayments to providers of services, even if a
state has not yet recovered these amounts from the providers. 2/  See,
e.g., Massachusetts Dept. of Public Welfare, DAB No. 262 (1982); New
York State Dept. of Social Services, DAB No. 311 (1982); Ohio Dept. of
Public Welfare, DAB No. 637 (1985), and cases cited therein. 3/  The
reason is that excess or improper payments to providers are not "medical
assistance under the State plan" within the meaning of sections
1903(a)(1) and 1905(a) of the Act and, therefore, FFP in such payments
constitutes an overpayment to a state to be adjusted under section
1903(d)(2).

 B.       The audit was authorized under the statute and
 applicable regulations.

The State argued that it was unaware of any statutes or regulations that
authorize an audit such as that performed here.  State brief, p. 3.

HCFA, however, correctly pointed out that Public Law 95-454, The
Inspector General Act of 1978, as amended, provides that:

     . . .  It shall be the duty and responsibility of each
     Inspector General, with respect to the establishment within
     which his Office is established . . . to provide policy
     direction for and to conduct, supervise, and coordinate
     audits and investigations relating to the programs and
     operations of such establishment; . . . to recommend
     policies for, and to conduct, supervise, or coordinate
     relationships between such establishment and other Federal
     agencies, State and local government agencies, and
     non-governmental entities with respect to . . . all matters
     relating to the promotion of economy and efficiency in the
     administration of, or the prevention and detection of fraud
     and abuse in, programs and operations administered or
     financed by such establishment . . . .

Moreover, Medicaid regulations provide at 42 C.F.R. 430.33 (1988):

    (a)  Purpose.  The Department's Office of Inspector
    General (OIG) periodically audits State operations in
    order to determine whether-- (1)  The program is being
    operated in a cost-efficient manner; and (2)  Funds
    are being properly expended for the purposes for which
    they were appropriated under Federal and State law and
    regulations.

See also 45 C.F.R. 201.12 (1985-1987).

The purpose of the Inspector General Act and the regulatory provisions
authorizing OIG audit is to ensure that federal funds are properly
expended and that programs are run in a cost-efficient manner and to
detect fraud and abuse in federally funded programs.  There is no doubt
that the statute and the regulatory provisions clearly authorize the
audit of the State here.

  C.       HCFA's disallowance action was not arbitrary or
  capricious.

Both the State and CSC argued that HCFA's action to take a disallowance
based on this audit was arbitrary and capricious.  The State contended
that even though its error rate was very low (approximately .3%
according to the State), HCFA had singled the State out for
disallowance.

Both the State and CSC pointed out that HCFA had developed detailed
requirements and criteria for Claim Processing Assessment Systems (CPAS)
to examine and evaluate the accuracy of claims processed and paid
through an MMIS.  They argued that the disallowance here is improper
because the claims processing error rate achieved by the Colorado MMIS
during the audit period met or exceeded the norms for error tolerance
under the CPAS.  Moreover, the State argued that HCFA requires a
mandatory CPAS only in states that exceed a certain error rate in
processing claims under their Systems Performance Review (SPR) for their
MMIS. 4/  The State and CSC argued that the threshold error rate under
the CPAS is 1% and annual erroneous payments exceeding $1 million in
federal funds, whereas the State's error rate during the audit period
was only .3% and the erroneous payments of federal funds for 18 months
was less than $800,000. 5/

The State also contended that HCFA "knows" of similar or larger claims
processing errors in other states from those states' SPR results, yet
Colorado was the only state to receive a disallowance for erroneous
payments made as a result of claims processing errors.  The State
acknowledged, however, that there are differences between the SPR and
the audit conducted here.

We find no basis for concluding that the State was somehow arbitrarily
singled out for this audit and resulting disallowance, even assuming
that HCFA is not free to exercise something tantamount to prosecutorial
discretion in selecting audit targets.  First, since the regulations
authorize such audits, the State could not reasonably rely on any
failure to actually conduct similar audits in other states as a basis
for thinking it would not be subject to such an audit.  Under the
regulations, HCFA had the authority to request OIG to perform such an
audit.  The circumstances here suggest that due to media coverage
regarding the fiscal agent's performance, HCFA decided that an audit
should be performed to determine whether a reported claims processing
backlog had been cleared and to assure that only allowable payments had
been made.  The OIG was asked to perform the audit and to determine
whether the expenditures claimed for FFP were allowable.

Neither the State nor CSC provided any evidence that HCFA had comparable
information about inadequacies in claims processing in another state and
did not audit.  There is no indication from the record or the applicable
law that the audit here was arbitrary in its conception or performance.

Both the State and the fiscal agent referred to the 1% error rate and $1
million level established for the CPAS, but failed to explain how the
CPAS requirements are relevant to the issue of whether HCFA could
properly disallow for those claims which are not allowable under the
State Plan.  HCFA clearly explained in establishing these threshold
standards that they would be used for determining whether a state was
required to operate a more comprehensive "mandatory" CPAS.  50 Fed. Reg.
21839 (May 29, 1985); see State Ex. 20.  There is no indication that
HCFA considered erroneous payments up to these thresholds to be
allowable; indeed, HCFA referred to such payment errors as "misspent
Federal funds."  50 Fed. Reg. at 21845; see also 42 C.F.R. 431.800(j).
Moreover, the SPRs pertain to determinations of whether a state's MMIS
system is operating properly so that the state may receive enhanced
reimbursement for the administrative costs of operating the system.  See
generally 42 C.F.R. Part 433, Subpart C.  The regulatory provisions on
the CPAS and the SPR do not conflict with or supersede HCFA's authority
to conduct oversight reviews or to request audits to identify and
recover FFP for provider payments which do not meet statutory or
regulatory requirements.  To conclude otherwise would render meaningless
HCFA's oversight function which it is required by statute and regulation
to perform. 6/

We also reject CSC's contention that, in the context of "error tolerance
rates," the impossibility of operating an error free claims processing
system has long been acknowledged.  CSC cited several Board cases for
that proposition.  First, California Dept. of Health Services, DAB No.
170 (1981), was the only case cited which specifically dealt with
improper payments made as a result of claims processing errors.  In that
case, the Board specifically stated that quality control provisions,
i.e., tolerance levels for errors, have never been applied to claims
processing errors; therefore, the Board upheld the disallowance.  The
other three cases are inapplicable here.  FY 1981 Medicaid Quality
Control Disallowances, DAB No. 948 (1988) refers to eligibility
determination errors to which the Medicaid quality control provisions
and tolerance levels specifically apply.  See section 1903(u) of the
Act; 42 C.F.R. Part 431, Subpart P.  Louisiana Dept. of Health and Human
Resources, DAB No. 580 (1984), and Maryland Dept. of Human Resources,
DAB No. 358 (1982), dealt with the Title IV-A program, not with
Medicaid.

Finally, we reject the State's contention that counsel for HCFA made a
tacit admission that the disallowance decision here was arbitrary and
capricious.  The State pointed to a statement in a letter from HCFA
counsel indicating that the CPAS and SPR procedures --

     do not "delineate or define any accepted or permitted claims
     processing performance threshold, accuracy level or error
     rate tolerance" for purposes of determining the availability
     of Federal financial participation (FFP) in funds claimed as
     "medical assistance" (i.e., a State's request for FFP in the
     cost of claims for Medicaid covered medical services, as
     distinguished from claims for enhanced FFP in the
     administrative costs of operating an approved MMIS);
     however, they are generally relevant to the issue of
     determination of an error rate for CPAS and SPR purposes.

State Ex. 23.

The State misinterpreted what HCFA counsel stated to mean that HCFA had
no guidelines or standards for disallowing claims processing errors and,
therefore, HCFA was acting arbitrarily.  Such guidelines or standards
might be necessary if HCFA were establishing a tolerance level for
claims processing errors similar to that for eligibility determination
errors.  No such guidelines or standards were required here.  The
absence of any such established tolerance level clearly means generally
that HCFA should disallow FFP in all payments which are excessive or
improper due to claims processing errors since they do not constitute
medical assistance under a state plan.

Thus, we conclude that HCFA was authorized to disallow FFP in excessive
or improper payments to providers and that HCFA was not arbitrary or
capricious in deciding to audit the State here and to base a
disallowance on the identified claims processing errors.


II.  Whether HCFA correctly found that 24 sample payments were erroneous

The parties presented arguments related to the 24 alleged payment
errors.  The State and the intervenor, CSC, concurred with HCFA's
finding of errors in the following seven sample payments:  410, 680,
764, 796, 824, 945 and 984. 7/  We discuss the parties' arguments
regarding the 17 remaining disputed payments in sequential order by
claim type below.

We note here, however, that the State's arguments were based on several
erroneous assumptions.  With respect to many of the payment errors, the
State had initially responded to the audit report by acknowledging that
the payments were erroneous.  During Board proceedings, the State for
the first time challenged HCFA's findings on the basis that the State
was not required to document the allowability of the payments or that
HCFA had not articulated a sufficient basis for disallowance.

The State clearly had the burden, however, to document the allowability
of its payments.  The applicable regulations require states to ensure
proper and efficient payment of claims by maintaining an accounting
system and supporting fiscal records (42 C.F.R. 433.32 and 45 C.F.R.
Part 74, Subpart H) and to conduct prepayment claims review to verify,
among other things, appropriate service, nonduplication of claims, and
that the payment does not exceed any reimbursement rates or limits in
the state plan (42 C.F.R. 447.45(f)).

In determining what rates or limits were established by the State plan,
the auditors relied in part on lists which had been provided by the
State to CSC.  The State challenged these findings here on the basis
that HCFA had not specifically cited any regulations establishing what
the correct rates or limits were under the State plan.  The State did
not, however, provide any evidence to show that its lists were
incorrect, nor, indeed, did the State even allege that they were
incorrect.  In our view, HCFA was entitled to rely on lists provided by
the State to CSC in the absence of any evidence that these lists did not
reflect the amounts payable under the State plan.

Moreover, given the findings in an audit conducted according to
generally accepted auditing principles, the State clearly had the burden
of going forward to refute those findings.

We also note generally that CSC's arguments in large part went to the
issue of whether CSC was liable to the State for the errors.  That issue
is irrelevant here.  The question before us is whether HCFA correctly
found that no FFP was available in the payments.

CSC argued that, according to the Board's Practice Manual, once the
appellant has come forward with evidence and argument sufficient to call
into question the respondent's determination, the burden shifts to the
respondent to support its determination and to show that it had a
reasonable basis. 8/  CSC argued that it and the State had presented
argument and evidence that was sufficient to question HCFA's
disallowance and to shift the burden to HCFA.  CSC contended that HCFA
cannot carry its burden and cannot rest on vague speculation and
unfounded speculation.

The burden described in the Practice Manual is twofold.  First, the
appellant has the obligation of coming forward with evidence sufficient
to support the arguments it makes and sufficient to question the
respondent's determination.  Moreover, the party with knowledge of facts
pertinent to the Board's decisionmaking and peculiarly within that
party's knowledge and control, has the burden of supplying that
information to the Board.  If the appellant has come forward with this
kind of evidence, the burden will shift to the respondent.  However, the
question of whether a party has met this burden is ultimately for the
Board to make.  The Board weighs the evidence presented and determines
by the weight of the evidence presented whether a particular argument
has been established by that evidence.

In this case, the parties presented evidence on the individual claims
cited as errors.  The Board weighed the evidence presented for each
claim in making its determination.  The fact that a party may have
presented evidence, however, does not mean the evidence was sufficient
to prove the matter it was intended to prove.  Consequently, whether
HCFA or the appellant met its burden of going forward with evidence was
for the Board to determine here and the Board did so in making its
findings on the evidence and argument presented on the 24 individual
claims.

We next turn to the individual sample payments at issue.  We have
divided our discussion into six sections related to the six types of
claims.

 A.  Claim Type:  Pharmacy

Claim 39

The auditors found that this pharmacy claim was overpaid because the
payments made were higher than could be computed using the rates on file
with CSC for the type of drug provided on the date the drug was
provided.  State Ex. 1, p. 7.

The State argued that the finding of error for this claim cannot stand
because the audit report did not explain how the auditors determined the
"correct" price nor did the report show how the price actually paid was
inconsistent with the State Plan or with any federal regulation or
statute.  CSC argued that a review of the pertinent documentation and
pricing requirements confirms that this claim was paid correctly.  CSC
argued that the drug formulary file, which contains the National Drug
Codes and is updated by the State in accordance with its MMIS system
design requirements (see CSC Ex. 44, p. 1), shows the State provided
prices for this particular drug.  This document indicated two different
prices for this particular drug with the same effective date.  The
fiscal agent argued that its selection of the higher of the two prices
was consistent with the State's MMIS requirements.

Contrary to the State's assertions, the audit report specified why the
amount paid for this claim was inconsistent with the applicable
regulations and statute and the State Plan.  State Ex. 1, pp. 6-7.
Under section 1902(a)(30) of the Social Security Act (Act), the State
Plan for medical assistance must --

     (A)  provide such methods and procedures relating to the
     utilization of, and payment for, care and services available under
     the plan . . . as may be necessary to safeguard against unnecessary
     utilization of such care and services and to assure that payments
     are consistent with efficiency, economy, and quality of care . . .
     .

(Emphasis added.)  The audit report also cited the federal regulations
beginning at 42 C.F.R. 447.200 which prescribe the State Plan
requirements for setting payment rates to implement, in part, section
1902(a)(30) of the Act.  The general provisions regarding payment
methods set forth in 42 C.F.R. 447.200 et seq. require that the State
Plan meet the requirements of this subpart as well as describe the
policy and methods to be used in setting payment rates for each type of
service included in the State Plan.  42 C.F.R. 447.201.  The regulations
also provide that the State agency must maintain documentation of
payment rates and make these available to HHS.  42 C.F.R. 447.203.  The
audit report also cites to the regulations in Part 447, which set forth
specific provisions on the proper computation of payment for specific
types of services covered under the State's Medicaid State Plan.  The
regulations in 42 C.F.R. Part 447, subpart D, provide for the proper
computation of payment for drugs.  42 C.F.R. 447.331.  The State
generally may not pay more for prescribed drugs than the lowest of the
maximum allowable cost of the drug, if any; the estimated acquisition
cost of the drug; or the provider's usual and customary charge to the
public.  42 C.F.R. 447.332.

The State did not deny that it created the formulary lists used by CSC
to pay the claims.  Moreover, the State did not deny that the formulary
list was intended to be used and was used to determine the payment rate
for drugs pursuant to the statute, the regulations and the State Plan
provisions.

The documentation indicates that the formulary file listed two unit
prices effective the same date.  The State offered no explanation why
the higher of the two unit prices should apply.  The State did not
allege and presented no evidence that the amount paid was the amount
properly set forth under the State Plan and the regulations.

Moreover, CSC presented no evidence, documentation, or substantiation
for its assertion that paying the drug claim at the higher of the two
listed prices was consistent with the State's MMIS requirements.  CSC's
documentation merely states a policy (effective 2/06/87) that CSC would
"[a]ccept all changes and additions to the Drug Master File through
on-line entry by State staff."  CSC Ex. 44, first unnumbered page.  Even
if CSC had shown that paying the higher price was consistent with what
it was required to do under its MMIS contract with the State, however,
this fact would go only to the liability of CSC for the overpayment; it
does not establish the amount of FFP allowable in payment of the
provider's claim.

Finally, we note that, although a handwritten notation on the bottom of
the claim printout indicates that the rate was changed to .0935 (the
higher of the two listed per tablet estimated acquisition costs) on
2/12/86, this does not necessarily indicate that this cost superseded
the .0891 estimated acquisition cost (EAC) used by the auditors.  The
drug list shows that costs with a later effective date generally appear
on the list to the left of costs with an earlier effective date.
Although both the .0891 and .0935 have the same effective date of
2/03/86, the fact that the .0891 appears to the left of the .0935
indicates that the .0891 superseded the .0935.  CSC Ex. 44.  In the
absence of any evidence to the contrary, HCFA reasonably determined that
the .0891 EAC applied.

Thus, we conclude that HCFA correctly determined that this claim had
been overpaid.

Claim 59

This pharmacy claim was denied because neither the original claim for
services nor a microfilmed copy of the claim was produced for review by
the auditors.

CSC argued that it had submitted a copy of the microfilmed claim in its
appeal file at Exhibit 45.  That exhibit includes two pages, one of
which is a computer printout entitled "Division of Medical Assistance -
MMIS - Glider - OIG Audit."  This document has a handwritten notation
"Sample #59."  Close scrutiny of this document reveals that the name of
the recipient of the services is "Allen," and the amount of the payment
is $5.43.  The second document included in Exhibit 45, entitled
"Colorado Department of Social Services - Bureau of Medical Services -
OIG Audit of Colorado Claims Process - Audit Claim Report" indicates a
recipient name of Cristelli, a claimed amount of $3.97, and a payment
amount of $0.  CSC also submitted a copy of a microfilmed claim form
(copied backwards) showing the recipient name "Cristelli," with a claim
amount of $3.97.  CSC Ex. 44, p. 5.  The audit report shows a payment
amount of $5.43 for Claim No. 59.  State Ex. 1, Ex. I to the audit
report, p. 1.  This supports a finding that sample Claim No. 59 was for
recipient Allen rather than for recipient Cristelli.  Thus, we conclude
that, contrary to what CSC argued, it did not produce a copy of the
microfilmed claim form for the sample claim.

Therefore, we uphold HCFA's finding on Claim No. 59 since CSC did not
submit the required source documentation of the provider's claim
necessary to verify that the claim for Allen was paid correctly.

 B.  Claim Type:  Physician

Claim 402

This physician claim was cited as paid in error on the basis that a
required copayment was not deducted from the amount allowed.

CSC explained that under the State's MMIS requirements, a recipient
copayment amount is properly deducted from amounts otherwise payable to
providers for services rendered to non-exempt Medicaid beneficiaries
under some circumstances.  In the case of a community mental health
center provider, the State MMIS requirements specify that only one
copayment deduction for these services is required per date of service.
CSC Ex. 46, p. 4.  CSC argued that it did not deduct a copayment for the
sample claim because the requisite copayment had already been deducted
from the same provider for the same recipient for another claim for the
same date of service for the same provider and recipient.

HCFA did not deny that only one copayment deduction is required per date
of service.  HCFA acknowledged that the claims history provided by CSC
shows a deduction of a $1 copayment for a service with procedure code
X0171 provided on 7/16/86, the same date as the sample claim, but argued
that CSC did not supply the original claim form for this claim.  HCFA
argued that neither the State nor CSC had supplied sufficient supporting
documentation for their contention that the required copayment was
deducted for a service on the same date as the sampled claim.

With its reply brief, the State submitted the requisite claim form
showing a service with procedure code X0171 provided on 7/16/86,
supporting its contention that the required copayment had been deducted.
State Ex. 21.  Thus, we conclude that this claim was paid correctly and
reverse HCFA's finding that Claim No. 402 was overpaid by $1.

Claim 407

This physician claim was cited as paid in error on the basis that an
incorrect rate was used to price the claim, since the payments made were
higher than could be computed using the rates on file for the service
provided on the dates the service was provided.

The State argued that the audit report does not show that the price
actually paid on this claim was inconsistent with the State Plan,
federal regulation, or the Act.  The State argued that the auditors
selected the "correct price" from documentation that was not generated
until approximately one month after the claim was actually paid.  State
Ex. 4.  CSC argued that this claim was paid correctly, explaining that
the claim was initially suspended since there was no price on file for
the procedure code.  To remedy this, a joint State/fiscal agent task
force was formed to determine, among other things, a price for this
procedure code.  In the interim, however, the State instructed CSC to
pay the affected claims as billed, so long as the price was not
unreasonable.  CSC was instructed on 3/27/86 by the State to load a
price for this procedure code with an effective date of 7/01/84.  CSC
explained that the claim in question, however, was processed prior to
3/27/86 and was paid as billed because the prices were not unreasonable.

HCFA contended that the pricing information for this procedure code was
first established effective 7/01/83 at $11.75.  Consequently, that was
the effective price on 8/26/85, the date of service.  This was the
pricing figure used by the auditor.  HCFA argued that whether the price
was determined before or after this claim was paid, the State clearly
intended the price to be retroactive to 7/01/83.  HCFA, therefore,
concluded that since the amount allowed ($30) was not adjusted
accordingly, the claim was properly cited as an error.

The issue here is not the reasonableness of CSC's actions in paying the
claim.  Rather the central question is whether the claim was paid in
accordance with the State plan and therefore, FFP is allowed for the
claim.  The evidence presented shows that the correct price under the
State plan for this procedure code for the date of service (according to
the information provided by the State to CSC) was $11.75.  Absent any
evidence from the State that the information it provided to its fiscal
agent was incorrect, we conclude that the amount ($30) paid for this
claim was in excess of the amount set forth under the State plan.

Therefore, we sustain HCFA's finding that this claim was overpaid by
$18.25 ($30.00 - $11.75).

Claim 420

This claim was cited as paid in error on the basis that a required
copayment of $1 per visit was not deducted from the payment on this
claim.

The State argued that the audit report did not explain how it was
determined that a copayment should have been deducted.  The State argued
that the audit workpapers indicated that the auditors recognized that
the documentation in the claim file was insufficient to question the
nondeduction of the $1 copayment and that the available documentation
supports a finding that one copayment had already been made and that a
second copayment would not apply.  State Ex. 6.

A computer printout submitted by CSC indicates that for the recipient in
question certain services were received on the same date at the same
facility.  CSC Ex. 48, p. 2. 9/  This document indicates that a $1
copayment was deducted for this recipient for service procedure X0171
provided on 6/6/86 at Jeffco Mental Health Center.  A computer printout
for the sampled claim indicates no copayment was deducted for service
procedure X0147 provided to the same recipient on the same date by the
same provider.  HCFA Ex. 2.  HCFA, however, contended that the claim
form lists only procedure code X0147 and that the State did not submit a
claim form referencing procedure X0171 for that same date.  CSC Ex. 48,
p. 2.  Consequently, HCFA argued that neither the State nor CSC had
provided sufficient documentation either to support the copayment or to
support a conclusion that the recipient was exempt from copayment.

We agree with HCFA generally that the original claim form (or a
microfilmed copy) is necessary to document that a provider submitted a
claim for a service provided on a particular date.  In accordance with
the statute, the regulations, and the State Plan, the State was required
to retain adequate source documentation to support the Medicaid
payments.  See section 1902(a)(4) of the Act and 42 C.F.R. 431.17; see
also 42 C.F.R. 74.61 and 42 C.F.R. 433.32(a) (requiring source
documentation to support accounting records) and 74.20 and 42 C.F.R.
433.32(b) and (c) (retention period for records).  The absence of any
claim form here is significant because HCFA's copy of the computer
printout showing the copayment deduction of $1 has the auditor's
notation indicating that this printout had an error either in the
invoice number (which was paid in a different transaction) or in the
date of service.  HCFA Ex. 1.

Thus, we conclude that the State has failed to document that a copayment
was deducted for another service rendered on the same date as the sample
claim.  Therefore, we sustain HCFA's finding of error for this claim.

Claim 445

The payment on this claim was cited as an error on the basis that the
provider, who assisted in certain surgery, was not paid at the assistant
surgeon's rate.  The audit report stated:  "Although the claim did not
have the assistant surgeon modifier on it, subsequent processing of the
surgeon and anesthesiologist claims should have resulted in
identification and correction of the overpayment to the assistant
surgeon."  State Ex. 1, p. 7.

The sample claim was for payment to Dr. Pyle, and the documentation
indicates that Dr. Pyle was the assistant surgeon on the procedure.  See
HCFA Ex. 3; cf. CSC Ex. 49.  Furthermore, the sampled claim was the
first of the claims from three different physicians processed for this
same procedure.  CSC Ex. 49.  When the surgeon's claim was processed
later, apparently the claim did not hit a computer edit that would have
identified the sample claim as a duplicate.

The State argued that there is insufficient evidence in the
documentation to show that this claim should have been denied as a
duplicate or paid at a different price.  CSC argued that this claim was
in fact processed correctly according to the State's MMIS requirements
(which identified a physician claim as a duplicate only if the provider
was the same) and that the characterization of this claim as an
overpayment is a recommendation that future functions of the State's
MMIS should be changed.

Again, the issue here is not the reasonableness of the fiscal agent's
payment of the claim under the MMIS.  The question is whether this claim
for an assistant surgeon was paid in accordance with the State Plan and
whether FFP is allowable for this claim.  CSC's documentation indicates
that the State pricing of physician claims differs depending on the type
of physician (including the price of physician claims for assistant
surgeon services).  CSC Ex. 49, p. 1.  Neither CSC nor the State
specifically disputed the audit finding that the provider listed on the
sample claim was reimbursed at a price greater than that to which he was
entitled under the State Plan.  Nor did they deny that the claim did not
have the assistant surgeon modifier on it.  As we explained above, HCFA
said it was determining the proper payment amounts through lists
provided by the State to CSC.  Absent any showing by the State that a
different amount applied under the State Plan, we find that the auditors
correctly found that the claim was overpaid.  Furthermore, there is no
indication that this overpayment was corrected.

Therefore, we sustain HCFA's finding that this claim was overpaid by
$90.20.

 C.  Claim Type:  Medicare Crossover

Claims 534, 539, 564, and 599

The auditors determined that there was no documentation to support the
payments made on these claims.  These claims (referred to as "crossover
claims") involved Medicaid recipients who were also eligible for
Medicare.

The State contended that these claims were unlike any others in the
audit because the original claims were never submitted to the State or
CSC.  Rather, the claims were submitted to the Title XVIII (Medicare)
fiscal intermediary.  For these Medicare crossover claims, the claim is
transmitted tape-to-tape to Medicaid.  The State argued that it was
unfair to penalize the State because the Medicare fiscal intermediary
failed to keep needed records.  Colorado indicated that it recognized it
has a duty to maintain necessary records pursuant to 42 C.F.R.
431.17(b).  The State asserted, however, that it had no duty to create
facsimiles of records which should have been kept by others and over
which the State has no control, such as the Medicare fiscal
intermediary.  Also, the State contended that the facsimiles are not
"source documentation" pursuant to 45 C.F.R. 74.61.

CSC contended that the auditors did not conclude that these claims were
processed incorrectly but only that the differences in media employed in
the different systems (tape-to-tape versus hard copy) frustrate the
effort to verify the nature and extent of services rendered to Medicaid
beneficiaries.  CSC also argued that the recommended disallowance for
these claims is insupportable based on statements in the audit
workpapers that indicated there was not a sufficient basis for
classifying these claims as errors for FFP disallowance purposes.

We agree with HCFA that 42 C.F.R. 431.17 requires that the Medicaid
agency maintain records necessary for the proper and efficient operation
of the plan and the records must include individual records on each
recipient that contain information on the provision of medical
assistance.  See also 42 C.F.R. 433.32 (requiring that the State Plan
must provide that the Medicaid agency will maintain an accounting system
and supporting fiscal records to assure that claims for federal funds
are in accord with federal requirements).  Furthermore, on crossover
claims from Medicare the tape or the facsimile created from the tape are
the only "source documentation" available to the State.  The State would
clearly have the responsibility under the regulations either to retain
copies of the tapes or to produce facsimiles of the claims on which it
relied in making Medicaid payments.  Absent any assurance from HCFA that
it was requiring the Medicare intermediary to maintain records of
Medicare crossover claims transmitted to the State, the State could not
reasonably rely on the Medicare fiscal intermediary to fulfill this
State responsibility.  Contrary to what CSC argued, the issue here is
not the form of the records, but the failure to retain any record to
document the Medicaid pricing and payment of the crossover claims.
Failure to have any supporting records for the payments is a sufficient
basis for disallowing the claims for federal reimbursement. 10/

Furthermore, we find no merit in the allegation that certain statements
in the audit workpapers confirm there was not a sufficient basis for a
disallowance.  First, statements in audit workpapers may represent only
the preliminary findings of the auditors.  Second, it is not clear the
cited statements are those of the auditors, rather than of State or CSC
commenters.  See CSC Ex. 50, pp. 3, 6, 9, 13.  Finally, the auditors
merely recommend findings to HCFA.  It is HCFA that determines whether
it will go forward with any particular action.  42 C.F.R. 430.33(b)(3).

Thus, we conclude that HCFA properly determined that these claims were
not allowable for federal reimbursement.

Claim 552

This claim was cited as paid in error on the basis that a required
copayment was not deducted from the amount allowed.

The State argued that the audit report does not explain how it was
determined that a copayment should have been deducted.  The State
pointed to a statement in the audit workpapers that it believed
indicated that the auditors found the documentation in the claim file
was insufficient to question the nondeduction of the $1 copayment and
that the auditors were unable to determine whether the medical condition
to which Claim No. 552 relates is a copay-exempt emergency service.

CSC argued that no copay deduction was required for this claim because
the place of service was an inpatient hospital.  CSC indicated that the
claim line detail in the Audit Claim Report indicates a physician visit
with an inpatient hospital place of service.  CSC Ex. 51, p. 3.

Although CSC argued that this claim was exempt from copay because the
place of service was an inpatient hospital, CSC did not point to any
specific information on the claim history form supporting such a
finding.  The claim history form indicates that the provider was a
physician.  No hospital or inpatient provider is listed on the claim
history form.  CSC Ex. 51, pp. 2-3.

HCFA pointed out that this was a Medicare crossover claim and that under
Medicare the place of service code 3, which appears on the audit claim
report, is for a doctor's office place of service, as opposed to a place
of service code 3 in Medicaid which represents inpatient place of
service.  CSC Ex. 51, pp. 2 and 3.  CSC did not deny that this was a
Medicare crossover claim or that the Medicare place of service code 3
relates to physician service in the physician's office.  According to
the information CSC provided, this type of visit requires a copayment.
CSC Ex. 51, p. 1.

The State also argued that HCFA had not shown that the service was not
an emergency service exempt from the copayment requirement pursuant to
42 C.F.R. 447.53(b).  However, as discussed above, the burden was on the
State to show why a particular finding is incorrect.  Here, it is a
requirement of federal regulation for the State to specify in its State
Plan the procedures for implementing the exclusions from the copayment
requirement.  The State did not show how the State Plan determines
whether medical services constitute "emergency services" so as to be
exempt from the copay requirement.  There is no reason why the State
could not have submitted the relevant portions of its State Plan that
explain what constitutes an emergency service.  In this instance, one of
the computer printouts submitted by CSC indicates that the diagnosis was
a urinary tract infection.  CSC Ex. 51, p. 7.  Under Medicaid
regulations, in order to be exempt from copay as emergency services,
services must be provided after the sudden onset manifesting itself by
acute symptoms of sufficient severity, including pain, such that the
absence of immediate medical attention could be expected to result in
placing the patient's health in jeopardy, serious impairment to the
bodily function or serious dysfunction of any bodily organ or part.  42
C.F.R. 447.53(b)(4).  A urinary tract infection would not necessarily
fit this description.  Consequently, the record does not support a
finding that this claim was exempt from the copay requirement as an
emergency service.

Thus, we conclude that HCFA correctly determined that a $1 copayment is
necessary, and therefore Claim No. 552 was overpaid by $1.

 D.  Claim Type:  Supply

Claim 620

This claim was cited as an error on the basis that it was a duplicate
payment of an earlier submitted and paid claim for the same service
provided by the same provider to the same recipient.

The State said that "the earlier claim appears to have been paid on
September 16, 1985, before CSC became Colorado's fiscal agent."  State's
brief, p. 10.  The State contended that the sample claim is not
identical to the earlier paid claim because the procedure code is
different (although the State conceded that the written description of
the service is the same).  State Exs. 9.and 10.  The State argued that
there is nothing in the State plan, federal regulations, or statutes
that requires an MMIS to determine if a claim has been paid under old
procedure codes used by a former fiscal agent.  The State contended that
the MMIS can read only the procedure codes that are keypunched into the
system and it cannot react to written descriptions of the services on
the claim forms.  The State, thus, argued that this claim was processed
correctly and should be removed as an error.

CSC, however, never mentioned the previous claim that was paid in
September 1985 but instead argued that reimbursement was properly paid
for two different eyeglass lenses (right and left) that were provided.
Regarding the sample claim, CSC argued that the claim line (02)
initially was suspended as an apparent duplicate.  CSC Ex. 52.  CSC
asserted that on further review the examiner properly overrode the
duplicate edit since one claim line was for a left lens and the other
for a right lens.  CSC further asserted that it had verified through a
recipient profile that the history did not indicate any other claims
which would be in conflict.

The documentation includes two claim forms submitted by the same
provider (Rainbow Optical) for the same recipient for the same date of
service.  The written descriptions of the procedures are identical (two
lenses and a frame), but the sample claim uses the procedure code V2100
for each lens and the other claim uses the code 09231 for each lens.
The sample claim form is marked "Rebill."  State Exs. 9, 10.  HCFA
argued that it is clear from this that the sample claim, adjudicated
6/21/86, is a rebilling of the first claim and that both claims were
paid, the second one in error.

Again, the question before us is not whether the sample claim was
processed correctly under the MMIS but, rather, whether the payment is
allowable.  Clearly, if the provider received reimbursement twice for
the same service, the provider has been overpaid.  The State cannot be
excused from its responsibility for such an overpayment merely because
it changed fiscal agents.  The State had a responsibility for ensuring
that such a change would not result in duplicate payments.

CSC's theory about what happened is not totally implausible, but is not
sufficiently supported, particularly in view of the State's admission
that the earlier "claim" was paid on 9/16/85 by the other fiscal agent.
Although the State said payment was .under a different procedure code,
presumably this means under code 09231 rather than code V2100 and does
not distinguish one lens from the other.  Thus, the implication is that
payment was made on 9/16/85 for both lenses, and no evidence was
submitted to show that only one lens was paid for at that time.  Nor is
there any evidence which supports a finding that any claim for the
second lens (item 02 on the claims forms) was suspended.  While the
claims history printout for the sample payment indicates there was a
previous transaction, the TCN for that transaction has the identifier 00
at the end, rather than the 02 identifier one would expect if it related
to the second lens.  CSC Ex. 52, p. 2.

Finally, CSC failed to present any evidence from the recipient history
which would support a finding that payment was made only once for the
second lens.

Therefore, we uphold HCFA's finding for Claim No. 620, involving a
payment of $11.75.

 E.  Claim Type:  Dental

Claim 768

This claim was cited as an overpayment on the basis that the third-party
insurer paid the full amount allowed for this service for the Medicaid
program.

Both the State and CSC argued that this claim was processed correctly.
CSC contended that this claim was initially suspended with error code
51, which means that the billed claim indicates Third Party Liability
but there is no indication that the third party carrier has been billed.
CSC Ex. 53, p. 4.  CSC argued that under the Colorado MMIS requirements
for this error code, it was to pay the claim, overriding the error code,
and forward a copy to the State to research and update the recipient
eligibility file.

The State contended that a copy of the third party insurer's form
indicated that the insurer paid $2 and Medicaid paid the remaining $2.
State Ex. 12.  The State contended that Medicaid properly paid the
amount not paid by the private insurer.

HCFA contended that at the time this claim was submitted for payment to
Medicaid, the claim history form indicated no third party liability
payment.  HCFA said that the claim was suspended, but CSC then paid the
Medicaid scheduled amount of $2 for this type of procedure and .sent the
claim to the State to research and update the recipient file.  See CSC
Ex. 53, p. 4.  In its reply brief, the State argued that HCFA did not
reference any State Plan provision or regulation indicating that $2 is
the maximum allowable charge for this service.  The State argued that
HCFA relied on the claims history form without attempting to determine
whether the amount paid by CSC was the maximum allowable charge.

As we have stated previously, the State's records should support the
Medicaid payments made.  See section 1902(a)(4) of the Act and 42 C.F.R.
431.17; see also 45 C.F.R. 74.61 and 42 C.F.R. 433.32(a) (requiring
source documentation to support accounting records) and 45 C.F.R. 74.20
and 42 C.F.R. 433.32(b) and (c) (retention period for records).  Here,
the third party insurer's form indicates only that the provider charged
$4, that the insurer paid $2, and that the reason the remaining $2 was
not paid by the insurer was that the charge exceeded the allowable
benefit.  State Ex. 12.  Contrary to what the State alleged, the
insurer's form does not indicate in any way that the Medicaid payment of
$2 was intended to cover the part of the charge the third party insurer
would not pay.

Moreover, the remaining documentation is consistent with CSC's and
HCFA's explanation that CSC made a payment based on an override of the
error code (leaving it to the State to recover from the third party
insurer), rather than because CSC determined that Medicaid was liable
for the $2 the insurer did not pay.  The claim form submitted to CSC by
the provider does not specifically indicate that $2 had been paid by the
insurer for the line item at issue.  CSC Ex. 53, p. 2.  The claims
history form shows no third party payment for this particular service
and indicates that the provider billed $4 and CSC paid $2.  Under the
circumstances of the override, the most reasonable inference is that $2
is the maximum amount allowed by Medicaid.  While the State argued that
HCFA has not shown that $2 was the maximum amount payable by Medicaid
for this service, the burden is on the State to show that HCFA's
findings were wrong.  This mere allegation by the State without any
documentary support is insufficient, particularly in light of the claims
history documentation here.

Therefore, we sustain HCFA's finding that there was a Medicaid
overpayment of $2 for this claim.


 F.       Claim Type:  Early and Periodic Screening,
 Diagnosis and Treatment

Claim 837

This payment for EPSDT (Early and Periodic Screening, Diagnosis and
Treatment) services was cited as an error.

The claim history forms show there were three claims for the same
recipient for EPSDT services on the same date and for the same
procedure.  Each of the claims was reimbursed at $4.15.  The original
claim, TCN 6013-440-001-40-05, was adjudicated on 3/10/86 and paid to
Dr. Dunn on 3/12/86.  HCFA Ex. 7.  The next claim, TCN
6072-052-0008059-02, was adjudicated on 4/6/86 and paid to Greeley
Medical Clinic, where apparently Dr. Dunn worked, on 4/7/86.  The third
claim, which was the sample claim, TCN 6160-099-0017-03, was adjudicated
on 6/21/86 and paid to Greeley Medical Clinic on 6/23/86.  State Exs.
13, 14.  CSC also submitted a computer printout which shows a retraction
of a $4.15 payment, TCN 6245-693-1008022-02.  CSC Ex. 54, pp. 1 and 3.

The State argued that the sample claim, TCN 6160-099-0017-03, was not a
duplicate payment because the payment made under this claim was
retracted under TCN 6245-693-1008022-02.  The State contended that any
error in payment of TCN 6072-052-8059-02 is beyond the scope of the
audit because that claim was not selected as a sample claim and the
subsequently paid sample claim was cured by the retraction.

HCFA argued that the retraction of payment did not retract the sample
claim but rather retracted the payment made under TCN
6072-052-0008059-02.  HCFA claimed that the 02 at the end of the TCN for
the retraction identifies a line item on the claim form and therefore
the retraction must relate to the payment with that same 02 identifier.
Thus, HCFA argued, that the sample claim was still a duplicate payment.

CSC Exhibit 54 establishes that the claim retracted was more likely the
sample payment than the payment HCFA said was retracted.  The printout
for the retraction specifically refers to TCN 6160-099-0017 (with only
the line item identifier being different), and to an adjudication date
of 6/21/86, which is consistent with the sample payment, rather than
with the payment to which HCFA said the retraction referred.  Moreover,
even if the retraction listed an 02 line item identifier, rather than
the 03 line item identifier like the sample payment, the retraction
refers to a procedure code (for a skin test) which is consistent with
the sample payment.  It is highly unlikely that the provider submitted
two line item claims for this same EPSDT procedure provided to the same
recipient on the same date.  The documentation the State and CSC
provided is at least sufficient to shift the burden to HCFA to show that
it was not the sample claim that was retracted.  We find no substantial
evidence that this was so.

Therefore, we reverse HCFA's finding on Claim No. 837 for $4.15.  Thus,
HCFA may not project this payment as an error to the universe of claims.
11/

Claim 851

This claim for an injection was cited as an error on the basis that it
was manually priced at a higher rate than that allowed under the State's
Medicaid program.

The State argued that the audit report does not explain how the alleged
correct price was determined nor does it show how the price paid
violated the State Plan or any federal regulation or statute.  CSC
argued that procedure code 90749 is the code for an unlisted therapeutic
injection.  See also CSC Ex. 55.  Therefore, CSC said, the claim was
suspended during the claim processing in order to be priced in
accordance with error code 405.  The claim was manually priced at $12.

HCFA indicated that the claim form for this claim shows procedure code
90749, and then the written description, "H-Flu (Hemophilus)," as the
service provided.  CSC Ex. 55, p. 1.  HCFA contended that the correct
procedure code for Hemophilus Influenza Vaccine was 90737.  HCFA
contended that because the initial claim listed the wrong procedure
code, the claim was paid at the amount billed of $12, an incorrect
price.  HCFA stated that the correct pricing factor for the time at
which the service was provided was $4.53, which is then multiplied by
the medical conversion of 2.35 to give the correct payment amount of
$10.65.

HCFA presented a computer printout of a procedure inquiry from the
reference file which, contrary to the State and CSC's assertions,
indicates a procedure code and pricing factor for Hemophilus Influenza
Vaccine.  HCFA Ex. 9.  While the doctor filing the claim may have used
the procedure code for a therapeutic injection of a type not on the
procedure code list, it is apparent that a procedure code and pricing
data for this injection did exist.  Apparently, CSC overlooked the fact
that an appropriate procedure code and pricing factor existed, and paid
the claim as billed.  Absent any evidence that the pricing information
for this procedure provided by HCFA did not apply to the sample claim,
we find that HCFA correctly used that information to determine the
correct price of the claim.  The State did not show that this pricing
information was incorrect or was inapplicable to the service actually
provided.  Indeed, the State did not even allege that the amount CSC
paid was correct.

Accordingly, we conclude that the auditors correctly determined that
this claim was overpaid by $2.23.

Claim 862

This claim for payment of administration of oral polio vaccine was cited
as erroneously paid on the basis that it was a duplicate payment.

The State argued that this claim was not a duplicate of an earlier
payment because the earlier payment was made to a different physician.
In its reply brief, the State contended that the issue is not whether it
is more or less likely that this claim is a duplicate but whether
federal regulation requires a state to treat similar but non-identical
claims as duplicates.  The State argued that in the absence of a
specific citation to a federal regulation, there is no basis to question
FFP in the payment of this claim.

CSC argued that according to the Colorado MMIS Detail System Design, a
duplicate claim requires:

 o  same provider o  same recipient o  same date of service o
 same procedure code o  same billed amount

CSC argued that since the claims in question were submitted by two
different providers they do not constitute duplicates and therefore
there is no evidence that any improper or unauthorized services were
rendered.  CSC Ex. 56.

HCFA reviewed the two claims and found that the first transaction, TCN
06230-097-0004027-04, for a Polio Virus Vaccine, Live, Oral resulted in
a payment of $12 to Dr. Derrington on 9/15/86.  HCFA Ex. 10.  The second
payment, TCN 06279-501-0009011-04, for the same procedure on the same
date to the same recipient was made to Dr. Mahan on 10/28/86.  HCFA Ex.
11.  The claim for the second payment was marked "Rebill" at the top
left of the form.  HCFA Ex. 12.  HCFA contended that the second payment
was priced correctly at $13.30 but that $12 of that amount duplicated
the first payment.  HCFA also submitted evidence from the Pueblo,
Colorado telephone book indicating that Drs. Derrington and Mahan are
listed at the same address and with the same telephone number.  HCFA Ex.
13.  HCFA contended that although the providers listed are different, it
is unlikely that an oral polio vaccine would be administered to the same
one-year old recipient on the same day.  HCFA further argued that given
the fact that the second claim for payment was marked "Rebill," the most
likely inference to be drawn is that a duplicate payment was made.

One of the requirements under 42 C.F.R. 447.45(f) for reviewing claims
is to verify whether the claim duplicates or conflicts with one
previously reviewed and to check whether the services rendered are
logically consistent with the recipient's characteristics and
circumstances, such as type of illness, age, sex, and service location.

The question here is not whether CSC correctly processed the claim under
the requirements of its contract with the State.  The question is
whether this claim is allowable for FFP.  A review of the claims
documents in the process of prepayment review should have alerted a
reviewer to the fact that this payment was for the same service
previously paid.  The fact that the providers may be different is not
enough.  The regulations specifically require that claims be reviewed
for logical consistency with the recipient's characteristics.  Here, it
is illogical that a one-year old child would receive two oral polio
vaccines on the same day.  Given this and the fact that the second claim
was marked "Rebill," the reviewer should have realized this
inconsistency if the prepayment review had been properly performed in
accordance with the regulations.  The fact that the second payment may
not have fit the State's definition of a "duplicate" may explain why CSC
did not identify the problem, but it does not mean that FFP is available
in two payments for the same service.

The documentation in the record establishes that the sample claim
resulted in a payment of $12 more than should have been paid for this
service.  As a result, we sustain HCFA's finding of a $12 overpayment.

Claim 866

This claim was cited as a duplicate payment.

The State argued that the sample claim was paid correctly.  The State
indicated that the auditors had noted that the error in payment, if any,
occurred only in later claims that were not part of the sample chosen
for the audit.  According to the State, the error alleged here was in
non-sampled claims, and the sample claim should be removed as an error.

CSC also argued that the claim was paid correctly.

HCFA argued that the sample claim erroneously showed the age of the
recipient as being over 21 and that this would indicate that the
recipient was ineligible for EPSDT services because these services are
available only to recipients under 21 years of age.  CSC Ex. 57, p. 2;
42 C.F.R. 440.40(b).  HCFA indicated that this was an error that should
have been projected whether or not any subsequent payments were made.

HCFA indicated that subsequent payments were made for the same
recipient, who was identified as a one-year old.  The second payment was
paid on the same date as the first payment.  CSC Ex. 57, p. 3.  HCFA
then contended that a third payment on a physician claim was made on
11/4/86 for the same procedure to the same recipient on the same date by
the same provider.

The record presented indicates that the sampled claim was not a
duplicate payment as HCFA asserted.  First, the error in the sample
claim was apparently a typographical error in the birthdate.  CSC Ex.
57, p. 2.  This was not the error cited by the auditors or by HCFA in
its disallowance.  Moreover, the State could properly make a payment,
irrespective of the typographical error in the birthdate, so long as the
recipient was in fact under 21.  HCFA implied that CSC had erroneously
failed to stop payment for a claim for an individual identified as being
over 21 and that this type of error could have recurred in the universe.
If the sample claim is truly representative of the universe, however,
then the inference is that other claims were properly paid in spite of
an erroneously listed birthdate.

We also reject HCFA's argument that an error should be found because the
second claim for payment paid on the same date as the first was a
duplicate payment.  CSC Ex. 57, p. 3.  The claims history document
indicates that the warrant number of the sample claim and the alleged
second duplicate payment are the same and indicate the same payment
date.  See CSC Ex. 57, pp. 2 and 3.  Consequently, it appears that there
was no duplicate payment between these claims but rather the second
claim was in fact a correction and or retraction of the sample claim.
While the record indicates that a later physician claim was apparently a
duplicate of the sample claim, the State is correct here that the sample
claim and its correction was a proper payment. 12/

Consequently, we overturn HCFA's finding of error for sample Claim No.
866 for $4.15.


III.     Whether HCFA properly projected to the universe       errors in
claims processed manually and in Medicare   crossover claims

The State argued that the audit was conducted to determine if a large
number of errors had been made by the State's MMIS during the audit
period.  The State contended that MMIS is an almost completely automated
system, and it is reasonable to assume that, if an error is made by the
automated system with a particular kind of claim, the system will repeat
the error when similar claims are processed.  The State contended that
some of the claims cited as errors have nothing to do with the automated
MMIS because, for example, the claim was priced or processed manually
and the examiner incorrectly determined the price.  See Claim Nos. 410,
680 and 824.  The State claimed there is no reason to assume that
similar errors would be made in other cases.  Consequently, while the
State agreed that these claims were paid in error, it contended that
these claims cannot be the basis of projecting errors onto the entire
universe of claims.  The State argued that these claims should be a
separate stratum so that similar claims could be compared to each other,
rather than to project errors from these claims onto a universe
containing nearly all automatically priced claims.  Similarly, the State
argued the Medicare crossover claims, if found to be paid in error,
should not have been projected onto any universe of claims.

We disagree with the State's contention that the purpose of this audit
was to examine the operation of the State's MMIS and therefore, there is
no valid reason to project manual processing "errors" to the universe of
paid Medicaid claims.  The audit report states:

     The primary objective of this audit was to determine if the amount
     claimed by the CDSS [the State] for medical services provided to
     recipients was allowable.

CSC Ex. 13, p. 3.

As HCFA indicated, the stated purpose of the audit was not to examine
the automated MMIS.  In fact, there is no dispute that the State's MMIS
had not been approved and certified as operational during the time
period being reviewed by the audit.  The universe here consisted of all
Medicaid claims which were paid by the State during the 18-month period
of the audit, rather than only those claims which were automatically
processed during this period.

Moreover, the regulations providing for timely claims payment recognize
that regardless of whether a claim is processed by an automated system,
the State is still required to conduct prepayment and postpayment claims
reviews of all claims.  42 C.F.R. 447.45(f).  Furthermore, it is
understood that even if an automated system is used, the system may have
edits that will suspend a claim and require that the claim be processed
manually.  It is logical and consistent with the intent of the audit,
the sample chosen, and the nature of the claims payment process to
project manual errors to the universe of all the Medicaid claims
processed and paid during this period.  This universe would include
manually processed claims as well as automatically processed claims.

We also cannot agree with the State that there is no reason to project
the errors in Medicare crossover claims to the universe.  The State
argued that, even if these claims were paid in error, the error is the
fault of the Medicare intermediary and not the State Medicaid agency.
The State seems to reason that since the Medicare intermediary purged
its files and the State Medicaid agency did not have either facsimiles
or other documentation to support the payment of this claim, there is no
reason to believe that any of these claims were paid in error.  The
State, however, overlooks applicable requirements that the State
Medicaid agency must have source documentation to support its claims for
medical services for which federal reimbursement is being sought.  42
C.F.R. 433.32; 45 C.F.R. Part 74, Subpart H.  The requirement for
documentation of claims is simple; without source documentation, there
is no record that a payment was made as claimed.

Furthermore, the State has not convinced us that either the manually
processed claims or the Medicare crossover claims in the sample were not
representative of the universe of claims.  The State did not allege that
the sample was not drawn in a statistically valid manner.  The
assumption underlying a validly drawn sample is that it is
representative of the universe from which it is drawn.

Thus, we conclude that HCFA correctly projected the errors in manually
processed claims and in the Medicare crossover claims to the universe of
paid Medicaid claims for the audit period.


IV.     Whether HCFA's method of projecting the errors to the universe
of claims was statistically valid

As indicated above, HCFA's sample of the State's claims was a stratified
sample, with 100 claims drawn from each stratum.  (The strata chosen
were based on the type of provider submitting the claim.)  After the
second draft audit report, the State reprocessed three strata:  nursing
home, inpatient hospital, and outpatient hospital.  HCFA had originally
calculated a point estimate and lower limit based on the 44 errors found
in all strata.  The State then reprocessed the three strata, however
(and returned FFP in approximately $15.6 million of excess or improper
payments identified as a result of the reprocessing).  These three
strata had included 12 sample errors.  Also, for 8 sample payments in
which the auditors had found missing or inadequate documentation, the
State provided documentation which the auditors found satisfactory.

In recalculating the disallowance based on the final report, HCFA
obtained a point estimate of $3,129,924 by subtracting from the original
point estimate the point estimates for the 8 sample payments for which
documentation was later found and for the 12 payments in the reprocessed
strata.  HCFA also calculated a lower limit of the two-sided 90%
confidence interval, which HCFA determined was $1,585,932 ($792,966 in
FFP). 13/  HCFA's calculation was based on use of the precision figure
(50.67%) calculated for the original audit results.

Neither the State nor CSC challenged HCFA's use of sampling in general
as a basis for disallowance, nor HCFA's calculation of the point
estimate.  Indeed, the courts and this Board have upheld the use of
statistically valid sampling methods as a basis for determining a
disallowance amount.  See, e.g., Rosado v. Wyman, 437 F.2d 619, 627-628
(2nd Cir. 1970), aff'd, 402 U.S. 991 (1970); Georgia v. Califano, 446 F.
Supp. 404, 409-410 (N.D. Ga. 1977); California Dept. of Social Services,
DAB No. 816 (1986), pp. 4-5.

CSC presented an affidavit from a statistical sampling expert which
challenged HCFA's calculation of the lower limit of the confidence
interval.  He asserted that HCFA had erred in how it calculated the
lower limit.  Specifically, he said that HCFA's use of the 50.67%
precision figure related to the original point estimate (calculated
based on 44 sample errors) was inappropriate and inconsistent with
standard statistical procedures.  He stated his opinion that (assuming
24 errors) the statistically correct projection of the lower limit for
overpayment would be $87,258 ($43,629 in FFP).  CSC Ex. 58.

CSC also pointed out that its expert's projection was similar to
calculations performed by OIG in August 1989, but apparently discarded.
CSC Br., p. 35, citing CSC Exs. 34 and 35.

In response, HCFA argued that the conclusions drawn by CSC's
statistician were erroneous because they were based on 24 projected
errors rather than 44 projected errors.  HCFA Br., pp. 40-41.

The Board then issued a number of questions to the parties, noting in a
preliminary analysis that it appeared that there was merit to CSC's
expert's position.

CSC's expert provided a detailed response to the Board's questions and a
supplementary affidavit with citation to the statistical treatises on
which he relied.  CSC submission of 1/12/91, CSC Ex. 66.  HCFA then
submitted an affidavit by the Regional Statistical Specialist, OIG, who
had advised HCFA on how to evaluate the sample results.  HCFA submission
of 5/3/91, enclosure (Samworth Declaration).  In its cover letter, HCFA
asserted:

     [T]here is no material dispute as to the results of using the
     statistical formulae employed by the parties in this case; rather,
     the dispute comes down to whether it is appropriate in making a
     statistical projection of the total overpayment to include as
     errors all the claims cited as overpayments by the agency.  Stated
     in its most basic terms, CSC's statistical expert has made his
     projections from a different--and in the agency's view, an
     inappropriate--set of assumptions as to which claims should form
     the basis for the projection and, not surprisingly, has arrived at
     a total overpayment amount that is lower than that reached by the
     agency.

CSC then submitted a point-by-point response by its statistical expert
to the Regional Statistical Specialist's affidavit.

Based on our analysis of the record, we conclude that CSC's expert
correctly pointed out a flaw in HCFA's method for calculating the lower
limit.

HCFA provided absolutely no support for its position that the 44 errors
should be projected to the universe, rather than the 24 errors.  As the
Board indicated in its preliminary analysis:

o  With respect to the 8 audit findings which related to missing or
inadequate documentation where the adequate documentation was later
found, we see no reason to project those findings to the universe.  If
those sample cases are in fact representative, then it is reasonable to
infer that adequate documentation would ultimately be provided for the
corresponding cases in the universe.

o  The mere fact that HCFA used the variance percentage originally
calculated for the 44 errors does not mean that the 44 errors were being
projected to the universe of claims.  HCFA itself subtracted the best
estimates of the dollar amount of the errors associated with the 8
sample cases where adequate documentation was ultimately found and with
the 12 sample cases in the three strata which were reprocessed. 14/
Thus, HCFA applied its variance calculation to the figure representing
the best estimate of the amount of errors associated with only the 24
remaining sample cases.

HCFA's position here is internally inconsistent in that HCFA
acknowledged that there should be no disallowance for the individual
sample payments in which the errors have been corrected, yet argued that
somehow those errors could be a basis for a projected disallowance.
This uses sampling--which is simply a means of determining a
disallowance amount--as a justification for a disallowance which is not
otherwise supportable.  If there is no longer any basis for disallowing
the sample payments, there is no basis for disallowing corresponding
payments in the universe.

We also base our conclusion that HCFA's calculation of the disallowance
amount was flawed on the following:

o  The Regional Statistical Specialist did not disagree with CSC's
expert's assertion that the revised point estimate was adjusted downward
so that it is in effect the point estimate for projecting only the
remaining 24 errors.  Indeed, this is obvious from comparing the
relevant figures and from the fact that the audit report indicated it
was removing as errors the reprocessed claims and claims for which
documentation had ultimately been located.  See State Ex. 1 (audit
report); Exs. I and II to the audit report.

o  The Regional Statistical Specialist, while stating conclusorily that
"the 44 errors found were properly projected to the universe sampled,"
also asserts that the State "was given credit for corrections made and
documents found.  That credit does not negate the significance of the
remaining errors."  Samworth Declaration, pp. 2-3.  It is inconsistent,
however, to use a point estimate based on 24 errors and then to
determine the confidence interval for that point estimate using a
precision figure calculated based on projection from 44 errors.

o  The only rationale offered by the Regional Statistical Specialist for
using the 50.67% precision figure was that the sample was designed and
selected based on a projection of all 12 strata to the universe.  He
expressed a concern that CSC was manipulating the policy of using the
lower limit through "selective correcting of problems for different
combinations of strata."  Samworth Declaration, p. 3.  While CSC's
expert showed that his result could also be obtained by projecting the
errors in the 9 strata which were not reprocessed, his original result
was based on a projection from all 12 strata.  Moreover, we do not see
what the State and CSC did as "manipulating" the data.  To the extent
errors of this type were corrected, there is no need to project them to
the universe of claims.

o  The issue here is properly viewed as a question of the statistical
validity of the method of projecting the remaining 24 errors to the
universe of claims.  CSC's expert supported his opinion with a detailed
explanation that makes sense mathematically and that was supported by
citation to statistical treatises.  The Regional Statistical Specialist
cited no support for his opinion that use of the method proposed by CSC
was inappropriate, relying instead on assertions about CSC's motives.
15/

o       The Regional Statistical Specialist did not express any
disagreement with CSC's expert's opinion that one factor which affects
the amount of sampling precision for a sample is the "variability," that
is, the range of dollar values of the sample errors.  The analysis of
the sample data presented with the CSC's expert's original affidavit
clearly shows a difference in variability in the dollar values when all
44 errors are considered and when only the 24 remaining errors are
considered.  CSC Ex. 58, Ex. B.  Since the lesser variability in the
reprocessed strata would no longer balance out the greater variability
in the other strata, it makes sense that there would be less precision
overall to the revised point estimate than to the original point
estimate for the 12 strata.

In sum, we conclude that HCFA's method used for calculating the
disallowance amount was flawed.  HCFA may not use this method in
recalculating the disallowance based on the 21 errors for which we
uphold the sample findings.  HCFA may use the method explained in CSC's
expert's affidavits, or such other method it determines is a
statistically valid method appropriate to the circumstances.

Conclusion

For the reasons stated above, we find that HCFA properly disallowed for
excess or improper payments resulting from the claims processing errors.
However, the disallowance should be recalculated to reflect the
following:

 o    Since we reversed HCFA's findings on Claim Nos. 402 ($1),
 837 ($4.15), and 866 ($4.15), HCFA should remove those amounts
 from the sample errors in the relevant strata; and

 o    HCFA should recalculate the disallowance consistent with
 the Board's discussion above regarding the appropriate sampling
 methodology.

HCFA should notify the State of how HCFA recalculated the disallowance
amount.  If the State disagrees with how HCFA recalculated the
disallowance amount, the State may return to the Board, within 30 days
after receiving HCFA's notice, on the limited question of the
recalculation.

 


       _____________________________
       Donald F.
       Garrett

 


       _____________________________
       Norval D. (John)
       Settle

 


       _____________________________
       Judith A.
       Ballard
       Presiding Board
       Member. 1.  CSC
moved to intervene in these proceedings and the Board granted this
request.

2.  Since 1985, section 1903(d)(2)(D) of the Act has provided that if a
state is unable to recover a debt or a portion of a debt representing an
overpayment made to a person or entity because that debt has been
discharged in bankruptcy or is otherwise uncollectible, no adjustment in
the federal payment to the state shall be made on account of such
overpayment.  The State did not allege here that it was unable to
recover the overpayments from the providers.

3.  The Board's prior holdings on overpayments issues have been upheld
in three decisions by United States Court of Appeals:  Massachusetts v.
Secretary, 749 F.2d 89 (1st Cir. 1984), cert. denied, 472 U.S. 1017
(1985); Perales v. Heckler, 762 F.2d 226 (2d Cir. 1985); and Missouri
Department of Social Services v. Bowen, 804 F.2d 1035 (8th Cir. 1986).

4.  Under the Act and the regulations, HCFA will review yearly a state's
MMIS operation initially approved as meeting certain conditions and
reapprove the system for 75% FFP for operational expenditures providing
certain conditions are met.  Section 1903(r) of the Act; 42 C.F.R.
433.119.  This review is called the System Performance Review (SPR).
Part of the SPR tests the claims processing accuracy of the system.  If
a state's system does not meet the conditions for reapproval, HCFA will
reduce the FFP in expenditures for system operations from 75% to no more
than 70% and no less than 50%.  Section 1903(r) of the Act; 42 C.F.R.
433.120(b).

5.  While the State contended its error rate was only .3% and erroneous
payments under the audit amounted to less than $800,000 in federal
funds, this is not accurate.  The State's computation of the error rate
does not take into account the substantial errors found in the three
strata that were reprocessed ($15,598,510 in unallowable payments to
nursing home, inpatient hospital and outpatient hospital services).  It
was only after the audit that the State reprocessed these claims and
attempted to recoup the erroneous payments.

6.  The preamble to the final regulations for the CPAS specifically
states that HCFA may initiate an audit to identify and recover misspent
federal funds based on an SPR or a state assessment claims processing
review or any other information.  50 Fed. Reg. 21850 (May 29, 1985).

7.  For Claim Nos. 410, 680, and 824, the State and fiscal agent agreed
that the claims were paid in error, but argued that there should be no
extrapolation of the errors to the universe of paid claims.  We discuss
this issue below.

8.  In presenting the facts of this dispute, CSC attempted to call into
question the audit results by suggesting that the audit, performed by an
OIG contractor, was flawed because OIG auditors, reviewing the
contractor's work, had disagreed with some of the contractor's findings.
These alleged disagreements, however, are not relevant here.  There is
no dispute that OIG may hire auditing firms under contract to perform
work.  There is no dispute that since the contractor is working for OIG,
the OIG has the right to review the contractor's work and suggest
changes before it approves a draft report as OIG's final report.
Regardless of what differences of opinion may have arisen during the
process of producing a final report, it is only the final report that is
the "official" recommendation of the OIG to HCFA.  CSC did not point to
any way in which the audit, as corrected by the OIG, was inconsistent
with generally accepted auditing principles or otherwise flawed.  In any
event, such flaws would be relevant only to the extent that they caused
an erroneous finding, and the State and CSC have had ample opportunity
to challenge the audit findings.

9.  CSC also submitted certain documentation pertaining to a recipient
other than the recipient in question.  See CSC Ex. 48, pp. 1 and 3.
This documentation was submitted to show that the recipient was exempt
from copayment, but it is not relevant to the questioned claim.

10.  CSC argued that it had claims history forms for the claims, but did
not provide them, and the audit workpapers suggest that basic
information, such as procedure codes, was missing.  CSC Ex. 50.  If the
State knew the provider numbers, the Medicare fiscal intermediary would
not have been the only potential source of records for the claims.  The
providers might have had documentation to show what was claimed and what
had been paid by Medicare.  We also note that the auditors found that
the State's Medicaid system would ordinarily create a facsimile of a
crossover claim, but that the State had said that CSC's ability to do
this was not operational at the time these claims were processed.  State
Ex. 1, pp. 5-6; CSC Ex. 50, p. 1.

11.  HCFA may take an individual disallowance of $4.15 for the second
claim since it duplicated the first claim, but to project the error in
the second claim to the universe of claims (even though the second claim
was not selected as a sample claim) would destroy the validity of the
sampling process.  Only the third claim was selected according to
statistical principles.

12.  HCFA may disallow the amount of the third payment made on 11/4/86
but may not consider it a sample error to be projected to the universe
of claims since this physician claim was not selected as a sample claim.
See note 11 above.

13.  Use of the lower limit of the confidence interval, rather than the
point estimate, is consistent with HHS audit policy.  See, e.g., HCFA
submission of 5/3/91, enclosure, p. 3.

14.  In the three strata in which 12 sample errors were originally
identified, all of the claims in the strata were reprocessed, and an
adjustment of FFP was already made for errors identified through the
reprocessing.  Thus, a disallowance based on projection of these sample
errors to the universe would be duplicative.

15.  The Regional Statistical Specialist acknowledged that the lower
limit found by CSC's expert approximates the lower limit "our sampling
software produces with the difference estimator" if "the same
assumptions" are applied.  Samworth Declaration, p. 2.  The only
assumption pointed out, however, was of 24 errors versus 44 errors.
Moreover, as CSC's expert explained, the slight difference between the
lower limit CSC's expert calculated and that produced by the "difference
estimator" software appears to be attributable to the fact that CSC's
expert deducted a $6 credit for sample claim no. 796 (for which the
State already adjusted FFP) from the lower limit, rather than from the
point estimate.  We agree with CSC's expert that the appropriate
treatment of the $6 credit is to deduct it from the lower limit, after
that figure is calculated according to statistical sampling principles,
since the $6 should be treated as a credit to the amount of the
erroneous payments in which FFP is being