GAB Decision 272
March 31, 1982 South Carolina Department of Social Services; Docket No.
81-29-SC-HC Teitz, Alexander; Ford, Cecilia Settle, Norval
The South Carolina Department of Social Services (State) appealed a
decision of the Health Care Financing Administration (Agency)
disallowing $123,918 in federal financial participation claimed under
Title XIX (Medicaid) of the Social Security Act.
The Board issued an Order to Show Cause, incorporated in this
decision, in which the Board tentatively upheld the disallowance in
principle but questioned the amount of the disallowance based on some
confusion in the record.
In a telephone conference call among the Presiding Board Member and
counsel for each of the parties, held on March 30, 1982, the following
occurred: the State's representative said that the State would not
submit a response to the Order disputing the Board's analysis; and both
parties' representatives said that pursuant to their further cooperative
review of records related to this disallowance, the disallowance amount
should be reduced to $114,030.
Therefore, based on the analysis in the incorporated Order, and on
the statements of the parties' representatives in the conference call,
we uphold the disallowance in the amount of $114,030.
(2) DATE: February 16, 1982
ORDER TO SHOW CAUSE
The South Carolina Department of Social Services (State) appealed a
decision of the Health Care Financing Administration (Agency)
disallowing $123,918 in federal financial participation claimed under
Title XIX (Medicaid) of the Social Security Act.
This case is related to an appeal the Board decided today in Decision
No. 256 (copy attached). In that case, the Agency, in September, 1980,
disallowed $34,156, the federal share (90%) of the difference between
two offers /1/ submitted for a contract for development and
implementation of a Medicaid Management Information System (MMIS). The
State awarded the contract to Touche Ross and Co. after an evaluation
based on which the State concluded that Touche Ross was better qualified
than Consultec, Inc. (the low offeror). The Agency had concluded that
Consultec was well qualified enough that the payment of the extra Touche
Ross cost was unreasonable, and the Agency approved the costs of the
Touche Ross contract only to the extent of the Consultec offer. The
Board found for the State, on the basis that the record contained
nothing substantiating the reasonableness of the Agency's determination.
By latter dated January 23, 1981, the Agency issued a further
disallowance related to the Touche Ross contract. That further
disallowance is the subject of this appeal. The sum involved was
claimed by the State for the quarters ended December 31, 1979, March 31,
1980, and June 30, 1980. /2/
(2) The January, 1981, disallowance letter repeated verbatim portions
of the September, 1980 disallowance letter, to the effect that the
State's original procurement process indicated that the MMIS development
and implementation services could have been purchased for less from
Consultec (whose offer of $367,122 was described as an "approved
ceiling") and that the Touche Ross award had lacked approval. The
January, 1981, disallowance letter then stated, "because additional
payments above the approved ceiling have subsequently been made, these
expenditures also must be disallowed (in the amount of $123,918)."
This case was originally joined with the earlier case, but after a
conference held in the earlier case, the Board severed the two. At the
conference, the Board indicated concern about the apparently anomalous
decision to disallow the entire amount of additional funds for
subsequent contract extensions based on the earlier Agency determination
which approved about 88% of the Touche Ross expenditures, because we did
not understand the relationship of the earlier determination to the
value of subsequent work performed on MMIS for the State. See,
transcript of conference of November 10, 1981, pp. 44-49. That issue
now appears to be moot, given the Board's Decision No. 256.
However, Decision No. 256 is not a basis for upholding the State
position here, for the question of prior approval appears to be more
important in this case than it was in the earlier case.
The record in this case contains two letters from a State official,
Mr. Robert Stearns, dated August 15, 1979 and October 2, 1979, which
appear to indicate that we are dealing with one or more extensions of
the original Touche Ross contract. The extensions, priced at $100,000,
/3/ were described in the October 2, 1979, letter to HHS as "essentially
follow-on activities to our original contract with Touche Ross . . . . "
The latter letter submitted the contracts to HHS for approval, and
stated that the State apologized "for the lateness of this request and
for the fact that we have presumed your retroactive approval of these
contracts . . . . " The record also contains an Agency letter in
response dated December 18, 1979, in which the Agency states that "both
requests have been disapproved" on certain bases set forth in the
letter.
Unlike the situation in Decision No. 256, where we determined that
prior approval was not the critical issue since the Agency approved the
original Touche Ross contract but allowed FFP only in a lesser amount,
in this case we seem to have a much clearer issue of lack of prior
approval. We concluded in Decision No. 256 that the State's MMIS
contract was subject to Agency approval under Section (4) 1903(a)(3)(
A)(i) of the Act, and reasonably required prior approval under 45 CFR
Part 74, Appendix C, Part I, B.1, and Part II, C.1 and C.5(even though
parts might have been characterized as not requiring prior approval
under Part II, B.1), and under PRG-31.
Based on Decision No. 256, on the State's apparent acknowledgment of
a requirement of approval in submitting the contracts to HHS for
approval in this case, on the Agency's denial of approval, and on the
unrebutted and apparently reasonable bases the Agency sets forth for
denying prior approval, the Board tentatively concludes that the
Agency's disallowance should be upheld.
At the same time, it is quite unclear from the record how the amount
of the disallowance relates to the contract extensions in question. The
original Touche Ross contract ran from June 12, 1978 until December 31,
1979. We do not know the dates of extensions, when the work was
performed, or how those factors relate to the State's claim or the
amount of the disallowance. The disallowance is of $123,918, and the
contract extension amount or amounts appear to total only $100,000
(although even that amount is questionable). Therefore, the Board, in
the absence of any further information, would find it impossible to
uphold the amount of the disallowance in excess of the federal share
(90% under Section 1903(a)(3)(A)(i) of the Act) of $100,000, or $90,000.
We note that the State, in its letter of February 20, 1981, requested
"oral and written discovery . . . as to the reasons why the State's
procurement process was not found to be in compliance with federal
regulations." It appears that the issues concerning the procurement
process have been answered in Decision No. 256. Therefore, it does not
appear likely that a hearing or conference would be useful in these
appeals. If the State continues to desire a hearing or conference, it
should so state and set forth reasons in its response to this Order.
Based on the foregoing, it is ordered that, within 30 days after
receipt of ths Order --
1. The State show cause why the Board should not uphold the
disallowance in this case in principle, based on the Agency's denial of
approval of the contract extension or extensions; and
2. The Agency show cause why the Board should not uphold the
disallowance only to the extent of $90,000, based on the evidence in the
record that the contract extension or extensions totalled only $100,000.
/1/ The parties sometimes used the terms "bid" and "bidder",
and
"offer" and "offeror" without distinguishing the terms.
Since the
contract itself referred to a proposal submitted in response to a
"request for proposals", we use the terms "offer" and "offeror"
as
commonly used in federal procurement to distinguish this method of
solicitation from the solicitation of sealed "bids" by formal
advertising. The terminology does not appear to affect the merits of
the controversy here. /2/ The $34,156 claim in Decision 256 was
also made for the quarter ended December 31, 1979, but it was a
retroactive claim for prior quarters. /3/ The Agency appears to
acknowledge this $100,000 figure in its letter to the Board dated
November 13, 1981, but we note that the original contract (paragraph 5)
mentions that the cost of one extra man-year of effort would not exceed
$96,700.
OCTOBER 22, 1983