DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Michigan Department of Social Services
Docket No. 86-165
Decision No. 873
DATE: June 4, 1987
DECISION
The Michigan Department of Social Services (Michigan/State) appealed
a
determination by the Health Care Financing Administration
(HCFA/Agency)
disallowing $77,150 in federal financial participation (FFP)
claimed by
the State under the Medicaid program for the period July 1 to
December
31, 1984. Michigan claimed FFP for the operating costs of an
automatic
data processing system (ADP) known as the Model Payment System
(MPS).
1/ HCFA based the disallowance on Michigan's failure to obtain
prior
approval for the system as required by federal regulation. See 45
CFR
95.611. Michigan initially responded to the disallowance by
arguing
that the MPS had been approved. Michigan later argued that HCFA
was
unreasonable in denying approval for the system. Michigan also
noted
that the federal regulation at 45 CFR 95.623 permits waiver of
the
approval requirements and claimed that the facts here
justified
application of the waiver. Finally, Michigan asserted that, even
without
Agency approval for the system, it was still entitled to FFP for
the
system's operating costs.
Based on our analysis of the record and applicable law, we uphold
the
disallowance.
Background
The statutory provisions of the Medicaid program are found at Title XIX
of
the Social Security Act (Act), and provide for federal
financial
participation in costs incurred by states in accordance with an
approved
state plan. The Act provides enhanced funding for states
employing
mechanized claims processing and information retrieval
systems. These
systems are subject to approval by the Secretary.
The Act also provides
FFP for states at a 50% rate for costs found necessary
by the Secretary
for the proper and efficient administration of the state
plan. See
generally sections 1903(a)(3) and (7).
The Secretary has implemented regulations governing the acquisition of
ADP
equipment and services. The regulation at 45 CFR 95.611 provides,
in
relevant part --
(a) General-Acquisition requirement.
A State shall obtain written prior
approval from the Department
when it
plans to acquire ADP equipment or services that
it
anticipates will have total
acquisition costs of $100,000 or more
in
Federal and State funds over a twelve-month period,
or
$200,000 or more in Federal and State
funds for the total
acquisition. . .
.
Additionally, the Secretary promulgated a regulation providing
authority
for a waiver of the section 95.611 requirements if certain
conditions
are met. As amended effective January 27, 1986, 45 CFR
95.623 provides
in relevant part --
For ADP equipment and services acquired
by a State without prior
written
approval, the Department may waive the prior
approval
requirement if prior to
December 1, 1985:
* * *
(b) The State has a request pending with the Department
for
retroactive approval, which the
Department received before
December 1,
1985 and the Department determines that the
request
would have received prior
approval had a timely request for such
approval been made by the state agency.
Facts
On September 14, 1979, the State requested approval of an advance
planning
document for its MPS from the Department of Health, Education,
and Welfare's
Division of State Systems. 2/ The advance planning
document did not
include a request for funding under Medicaid, but
rather sought funds under
Titles IV-A and XX of the Act. Accordingly,
the Division of State
Systems did not forward the State's submission to
HCFA. HCFA Brief, p.
3, n. 1.
Shortly after Michigan submitted its advance planning
document,
regulations were promulgated allowing states to move the funding
and
processing of their personal care services programs from Title XX
to
Medicaid. On July 18, 1980, Michigan contacted HCFA regarding
the
possibility of continuing to process personal care services claims
under
Title XX, even though Title XIX was funding the program. Michigan
noted
that its existing Title XX Adult Home Help Program contained a
highly
developed system of community-based care, and that personal
care
services, as defined by Title XIX, were an essential element of
the
Title XX program. Michigan stated that it had "designed a personal
care
program that will enhance . . . the existing system."
Michigan
indicated that it would allocate costs between the Title XIX and
Title
XX programs. Mich. Ex. 3. HCFA submitted a July 17, 1980
memorandum
from Michigan indicating that "the proposed system . . .
would . . .
adopt the current adult home help program to Title XIX. . .
." HCFA Ex.
6. HCFA's response to Michigan's inquiry, issued on
August 25, 1980,
recited its understanding that Michigan would be reimbursing
personal
care services through the provider payment system "in place for
title
XX," and that Michigan would submit an appropriate cost allocation
plan.
Mich. Ex. 4.
On October 1, 1980 Michigan's Adult Home Health Program
became
effective. Part of that program included processing Title XIX
personal
care services within the Title XX system. At various times
during the
next two months, State officials met to consider the appropriate
claims
processing mechanism for this program. In early November, a
State
official noted that the existing Medicaid Management Information
System
(MMIS) could fulfill the processing needs for personal care
services
under both Title XIX and non- Title XIX programs. At that
point, a HCFA
official indicated that Michigan would have to submit an
advance
planning document if it intended to use the MPS for Title XIX
programs.
In anticipation of an eventual comparative analysis with a similar
MPS
report, State MMIS personnel prepared a report addressing
possible
problems in processing personal care services through MMIS.
However,
prior to any actual analytical comparison, State officials
designated
the MPS as the personal care payment system. See HCFA Exs.
1-4.
In December 1980, HCFA again informed Michigan that an advance
planning
document would be necessary in order for Michigan to
receive
reimbursement under Medicaid for its use of the MPS as the personal
care
payment system. Mich. Ex. 5. In November 1981, HCFA received
the
State's revised advance planning document which provided the
first
indication that the MPS would include personal care services. In
May
1982, HCFA notified the State that it could not approve the Title
XIX
costs associated with development of the MPS. However, HCFA left
open
the possibility of reconsidering its decision if the State could
provide
more explicit documentation demonstrating how the MPS would support
the
Medicaid program. Mich. Ex. 13. In August 1984, Michigan
submitted
another revised advanced planning document and a request for
retroactive
approval of FFP for costs associated with the development of the
MPS.
Mich. Ex. 15. In October 1984, HCFA rejected Michigan's
request,
finding that the MPS duplicated the Title XIX MMIS functions.
The
Agency noted that the State had not fully analyzed the possibility
of
incorporating personal care services into the MMIS. HCFA reasoned
that
the MMIS presented an available alternative which had been ignored
by
the State. HCFA concluded by stating that --
. . . approval for the design,
development and implementation
costs
associated with the Title XIX portion and the applicable
.
. . (FFP) for the MPS project cannot
be granted. Additionally,
approval
of the FFP for the Title XIX share of the costs
incurred
for operation of the MPS cannot
be granted.
Mich. Ex. 16.
By February 21, 1985, Michigan received deferrals of the FFP at
issue
here. The deferrals notified the State that prior approval was
required
for the MPS and that HCFA had denied approval on October 29,
1984.
Mich. Exs. 17 and 19. Generally, Michigan responded by asserting
that
HCFA had approved the MPS on August 25, 1980. HCFA issued
its
disallowance on July 14, 1986, basing its determination on
Michigan's
failure to secure approval for the MPS. HCFA also noted that
Michigan's
reliance on the August 25, 1980 HCFA Administrator's letter
as
constituting approval of the MPS was clearly erroneous.
Issues
In its notice of appeal, Michigan argued that HCFA had approved the
MPS.
However, Michigan did not actively pursue this issue in its
briefing,
arguing instead that HCFA's decision denying approval for the MPS
was
unreasonable. Michigan also argued that the disallowance should
be
reversed based on the waiver provisions of 45 CFR 95.623.
Finally,
Michigan argued that its failure to comply with the prior
approval
requirements did not preclude its claim of FFP for the operation of
its
MPS.
Analysis
I. The Agency letter of August 25, 1980 did not constitute
approval
of the MPS.
In its letter to HCFA exploring the possibility of processing
personal
care services under its existing Title XX system, the State
expressed
concern that "for a personal care program, the billing
procedures
associated with the Medicaid Management Information System would
prove
cumbersome and inhibit effective service delivery." Mich. Ex.
3.
HCFA's response provided --
Your staff indicated that Michigan plans
to reimburse for these
services by using
the provider payment system in place for
title
XX purposes. . . .
This is an acceptable alternative and
would
have no effect on Michigan's
MMIS.
Mich. Ex. 4.
Clearly, HCFA was not approving Michigan's MPS for Medicaid
reimbursement,
but was authorizing use of the Title XX payment system
"in place" as the
vehicle for reimbursing personal care services.
Further, the evidence
concerning events subsequent to this letter
demonstrates that neither party
acted as though this letter provided
approval for the MPS.
Specifically, in August 1984, Michigan asked HCFA
to approve the MPS.
See Mich. Ex. 15; also, HCFA Ex. 2; Mich. Exs. 5
and 9.
Thus HCFA's letter of August 25, 1980, cannot reasonably be viewed
as
approval for the State's MPS.
II. HCFA's denial of approval for the MPS was reasonable.
Michigan argued that HCFA's denial of approval for the MPS
was
unreasonable. Michigan alleged that the MPS provided the
most
economical and efficient method for processing the personal care
payment
system. HCFA alleged that the State's failure to appeal the
denial of
approval for the design, development and implementation costs
associated
with the Title XIX portion of the MPS precludes the State
from
challenging that denial here. 3/
Our review of the record convinces us that HCFA's decision to
deny
approval was reasonable.
HCFA denied approval for the MPS because the State had failed
to
demonstrate that the MPS would benefit the Medicaid program. While
the
Agency does not dispute that the MPS may generally benefit the
State's
administration of numerous social programs, the Agency indicated
that
its primary concern was with the system's benefit to Medicaid. In
the
Agency's opinion, the State did not provide sufficient evidence of
a
benefit to Medicaid to justify approval of the MPS.
Further, the Agency challenged the probative value of the
documentation
submitted by Michigan in support for the argument that HCFA
acted
unreasonably in denying approval for the MPS. For example,
Michigan's
Exhibit E is a document titled: MPS/MMIS COMPARISON.
This is an
undated document offered as evidence of the State's comparison
between
the two systems purportedly conducted prior to the decision to use
the
MPS. 4/ However, reports from State Work Groups indicate that
no
comparative analysis of the two systems had been conducted prior to
the
decision to use the MPS. See HCFA Exs. 1-4. Additionally,
Michigan's
Exhibit H is an advance planning document and accompanying
Cost/Benefit
Analysis, allegedly prepared in 1979. HCFA noted that these
documents do
not propose that Title XIX personal care services payments be
processed
on MPS. Rather, the advance planning document addresses
only
computerized payment of non-Medicaid providers. Additionally,
HCFA
notes that the Cost/Benefit Analysis makes no statement
regarding
projected cost savings to Medicaid, nor does it contain a
comparative
analysis of the merits of the MPS versus the MMIS. HCFA
Submission, May
13, 1987, p. 2. Generally, Michigan's Exhibit H and its
other
submissions simply do not address HCFA's concerns regarding the use
of
the MPS as the processing instrument for personal care
services.
Further, even after the State's decision to use the MPS, in March
1981 a
State Work Group subcommittee recommended that the State employ the
MMIS
and that the MPS not be developed any further. See HCFA Ex. 6.
Michigan maintained that it had sound administrative reasons for
deciding
to implement the MPS. For example, Michigan asserted that
processing
the personal care services program through the MMIS would
have proved too
cumbersome. Additionally, Michigan argued that the cost
analysis
suggested by HCFA was neither cost effective nor practical.
Michigan
contended that these factors coupled with the administrative
discretion
provided to the states at section 1903(r)(6)(D) of the Act
justified its
decision to implement the MPS. Mich. Reply Brief, pp.
2-4.
Michigan's argument ignores the thrust of HCFA's reasoning in
denying
approval for the MPS. Generally, the basis of HCFA's decision
was that
the State did not sufficiently justify using the MPS as the
personal
care services payment system. In view of the prior
approval
requirements, Michigan was bound to provide HCFA with a sound basis
in
support of its proposal to use the MPS to process personal
care
services. Michigan did not initially justify its position when
it
requested approval from HCFA, nor has it demonstrated that the
Agency's
determination denying approval was erroneous. Accordingly, we
conclude
that the Agency acted reasonably in denying approval for the
MPS.
III. The waiver provision of 45 CFR 95.623 is inapplicable.
Subparagraph (b) of 45 CFR 95.623 requires that, in order to obtain
a
waiver of the prior approval requirements, a state must have had ". .
.
a request pending . . . for retroactive approval . . . received
before
December 1, 1985 . . . ." (emphasis added) Michigan did not have
a
request for retroactive approval pending when the waiver provision
was
promulgated. Rather, the State's request for approval had
been
considered and rejected more than one year earlier.
In August 1984 Michigan acknowledged that it had not yet obtained
approval
and requested retroactive approval for the MPS. HCFA denied
Michigan's
request on October 29, 1984. The record shows that
subsequent to that
date the parties corresponded regarding the eventual
deferrals and the
question of whether the MPS had been approved in
August 1980. However,
there is no evidence to indicate that Michigan
had a request for approval of
the MPS pending after October 29, 1984.
In any event, waiver authority is
discretionary and intended only to
waive the requirement that approval
be given in advance; a grantee
still must show that approval is
justified. Here, the reasons for
denial of approval still exist.
VI. Michigan is not entitled to FFP for operation of an
unapproved
ADP system.
The State also argued that its failure to comply with 45 CFR 95.611
does
not prohibit FFP for MPS operating costs of the MPS. The State relied
on
section 1903(a)(7) of the Act. 5/ Generally, that section provides
that
a state should be entitled to FFP at a 50% rate for costs
found
necessary for the proper and efficient administration of the state
plan.
The State's position would effectively circumvent the prior
approval
requirements. It is arguable that under the statute, approval
is only
required in order to receive the enhanced rate of FFP. However,
under
the regulations prior approval is required for acquisition of
ADP
services as a condition for FFP. See 45 CFR 95.611(a). Contrary to
the
State's arguments before the Board, the operational costs of an
ADP
system do fall within the regulatory approval
requirements.
Specifically, 45 CFR 95.605 defines services as --
(a) Services to operate ADP equipment,
either by private
sources,
or by
employees of the State agency . . . .
Thus, the prior approval requirements do have a direct bearing on
a
state's ability to obtain FFP for the operating costs of an ADP system.
Here, the MPS was rejected by the Agency, and the State was
explicitly
informed at that time that "FFP . . . for . . . costs incurred in
the
operation of the MPS cannot be granted." Mich. Ex. 16.
Accordingly,
the State is not entitled to FFP for operation of the MPS.
Conclusion
Based on the preceding analysis we uphold the full disallowance
of
$77,150.
________________________________ Judith A. Ballard
________________________________ Alexander G. Teitz
________________________________ Norval D. (John) Settle Presiding
Board
Member
1. Prior to the start of this action the MPS was redesignated as
the
Services Management Information System (SMIS).
2. The Division is now part of the Department of Health and
Human
Services.
3. HCFA's position was premised on an erroneous State
Exhibit. As
originally submitted, page 2 of Michigan Exhibit 16 appears
to provide
the State with specific appeal rights (to be exercised within 60
days)
related to denial of approval for the MPS. However, page 2 of
the
original Exhibit 16 was not page 2 of the letter denying approval
for
the MPS. Instead, it was apparently a page from a deferral of
funds
letter which informed Michigan of its right "to provide
additional
documentation to support the claim" under 45 CFR 201.15.
When notified of this problem, each party provided a
correct copy of
this letter. The correct version of
the denial letter indicates
that the State was not
provided any specific appeal rights regarding
HCFA's
determination. Thus, HCFA's argument that Michigan failed
to
pursue specific appeal rights is erroneous.
4. Although Michigan asserted that this comparison was
performed prior
to its decision to use the MPS for personal care services
payment
(November 1980), the only dates on the comparison submitted into
the
record here are the following handwritten notations in the upper
right
hand corner of the first page of the Exhibit:
"Req. 12/18/84" "Provided 2/6/85."
These dates are several months after the Agency decision denying
approval
for the MPS, and over four years after the State decision to
implement the
system.
5. Cited by Michigan as 42 U.S.C. 1396b[a](7). Mich.
Reply Brief, p.
5.