Georgia Department of Medical Assistance, DAB No. 944 (1988)

DEPARTMENTAL GRANT APPEALS BOARD

Department of Health and Human Services

SUBJECT: Georgia Department of Medical Assistance

Docket No. 87-135
Decision No. 944

DATE:  April 6, 1988

DECISION

The Georgia Department of Medical Assistance (Georgia or State) appealed
a determination by the Health Care Financing Administration (HCFA or
Agency) disallowing $1,379,889 in federal financial participation (FFP)
claimed for the period July 1, 1984 through March 31, 1985.  The amount
disallowed represents the difference between the State's claims for
costs at the 75 percent rate available for operation of a mechanized
claims processing and information retrieval system called a Medicaid
Management Information System (MMIS), and the 50 percent rate available
generally for administrative costs.  The enhanced 75 percent rate for a
MMIS is available only for a system which HCFA approves as operational
under standards in regulations and HCFA's State Medicaid Manual. HCFA
disallowed Georgia's claim for enhanced FFP for its MMIS for the three
quarters in question on the basis that Georgia's system had not been
approved as operational until March 31, 1985. Systems are eligible for
the enhanced FFP "retroactive to the first quarter beginning after the
date. . . such systems became operational."  Social Security Act,
section 1903(r)(3)(A). Georgia argued that its MMIS became operational,
and therefore eligible for 75 percent FFP, as of July 1, 1984.

At Georgia's request, we have already addressed the legal issue whether
HCFA exceeded its statutory authority when it denied the State's claim
for this period.  In Georgia Dept. of Medical Assistance, DGAB No. 882
(1987), we found that HCFA was authorized to determine when a system
became operational and therefore eligible for enhanced FFP.  Now we face
the factual question whether HCFA correctly found that Georgia's MMIS
was not operational when Georgia said it was.  For the reasons stated
below, we find that HCFA reasonably determined that Georgia's MMIS was
operational only as of March 31, 1985..Background

Georgia originally began operating a MMIS in March 1976, that was
certified in August 1977.  In March 1983, Georgia submitted an Advanced
Planning Document to HCFA detailing the State's intention to replace its
old system with a new MMIS system to be operated by a private contractor
as the State's fiscal agent. HCFA approved the State's Request For
Proposal for the MMIS fiscal agent contract in June 1983.

Meanwhile, Georgia's original MMIS system continued to operate and
receive 75 percent operational funding.  In fact, HCFA notified the
State on October 1, 1984 that its old system was reapproved through June
30, 1984.  Appellant's Appeal File, Exhibit (Ex.) 8. 1/  In that same
letter, HCFA acknowledged that effective July 1, 1984, the old system
had been replaced with a new MMIS.  With regard to the costs of that new
system, HCFA stated that "until that new system is approved you may
claim Federal financial participation (FFP) for its operation at only
the 50 percent level."  Id.  HCFA indicated, however, that should the
State choose after October 1, 1984 to reinstate the discontinued system,
the FFP available for its operations, since already approved, would be
at the full 75 percent rate.  Id.

In November 1984, HCFA notified the State that upon review of the
State's claim for expenditures for the quarter ended September 30, 1984,
HCFA had determined that the State claimed all of its MMIS costs at the
75 percent rate.  HCFA notified the State that:

            Since your Department's new fiscal agent . . . commenced
            operations on June 30, 1984 your MMIS must be recertified to
            be eligible for 75 percent FFP. . . .

Appellant's Appeal File, Ex. 10.

Similar letters for subsequent quarters were sent to the State by HCFA
in March 1985, June 1985, and September 1985.  Appellant's Appeal File,
Exs. 11, 12, and 13.  Since the Agency can only perform a certification
review at the State's request, Georgia made a formal request for
certification review of its new MMIS on May 3, 1985.  Appellant's Appeal
File, Ex. 14.  It is uncontested that Georgia had timely knowledge of
the standards of performance and other pertinent provisions of the State
Medicaid Manual which were applicable to the certification review for
enhanced FFP. Respondent's Appeal File, Ex. II.

On December 16, 1985, HCFA transmitted to the State the results of its
certification review in accordance with the State's request for FFP for
operation of its MMIS retroactive to June 30, 1984.  HCFA determined
that, during the period in question, three of the State's subsystems
(the claims processing subsystem, the management and administrative
reporting subsystem, and the surveillance and utilization review
subsystem) did not meet the minimum federal requirements for
certification.  After identifying the specific problems with the State's
system, HCFA stated that major errors had been corrected by the end of
March 1985, and that "the Georgia MMIS is approved with an operational
date of March 31, 1985."  As a result, HCFA indicated that the State
could claim FFP at the 75 percent operational rate for the replacement
system effective April 1, 1985.  However, HCFA further indicated that
the approval was contingent upon certain continuing shortcomings
identified in the report--some of which were residual parts of the major
subsystem errors largely corrected earlier--being corrected within a
reasonable time. Appellant's Appeal File, Ex. 15. 2/

On November 7, 1986, HCFA issued a final decision disallowing the
State's claim for retroactive FFP pursuant to section 1903(r)(3)(A) of
the Social Security Act at the 75 percent operational rate for the
period July 1, 1984 through March 31, 1985.  HCFA indicated that the
State's MMIS was conditionally determined to be operational and
certifiable beginning April 1, 1985 inasmuch as the certification
reviewers had determined that the State's MMIS did not meet the
conditions for certification for the period July 1, 1984 through March
31, 1985.  Accordingly, the Agency allowed the State's claim for this
period only at the 50 percent administrative rate.

The State appealed this determination to the Board, but requested that
the legal and factual issues be separated.  The Board granted the
State's request and determined the legal issue first. In Georgia Dept.
of Medical Assistance, DGAB No. 882 (1987), the Board found that HCFA
acted within its statutory authority in determining when the State's
MMIS became operational.

The nature of this dispute

The Board determined in its earlier decision that HCFA had the authority
to determine when the State's system became operational for purposes of
enhanced FFP by applying the system requirement standards set forth in
the State Medicaid Manual to the State's system from the time the State
contended its system became operational.  That is not in dispute here.
The question here is whether Georgia has succeeded in showing that HCFA
was wrong in its factual determination that Georgia did not meet the
system requirements as of June 30, 1984. 3/

We note at the outset that Georgia effectively admitted that it has not
fully met the requirements; it submitted that "its MMIS system
substantially satisfied all standards established by the State Medicaid
Manual, Part 11, Section 11260." 4/  Emphasis added.  Appellant's Brief,
p. 1.  Essentially, Georgia argued that "substantial compliance" with
the requirement standards ought to be sufficient.

We start from the proposition that we see nothing in the statute,
applicable regulations, or the Manual provisions which authorizes or
defines a standard of "substantial compliance," as opposed to full
compliance with the minimum federal requirements.  HCFA clearly is
within the reasonable range of its discretion to demand full compliance
with these minimum requirements. Nevertheless, we have examined the
record in some detail to determine the extent of the State's compliance
at the time in question with the standards for system operations.  While
the extent of the failures are unclear in places overall there is ample
evidence to support the reasonableness of HCFA's determination
(particularly given the context we described above, i.e., that there is
no lesser standard applicable than full compliance).

Another contextual element important here is that the State's entire
claim for FFP here was not denied; rather, HCFA denied only Georgia's
claim for FFP in excess of the 50 percent rate generally available under
the Act.  This Board has repeatedly concluded that where a State is
claiming reimbursement of costs at a rate higher than the 50 percent
rate generally available for expenditures under section 1903(a)(7) of
the Act, the State has the burden to show that the costs claimed are
entitled to the higher rate of reimbursement.  See, e.g., Missouri Dept.
of Social Services, DGAB No. 395 (1983).

The specific defects in the State's system

As stated, HCFA determined that three subsystems of Georgia's MMIS were
deficient.  Appellant's Appeal File, Ex. 15.  HCFA determined that those
subsystems did not meet the applicable standards of performance during
the period in question as required by the State Medicaid Manual,
including the General Systems Design (the "blueprint" for MMIS design
incorporated as a condition for approval in the Manual), section 1903(r)
of the Act, and 42 C.F.R.433.113.  We will discuss these subsystem
defects in turn below.  A. The claims processing subsystem

HCFA found that this subsystem did not meet the minimum requirements due
to the fact that three programming errors existed which resulted in
overpayments being made systemically. These errors involved:  (1)
duplicate payments; (2) a decimal shift which increased payments by a
factor of 100; and (3) payment of interim bills which should not have
been paid.  In addition, HCFA found that another deficiency in the
State's system was the absence of diagnosis and procedure code editing
to assure that only necessary medical services were reimbursed.
Appellant's Appeal File, Ex. 15.

1. Duplicate payments

The certification reviewers found that several computer programs were in
error resulting in approximately $1.3 million in "duplicate claims."
Respondent's Brief, p. 12; Appellant's Appeal File, Ex. 15.  One such
error was that the computer program that compares hospital claims to
records of past payments was not locating all previous records to
prevent duplicate payments.  Also, separate and distinct programming
errors caused malfunctions in the conversion of Georgia's old MMIS
records to the format of its new replacement system.  The errors were
detected in August 1984.  HCFA noted that the program logic changes were
completed in February 1985 which corrected most of the ongoing problems
and the criteria changes were completed in May 1985.

The State did not dispute that these errors existed for the three
quarters in question.  Appellant's Brief, pp. 5-7; Appellant's
Post-Hearing Brief, pp. 13-14, 24-26.  Rather, the State contended that:
(a) the amount of duplicate claims identified by HCFA was minor in
relation to the total claims processed during the fiscal year; (b) the
Agency's contention that this error should have been discovered during
the performance of the systems acceptance test prior to the system
becoming operational was incorrect; and (c) HCFA's contention that the
State failed to exercise due diligence in detecting the defect was
incorrect.

At the outset, we reiterate that Georgia cannot deny that, as a result
of the duplicate payments, the MMIS did not meet specific requirements
of the Manual and the General Systems Design applicable to claims
processing subsystems.  Specifically, the MMIS did not "ensure that
reimbursement to providers. . . [was].  . . rendered. . . correctly for
inpatient and outpatient hospital services," nor was the State's claims
processing subsystem able to verify "that the claim [submitted by
providers] does not duplicate or conflict with one adjudicated
previously. . . ." State Medicaid Manual, section 11325; General Systems
Design, Part IV, paragraph i.  Moreover, the State does not deny that
these duplicate payments were still being made as late as February 1985.
Appellant's Appeal File, Ex. 16; Transcript (Tr.), p. 116.  Thus, unless
there is a "substantial compliance" exception to these standards--which
there is not--it is clear that Georgia has not met the standards,
notwithstanding its arguments identified above.  Even so, we have gone
on to assess Georgia's arguments, and we find that the record does not
support them.

In support of its de minimis argument, Georgia submitted that $1.3
million duplicated claims was small in comparison to a year's worth of
claims (said to be about $775 million). Appellant's Brief, p. 6;
Appellant's Post-Hearing Brief, p. 25. Georgia was comparing errors
found in (at most) three quarters to a total of all claims for a full
year.  More important, there is nothing in the record to show that HCFA
in its brief review had attempted to identify all possible errors during
the period that was assessed; that was not the purpose.  Thus, the ratio
is not as extreme as Georgia would have it appear.  Eleven percent of
the claims presented to the system (50,273 claims) were erroneous.
Appellant's Post-Hearing Brief, p. 25.  Furthermore, HCFA argued, as we
discuss further below on pages 21 and 22, that the errors involved were
statistically sufficient to skew the inpatient and outpatient reports
produced by the surveillance and utilization review subsystem.
Respondent's Brief, p. 13. Finally, and in any event, we conclude that
nothing precluded HCFA, in the reasonable exercise of its discretion,
from refusing to tolerate a systemic problem in this particular
subsystem which produced an admitted $1.3 million in duplicate payments
over a relatively short period.  Certainly, this result appears
compelling when this error is viewed in combination with the other
errors discussed below.

We now turn to Georgia's argument that HCFA was incorrect in its
position that a sound "systems acceptance test," unlike Georgia's,
should have found the duplicate payment errors (as well as other claims
processing errors discussed below).  It is important to note, contrary
to Georgia's implication, that this was in the nature of an incidental
argument, and that HCFA based neither the certification determination
nor the disallowance on the lack or failure of a "systems acceptance
test."  Appellant's Appeal File, Exs. 15 and 21.  HCFA first raised this
as an argument in an early brief in this case.  Respondent's Brief, p.
12.  Georgia thus has created something tantamount to a straw man issue
not directly bearing on the bases of the HCFA determinations.  Even so,
the record does not support Georgia's contentions.

While the State presented testimony that a systems acceptance test could
not practically have discovered these errors, the Agency's witness
testified to the contrary: that, in his experience with over 30
certification reviews, errors such as these are usually detected.  Tr.,
pp. 58-60, 113-114, and 223- 225.  We disagree with the State's
assertion that the witness's opinion is without any factual basis merely
because he did not examine how the underlying programs occurred.
Appellant's Post-Hearing Brief, pp. 13-14.  The Agency's witness here
has had extensive experience in performing certification reviews and has
seen the performance of other states.  Tr., p. 204.  We think this alone
is sufficient to allow him to render a reasoned opinion.  We find his
testimony credible and, on balance, persuasive.

As for the State's disagreement with the Agency's testimony that these
errors should have been detected and corrected sooner, the record shows
that the State was well aware of the errors in the subsystem as of
February 1985 and the record further indicates that the State MMIS
experienced problems as early as October 1984 which prevented the system
from running smoothly.  Respondent's Supplemental Record on Appeal, Ex.
VI, "Medicaid computer problems still plaguing State," The Atlanta
Journal, April 25, 1985. 5/  Another reasonable inference drawn from the
record here is that if the State thought its system was fully
operational as of June 30, 1984, it would have requested certification
review at that time.  Instead, the State here did not request a
certification review until May 1985 even though the Agency repeatedly
informed the State that it could not claim operational FFP at the 75
percent rate until its new system was certified, and, as a result, the
State's claims for FFP at this rate were deferred for four quarters.
Appellant's Appeal File, Exs. 10, 11, 12, 13 and 14.

Thus, the record in this case clearly supports the reasonableness of
HCFA's determination that the claims processing subsystem did not meet
applicable standards.

2. Decimal shift

The certification reviewers found that a programming error in the
on-line "pend resolution" of hospital claims shifted the decimal point
on the revenue amount fields two positions to the right; 30 hospital
outpatient claims were overpaid by a total of $1,065,160.  Appellant's
Appeal File, Ex. 15.  This problem was corrected in October 1984.
Appellant's Brief, p. 3.

The State contended that this overpayment problem was minor in relation
to the total claims paid correctly in the fiscal year; that the error
was corrected within four months of its detection; and that the Agency's
assertions that a "system acceptance test" would have detected this
error and that the State was not diligent in correcting this error were
without factual basis. Appellant's Brief, pp. 2-3; Appellant's
Post-Hearing Brief, p. 22.

The record here shows that, notwithstanding the State's arguments, the
Georgia MMIS as a result of the decimal shift made substantial
overpayments.  The Manual requires that the claims processing subsystem
accomplish certain objectives.  Among those objectives is the
requirement that the system "verify that charges submitted by providers
are reasonable and within acceptable limits."  State Medicaid Manual,
section 11325 A.6. The State does not deny that as a result of the
overpayments here its subsystem was unable to meet this objective.
Appellant's Brief, pp. 2-3; Appellant's Post-Hearing Brief, p. 22.
Moreover, the record shows that even prior to the State's request for
certification review, the State was well aware of the problems with its
MMIS system and the fact that the system was not running smoothly and
paying erroneous claims.  Respondent's Supplemental Record on Appeal,
Ex. VI, "Medicaid computer problems still plaguing state," The Atlanta
Journal, April 25, 1985.

The amount of the error, despite the State's claim to the contrary, was
substantial--$1.6 million, which HCFA represented (without
contradiction) as representing 8.5 percent of the total payments made by
Georgia to hospitals for outpatient services during the four month
period (the relevant comparison; Georgia used a ratio of the error to
all dollars paid by the MMIS, a much different figure).  Respondent's
Post-Hearing Brief, p. 4; Appellant's Post-Hearing Brief, p. 22.

We have already rejected the State's allegations concerning the "systems
acceptance test" above.  Our findings and conclusions apply equally
here.

The record is inconclusive concerning the diligence with which Georgia
pursued this error.  It is true that Georgia apparently solved the
problem within four months (as opposed to the much longer period of time
correction of other errors took); HCFA nonetheless argued that the high
ratio of errors should have triggered much more rapid correction.  In
any event, it is clear that HCFA correctly determined that the system
was not operational as of the June date Georgia said it was.

Thus, overall, the record amply supports HCFA's determination on the
decimal shift error.

3. Interim bills

The certification reviewers found overpayment of 153 claims involving
overpayment of $544,422 due to an absence of programming logic to
prevent payment of interim bills as well as a programming error that
erroneously identified some bills as interim.  Appellant's Appeal File,
Ex. 15.  Under Georgia's State Plan, interim bills were not to be paid.
The reviewers found that the cause of the overpayments was logic
problems which were a result of a system edit that was not in place to
prevent such payments.  Corrective action to cure this problem was not
completed before January 1985.  Appellant's Appeal File, Ex. 16;
Respondent's Supplemental Appeal File, Ex. III.

The State essentially repeated arguments already discussed above. The
State again argued that the scope of this error was minor in relation to
all the claims that were processed and that the State after
identification of the problem in October 1984 acted diligently to
correct it.  Appellant's Brief, pp. 4-5; Appellant's Post-Hearing Brief,
p. 23.  The corrections to both programs apparently were made in January
1985.  Appellant's Appeal File Ex. 16.  The State again repeated its
objection to the Agency's assertions that these errors could have been
detected and that the State did not act diligently in correcting the
errors.  Appellant's Post-Hearing Brief, pp. 13-14.

One of the principal objectives of the claims processing subsystem of
the MMIS is to "ensure that reimbursements to providers are rendered
promptly and correctly."  State Medicaid Manual, section 11325 A.7.
Clearly, as a result of the improper payment of over a half-million
dollars in interim bills by Georgia's claim processing subsystem for at
least a six-month period, Georgia's claims processing subsystem did not
meet one of the required objectives.  As in other instances already
discussed, HCFA did not abuse its discretion in treating the amount of
the overpayment as substantial.

In this instance, one of the State's witnesses admitted that the type of
error involved here should have been detected by a system acceptance
test.  Tr., pp. 54-56, and at 108.   The Agency's witness, speaking from
his experience with other state systems, indicated that the State should
have discerned and corrected the problem in a shorter period of time
rather than taking almost six months after the system was supposedly
operational.  Id., p. 222-223.

Thus, the Agency's assertions here were fully and reasonably supported.

4. Absence of diagnosis and procedure code editing

The certification reviewers also found that Georgia's system did not
compare diagnoses with procedures rendered patients to ensure that
patients receive only necessary medical services as required under Title
XIX.  Appellant's Appeal File, Ex. 15; Respondent's Brief, p. 14.

The State did not deny HCFA's charge, but contended that its MMIS had
the programmatic capacity to implement a mechanized comparison of
procedures with diagnoses if an acceptable data base for comparison is
ever established.  Appellant's Brief, pp. 7-8; Appellant's Post-Hearing
Brief, pp. 16-17.  The State argued that it had determined that, with
few exceptions, no such data base existed to make it medically practical
or prudent for Georgia to establish computer edits requiring such a
comparison to determine whether the procedure is consistent with the
diagnosis prior to payment of the claim.  The State further argued that
its policy judgment is supported by the General System Design, Section
VI.  Appellant's Post-Hearing Brief, pp. 17-18 and Appendix C.  The
State also argued that HCFA had certified the prior system without these
edits, and that the absence of these edits did not prevent HCFA from
certifying the State's new replacement system or prevent HCFA from
passing the State's system in its last system performance review.  Id.,
at 19 and 20.

The State did not deny that regulations and the General Systems Design
mandate the performance of a comparative analysis.  The State's reason
for the its failure to perform this function was that, as a matter of
State policy, Georgia had determined that it was not medically practical
or prudent to make this computerized comparative analysis.  The State
here contended that the fact that its system had the capability to
perform this function is enough; it does not have to actually perform
this function.

We do not agree.  The General System Design and applicable regulations
specifically require that the claims processing subsystem "makes"
extensive checks as to the compatibility of procedures and diagnoses.
Respondent's Supplemental Record on Appeal, Ex. VII; See also 42 C.F.R.
447.45(f)(ii). 6/  Even if the rule were not so specific, nothing in the
record here suggests any valid reason to read the regulations and Manual
to distinguish between the capability to do an important function and
the doing of it.  Thus, the fact that the system may have had the
capability to perform this analysis is not enough; the actual
comparative analysis must be performed.  Thus, we conclude that under
the standards, the State had a clear obligation to have a system that
not only could, but actually did, perform diagnosis and procedure code
editing.  The State has effectively admitted that the system could not
so perform.

However, in all fairness, we are compelled to point out that HCFA never
rebutted Georgia's affirmative statements that HCFA condoned the same
problems before and after the period in question.  The record thus is
incomplete on this issue, and raises unanswered questions whether HCFA's
generosity arose from accident or, perhaps, an acquiescence to errors in
a circumstance of borderline approvability.  Whatever the case, we need
not rely on HCFA's factual finding on edits in upholding the
disallowance; the standards are clear and evidence elsewhere in the
record is overwhelmingly persuasive that HCFA's overall determination
that the system was not operational was reasonable.

5. Overall conclusion--claims processing subsystem errors

We conclude that there is nothing in the record to support the State's
contention here that HCFA erred in determining that the State's claims
processing subsystem was not in substantial compliance from June 30,
1984.  The record shows that the State did not meet specific
requirements mandated by the State Medicaid Manual and General System
Design.  Moreover, at least two errors, the interim bills and the
duplicate payments, were still occurring during the first quarter of
1985. 7/  The State also has not shown that the Agency's assertions that
these errors were detectable and correctable sooner were unreasonable.
Retroactive FFP is allowable only from the first day of the quarter
after the Secretary determines a system was fully operational.  If the
errors were still occurring in the subsystem in January and February of
1985, then the Secretary reasonably determined that the system was
operational as of March 31, 1985, and thus, the State could only begin
to claim 75 percent operational FFP from the quarter beginning April 1,
1985 for its MMIS.

B. Management and Administrative Reporting Subsystem

The certification reviewers found that this subsystem did not fully meet
the minimum federal requirements for approval. Specifically, the
following functions were not being performed either in whole or in part:

            o  Preparing budget allocations for various categories of
            services for the fiscal year.  o  Projecting the cost of
            program services for future periods.  o  Comparing current
            cost with previous period cost to establish a frame of
            reference for analyzing current expenditures.  o  Comparing
            actual expenditures with budget to determine current and
            projected financial position.  o  Providing data essential
            to the development and formulation of program policies.  o
            Reviewing errors in claims processing to determine those
            errors most frequently committed by providers and claims
            processing personnel in order to improve training and forms.
            o  Developing third party payment profiles to determine
            where program cost reductions might be achieved.  o
            Assisting auditors in reviewing provider cost and
            establishing a basis for cost settlement.

Appellant's Appeal File, Ex. 15.

1. Cost projections for the fiscal year were not provided for budget
purposes.

The HCFA reviewers found that, as a result of deficiencies in the
subsystem's budgeting capabilities, the first four functions listed
above, which are requirements of the General Systems Design for this
subsystem, were not met.  Appellant's Appeal File, Ex. 15; Respondent's
Supplemental Record on Appeal, Ex. X. While the State admitted that the
budget data for this subsystem was not loaded into the system until
November 12, 1984, it contended that its MMIS generally performed the
functions required for a management and administrative reporting
subsystem. Appellant's Brief, p. 10.  The State contended that it
prepared budget allocations for various categories of services for the
fiscal year by using the State's primary budget report, the AI-0- 04.
Appellant's Brief, p. 16; Appellant's Post-Hearing Brief, pp. 27-30.
The State contended that this report is equivalent to the MR-0-01 and
the MR-0-03 reports required under the Manual and the General Systems
Design to be included in the management and administrative reporting
subsystem.  Appellant's Brief, p. 9. The State further argued that the
type of information contained on the MR-0-01 and the type of comparison
made on that report is useless to Georgia because of Georgia's budgeting
process. Appellant's Post-Hearing Brief, p. 28.  The State contended
that its use of its equivalent report was incorporated by reference in
the State's Advanced Planning Document and the Request for Proposal.
Id.  Consequently, the State argued that to the extent the State
Medicaid Manual requires HCFA approval of the AI-0-04 report as the
conceptual equivalent to the MR-0-01, HCFA gave that approval when it
approved first the Advance Planning Document and then the Request for
Proposal.  Id., at 29.

We agree with the Agency that the State has not shown that it has met
the requirement that its management and administrative reporting
subsystem had the necessary budgeting capabilities for the fiscal year
to allow it to perform the first four functions indicated above.  First,
the State admitted that the requisite budget data was not placed into
the subsystem until November 12, 1984.  Consequently, no budget data was
available in the subsystem on the date the State claims the system
became operational, June 30, 1984.  Appellant's Brief, p. 10,
Appellant's Appeal File, Ex. 16.  Thus, even if the State had used the
MR-O-01 report, it would not be able to perform its intended function as
the data necessary for operation of the subsystem was not there.
Moreover, the State did not actually produce the MR-O-01 report until
February 1985.  Appellant's Appeal File, Ex. 16.  The record also
indicates that the State was well aware that its system was not
producing the requisite reports and that these reports would be needed
in order to be certified.  Respondent's Supplemental Record on Appeal,
Ex. VI.

The Agency also produced evidence that, while the State argued that it
used an equivalent report in lieu of the MR-O-01, it never informed HCFA
of this nor did the State seek an equivalency determination from HCFA
for this report either before the certification review, at the time of
the review, or subsequent to the review.  Tr. pp. 206-209.  See also
Respondent's Record on Appeal, Ex. II.  There was testimony at the
hearing that the State knew that the State Medicaid Manual requires the
State to seek an equivalency determination and that it was HCFA's policy
that, if a State wished to use a substitute report, it should seek an
equivalency determination.  Tr., pp. 154-156.  We do not agree with the
State here that in approving the State's Advanced Planning Document,
HCFA approved the State's use of the AI-0-04 as the functional
equivalent of the MR-0-01.  The State did not specifically reference
this particular report in the Advanced Planning Document.  Appellant's
Appeal File, Ex. 1.  The Advanced Planning Document merely contains the
general statement that the system would include an "Accounting Interface
Subsystem," a separate system, which would produce a variety of reports
for use by accounting personnel.  Appellant's Post-Hearing Brief, p. 28;
Appellant's Appeal File, Ex. 1.  The Advanced Planning Document also
stated that the State would include a management and administrative
reporting subsystem which also produced reports. There is, however, no
mention in this document that the State intended to use any reports
developed in the accounting interface subsystem as the functional
equivalent to the required management and administrative subsystem
reports.  Moreover, since a copy of the alternative report was not
included in this document, the Agency was not able to examine this
report to see if it was equivalent to the MR-0-01.  As a matter of fact,
the first time the State submitted this report for the Agency's review
was with its post-hearing brief.  Appellant's Post-Hearing Brief,
Appendix E.  Even though the State still has not requested a functional
equivalency determination, the Agency examined the report for its
content and utility and determined the report was not the functional
equivalent to the MR-0-01 because it does not attempt to forecast for
financial planning as required. 8/

Thus, the State has not met the requirement that its management and
administrative subsystem "establish information reporting to assist
management in fiscal planning and control" and that it used the required
reports.  State Medicaid Manual, section 11240.

2. Providing data essential to the development and formulation of
program policies

HCFA found that the MR-0-02 report, in which Georgia reported total
units of service rendered under the Medicaid program, included
prescriptions counted not by the number of drug prescriptions, as
required, but by the number of grams of a drug or number of pills within
a particular prescription. Respondent's Brief, p. 18.  HCFA argued that
the prescription information was critical to program management, and
that Georgia's information was inflated and useless.  Respondent's
Brief, pp. 18-19; Respondent's Post-Hearing Brief, pp. 26-28. The State
did not deny that the error existed, but argued that the error was not
substantial and that the report was not needed for the State's Medicaid
program.  Appellant's Post-Hearing Brief, p. 31.

We agree with the Agency here that the errors involved in the MR- 0-02
could have had a significant effect on the utility of the report because
it would make it impossible to make a management decision on whether to
place a limit on drug usage by a recipient or to make a management
decision to set fee schedules for providers.  We find nothing in the
record that impeaches the determination of HCFA, in the exercise of its
program expertise, that prescription-specific reporting was important as
a management tool.  Reporting on the number of pills/grams, rather than
the prescription per recipient for a particular kind of medicine,
apparently created confusion and could substantially mislead someone
reviewing drug usage by, e.g., inflating the apparent usage way beyond
actual per-prescription usage, complicating decisions on limiting drug
usage and costs.  As a result, the error in this report prevented this
subsystem from enabling the State to "assist management in fiscal
planning and control" as well as providing data essential to the
development of program policies as required by the State Medicaid
Manual. Section 11340, see also General Systems Design, section VII. 9/

3.  Reviewing errors in claims processing to determine those errors most
frequently committed by claims processing personnel

The reviewers found that the MR-O-11 report showed percentages that
exceeded 100 percent indicating a program error. Appellant's Appeal
File, Ex. 15.  Thus, the reviewers contended that the subsystem function
of reviewing errors in claims processing to determine those errors most
frequently committed by providers and claims processing personnel was
not being met as required by this report.

The State disagreed with HCFA's finding.  It argued that the calculation
error did not invalidate the entire function of this report.
Appellant's Brief, p. 14.

The State does not deny that this error occurred.  However, the Agency
here has not shown that this calculation error prevented the State from
properly ranking the errors as required. Consequently, on the basis of
the record before us, we cannot make a determination that these errors
prevented the State from meeting the stated function.  We do note,
however, that errors did occur and were not corrected until sometime
during the third quarter.  Appellant's Appeal File, Ex. 16.

Thus, we cannot conclude that the State's errors here prevented it from
meeting the required function.  However,  considering that there were
other substantial defects in this subsystem, our finding here does not
affect our overall conclusion that the Agency made a reasonable
determination that this subsystem was not meeting the requisite
standards for the quarters in question.

4. Developing third party profiles to determine where program cost
reductions might be achieved

HCFA reviewers found that the MR-O-17 report did not include the
required third party payor data.  Appellant's Appeal File, Ex. 15.  The
General Systems Design specifically requires this report and requires
that it analyze "each provider in terms of third party data with respect
to total claims payment data and individual payment data."  Respondent's
Post-Hearing Brief, Appendix B, p. VII-131.

The State argued that the MR-O-17 report did include third party data
and that this, coupled with a separate report (the MR-O-12) of some
summary third party data, met HCFA's requirements. Appellant's Brief,
pp. 14-15.  The record, however, directly contradicts this.  In a letter
of August 23, 1985, the State's Commissioner of the Department of
Medical Assistance wrote to HCFA that as of July 1985, HCFA's charge
that no third party data was shown in the majority of cases was
"consistent with our understanding."  Appellant's Appeal File, Ex. 16.
The State offered no evidence to prove that the other report, the
MR-O-12, was an acceptable substitute for the required MR-O-17 or that
it was sufficient to meet the General Systems Design requirements.

Later in briefing, the State made a new argument:  that when HCFA
approved the State's Advanced Planning Document (APD), it approved the
State's provision for a separate third party liability recovery
subsystem distinct from the management and administrative subsystem.
Appellant's Post-Hearing Brief, pp. 32-33.  Consequently, argued the
State, HCFA could not now find the latter system inadequate to produce
third party data. We cannot agree, for three reasons.  First, the APD --
a very general document compared to the more specific and detailed
General Systems Design -- in no way modifies the requirements of the
latter, and, in fact, was written subject to applicable HCFA guidelines.
Appellant's Appeal File, Ex. 1, pp. 9, 14.  Second, the APD's
description of the separate third party liability recovery subsystem
contains nothing to inform the reader about whether it would produce the
specific data, much less the specific report, required by the General
Systems Design (and Georgia offered no evidence to show that it did).
Third, there is no evidence that HCFA ever contemplated such
substitution (and HCFA denies it).  Thus, the record does not support a
conclusion that HCFA did, or would ever have, contemplated that the
separate system would meet the General Systems Design requirements.  The
same conclusions are applicable to the Request for Proposals and the
subsequent contract with the Computer Company, which the State alleged
incorporated its third party oversight structure. Appellant's Appeal
File, Exs. 25 and 26.

Georgia also argued that HCFA took "absolutely no exception" in the
December 16, 1985 certification review findings to a failure to produce
the necessary third party liability reports. Appellant's Post-Hearing
Brief, p. 34.  While it is true that the findings did not list this
matter among the separate subject-specific headings, the findings do
specify in an overview that Georgia's management and administrative
reporting subsystem failed to develop necessary third party payment
profiles. Appellant's Appeal File, Ex. 15, p. 3.

Thus, the record clearly supports HCFA's finding that Georgia's system
failed to meet a specific requirement for production of certain
information concerning third party liability. 10/

5.  Overall conclusion--management and administration    subsystem
errors

Overall, the record, as discussed above, clearly shows that the State's
system did not meet minimum requirements for the management and
administrative reporting subsystem as set forth in the State Medicaid
Manual and the General Systems Design for the three quarter period in
question.  State Medicaid Manual, section 11340, General Systems Design,
section VII..C. Surveillance and Utilization Review Subsystem (SURS)

The certification reviewers found that the first three quarterly cycles
of this subsystem's reports, for the quarters ending September 30, 1984,
December 31, 1984, and March 31, 1985, contained a substantial amount of
erroneous data.  Appellant's Appeal File, Ex. 15.  The reviewers found
that this erroneous data prevented the subsystem from fully achieving
the principal objectives for this subsystem as specified in the State
Medicaid Manual.  These objectives include:

            o That the subsystem be able to provide information which
            reveals and facilitates investigation of potential defects
            in the level of care and quality of service provided under
            the Medicaid program.

            o That the system be capable of developing provider,
            physician and patient profiles which are sufficient to
            provide specific information as to the use of covered types
            of services and items, including prescribed drugs.

State Medicaid Manual, section 11335 A.

The reviewers noted that the source of the erroneous data was in almost
all instances in the front end processing of the claims. Appellant's
Appeal File, Ex. 15.  The reviewers cited some examples of how this
erroneous data in the reports and line items, some of which we deal with
specifically below, prevented the State's subsystem from meeting the
principal objectives stated above.  Id.

In response, Georgia essentially made the following arguments.  A
general argument was that the SURS errors, if they were errors, arose
only because of erroneous input from other subsystems (for which SURS
itself was not at fault) and that the SURS subsystem was not
substantially different in make-up or operation from the old system
(which HCFA had approved and whose information HCFA did not fault).
Appellant's Brief, pp. 20-22; Appellant's Post-Hearing Brief, pp. 1-3.
Next, the State focused on the specific findings of error, making
certain arguments as to each.

We deal first with the general argument.  At heart, the problems with
the SURS subsystem were an extrapolation of problems with the claims
processing subsystem (discussed above), in that faulty data produced
there produced even more bad data when run through SURS -- in the
computer cliche, "garbage in, garbage out."  In this sense, the problems
with SURS need not be viewed as separate from those already discussed;
its presentation as a separate matter has to do more with organizing
ideas than explaining fact. Understanding the latter is important to
understanding why we are not persuaded by the superficial attraction of
Georgia's primary argument here.  Georgia makes much of the
circumstance, undisputed by HCFA, that the SURS subsystem was not
substantially different from the subsystem which had preceded it, and
fed on the same kind of data in the same kind of way -- thus, how could
HCFA legitimately find fault with it?  The answer is that SURS, by
manipulating faulty data, produced erroneous or useless information.
Thus, the SURS subsystem in context -- i.e., in the medium of the new
MMIS -- failed.  The reports required of the SURS system were
inaccurate, and the system therefore substantially failed to develop the
information required by the objectives quoted above.  This is
illustrated in discussion of particular errors below.

1.    The subsystem did not identify duplicate payments for drug
      prescriptions.

The reviewers found that a report line item for "same day same drug"
contained erroneous data from the claims processing subsystem caused by
a duplication of paid claims.  Appellant's Appeal File, Ex. 15.  As a
result, the SURS report was not able to provide information which
revealed potential defects in level of care and services provided under
the program.  Moreover, the reviewers determined that the erroneous data
prevented the system from developing provider, physician, and patient
profiles necessary to help discover misutilization in the program.

The State essentially argued that:  (1) despite the erroneous data, the
primary use of the line item to detect duplicate payments was not
impaired; (2) contrary to the Agency's contentions, the function to
establish a "profile" was not impaired; and (3) in any event, the dollar
amount of total duplicates reported in this line item is insignificant
in relation to the millions of dollars in total claims processed by the
MMIS.  Appellant's Brief, pp. 22-23; Appellant's Post-Hearing Brief, pp.
4-7.

We find that the function of the line item "same day same drug" was
impaired by the erroneous data.  As the State admitted, the primary
purpose of the line item in dispute here was to identify instances where
the same or a different provider filled the same drug for the same
recipient on the same day.  Appellant's Brief, p. 23.  There is no basis
or evidence in the record to find that this line item was also meant to
report, as the State argued conclusorily, duplicate payments paid
because of errors in the claims processing subsystem.  Appellant's
Brief, p. 23.  There are two very different things.  The intention here
was not to detect claims erroneously paid by the system; the intention
here was to cull for examination those instances where the same drug is
filled the same day to determine whether instances of fraud and abuse
are involved.

We also find that the erroneous data in this line item prevented
creation of an accurate profile of this aspect of the State's health
care delivery.  The inclusion of this erroneous data prevented the
subsystem from being able to investigate and reveal misutilization of
the State's Medicaid program "by individual participants" as required by
section 1903(r)(5)(A) of the Act and section 11335 of the Manual.
Finally, the fact that the total amount of claims reported on this line
item is small in relation to the total claims processed by the system is
not material here. Since this line item is intended to detect a certain
discrete circumstance, it is not expected that it should represent a
large portion of the total amount of claims processed by the total
system.  As the Agency indicated, since the dollar amount reported on
this line item is usually small, deviations in this number from one
reporting period to another, as was found by the Agency in its review,
called into question the reliability of the information.  Tr., pp. 258
and 279.

Plainly and simply, the presence of this erroneous data in this line
item distorted what the line item was to report.  We conclude that this
then was an impairment of the functions of this item.  Thus, we find
that the Agency's determination was not unreasonable.

2. The subsystem did not provide for control over drug use.

HCFA reviewers found that there was no control over the number of days'
supply for drugs.  Appellant's Appeal File, Ex. 15.  HCFA noted that a
minimum days' supply cap and a maximum days' supply cap should be
implemented whenever appropriate.  Defining maximums and minimums is
largely left to State discretion, except that HCFA expects states to use
pharmacy consultants.  HCFA's Post-Hearing Brief, p. 39.  In its initial
brief, the State argued that the State Medicaid Manual does not require
"anywhere" that there be a control over the number of days' supply for
drugs.  Appellant's Brief, p. 23. The State in its post-hearing brief
modified this argument somewhat to contend that nothing in the State
Medicaid Manual or the General Systems Design required that a
surveillance and utilization review subsystem perform those functions or
contain those controls.  Appellant's Post-Hearing Brief, p. 7.  The
State argued that, while the State Medicaid Manual contained the
requirement that the MMIS system contain designated data element files
which include "minimum units of a drug prescription eligible for
payment" and "the maximum units of a drug prescription eligible for a
particular drug," it does not specify that the surveillance and
utilization review subsystem contain these data elements.  Id.  The
State argued that its claims processing subsystem does in fact contain
these data element files.  Id., at 7 and 8.  The State then explained
that these data element files existed to permit use of a data base
establishing maximum and minimum prescriptions for particular drugs if
such a data base was ever developed and implemented by the State.  The
State argued that the decision on whether to establish the maximum or
minimum is a policy matter left to the State.

First of all, we do not agree with the State that the State Medicaid
Manual does not require this information at all.  The Manual
unambiguously states that, at a minimum, certain data elements must be
included in the State's MMIS, specifically including the minimum days'
supply and the maximum days' supply of drugs.  State Medicaid Manual,
section 11375.1, 92 and 93. This is not a matter of substantial
performance discretion for the State; while, as the State said HCFA
recognized, there may be some common-sense leeway to accommodate
peculiarities regarding particular drugs, the general command does not
permit Georgia to disregard the requirement altogether.  Appellant's
Post-Hearing Brief, p. 8; Tr., pp. 273-277.  While the State argued that
these data elements were included in its claims processing subsystem, it
has not persuaded us that these elements should not also have been
available for use by the surveillance and utilization review system (as
this subsystem is meant to manipulate data from the other subsystems).
We find persuasive HCFA's argument, not substantially rebutted, that use
of this data in the SURS system is necessary to effectuate section 11335
A.2 of the State Medicaid Manual, which explicitly requires SURS to
"investigate and reveal misutilization patterns established by provider
and recipient participants in various categories of services" under
Medicaid.

The State's arguments here overlook the obvious; the surveillance and
utilization review subsystem is intended to detect fraud and abuse by
means of computerized exception processing techniques. Without use of
this data, this function is impaired.  As HCFA pointed out, this is
particularly serious here considering that the State's volume of claims
for drugs is exceedingly large when compared with the total universe of
claims under the Medicaid program.  Respondent's Post-Hearing Brief, p.
37.  Considering the Manual requirements and that this subsystem's
function of investigating and revealing misutilization of Medicaid
services was impaired because of the absence of this information, we
conclude that the Agency's determination here was reasonable.

3.    Outpatient Hospital Reports

The reviewers found that, in a certain line item in these reports, the
payments to hospitals for outpatient services frequently exceeded 100
percent of what was billed. 11/  The reviewers determined that the cause
for these errors was identified by the State as the programming error
that shifted the decimal point two places to the right in the claims
processing subsystem (discussed above).  Appellant's Appeal File, Ex.
15.

The State did not deny that these errors existed.  Appellant's Brief,
pp. 24 and 25.  It instead argued that the subsystem functioned as
designed by accurately reporting the data presented to the subsystem,
even if that data is incorrect.  We have rejected this argument already,
above, and will not repeat our conclusions here.  The State also
contended that while the Agency's witness took exception to the report
because the errors affected the statistical validity of the report, the
witness made no effort to determine the statistical significance of the
error. Appellant's Post-Hearing Brief, pp. 10-12.

The State has not shown that the Agency's determination here was
unreasonable:  given the admitted erroneous data, the percentages
reported by this part of SURS did not reflect what they were intended to
reflect.  Consequently, the decimal shift problem meant that this part
of SURS did not accurately report the amount paid to the providers.
While the State may be correct that sometimes the aggregate percent
billed for inpatient services might exceed 100 percent, it has not
demonstrated that this is more than further confusion compounding the
error.  Moreover, whether or not the claims involved here were small or
large is not dispositive; the reviewers were never engaged in an effort
to find all the errors, or even establish the scope of the errors
statistically.  The reviewers were merely noting obvious errors which
they viewed as one item of evidence, among others, calling into question
the usefulness of a reporting system.  Were HCFA trying to establish the
amount of the disallowance by direct reference to these errors, we would
demand a statistically valid methodology to extrapolate from a sample to
a universe, but that was not the purpose here.  Finally, as we stated
earlier, it is not the reviewers' job to determine the statistical
validity of their reports as a result of the errors.  It is merely the
reviewers' job to detect that errors do exist.

We conclude then that the State had not shown that the Agency's
determination here was unreasonable given the objectives of the system
and given the admitted presence of errors.

4.    Inpatient Hospital Reports - Discharge Codes

The reviewers found a large discrepancy between admissions and
discharges.  This was caused by an erroneous discharge code. Appellant's
Appeal File, Ex. 15

The State admitted that the presence of erroneous status codes on
hospital claims was detected by review of this report. Appellant's
Brief, pp. 24-25; Appellant's Post-Hearing Brief, p. 12.  The State also
indicated that the erroneous data was presented to this subsystem from
the claims processing subsystem. The State contended then that since the
reports accurately reflected the data presented to the subsystem, the
subsystem was functioning as it was designed to do.

We have already rejected this argument.  The State here did not
otherwise dispute the Agency's findings.  Moreover, the State did not
dispute the Agency's contention that as a result of this inaccurate data
there was a total loss of much inpatient hospital data on these reports
for March 1985.  The fact that the subsystem manipulated the erroneous
data as it was supposed to belies the fact that as a result of this
erroneous data the subsystem was unable to detect problems as it was
intended. Thus, we conclude the Agency's determination here was
reasonable.

5.   Overall conclusion--surveillance and utilization review subsystem
     errors

While it may be true that this subsystem was operating the same way as
it did when it was previously certified, the fact that this subsystem
must operate by blindly manipulating data from the claims processing
subsystem as well as the other subsystems means that, if that data is
incorrect, it could significantly affect the reports generated under
this system.  That is what happened here.  Consequently, the subsystem
was unable to operate as it was intended.  As a result of the errors
discussed above, 12/ the prime objective of this subsystem was made
ineffective because the reports were no longer a reliable tool for
detecting fraud and abuse.

Conclusion

In reviewing the record before us, we weighed the evidence against the
law.  We determined in DGAB No. 882 that "operational" for purposes of
enhanced 75 percent retroactive FFP does not mean when the system first
begins to process and pay claims, however poorly; "operational" means
when the Secretary determines that the State met the conditions for
approval.  In order to determine whether the State meets these
conditions of approval, the Secretary performs a certification review.
Based on the results of this review, the Secretary determines the date
the system was operational.  Here, the Secretary determined that, based
on how the State's system was operating as measured against the specific
minimum requirements the system must meet for approval, the State's
system became operational as of March 31, 1985.  This operational date,
and with it the corresponding right of the State to claim operational
FFP at the enhanced 75 percent rate from that date, was contingent on
the State correcting certain defects in its system.

As we have discussed above, the State has not met its burden of showing
that its system was operational as of the date it claimed. 13/
Substantial defects in major subsystems prevented the State from meeting
the conditions for approval.  The record here does not support the
State's contentions that the Agency's findings of deficiencies were
without a factual basis or were arbitrary and capricious.  Rather, the
record clearly shows that the Agency reasonably determined that the
State's system was not certifiable as operational.

For the reasons indicated above and in our prior decision (DGAB No.
882), we sustain the Agency's disallowance of $1,379,889.

 

                            ________________________________ Donald F.
                            Garrett


                            ________________________________ Alexander
                            G. Teitz


                            ________________________________ Norval D.
                            (John) Settle Presiding Board Member

 

 

1.     The record in DGAB No. 882 was incorporated into the appeal here.

2.     In accordance with HCFA's instructions, the State submitted a
corrective action plan for these residual errors to HCFA on March 11,
1986 (Ex. 16), and HCFA acknowledged receipt of the plan on May 1, 1986,
indicating that HCFA would require verification from the State after the
completion of the scheduled changes that the corrections had been made
to the system and that all outstanding issues had been completely
resolved. Appellant's Appeal File, Ex. 17.  On the basis of such a
verification, HCFA notified the State on July 22, 1986 that "the
contingencies for certification approval are satisfied and the Georgia
MMIS is approved for enhanced funding effective April 1, 1985."
Appellant's Appeal File, Ex. 18.

3.     As we discussed in DGAB No. 882, the State Medicaid Manual
provides that a state can obtain 75 percent FFP for operations of a MMIS
"retroactive to the first quarter beginning after the date established
by the Secretary that the system became operational." Emphasis added.
Consequently, in order to receive FFP retroactive to July 1, 1984, as
requested by the State, Georgia's MMIS must have been fully
"operational" beginning July 1, 1984. See DGAB No. 882, pp. 2-4.

4.     Section 11260 of the State Medicaid Manual incorporates by
specific reference the performance standards for a MMIS contained in
sections 11300, et seq., of the Manual, which also must be met in order
to receive 75 percent FFP.

5.     The State contended that in order to determine whether the State
was dilatory in correcting the errors, the Agency's witness should
possess information concerning the nature of the errors, their
frequency, their pattern, the manner of their discovery and the work
required to correct such errors.   Appellant's Post-Hearing Brief, p.
14.  We do not agree that this is necessarily the job of the
certification reviewer.  Considering that the reviewer is usually
performing the on-site review over a short period of time, it would be
impossible for the reviewer to research these types of questions and
still perform the review. Moreover, this kind of looking behind the
system's errors by the reviewer should not be necessary, considering
that when a State requests a review the system is supposed to be fully
operational and meeting the minimum requirements.  State Medicaid
Manual, Section 11241.

6.     While the State also argued that its policy judgment that
mechanized comparisons are not medically prudent was supported by the
General Systems Design, the provision the State cites is in a 1971
document dealing with the general design of the surveillance and
utilization review subsystem.  We are not convinced that this provision
is applicable here to the claims processing subsystem, or that the
policy considerations would be the same in 1985 (when further data would
be available).  Appellant's Post-Hearing Brief, Appendix C.

7.   The record also indicates that the State itself was well aware that
its system was not operational as of June 30, 1984. The State was aware
as of April 25, 1985 that its system was making overpayments.
Respondent's Supplemental Record on Appeal, Ex. VI.

8.     The State also alleged that HCFA approved a Request for Proposal
(RFP) eliciting bids to develop the MMIS system, and that this RFP
incorporated by reference the design of the Accounting Interface
Subsystem.  It is unlikely that the RFP would be more detailed, in and
of itself, than the APD; in any event, we have already found this
subsystem to be insufficiently related to the required reporting.  The
State made the same arguments concerning the contract with the Computer
Company (the State's MMIS contractor), and the argument is subject to
the same weakness.  The point is that neither the Accounting Interface
System, nor the RFP or contract which subsequently may have incorporated
that subsystem, contained anything approaching proof that HCFA had
approved the AI-O-04 as the equivalent of the reports required under the
separate subsystem in issue here.

9.     The State contended that the Agency's witness admitted on cross
examination that the report in question here provides no information
with utility to the operation of the State's Medicaid program.
Appellant's Post-Hearing Brief, p. 31.  The State, however, took this
statement out of context; while it may or may not be true that the lump
sum total of all line items at the bottom of the report (which is what
the witness was asked about) has no direct relevance, that does mean
that the drug total listed in the particular line item, which is what is
in issue here, is meaningless.  Consequently, we do not think this
argument is persuasive.

10.     The Agency did not provide any argument to rebut the State's
contention that it had certain reports which were equivalent to the
MR-O-14 which allowed the State's subsystem to "assist auditors in
reviewing provider cost and establishing a basis for cost settlement"
(the last function listed on page 11). Considering that there were
significant defects in the State's subsystem, the failure of the Agency
to address this function does not change our determination that the
Agency's decision here was reasonable.

11.     HCFA's original findings here also questioned payment of greater
than 100 percent of costs of inpatient services.  In its post-hearing
brief, HCFA said it was no longer relying on this ground.  P. 38.
Therefore, we have not dealt with the State's arguments on this point.
See, e.g., Appellant's Post-Hearing Brief, pp. 10-11.

12.     HCFA did not press another error, dealing with anesthesiology,
apparently reflecting a misunderstanding about the State's system.  See,
e.g., Appellant's Post-Hearing Brief, p. 4.

13.     At the hearing, the State presented testimony meant to show that
HCFA was somehow treating Georgia differently than other states.  The
State contended that no other state had been denied retroactive FFP back
to the date the state requested.  The evidence presented, however, does
not support the State's contention.  In fact, it turned out the specific
state Georgia alluded to had been denied retroactive FFP back to the
date it first claimed its system became operational, just as here.
Hearing Ex. XVII.  Even if Georgia had been able to prove another state
was dealt with more laxly, it likely would not be dispositive, because
in the case before us -- which is the only case we are dealing with --
the evidence clearly supports HCFA's determination.