DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Indiana Department of Public Welfare
Docket No. 87-160
Audit Report No. A-05-86-62101
Decision No. 958
DATE: May 20, 1988
DECISION
The Indiana Department of Public Welfare and the Indiana State Board
of
Health (State) appealed a determination by the Health Care
Financing
Administration (HCFA, Agency) disallowing $131,150 in federal
financial
participation claimed by the State under the Social Security Act
(Act)
for the period October 1, 1982 through December 31, 1984. 1/
The
disallowance was based on an audit by the Office of Inspector General
of
the State's allocation of survey and certification costs. See
Audit
Report Number A-05-86- 62101 dated February 12, 1987, Appellant's
Appeal
File, Exhibit (Ex.) A.
The Agency found that the Indiana State Board of Health had
charged
Medicaid for costs which should have been allocated to
State-only
activities, and had claimed a disproportionate share of costs
where both
State and federal inspections were involved. Specifically, four
items of
cost were disallowed: (1) costs of State-only licensure surveys,
(2)
costs of revisions to the State licensing regulations and the
State
licensure survey program, (3) unallowable cost allocations under the
new
State licensure survey procedures, and (4) unallowable cost
allocations
to Medicaid of State agency support staff.
For the reasons discussed below, we uphold the Agency's
disallowance
subject to a reduction on one item. What the requirements
are
In Indiana, the Board of Health is the State survey agency
designated
under the Act. It performs surveys of facilities for
purposes of State
licensure, and Medicare and Medicaid certification.
The State survey
agency, before it can certify a skilled nursing facility
(SNF) or
intermediate care facility (ICF) as meeting the federal conditions
for
participation in Medicaid, must first survey the facility to
determine
whether the facility meets the requirements for State
licensing. 42
C.F.R. 442.201 and .251. Sometimes the State
survey agency might
perform a survey only for State licensing purposes; other
times, the
survey agency may perform a combined federal-State survey. The
question
for Medicaid reimbursement is what proportion of the State
survey
agency's costs are attributable to Medicaid activities and what
costs
are attributable to State-only activities. The difficulty arises
where
joint-federal state surveys are performed and the State
licensing
standards are nearly identical to the federal standards.
The cost principles applicable to state governments are found in Office
of
Management and Budget Circular A-87, previously designated as
Federal
Management Circular (FMC) 74-4. See 45 C.F.R. 74.171(a); 46
Fed. Reg.
9548, January 28, 1981. Section C(1) of Attachment A explains
the
factors which affect the allowability of costs. In order to
be
allowable under a grant program, a cost must be necessary and
reasonable
as well as allocable under the cost principles. A cost will
be
considered allocable to a particular cost objective to the extent of
the
benefits received by that objective. See section C(2)(a).
Also, an
allowable cost must "[c]onform to any limitations or exclusions
set
forth in these principles, Federal laws, or other governing
limitations
as to types or amounts of cost items." Attachment A, section
C(1)(c).
Section 431.610(h) of Volume 42 of the Code of Federal Regulations
(1982)
provides:
(h) FFP for survey responsibilities.
(1) FFP is available in expenditures
that the survey agency makes
to carry
out its survey and certification responsibilities
under
the agreement [between the
Medicaid agency and the survey agency
for Medicaid certification] . . .
(2) FFP is not available in any
expenditures that the survey
agency
makes that are attributable to the State's
overall
responsibilities under State law
and regulations for establishing
and
maintaining standards.
Additionally, the HCFA State Operations Manual provides the states
with
HCFA's interpretation of the federal regulations and the methods to
be
utilized in implementing the regulations. Section 4542.3 of the
Manual
states in pertinent part :
Long Term Care Facility Workload (SNF/ICF)
The Federal share of the costs of the
survey and certification
activities and
follow-up visits related to surveys of
SNF's
participating in both Titles XVIII
and XIX will be divided
equally by the
two programs . . . . Costs of the survey
and
certification activities and
follow-up visits related to surveys
of
ICF's will be chargeable entirely to Title XIX in
accordance
with Federal
regulations. The costs of activities performed
by
this survey staff for the purposes of
the State licensure program
or any other
State program must be borne entirely by the
State.
The survey agency must maintain
records to reflect the costs of
these
activities.
Emphasis added. Respondent's Appeal File, Ex. 4.
We discuss each of the items of disallowed costs below.
I. Cost of State Licensure Surveys
A. Background
In the course of the audit, the auditors learned that during the
period
October 1, 1982 to December 31, 1984, the Indiana State Board of
Health
performed state licensure only surveys of 91 hospitals and, during
the
calendar year 1983, performed state licensure only surveys of 76
nursing
homes. The surveys were performed by the Medical Care
Administration
Division and the Hospital and Institutional Services Division
of the
State agency. Respondent's Appeal File, Ex. 1, p.5. Since the
hours and
costs of state licensure surveys should have been charged only to
State
programs, the auditor interviewed six surveyors and three
division
directors to determine why the hours and costs were charged to
Medicaid.
The auditors learned that although employees personally prepared
their
bi-weekly activity reports the Director of the Bureau of
Health
Institutions Standards provided the percentages of effort to be
charged
to each program in memoranda dated September 15, 1983, to
these
divisions, as well as to the Health Facilities Division.
Each
memorandum stated, in part:
Effective immediately your hourly coding
activity for the program
areas listed
below must total the percentage that has
been
assigned to each specific program
area. It is very important
that
your overall hourly activity equate the percentage in
order
to meet our budget allotments .
. .
Appellant's Appeal File, Ex. 1, Appendices A, B, and C. Emphasis added.
The interviewed surveyors and directors told the auditors that
the
employees used the percentages in the memoranda, not their
actual
experience, as the basis for distributing their hours to State
and
federal programs on their activity coding sheets. To determine
whether
or not the percentages stated in the memoranda were used, the
auditors
compared the percentages of state licensure survey hours that
were
charged to Medicaid and Medicare on the coding sheets of the
surveyors
of the Medical Care Administration Division and the Hospital
and
Institutional Services Division to the percentages that were assigned
to
each specific program area in the memoranda. A comparison of
the
percentages of state licensure survey hours that were charged to
the
federal programs on the coding sheets of these two divisions
closely
approximated the percentages assigned to these areas in the
memoranda.
The auditors also reviewed state licensure survey reports, travel
records,
and daily itineraries maintained by the surveyors in order to
determine
whether the costs charged by the State could be considered
allowable and
allocable to the federal program. The auditors then
concluded that the State
had allocated $24,361 in these state licensure
survey costs to the Medicaid
program.
After reviewing the auditors' findings, HCFA disallowed these
costs
concluding that Medicaid was inappropriately charged with costs
of
activities performed by the survey staff for purposes of the
State
licensure.
B. State's Position
The State devoted considerable argument to, and provided testimony by
its
witnesses regarding, the auditors' concern that the surveyors were
directed
by management to charge their time to State and Medicaid
activities in
accordance with predetermined percentages, rather than by
actual work
performed. The State contended that HCFA's reliance on
these memoranda
as the basis of its disallowance is inappropriate; the
State argued
that the auditors not only misinterpreted these memoranda,
but, also, reached
their conclusions on the basis of employee interviews
which were merely
summarized, not recorded and sworn to. The State
explained that, while
HCFA assumed that the memoranda were a mandate to
employees that they must
code their activity according to the
percentages in the memoranda, the
memoranda were simply meant as
informational guidelines. The State
indicated that employees were
always instructed to code what they worked. But
they also were
instructed, if necessary, to work in those areas (i.e., State,
Medicaid,
or Medicare) in which funds were available. State's Brief,
pp. 7-10.
The State further argued that even when the State performed a
state
licensure only survey, the surveyors still looked for
federal
deficiencies. The surveyors then informed both HCFA and the
facility of
the federal deficiencies found. The surveyors also might
consult with a
facility concerning federal requirements if that facility was
interested
in certification.
The State also contended that the auditors arbitrarily reduced the
hours
allocated by the surveyors to the Medicaid program. The State
surmised
that the reduction was based on the auditors' suspicion that
survey
costs were overallocated to the Medicaid program. The State took
issue
with the formula used by the auditors to calculate the Medicaid
costs
allowed, contending that there was no justification for its use.
C. Analysis
While the State spent considerable time making arguments and
having
witnesses explain that each memorandum pertaining to coding was merely
a
guideline and not a mandate to the surveyors, the record indicates
that
neither the auditors' findings nor HCFA's disallowance relied solely
on
these memoranda. The federal auditor testified that the
disallowance
was not based on the percentages in the memoranda, but on
a complete
review of the State's files and all supporting documents.
Transcript
(Tr.), p. 218.
In fact, the auditor stressed that he did not rely on the memoranda
in
determining what work properly chargeable to State licensure was
billed
to federal programs. Tr., p. 218. What primarily aroused
the auditor's
suspicion here was his conversation with the Director of the
Medical
Care Administration Division, in which the Director indicated
that
during the audit period his division was conducting state licensure
only
activities. Tr., p. 214 and 220. The auditors then became
aware that
both the Medical Care Administration and Hospital and
Institutional
Services Divisions were involved in state licensure only
activities
during the audit period. Tr., p. 220, Respondent's Appeal
File, Exs. 7,
8, 9, and 10. This led the auditors to believe there
might be a problem
with the allocation of costs, since if these divisions
performed state
licensure only activities, no costs from those divisions
should have
been allocated to the federal programs. Consequently, the
auditor
indicated that the memoranda were only an additional indication to
him
that the employee coding sheets might not be correct. Therefore,
we
conclude that the audit findings do not depend for their validity
on
viewing the memoranda as mandating percentage allocations.
We also are not convinced by the State's evidence that these
memoranda
were treated only as guidelines. As they are worded, these
memoranda
certainly look like a mandate to the surveyors to code their
activity by
these predetermined percentages. The record indicates that
surveyors
from these divisions apparently believed that their on-site survey
time
should be allocated to State and federal programs in accordance with
the
percentages stated in the memoranda. 2/ Under these circumstances,
it
is reasonable to look behind the coding records and not take them
as
being a true record of time spent on the various programs.
In addition, we see no reason to discount the employee interviews with
the
auditors merely because they were summarized by the auditors in
their
workpapers and not officially recorded and sworn to. At the
outset, we
note that the auditors indicated and the State did not deny
that it is an
accepted accounting practice to hold such interviews and
make such
summaries. The fact that the interviews were not recorded or
sworn to
is not important where the State had the opportunity to present
evidence in a
proceeding such as this to impeach these statements. 45
C.F.R.
16.4 and 16.8, Board's Acknowledgment of Appeal dated September
28,
1987. The State had the opportunity to present these employees
as
witnesses at the hearing, and while it presented some witnesses,
it
chose not to present the two surveyors of these two divisions who
had
talked to the auditor. The State also had every opportunity to
present
other evidence, first, in response to the audit report, and,
then,
during this appeal, that would contradict this evidence or persuade
the
Board that, at least, there might be some doubt as to the credibility
of
this evidence. It did neither here. Thus, we find no reason
to
discredit an acceptable auditing practice solely on the basis
requested
by the State.
Furthermore, the State did not support its argument that even when it
was
performing state licensure only surveys, it found enough
federal
certification violations, or consulted extensively enough with
the
facility concerning the requirements for certification during the
course
of those surveys, to justify claims in the amount of $24,361 to
the
Medicaid program. The State's argument completely ignores
the
undisputed fact that during this period the State surveyed for
state
licensure only purposes 91 hospitals. Out of these 91 hospitals,
87
were Joint Commission on Accreditation of Hospitals (JCAH)
hospitals
which do not require a certification survey since they are
automatically
certified for Medicaid. See also Respondent's Appeal
File, Ex. 10. As
for the four non-JCAH hospitals, while those
facilities do require a
certification review (which the auditors agreed would
be an allowable
charge to Medicaid), the auditors found that during the time
period in
question here, no such certifications occurred. Tr., p.
230. The State
did not dispute this finding. The mere possibility
that some
consultation about federal certification requirements occurred
cannot
justify charging almost 20% of the surveyors' on-site survey time
to
Medicaid. Appellant's Appeal File, Ex. 1, p. 6.
Also, the auditors' review of the State's files (both the state
licensure
files and the certification files) for the 76 nursing homes
surveyed revealed
that only 22 facilities were found to have federal
deficiencies and only five
out of the 22 were found to have deficiencies
which warranted even one hour
of federal time. 3/ Tr., p. 226.
Moreover, while the State contended
that the surveyors also might
provide consultation to the facility concerning
certification
requirements, the auditors found no evidence in the
State's
certification files to indicate that such consultations were
made. The
State presented no information or documentation in this
proceeding to
substantiate its allegation that the surveyors performed this
activity.
We also reject the State's contention that the formula used by
the
auditors to determine the proper hours attributable to the
Medicaid
program was not equitable. 4/ The State presented no evidence
or
documentation to discredit the auditors' formula here. Moreover,
the
State provided no other method for properly allocating the
questioned
costs. Certainly, the record shows that Medicaid was charged
for costs
which should have been borne by the State.
Thus, we conclude that the Agency's disallowance of $24,361 should
be
sustained.
II. Costs of revisions to the State licensing regulations and the
State
licensure survey program
A. Background
During the fiscal years 1983 and 1984, the State performed two
special
projects to develop new state licensing regulations and a new
state
licensure report. Surveyors from the Medical Care Administration
and
Health Facilities Divisions attempted to develop the state
regulations
and survey report so that these would be consistent with
federal
requirements. The State agency apparently believed that this
would
benefit the Medicaid program and that it was therefore justified
in
charging the federal program with costs associated with the
development
of the state licensure regulations and survey report. The
auditors
determined that since federal regulations do not require the
state
licensure program to be consistent with federal survey and
certification
reports, none of the hours or costs associated with these
special
projects should have been charged to the federal program. The
auditors
also found that there was no documentation to support that the new
state
licensing regulations and survey program provided any benefit to
the
federal program. As a result, the auditors determined that under
the
applicable regulations, Medicaid had been charged inappropriately
$4,086
for these activities.
On the basis of the auditors' findings, HCFA disallowed $4,086 in
costs
claimed for the revisions to the state licensing regulations and
the
survey program, since under the applicable regulations and the
HCFA
State Operations Manual, these were state activities which should
have
been borne entirely by the State and not by Medicaid.
B. State's Position
The State argued first that these costs should be allowed because the
new
state regulations and survey report facilitate the survey process,
thereby
benefitting the Medicaid program.
Secondly, the State argued that this part of the disallowance should
be
reversed because the audit report lacked sufficient documentation
to
sustain the auditors' conclusion. The State explained that
several
employees in the Medical Care Administration Division and the
Health
Facilities Division were involved in these special projects.
Each
employee then indicated the amount of time spent working on
these
projects on their activity sheets using the activity code
for
legislative/legal activity. The auditors then disallowed the
time
allocated to this activity code by the surveyors in these two
divisions
who were involved in these two special projects. The State
argued that
there is no evidence that any of this coded time was in fact used
only
for these projects. The State argued that the employees' time
could
have been used to study or review federal rules, for example.
C. Analysis
Clearly, there is no basis for charging the Medicaid program here for
the
time spent on revising the state licensure requirements and the
state survey
program. The State ignored the applicable regulations
which forbid
Medicaid reimbursement for costs attributable to the
State's licensing
procedures and standards. 42 C.F.R. 610(h)(2). Even
if we could
overlook this, the State admitted that there is no
requirement that the State
and federal requirements be the same. A
state, of its own volition, may
choose to make its state requirements
similar or even identical to the
federal requirements. However, the
federal inspection must still be
performed and that inspection will
require the same amount of time to
complete whether or not the State
licensing requirements are similar or the
same. Consequently, the
federal program receives no direct benefit from
the time spent on
revising these state requirements. Any benefit which
the federal
program might receive from the "facilitation" of the survey
process is
merely the type of remote and incidental benefit which is
insufficient
to justify cost allocation.
We also reject the State's second argument. The record shows that
the
auditors did not indiscriminately disallow all costs charged to
this
legislative/legal activity code. First, the auditors became aware
of
these special projects and the legislative/legal activity code
after
their interviews with the Directors of these two divisions. Next,
the
auditors reviewed the surveyors' itineraries against the coding
sheets
to identify those persons who worked on the state projects and how
much
time they charged to federal programs. As the Agency pointed out,
no
documentation or statements were ever provided or made by the State
to
contradict the auditors' finding that legislative/legal time was
spent
only for the development of the new state licensure regulations
and
survey. In any event, this Board has repeatedly concluded that a
State
has the burden to show that its claim for reimbursement is proper,
thus
showing that the audit report findings were wrong. New York State
Dept.
of Social Services, DGAB No. 204 (1981). The State, instead of
showing
by supporting documentation that some of the surveyors' time
allocated
for this activity code was used for a legislative/legal
activity
directly applicable or involving the federal program, merely made
an
unsubstantiated assertion. Therefore, we sustain the disallowance
of
$4,086.
III. Cost allocations under the new state licensure survey procedures
During the course of the audit, the auditors evaluated the new
state
licensure survey inspection procedures and reports which the State
began
using on July 1, 1984 and determined that these reports
were
considerably more detailed than the reports used previously. A
review
of the report itself indicated that both the number of pages as well
as
the number of questions increased significantly from the old
survey
report to the new survey report. The number of questions went
from 202
to 448 and the number of pages went from 28 to 100. The
auditors then
learned through interviews with the Directors and some of the
surveyors
of the Medical Care Administration Division and the Health
Facilities
Division that the increased complexity of the new state licensure
survey
reports required more time to complete than the previous
version. The
auditors reviewed the employee coding sheets and found
that the
additional time to complete the state licensure inspections under
the
new format was not reflected in the distribution of hours to State
and
federal programs. The auditors found that the surveyors continued
to
distribute their time in accordance with percentages prescribed in
the
September 15, 1983 memoranda, even though greater State effort
was
required to complete an inspection under the new State criteria.
The
auditors believed that since additional time was required to perform
the
new state licensure survey inspections, a larger portion of the
time
used on these inspections should have been charged to State
programs
when both State and federal surveys were performed during the
same
inspection.
The auditors reviewed the inspection results of four facilities,
certified
to provide both skilled nursing and intermediate care
services, and five
intermediate care only facilities, all of which were
surveyed and recertified
under the new state licensure survey
procedures. With regard to the
four SNF/ICF facilities, the auditors
concluded that since the Medical Care
Administration Division's surveys
(which are made for purposes of the State
program as well as the
Medicare and Medicaid programs) disclosed
approximately the same number
of state licensure deficiencies as federal
deficiencies, that the extent
of effort associated with the new state
licensure surveys was equivalent
in effort to the effort expended for federal
surveys for these
facilities. The auditors then concluded therefore
that a more
representative distribution of the Division's time for such
surveys to
each program (State, Medicare, and Medicaid) would be
approximately one
third to each, rather than the allocation of 22% to State,
35% to
Medicare and 43% to Medicaid as set forth in the memorandum. 5/
The auditors' review of the five intermediate care facilities, for
which
the Health Facilities Division performs surveys for purposes of
the
State and Medicaid program, disclosed from three to six times more
State
license deficiencies than federal deficiencies. The
surveyors
interviewed who inspected these facilities stated that the
state
licensure surveys were more difficult and time-consuming than
the
federal surveys for these facilities. The auditors concluded that
the
prescribed percentages in the 1983 memorandum of 40% to the
State
program and 60% to Medicaid should have been reversed when the new
state
licensure survey procedures were implemented on July 1, 1984.
Based on their analysis, the auditors thus concluded that a
more
reasonable distribution of time under the new state licensure
survey
program would be: for surveys conducted by the Medical
Care
Administration Division, 35% to the State and Medicare and 30%
to
Medicaid; and for surveys performed by the Health Facilities
Division,
60% to the State and 40% to Medicaid. Using these
percentages, the
auditors reallocated the costs of the divisions for the
period of July
1, 1984 through December 31, 1984, and determined that the
Medicaid
program was overcharged $41,828.
B. State's Position
Essentially, the State disagreed with the auditors' findings that
the
increase in the number of questions and number of pages in the
State
survey report resulted in an increase in the amount of time necessary
to
complete that report. Similarly, the State argued that the number
of
deficiencies or findings in a State survey cannot be equated with
the
amount of time expended for that survey. The State contended that
the
amount of time expended documenting deficiencies can vary
substantially.
The State argued that the federal survey is the focal point
and driving
force for nearly all surveys conducted so that when a federal
deficiency
is cited the surveyor simply adds the State rule number when
the
findings are the same. The State argued that the federal and
state
requirements are the same except for a few state requirements that
are
higher. The State admitted that time to document state rules
with
higher requirements would take longer, but that these are few in
number.
The State also argued that time should not be reallocated between
the
programs based on the surveyors' statements regarding the
difficulty
levels of State and federal surveys. The State argued that
this
presumes that these statements are more accurate than the time
reports
prepared contemporaneously with the surveys. The State also
questioned
the reliability of these interview summaries.
Finally, the State questioned the percentages assigned to the State
and
federal programs by the auditors because the auditors allegedly
assigned
new percentages randomly to the programs.
C. Analysis
Contrary to the State's assertions, we believe that the record
indicates
that the auditors were reasonable in questioning whether the
State's
allocation of survey costs to the State and federal programs during
the
period July 1, 1984 through December 31, 1984 was correct. The
auditors
did not deny that the Medicaid program should be charged a portion
of
these costs. The primary question the auditors had was whether
the
Medicaid program was being charged more than its fair share.
While it may be true that an increase in the number of pages and
questions
in the state licensure survey alone does not mean that it
would require an
increased amount of time to complete the survey, the
auditors were told by
the surveyors that the new reports required more
time to complete. The
record, however, shows that the auditors did not
base their conclusions on
just this factor. The auditors also were
told, and the State agreed,
that while in most instances the federal and
State requirements were the
same, some of the State requirements were
stricter and required more time to
document. Moreover, the surveyors
indicated to the auditors that while
a certification review of a skilled
nursing facility for Medicare could be
completed based on the state
licensure survey, and vice versa, the surveyors
did not think a state
licensure survey or a skilled nursing facility survey
could be completed
on the basis of an intermediate care facility survey for
Medicaid. From
these statements, the auditors concluded that, at the
very least, the
state licensure survey and skilled nursing facility survey
for Medicare
could be considered to require equal time to complete, whereas
the state
licensure survey would require greater detail and effort than
the
intermediate care facility survey for Medicaid. Moreover, the
auditors'
comparisons of the number of federal and State deficiencies found
in a
joint Medicare, Medicaid, and State survey as well as the number
of
deficiencies in a joint State and Medicaid, survey does not add
anything
more than what was already apparent. What had become apparent
was that
the allocations of time on the employees' coding sheets may not
have
been a true record of the time spent on the various programs.
Normally,
these contemporaneous records would be primary evidence of time
spent.
However, in light of the September 15, 1983 memoranda and in view of
the
surveyors' statements to the auditors, the auditors certainly had
reason
to doubt the accuracy of these records.
Furthermore, while the State argued that the federal survey was the
focal
point for all the surveys conducted, the surveyors' statements
indicate the
contrary was true. As we previously indicated, the
surveyors clearly
explained that while a federal intermediate care
facility survey could be
completed from a state licensure survey, a
state licensure survey could not
be completed from the intermediate care
facility survey as the intermediate
care facility survey is more general
than the state licensure survey
requirements. Moreover, the surveyors
again agreed that certainly a
federal intermediate care facility survey
could be completed from a skilled
nursing facility survey or a state
licensure survey but that neither of these
could be completed on the
basis of the intermediate care facility survey.
Consequently, the
federal intermediate care facility survey for Medicaid
cannot possibly
be considered the focal point for all surveys.
As we indicated above, we see no reason to discount the
employee
interviews with the auditors. The Board looks at all the
evidence
presented and assesses appropriate weight to be given the evidence
in
the record. Here, the record as a whole supports the conclusion
that
the contemporaneous time records might not be accurate. The State
had
the opportunity to rebut the auditors' findings. We do have
testimony
from two surveyors that they thought they were allocating their
time
based on the amount of time they worked on the programs. Tr., pp.
161,
176. Their testimony alone, however, does not explain why Medicaid
was
assessed the greater portion of costs if the Medicaid survey
was
admittedly less detailed and time-consuming than the State
survey.
Moreover, this testimony does not explain the contradictory
statements
made to the auditors by other surveyors, who were not asked by the
State
to testify at the hearing.
Finally, while the auditors were reasonable in questioning the
allocation
of costs to the Medicaid program, we do not agree that this
necessarily means
that the State share should change in the case of
joint Medicaid and state
licensure surveys from 40% to 60% without some
more definite evidence for the
changed figure. This, however, does not
mean that the allocation should
remain as it was; the Medicaid program
was clearly being charged more than
its fair share of the costs.
The State here offered no other plan for allocation. In the absence
of
such a plan and because there is a question of the reliability of
the
contemporaneous time records, the Agency could impose a
reasonable
allocation on the State. See Nebraska Dept. of Health,
DGAB No. 373
(1982). In the Nebraska case, the Board said that, in the
absence of a
plan for allocation and reliable contemporaneous records, it
was
reasonable, in the case of joint surveys for Medicare, Medicaid
and
State licensure to allocate 35% to Medicare, 35% to the State and 30%
to
Medicaid. Thus, we sustain the disallowance as far as it relates to
the
joint survey for dually certified facilities.
As for the part of the disallowance for joint Medicaid-State
licensure
surveys, the Agency did not dispute that Indiana is entitled to
some
funds for these activities; what the Agency did dispute is the
State's
allocating 60% of these costs to Medicaid. We agree that the State
has
not justified claiming costs at this percentage. At the same time,
the
Agency has provided no substantial justification for its reallocation
of
40% to Medicaid, and, given what essentially is an admission by
the
Agency that Indiana is entitled to something, it would be arbitrary
to
merely uphold the 40% level. Against that background, we note
the
following three factors which provide a reasonable presumption
favoring
a 50% allocation between the State and Medicaid programs:
o The auditors observed that if
Medicaid and the State licensure
surveys
were found to be identical, a strong case could be
made
for allocating survey time equally
between the two programs.
Appellant's
Appeal File, Ex. K, p. 4.
o The record suggests that these
surveys may approximate the
balance the
auditors suggested. See, e.g. Appellant's
Appeal
File, Exs. C and D; Respondent's
Appeal File, Ex. 17.
o In Nebraska, we also said that
in the absence of any other
plan for
allocation and where the reliability of
the
documentation is questionable, it
would be reasonable to allocate
50% to
the State and 50% to Medicaid.
Against the foregoing background, we provisionally uphold the
disallowance
for joint Medicaid-State licensure surveys, but in an
amount which reflects
the 50% allocation. If either party elects to
dispute this, they may
return to the Board within 30 days with evidence
to support their original
calculations. If neither party objects to the
50% allocation, the
actual amount of the disallowance on this item
should be computed by
agreement of the parties; if they are unable to do
so, they may return to the
Board on this issue only.
IV. Cost allocations of State agency support staff to Medicaid
The auditors found that secretarial and clerical employees reported
their
time on the bi-weekly activity reports in accordance with
percentages
prescribed by management instead of charging the time to the
programs
actually benefitting from their effort. The auditors found
that the
percentages used by the support staff varied for each employee
and were
provided to the employees verbally instead of in writing. The
auditors
evaluated the reasonableness of the allocations to the State
and federal
programs by interviewing the clerical supervisors and other
employees who
were familiar with the work that was performed by the
support staff during
the audit period. The State did not maintain
written job descriptions
of the employees' responsibilities and duties,
so the auditors interviewed
the supervisors and employees to determine
the work activities of each
support staff employee. As a result of
their review, the auditors
determined that:
o Nine employees worked the same
amount of time on State
and
Medicaid
activities, but charged 75 to 100 percent of
their
time to
Medicaid.
o Two employees were involved
exclusively with the
state
licensure
program, but charged 60 to 75 percent of their
time
to Medicaid.
o One employee, the secretary for
the Medical Care
Administration Director, charged all of her time to
Medicare
and Medicaid,
but was also involved with State activities.
Therefore, the auditors adjusted the time distribution percentages
and
reallocated the questioned costs of the 12 employees. As a result,
the
auditors determined that Medicaid was overcharged $60,875.
B. State's Position
Essentially, the State disagreed with the auditors' findings because
they
based their findings on interviews with the employees rather than
on the
contemporaneously kept time records. The State also contended
there was no
way the auditors could base an allocation of costs between
the programs based
on the information given in the interviews.
Moreover, the State renewed its
objection to the Agency's reliance on
interviews which were summarized by the
auditors and were not recorded
or sworn to.
C. Analysis
We do not agree with the State that the auditors' conclusions here
were
without merit. As the Agency pointed out, the only documentation
of the
clericals' time and effort were the coding sheets themselves.
The State
had no other documentation such as job descriptions to indicate the
job
duties and responsibilities of the support staff. Since there had
been
some reason to suspect the accuracy of the coding sheets, and in
the
absence of job descriptions, it was reasonable for the auditors
to
interview the clerical supervisors and employees to determine
whether
the coding sheets were an accurate account of their work
effort.
Furthermore, the auditors questioned the coding and redistributed
the
time for only twelve positions because the employees worked in
programs
different from those to which they charged their time. In all
other
cases, the auditors accepted the time distributions. Also, the
State
had ample opportunity to present evidence to rebut the interviews
and
the Agency's conclusions. The State, however, presented no evidence
to
show that the auditors' conclusions were not correct.
The argument of the State that the employees never saw the summaries
of
the interviews on which the auditors relied does not apply here.
The
questions for the employees were first given to State management
to
distribute to their staff; the answers were prepared by the
employees
themselves. Tr., pp. 250-51.
More importantly, the State has not shown that the Agency's
reallocation
of costs of these twelve positions has no basis. The State did
not
present any alternative basis upon which to allocate these
employees'
time and effort. We find that in the absence of any other
allocation
method, it was reasonable for the Agency to redistribute the costs
of
the nine employees that worked on both State and Medicaid
activities
equally to both programs rather than distributing the costs
almost
entirely, if not entirely, to Medicaid. Furthermore, under
the
applicable regulation, the State cannot justify allocating all the
costs
of two employees entirely to Medicaid when those employees'
activities
related to only state licensure activities. As for the
Director's
secretary, it is only fair to allocate her time in the same way
the
Director's was allocated, absent convincing evidence that her time
was
in fact allocated differently.
Thus, we sustain the disallowance of $60,875 for the support staff
costs
overallocated to Medicaid.
Conclusion
For the reasons indicated above, we sustain the Agency's
disallowance
subject to the provisions described above on p. 16.
________________________________ Judith
A.
Ballard
________________________________ Norval
D.
(John) Settle
________________________________
Alexander
G. Teitz Presiding Board Member
1. HCFA sent its disallowance letter to both the
Indiana Department
of Public Welfare, the single state agency administering
the Medicaid
program pursuant to section 1902(a)(5) of the Act, and the
Indiana State
Board of Health, the state survey agency designated pursuant to
sections
1864(a) and 1902(a)(33)(B) of the Act.
2. At the hearing, the State presented testimony from
two surveyors
from the Health Facilities Division to the effect that they
were told --
and did -- code as they worked, not as in the memorandum.
Tr., pp. 161,
176. The federal auditor, however, indicated that the
auditors had not
questioned any of the costs in this division based on these
memoranda.
Tr., p. 234. Consequently, we give little weight to this testimony
in
light of the interviews in the record from surveyors of the
two
divisions whose costs were questioned, which suggest that the
surveyors
did not code as they worked, but, rather, used the percentages in
the
memoranda. Respondent's Appeal File, Exs. 9 and 10.
3. The auditors indicated that in those circumstances
they allowed
the costs charged to Medicaid.
4. The formula was as follows:
Total number of Medicaid deficiencies
(or Medicare) divided by
202 (total
State licensure deficiencies possible) x total
survey
hours charged.
Appellant's Appeal File, Ex. J. The State confused this formula
with
one of the questions asked by the auditor about whether it would
be
equitable to allocate time between the programs based on the
total
number of survey questions answered. See Respondent's Appeal
File, Ex.
11, Question 19. This, however, is not the formula the
auditors used
for this part of the disallowance. The question asked by
the auditors
in Exhibit 11 was referring not to the overallocation of costs
to
Medicaid for State only licensure of the 91 hospitals and the 76
nursing
homes. The auditors were trying in Exhibit 11, Question 19,
to
establish whether a formula based on the number of questions in the
new
State licensure survey could be used as a basis to determine the
costs
allocations to State and federal programs under the new State
licensure
procedures. In fact, the auditor indicated that no portion of
the
disallowance was based on that questionnaire which is Exhibit 11.
Tr.,
p. 278. The State obviously confused the context of the
auditors'
question here. Tr. pp. 263-264 and pp. 277-279.
5. The Board has no jurisdiction over the Medicare
portion of the