Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: California Department of Health Services
Docket No. A-95-47
Control No. CA-94-003-ADM
Decision No. 1539
DECISION
The California Department of Health Services (California)
appealed a determination by the Health Care Financing
Administration (HCFA) disallowing $178,568 in federal
financial participation (FFP) claimed by California under
title XIX (Medicaid) of the Social Security Act (Act).
California claimed contract costs related to the provider
relations function of its dental fiscal agent as being
associated with California's Medicaid Management
Information System (MMIS) and therefore entitled to an
enhanced rate of 75 percent FFP for the period between
October 1, 1986 and June 30, 1988. HCFA determined that
California had failed to document that any part of its
original claim for costs related to this function was
entitled to enhanced FFP and therefore disallowed the
entire amount of enhanced funding. The disallowed amount
represents the difference between the 75 percent enhanced
rate and the 50 percent rate generally available for
administrative costs incurred under the program.
California subsequently conceded that only a portion of
the costs in question would be entitled to enhanced
funding. California, however, never clarified what part
of the original claim allegedly still qualified for
enhanced funding.
For the reasons discussed below, we uphold the
disallowance in full. California has already received
funding at the 50 percent matching rate generally
available for administrative activities for these
contract payments related to provider relations
functions. The issue posed by this disallowance is
whether California is entitled to enhanced funding as
well. This Board has repeatedly held in a variety of
contexts that enhanced funding is special, and that
states have the burden to document their entitlement to
any enhanced funding. Here, HCFA concluded that
California lacked appropriate contemporaneous records
that would document what portion of the contract costs in
question qualified for enhanced funding. The
declarations submitted by California, which were executed
approximately nine years after the beginning of the
period in question, were rejected as unreliable and
inadequate. We here uphold HCFA's determination on the
adequacy of California's documentation as reasonable and
accordingly sustain the disallowance.
Statutory and Regulatory Background
In 1972, Congress amended title XIX to include enhanced
rates of reimbursement for administrative costs for the
operation of a mechanized claims processing and
information retrieval system. Section 1903(a)(3)(B) of
the Act provides for reimbursement of --
75 per centum of so much of the sums expended during
such quarter as are attributable to the operation of
mechanized claims processing and information
retrieval systems . . . .
An MMIS qualifies as such a system. In the subpart of
the regulations implementing the MMIS requirements, an
MMIS is defined as --
a system of software and hardware used to process
Medicaid claims, and to retrieve and produce
utilization and management information about
services that is required by the Medicaid agency or
Federal Government for administrative and audit
purposes.
42 C.F.R. 433.111. 1/
The regulation at 42 C.F.R. 433.15(b)(4) reiterates
that the 75 percent rate of FFP applies to the
"operation" of mechanized claims processing and
information retrieval systems. The regulation defines
"operation" as --
the automated processing of claims, payments, and
reports. "Operation" includes the use of supplies,
software, hardware, and personnel directly
associated with the operation of the mechanized
system.
42 C.F.R. 433.111. 2/
Finally, section 1903(a)(7) of the Act and 42 C.F.R.
433.15(b)(7) provide that all activities not qualifying
for enhanced funding that are necessary for the proper
and efficient operation of the state plan may be
reimbursed at the 50 percent rate.
Medicaid Manual Provisions
Before 1981, the Medical Assistance Manual, PRG-31,
issued on June 10, 1974, and Action Transmittal, HCFA-AT-
78-33, issued on April 3, 1978, set forth HCFA policy
concerning the types of costs that were eligible for 75
percent FFP. The Medical Assistance Manual required that
a state claim be in accordance with an approved cost
allocation plan (CAP) 3/ and contained a brief summary of
the types of costs eligible for 75 percent FFP.
In July 1981, HCFA issued Part 11 of the State Medicaid
Manual (SMM). 4/ Section 11270 of the SMM required a
state to "document costs in a cost allocation plan
approved by [HCFA] to support its claim for FFP" and
declared that a state agency "must be able to provide
documentation to support wages, benefits, and other
expenditure items. . . ."
Section 11275.23 contained a summary of costs, such as
"personnel costs of operations control clerks, suspense
and/or exception claims processing clerks, data entry
operators, microfilm operators, terminal operators,
peripheral equipment operators, computer operators, and
claim coding clerks" covered under 75 percent FFP. That
section also provided:
Staff engaged in analyzing data coming out of the
MMIS and formulating plans of action are considered
part of the operation of the MMIS. Staff who
perform follow-up investigations are not considered
part of the MMIS. . . .
FFP at the 75 percent level for operations does not
cover clerical processing operations, except as
indicated above.
In February 1982, HCFA issued Transmittal No. 2 of the
SMM (Revision 2). (This Transmittal stated that its
purpose was to "clarify policy already stated" in Part 11
of the SMM.) Revision 2, which was incorporated into the
SMM as sections 11275.2 and 11275.26, as here relevant,
contained a "List of Reimbursable Costs for State
Systems," together with language that purported to
distinguish between indirect costs which were "directly
attributable" and those which were "not directly
attributable" to an MMIS cost center. Section 11275.26
of the SMM, as amended by Revision 2, provided that any
cost that had not been listed as being eligible for
enhanced funding would be funded at the 50 percent level.
Effective July 31, 1986, HCFA issued Transmittal No. 8 to
Part 11 of the SMM (Revision 8). The general principle
expressed in Revision 8 is that enhanced FFP should be
available for manual intervention which is necessary to
make the computer system perform its automated functions
properly, but not for other clerical or manual processing
activities which would be done by a state even in the
absence of an MMIS. See SMM sections 11275.27; 11275.32.
Background
Prior to issuing this disallowance, HCFA undertook a
review of expenditures associated with California's
Medicaid fiscal intermediary for dental care, Delta
Dental Plan of California (Delta). California originally
claimed, for the period October 1, 1986 through June 30,
1988, FFP for all contract costs associated with the
provider relations functions of Delta at the enhanced FFP
rate of 75 percent. It is undisputed that 10 percent of
California's total contract payment to Delta would be
allocable to the provider relations function if Delta
properly performed its obligations under the contract.
HCFA Ex. 2.
The accountant performing HCFA's review concluded that:
although some personnel in Delta's Provider
Relations Department performed some functions that
would qualify for enhanced FFP if properly
documented, the Provider Relations Department was
fundamentally concerned with performing non-MMIS
functions, that is, with performing functions other
than the automated processing of claims.
HCFA Ex. 2, Adams Declaration, 13.
Because California had not provided any documentation
upon which to base an acceptable allocation of costs
between activities of the provider relations staff that
were eligible for the enhanced 75 percent FFP and those
that were eligible for the 50 percent FFP, HCFA
disallowed all of California's claim for enhanced FFP for
the costs of Delta's provider relations function.
In its appeal before the Board, California stated that
when it initially submitted the claims at issue, it
believed that the costs of the entire Delta provider
relations function were entitled to 75 percent FFP.
California Reply Br. at 2. However, after reviewing
statutes, regulations, and case law, California agreed
with HCFA that many employees in the provider relations
department performed multiple functions and that only
certain functions were eligible for enhanced FFP. Id.
Thus, California admitted that its original claim for
enhanced FFP for the contract cost of Delta's provider
relations function was overstated and that only a portion
of the claim at issue is reimbursable at the enhanced 75
percent rate. California did not provide us with any
figures as to what its adjusted claim might be. With its
appeal brief, California submitted exhibits that it
asserted documented its claim for enhanced FFP:
-- a list of Delta's provider relations employees
and their functions (California Ex. A) and an
organizational chart for the provider relations
unit (California Ex. B), with notations by the
HCFA auditor on both
-- Delta's Provider Relations Manual dated October
27, 1988 (California Ex. C)
-- notes from the HCFA auditor (California Ex. D)
-- the May 9, 1995 declaration of Shirley K. Louis
(Louis Declaration) (California Ex. F)
-- the May 4, 1995 declaration of Brenda Joyce Hunt
(Hunt Declaration) (California Ex. G)
None of this purported documentation is contemporaneous
with the period at issue. 5/
California acknowledged the lack of any contemporaneous
documentation, but argued that any time cards for Delta's
employees, to the extent they exist, would only show how
many hours an employee worked, but not the functions
performed during the time worked. Therefore, according
to California, it would still be necessary to examine
each position and determine what portion of that position
was spent performing functions eligible for enhanced FFP.
California nevertheless maintained that the evidence it
presented in this appeal, specifically the Louis and Hunt
Declarations, shows how much time was spent performing
functions eligible for enhanced FFP. California stated
that, because few employees who worked at Delta during
the period at issue remain there today and the
organization of functions and employees at Delta has
changed during the last eight years, it sought employees
who were in the provider relations unit during the
audited time period. According to California, only two
employees possessed personal knowledge about the period,
Shirley Louis and Brenda Hunt.
California argued that Ms. Louis as head of the unit had
a vivid recollection of the individuals and the functions
performed and the percentage of time those functions were
performed. California contended that Ms. Hunt worked in
the unit during the relevant time period and also had
personal knowledge of the functions performed in the unit
so as to corroborate Ms. Louis' statements. California
maintained that the Louis and Hunt Declarations are the
best evidence which exists of the percentages of time
spent by each employee on various functions.
Thus, the sole issue before us is whether California has
submitted adequate documentation to support its claim
that certain functions of Delta's provider relations unit
qualified for enhanced FFP. As discussed below, we
conclude that HCFA was reasonable in determining that
California's documentation was insufficient to establish
that any of the costs were eligible for enhanced FFP.
Analysis
In its appeal brief California broke down the functions
of the provider relations unit which it asserted were
entitled to enhanced FFP into five categories:
readjudication; claim forms; provider enrollment;
seminars and provider training; and managers,
supervisors, and support staff. While California
provided six documentary exhibits in support of its
proposed allocation for enhanced funding of the functions
in question, California's relied primarily on two
declarations from employees of the unit, one of whom was
the unit supervisor for the time in question. These
declarations were executed in May 1995, approximately
nine years after the beginning of the time period at
issue, October 1, 1986. While HCFA had problems with the
declarations and the other documentation that were
specific to particular functions, HCFA's primary basis
for rejecting the documentation for each function was the
inadequacy of the declarations. We therefore discuss
first why HCFA was reasonable in rejecting the
declarations generally as support for each function, and
then address documentation problems specific to
particular functions.
This disallowance arises because although the entire
amount of contract costs for the provider relations
functions is eligible for funding at the 50 percent level
as an administrative cost, only those personnel
activities "directly associated" with the operation of
California's MMIS are eligible for enhanced funding at
the 75 percent level. 42 C.F.R. 433.111. Under these
circumstances, California is obliged to provide
appropriate documentary evidence to demonstrate which
portion of the personnel activities in question qualify
for enhanced funding. This Board has repeatedly held
that enhanced funding is special and that states claiming
enhanced funding have the burden to document their
eligibility for enhanced funding. See, e.g., New York
State Dept. of Social Services, DAB No. 205 (1981);
Missouri Dept. of Social Services, DAB No. 395 (1983);
and New Jersey Dept. of Human Services, DAB No. 845
(1985). This burden essentially arises from a state's
fundamental burden to document the allowability of the
costs it claims under programs such as Medicaid.
HCFA argued, and California did not dispute, that the
cost principles in Office of Management and Budget (OMB)
Circular A-87 apply under the circumstances here. HCFA
Br. at 4. Support for this position is found in 42
C.F.R. 433.112(b)(7) and in 11265, 11210, and 11205
of the State Medicaid Manual (as in effect for the period
at issue). Whether or not these cost principles are
directly applicable to this type of contract cost for
activities performed by a fiscal intermediary, they
clearly provide a benchmark for the kind of evidence that
would be appropriate to document any allocation of costs
for enhanced funding.
The cost principles provide that claims for salaries and
wages of employees chargeable to more than one grant
program or other cost objective will be supported by
appropriate time distribution records. OMB A-87,
Attachment B, B10.b. The term "time distribution
records" simply means some form of contemporaneous record
that demonstrates how the employees divided their time
between various cost objectives. In the context of this
case, the time distribution records would not be used to
allocate the actual salaries and wages paid to the
employees by Delta, but rather the portion of contract
costs for the provider relations function attributable to
activities qualifying for enhanced funding. 6/
Here, California was unable to produce any credible
contemporary evidence in support of its proposed
allocation of time for the various activities of the
unit, and instead relied primarily upon two declarations
of employees which were executed approximately nine years
after the beginning of the period in question. These
declarants do not appear to have relied on any
contemporaneous evidence to refresh their memories, and,
indeed, the record does not even contain definitive
evidence of the number of employees working in the
provider relations unit during the time in question nor a
copy of the job descriptions of each employee. Thus,
HCFA would simply have to accept on faith the wide range
of conclusions reached by the declarants about the
employees, which were allegedly 25 in number. HCFA
refused to accept these declarations as adequate support
for any of the enhanced funding levels proposed by
California. We conclude that HCFA's determination was
reasonable for the following reasons:
o The declarations were obviously not contemporaneous
evidence in support of any allocation percentage.
Indeed, this is not a question of relying on someone's
memory for events transpiring a few weeks or a month
earlier, but rather for events that occurred between
seven and nine years earlier. The events themselves were
mundane, day-to-day details of an employee's work, not
dramatic events that become indelibly impressed in
memory. Moreover, California admitted that the
organization of functions within the unit had changed
during the intervening years. These changes might
further complicate the declarants' efforts to remember
what the operations were like during the time at issue.
The Board has been reluctant in a variety of contexts to
rely upon non-contemporaneous documents as evidence for
claimed costs. See, e.g., Michigan Dept. of Mental
Health, DAB No. 1291 (1992); Second Street Youth Center,
Inc., DAB No. 1270 (1991).
o The declarations were not prepared by all of the
employees in the unit, but only by two of the employees
who necessarily had to make assumptions about how all of
the alleged 23 remaining employees spent their time.
o The declarations did not attempt to provide a complete
breakdown of 100 percent of each employee's time (as
would necessarily occur with time distribution records).
Without such a breakdown, there is no internal check to
ensure that particular activities are not given
disproportionate weight.
o The declarations give only approximations of time.
Unfortunately, approximations may be subject to wide
degrees of variation depending on many factors, such as
the clarity of the declarant's memory of what transpired
many years previously.
o The declarations rely on the declarants' own
definition as to meaning of critical activities. Without
a detailed description of each activity performed by the
employee, there is the possibility that the time
associated with particular activities will be improperly
inflated.
o The two declarations contain at least one significant
instance where the declarants were internally
inconsistent. The declarations were also inconsistent
with other California exhibits in some instances.
In several circumstances comparable to those raised here,
the Board has rejected estimated percentages or the "best
guess" of a supervisor or employee. See Michigan Dept.
of Mental Health, DAB No. 1291, at 6 (1992); Acadia-
Vermillion Community Action Program, Inc., DAB No. 1201,
at 5 (1990); and Wisconsin Dept of Health and Social
Services, DAB No. 534, at 5-6 (1984).
Thus, we conclude that HCFA was clearly reasonable in
rejecting the two declarations that California relied
upon as its primary evidence for the enhanced funding in
all five categories of costs. In the remainder of the
decision, we discuss additional problems specific to each
of the five categories.
A. Readjudication 7/
California claimed that seven Correspondence Audit Review
Clerks spent a portion of their time on-line, inputting
codes into the claims processing database. California
cited section 11275.23 of the SMM as authority that costs
directly attributable to the processing of claims,
payments, and reports are entitled to enhanced FFP.
California stated that according to both the Louis ( 6)
and Hunt ( 3) Declarations, five of these seven
employees spent 70 percent of their time inputting data
from Claim Inquiry Forms. California declared that the
activities of these employees constituted claims
processing on the MMIS that unquestionably qualified for
enhanced funding.
California claimed that another employee, an Accounts
Receivable Accounts Payable Clerk, spent approximately 50
percent of his or her time on the readjudication
function. Louis Declaration, 7. California claimed
that another employee dealing with First Level Appeals
spent between 40 (Louis Declaration, 8) and 75 percent
(Hunt Declaration, 5) of his or her time on that
function.
Concerning the first five employees, HCFA responded that
their activities were eligible for only 50 percent FFP
because their functions would be required whether a
system is automated or not. HCFA referred to the
provider relations unit's 1988 organizational chart
(California Ex. B). The functions of these employees
were listed as: review outstanding inquiries; research
provider claim errors; claim readjudication; research
provider inquiries; respond to written inquiries; respond
to Claim Inquiry Form (CIF) inquiries; telephone response
support; and disposition of provider accounts
receivable/accounts payable. For example, HCFA cited
CIFs processed by the five employees. HCFA cited
California Dept. of Health Services, DAB No. 1274 (1991),
as authority that CIF acknowledgment letters are forms of
communications with providers that are not directly
related to the operation of an MMIS system and thus
reimbursable at the 50 percent rate. In addition, HCFA
suggested that it was highly unlikely that these
employees spent 70 percent of their time on inputting
data into the MMIS, as advanced in the Louis Declaration,
given that the organizational chart shows the employees
engaged in numerous activities that did not involve on-
line automated claims processing.
As to the Accounts Receivable Accounts Payable Clerk,
HCFA argued that such a discrete position does not appear
on the list of Delta's provider relations unit, the
organizational chart, or in the October 1988 Provider
Relations Manual. HCFA questioned how California could
establish the existence of a position and claim that the
employee occupying that position spent 50 percent of his
or her time on functions qualifying for enhanced FFP,
when that position is nowhere reflected in the
documentation describing the provider relations unit.
As to the employee dealing with First Level Appeals, HCFA
again asserted that this position does not appear in the
documentation (California Exs. A - C) concerning the
provider relations unit. HCFA further questioned whether
the duties of that position entailed functions that had
to do with automated claims processing.
We find HCFA's arguments persuasive. California has not
substantiated at the outset that the activities of the
first five employees were eligible for enhanced funding.
Moreover, apart from the critical fact that there are no
contemporaneous data supporting the assertions in
California's declarations about the nature of the
functions of these seven employees and the percentage of
their time spent on those functions, the other exhibits
presented by California appear to contradict those
assertions. As HCFA pointed out, California Exhibits A -
C call into question California' assertions whether the
latter two positions actually existed, as well as whether
the five employees in the former position could have
devoted as much time to eligible functions as California
asserted.
California would have us accept its claims for enhanced
FFP for these employees primarily on the basis of the
Louis and Hunt Declarations. HCFA raised specific
problems concerning these declarations in addition to its
broad-based concerns already discussed. For example, the
Louis Declaration stated that the employee handling first
level appeals spent 40 percent of his or her time
performing the readjudication function. Louis
Declaration, 8. The Hunt Declaration, however, stated
that the employee spent approximately 75 percent of his
or her time on that function. Hunt Declaration, 5.
Such a contradiction calls into question the credibility
of both declarations. HCFA argued that this differing
testimony "highlights the inherent unreliability of such
unsubstantiated, egregiously post-hoc evidence, and shows
yet again . . . the wisdom of (and necessity for) the
rule that claims for FFP must be adequately documented."
HCFA Br. at 22. 8/
We agree. California has offered no explanation for this
widely varying estimate on how much of this employee's
activities qualified for enhanced FFP. Clearly, there is
no persuasive documentation that enhanced FFP was
warranted for this employee's activities or the other six
employees in the readjudication function.
B. Claim Forms
California stated that one full-time Editorial Assistant
coordinated the printing of claim forms, ensuring that
accurate information was printed on the forms.
California stated that 10 percent of this employee's time
was devoted to this function. Louis Declaration, 9.
California cited section 11275.32 of the SMM as
authorizing 75 percent FFP for "[p]ublications necessary
for the operation of the system."
HCFA responded that the list of Delta's provider
relations employees and their functions (California Ex.
A) and the unit's organizational chart (California Ex. B)
list the duties of the Editorial Assistant as --
Manual, bulletin, newsletter preparation
Coordinate printing projects
Liaison for State & Public & Professional Relations
Maintain Correspondence records
Provider & staff supplies, manual, bulletins, etc.
There is no reference to the printing of claim forms.
HCFA also noted that Delta's Provider Relations Manual
(California Ex. C, 7.3), in its description of the
Editorial Department, does not mention the function of
coordinating the printing of claim forms or ensuring that
accurate information was printed on the forms.
Thus, the only reference to an activity of the Editorial
Assistant that would be eligible for 75 percent funding
is the Louis Declaration. As previously discussed at
length, that declaration by itself, without any
supporting documentation, is insufficient to justify
California's claim for enhanced funding for the Editorial
Assistant position.
C. Provider Enrollment
California stated that two full-time employees, an
Edit/Audit Clerk and an Edit and Update Clerk, performed
functions related to provider enrollment. California
referred to section 11275.32 of the SMM as authorizing 75
percent reimbursement for provider enrollment activities,
including "[k]eying and activities for maintenance of
provider records, provider validation (automated and
integrated), and query for eligibility of (provider or
recipient) (automated and integrated)." California
stated that these two employees spent 100 percent of
their time on these enrollment functions. Louis
Declaration, 10 and 11. California maintained that
HCFA's audit workpapers and the auditor's notations all
identify the functions performed by these individuals as
provider enrollment functions as eligible for 75 percent
FFP.
HCFA did not contest that enhanced FFP is authorized for
provider enrollment functions, but stated its
disallowance was based on California's failure to
document its claim for these two employees. There are no
contemporaneous data such as time distribution records
for these employees. There is nothing in the record that
distinguishes the personnel costs associated with
provider enrollment functions from those of other
functions of the provider relations unit. All California
offered was the Louis Declaration that these employees
spent all their time on provider enrollment activities.
As for the notations of the HCFA auditor 9/, the HCFA
auditor explained these notations as follows:
The notations that appear on page 2 of State Ex. A
are mine. They were made for my purposes only, and
have never been considered by HCFA or myself as an
acceptable basis of allocating costs associated with
the employees described on State Ex. A.
HCFA Ex. 2, Adams Declaration, 15.
Thus, except for the Louis Declaration, all we have
before us to support the claim by California for enhanced
funding for this particular function are notations whose
author denies the import California is placing on them.
Again, as we discussed at length above, we find the Louis
declaration, without any additional supporting
documentation, insufficient to support a claim for
enhanced FFP.
D. Seminars and Provider Training
California stated that during the review period one full-
time Provider Representative prepared seminar materials,
gave seminars to providers, and prepared monthly
summaries of seminar activity; additionally, he or she
prepared for and performed on-site training visits to
providers' offices. California stated that this employee
spent 95 percent of his or her time on these functions.
Louis Declaration, 12. California argued that section
11275.32 of the SMM authorizes enhanced FFP for the
training of skilled medical personnel and supporting
staff. California contended that because the training
concerned how to claim under the MMIS, all of these
functions were directly attributable to the operation of
the MMIS. California also cited the notations of the
HCFA auditor on California's Exhibits A and B.
Once again, there is no contemporaneous documentation for
what percentage of his or her time this employee spent on
each of the functions of the Provider Representative
position. All that California has presented in support
of enhanced FFP for this employee is the Louis
Declaration, unsubstantiated by any other data. This is
simply not sufficient to meet the burden for claiming
enhanced FFP.
E. Managers, Supervisors, and Support Staff
California stated that during the review period there
were one manager, three supervisors, and three support
staff in the provider relations unit. California cited
section 11275.28 of the SMM as authority for the
proposition that program management is entitled to 75
percent FFP to the extent that a function is related to
the MMIS, processing of claims, or information retrieval,
as opposed to overall policy considerations. California
argued that the support staff of management performing
those functions was also eligible for enhanced funding.
California asserted that the HCFA auditor calculated a
percentage of the overall time of employees whom these
individuals manage, supervise or support which is
entitled to enhanced FFP. California further asserted
that the auditor then concluded that the same percentage
should apply to the costs related to the time of the
manager, supervisors, and support staff, and that this
percentage was attributable to the MMIS and therefore
eligible for 75 percent FFP.
California offered no documentation to support this
claim, other than notations made by the HCFA auditor.
California Ex. A. We have already discussed above why
the auditor's notations do not support California's
position. There is absolutely no documentation
concerning the job duties of the manager, supervisors,
and support staff, nor any indication how much time was
spent on each of these duties. Moreover, there is no
evidence to support California's assertion that an
employee's supervisor or support staff spent the same
amount of time on such functions as did the employee.
See California Dept. of Health Services, DAB No. 1236, at
7 (1991). We therefore find that California has failed
to produce adequate documentation to justify enhanced FFP
for any of these positions.
Conclusion
California had the burden of documenting its claim for
enhanced FFP. It could have done so with such
documentation as employee time distribution records or
other acceptable contemporaneous records showing how the
functions of Delta's employees were allocated between the
75 and 50 percent FFP rates. California did not provide
any such contemporaneous records. Instead, California
offered the declarations of two Delta employees executed
some nine years after the start of the disallowance
period. In addition to questions raised by the passage
of time, we find the declarations to be speculative in
part and even contradictory in some areas, and
unsubstantiated by any corroborating data.
Accordingly, we find that HCFA was reasonable in
rejecting California's documentation and affirm the
disallowance of $178,568.
___________________________
Cecilia Sparks Ford
___________________________
Norval D. (John) Settle
___________________________
Donald F. Garrett
Presiding Board Member
1. Unless otherwise noted, the regulations cited in
this decision were those in effect for the period covered
by the disallowance.
2. This definition was amended on December 18, 1986.
51 Fed. Reg. 45,321. The new definition refers to the
definition of "operation" at 45 C.F.R. 95.605, which
applies to automated data processing in other programs as
well as Medicaid, but which is substantively the same as
the definition quoted here.
3. A CAP is a narrative description of the procedures
that the state agency will use in identifying, measuring,
and allocating all state agency costs incurred in support
of all programs administered or supervised by the state
agency.
4. The SMM specifically noted that it replaced the
Medical Assistance Manual and other Medicaid instructions
(including the Action Transmittal noted above). The SMM
provided that it --
. . . constitutes a major restructuring and updating
of Sections 7-71-00 through 7-71-60, Medicaid
Assistance Manual and other Action Transmittals,
Information Memoranda, Policy Interpretation
Questions, and other specifically related material.
5. HCFA asserted, and California did not dispute,
that California Exhibits A and B were created after the
review period. HCFA stated that Exhibit A was created by
a California employee and given to HCFA on May 9, 1989.
HCFA asserted that the organization chart in Exhibit B
was published with Delta's October 1988 Provider
Relations Manual, after the review period.
6. It should also be noted that the State Medicaid
Manual contemplates that where only certain functions
performed by a fiscal agent would qualify for enhanced
funding, the state should develop a cost allocation plan
to support its claim for enhanced funding for contract
costs associated with qualifying functions. Section
11275.31. This plan presumably would be based on
contemporaneous evidence acceptable to HCFA of the
distribution of the various functions performed by the
fiscal agent. California did not allege that it had ever
developed an approved plan covering the provider
relations functions. Indeed, aside from the evidentiary
problems we have with California's position before the
Board, California's position appears to be a piecemeal
approach that identifies only the alleged percentage of
enhanced activities performed by specific positions. We
still do not know, and cannot assess, the methodology
California would apply to determine, based on these
percentages, what portion of the contract costs at issue
would be allowable.
7. The Louis Declaration described "readjudication":
as --
In reevaluating a claim, an employee would consider
the request for reevaluation and determine how is
should be handled, or "adjudicated." At this point,
the function I term "adjudication" would begin. The
employee would go on-line in the claims processing
system to access the claims data base and enter
correction or action codes into the database. This
would cause the claim to reprocess correctly. The
codes are part of the mechanized processing system.
The employees were processing claims, and the
adjudication codes were input manually on-line into
the claims database. Following adjudication of the
claim, the system generates an Explanation of
Benefits (EOB), which notifies the provider of the
readjudication.
Louis Declaration, 6.
8. In response to HCFA's questioning of the
credibility of the declarations, California responded
that the declarations were given under oath and under
penalty of perjury. California stated that it had
originally requested that this matter be mediated
expressly on the grounds that this dispute was factual in
nature. California stated that, for unknown reasons,
HCFA rejected the request for mediation. California
declared that a forum more specifically directed toward
fact-finding would have allowed HCFA the opportunity to
cross-examine witnesses.
If California believed that this dispute was primarily
factual in nature, it could have requested a hearing
before the Board under 45 C.F.R. 16.11(a) and presented
witnesses. Thus, contrary to California's implication,
it was not HCFA, but California itself which elected to
present this dispute through written arguments only. The
Board will make no inferences from HCFA's refusal to
participate in mediation of this dispute.
9. These notations appear on California Exhibits A
and B. In these notations the HCFA auditor assigned a
level of FFP to the functions in the provider relations
unit. The HCFA auditor stated that based on his review
of the materials available to him he concluded that while
some personnel in the provider's relations unit performed
some functions that would qualify for enhanced FFP if
properly documented, the provider relations unit was
primarily concerned with performing non-MMIS functions.
HCFA Ex. 2, Adams Declaration, 12.