GAB Decision 407
Docket No. 82-20
April 14, 1983
New York Department of Social Services;
The New York Department of Social Services (State) appealed portions
of a disallowance made by the Director, Division of Cost Allocation,
Region II, of $6,290,437 in costs charged to the Medicaid program.
After a number of amendments, the State decided to appeal three
portions: (1) the difference between federal reimbursement at 50% and
reimbursement at 75% for personnel costs incurred in rate setting and
cost analysis for the period July 1, 1976 to September 30, 1978
($2,308,150); (2) the difference between federal reimbursement at 50%
and reimbursement at 75% or 90% for costs of activities charged as
Medicaid Management Information System (MMIS) and Fraud and Abuse costs
($237,292); and (3) the costs of management assessment activities
($448,021) beyond the amount which the Agency asserted should be
allocable to the Medicaid program. The State did not agree with the
Atency's calculation with regard to (2); this issue will be discussed
on page 9 of the decision.
Late in the appeal process, the Agency decided to withdraw the
disallowance pertaining to the third issue (Letter dated January 7, 1983
from the Director, Division of Cost Allocation to the Acting
Commissioner, Department of Social Services); therefore, only issues
(1) and (2) remain before the Board. Based on the record in the appeal,
which includes responses to an Invitation to Brief, summaries of a
number of telephone conferences, and a transcript of one telephone
conference, we uphold the remaining portions of the disallowance.
COSTS OF PERSONNEL ENGAGED IN RATE-SETTING, AUDITING, AND RATE APPEALS
ACTIVITIES
The State claimed at a rate of 75% FFP the costs of personnel who
were performing rate setting, rate appeal, and audit activities. The
75% rate was claimed because the State contended that the people were
skilled professional medical personnel whose costs qualify for this rate
of FFP under section 1903(a)(2) of the Social Security Act. The Agency
found that the personnel were not skilled professional medical personnel
(2) and that, therefore, the 50% rate generally allowable for
administrative expenditures was the appropriate rate.
In its Invitation to Brief, the Board noted that it appeared that the
positions in dispute in this appeal were identical to those involved in
New York Department of Social Services, Decision No. 307, May 28, 1982.
In that decision, the Board found that the State had not shown that the
positions were skilled professional medical positions.
The State agreed that the positions in dispute in this appeal are
identical to those in Decision No. 307. It did not agree with the
Board's rationale in the decision and merely reiterated the arguments
made in the prior appeals. (Supplemental Brief for Appellant, p. 1)
The State has not provided any basis for the Board to reexamine and
overturn its prior decision. The Board's rationale in Decision No. 307
is applicable to this case, and we therefore uphold this portion of the
disallowance based on our prior decision.
COST OF ACTIVITIES CHARGED AS MMIS AND FRAUD AND ABUSE COSTS
Section 1903(a) (3) of the Act provides for 90% reimbursement of
costs incurred by a state attributable to the design, development, or
installation of mechanized claims processing and information retrieval
systems (which will be called "MMIS" below) and 75% of the costs of
operating these systems. Section 1903(a)(6) of the Social Security Act
provides for 75% to 90% reimbursement of costs incurred by a state
attributable to establishment and operation of a state Medicaid fraud
control unit (which will be called "Fraud and Abuse" below). Section
1903(a)(7) of the Act provides generally for 50% reimbursement for
administrative costs. The costs of Medicaid survey and certification
activities are reimbursed at the 50% rate since no special reimbursement
rate is set by statute for such activities.
The auditors found that during the period from July 1, 1976 to March
31, 1979, the State was charging as MMIS and Fraud and Abuse costs
expenditures which appeared to be general Medicaid survey and
certification costs, resulting in a net overcharge to the federal
government. The auditors examined the time and effort reports filled
out by certain Department of Health (DOH) personnel and found that time
reported under eight activity codes was improperly being charged to MMIS
and Fraud and Abuse funds (see Appendix III of the audit report for a
description of these codes).
The State agreed that work reported under five of the codes should
not have been charged to MMIS and Fraud and Abuse funds and accordingly
did not appeal the portion of the disallowance pertaining to the five
codes.
(3) It did, however, contest the rejection of charges based on time
reported under three others. These codes are as follows:
081 Activities associated with the administration of the State Plan
for medical services under Title XIX including consultative activities
nnd supervision of the quality of medical care delivered.
085 Technical supervision and coordination of Medicaid program
104 Surveillance under Title XIX of all institutional utilization
review (U.R.) activities including skilled nursing facility/
intermediate care facility activities necessary to appropriately conduct
U.R. (inpatient U.R.).
(Audit Report, Appendix III)
1. How the State claimed MMIS and Fraud and Abuse costs
How the State calculated its claim for MMIS and Fraud and Abuse
activities is a factual issue in relation to which the Board had to
weigh conflicting descriptions given by the State itself during the
appeal process and also by the Agency. Unless otherwise noted, the
description that follows is gleaned from uncontroverted facts in the
record.
The State was using a time and effort reporting system (TER) during
the period in question. It was designed to show what activities
employees worked on and what percentage of their time had been spent on
those activities. Time was allocated to different activity codes such
as the ones described on pages 2 - 3 of this decision. The State
asserted that 081, 085, and 104 were broad enough so that MMIS and Fraud
and Abuse work as well as survey and certification work could be
reported under them.
As explained by the auditors (p. 28 of the Audit Report and p. 4 of
the Transcript (Tr.) of Telephone Conference), the DOH utilized a
purpose (fund) accounting system which allowed expenditures to be
identified to their original source of funding. Each program had its
own designated fund. For budgetary purposes, DOH assigned employees to
a certain program fund from which their salaries were paid.
With regard to this issue, as an example, the following might occur.
Ms. X spends 40% of her time on MMIS activities and 60% on Medicaid
survey activities. In the TER system, 100% of her time might show up
under the 085 activity code. In order to decide to which program fund
her activities should be charged, DOH would use documents such as
organizational (4) charts and job descriptions to sscertain that 40% of
her time should be charged to the MMIS fund and 60% to the Medicaid
survey fund.
Until the very end of the appeal process, the Agency did not contest
the State's description of the historical setting of this case. The
State asserted that before the formalization of the MMIS and Fraud and
Abuse efforts by the federal government, State employees in the Medicaid
program were performing many of the activities which would become MMIS
and Fraud and Abuse functions. These activities were recorded using
existing general Medicaid activity codes such as the three described on
pages 2 - 3 of the decision.
When the federal government increased the rate of FFP for these
activities, at the State level, "this prompted the establishment of
distinct funding mechanisms so that the activities eligible for the
enhanced FFP would be more readily identifiable." (State's Appeal Brief,
p. 11) Although MMIS and Fraud and Abuse funds were established,
specific activity codes, unique to the MMIS and fraud and abuse funding
sources, were not set up immediately; employees working in these areas
continued to use the existing geeral Medicaid activity codes.
Eventually, the State set up separate codes for each activity.
The State implied throughout the appeal that the separate codes were
established either late in the disallowance period or after it, and the
dispute had arisen precisely because the State's TER system during the
time in question did not allow it to specifically claim MMIS and Fraud
and Abuse activities. But this is not correct. For example, with
regard to MMIS, a document provided by the State notes that a separate
activity code was established in 1977:
The New York State Department of Health's time and effort reporting
system (TER) can be used to obtain cost information for those persons
working on various segments of the MMIS implementation after July 1,
1977 by extracting data for TER activity code 113. TER code 113 was
established in 1977 to identify all MMIS-related activity.
(State's Exhibit XI, "Cost Allocation Procedures for MMIS" dated
May
1, 1979, prepared by the Bureau of Budget Management, p. 10)
The auditors noted (Audit Report, p. 49) that they had found "some
employees using one of the three (general Medicaid activity) codes and
the new Code 113... during State fiscal year 1978." The auditors also
remarked on finding, during the final review of State documentation,
several cases where charges were made to the MMIS code for people paid
under the MMIS fund. Even the State in its argument alluded to the
existence of a (5) separate MMIS code during the disallowance period,
but it stated that "there was no real need, however, for MMIS-funded
personnel to use code #113 because their effort was tracked by a
combination of organizational placement and funding source." (Appeal
brief, p. 15)
It should be noted that the Agency has disallowed only costs charged
to the MMIS fund for activities reported under the three general codes.
There was no disallowance of MMIS costs where the 113 code was used.
The record does not indicate exactly when a separate code for fraud and
abuse was established.
What is the impact of the evidence that, at least with regard to
MMIS, during most of the disallowance period there was a separate code
for MMIS under which employees could, and indeed did, report their MMIS
activities? This fact would lead to an implication, which could be
controverted by State evidence, that MMIS activities were being reported
to that code and not to other codes. It would also lend credence to the
Agency's position that it was acting reasonably when it looked only at
the TER system and not behind it during the audit, in hhat TER on its
face would have seemed to cover all major activities, including MMIS.
The State accepted the disallowance of some of the costs allocated to
the three general Medicaid codes (Appeal Brief, p. 16). It determined
the amount by taking the date April 1, 1979, when it reemphasized to
employees that MMIS efforts should be attributed to the MMIS code, and
accepted any disallowance for MMIS costs for time reported to the three
general codes not only after April 1, but also for the six month period
prior to April 1 on the assumption that "the intent after 4/1/79 was the
same as in the pre-1979 period" (id.; see also Tr., pp. 16 - 17).
The State has never indicated why it agreed to his portion of he
disallowance or why the post-April 1 situation should be applied back
only to October 1, 1978 and not beyond (perhaps to cover the whole
disallowance period). All it has said is that we should infer that the
"very same people who later charged more specifically to (MMIS) because
of a better understanding of how the code system was actually working
for (MMIS) earlier but were charged to the other codes..." (Tr., p. 8).
This conclusion might follow if the State had provided evidence that
everyone for whom salary costs were disallowed started entering their
activities under 113 after April 1. The State has not done so, leaving
the Board with the belief that the State partially admitted the
propriety of the disallowance without providing information as to why
the same reasoning would not cover the whole disallowance period.
The questions before this Board are whether the State must document
at this time that the allocation to different funds was correct, and, if
so, whether the State has provided such documentation.
(6) 2. Whether the State had an obligation to document its claim
The State argued that, during the audit process, it provided all
documentation that the auditors actually requested, and that, during the
disallowance-appeal process, the Agency had to establish that the entire
disallowance is supported by the audit findings. The State contended
that for it to be required "to come forward with additional information
at this point in time is, in light of the respondent's failure to
establish a reasonable cost allocation methodology, both burdensome and
fundamentally unfair." (State's March 18, 1983 letter, p. 1)
Given the facts in this appeal, we reject the State's argument and
find that the State had an obligation both during the audit and appeal
processes to substantiate its claim.
During the audit, the auditors examined the State's TER, assuming
that it was a valid time and effort reporting system which would be the
evidence for what the auditee was claiming. (Tr., p. 20) The State did
not tell the auditors otherwise. The auditors determined that the State
had not provided evidence that costs reported in general Medicaid codes
were actually costs of doing MMIS and Fraud and Abuse work. It appears
that the auditors were not acting unreasonably when they did not ask for
further documentation, given their belief in the completeness of the TER
system and the fact that as of 1978 there was a specific MMIS code in
the system. The State did not offer the auditors any back-up
documentation such as job descriptions and organizational charts, which
it alleged were the basis for making the claiming determinations. The
documentation was also not offered in esponse to the draft audit report
or as part of the State's appeal file. It was not until the very end of
a 14 month appeal process that the State made some effort to produce at
least some of this crucial documentation.
In order to demonstrate that the personnel were performing functions
for which 75% - 90% FFP could be claimed, the State had an initial
burden to document these costs and show that the claim for reimbursement
was proper. The cost principles at 45 CFR Part 74, Appendix C, Part I,
Section C (1976) provide that in order to claim costs under a grant
program, the grantee must show that the costs are necessary and
reasonable for the administration of the grant program, are allocable to
the program, and are incurred for the benefit of the program. Grantees
are required to meet standards for financial management of the grant.
These standards, 45 CFR 74.61(b), (f), and (g), require that the grantee
make and retain records of expenditures and support these records with
source documentation. The Board has found that "(t)hese provisions
clearly place the burden of establishing allowability of costs on the
grantee." (Neighborhood Services Department, Decision No. 110, July 15,
1980, (7) p. 3; cf. California State Department of Health, Decision No.
55, May 14, 1979) Furthermore, in administering the Medicaid program, a
state is required by 45 CFR 205.145 to maintain an accounting system and
supporting fiscal records to assure that claims for federal funds are in
accordance with applicable federal requirements. Accordingly, if an
audit report makes findings that certain costs of claims for
expenditures are not proper, the standards discussed above impose an
obligation on the grantee to show in response to the audit report that
its claim is proper. The Board also has found the requirement to
document costs to be a fundamental principle of grant management. (Head
Start of New Hanover County, Inc., Decision No. 65, September 16, 1979)
In the instant case, in coming before the Board, the State does not lose
this initial obligation of documenting costs even though its claim for
FFP in these costs was paid by the Agency. The State must provide
documentation sufficient to show that its claim for a higher rate of FFP
for costs of work charged as MMIS and Fraud and Abuse costs was proper,
thus necessarily showing that the audit report findings were wrong.
(Cf. New York Department of Social Services, Decision No. 204, August
7, 1981)
In addition, while the Agency cannot arbitrarily choose a
disallowance figure and then expect a grantee to provide documentation
showing how that figure is wrong, that was not the case here. Faced
with what it believed to be a complete time and effort reporting system,
the Agency had a reasonable basis for determining that there was not
sufficient evidence showing that claims made at a higher than 50% rate
of FFP were proper.
3. Whether the documentation provided is sufficient
Having determined that the State had an obligation to document its
claims and given the fact that the time and effort reporting system in
place during the period in question did not provide evidence for
separating MMIS and Fraud and Abuse activities from survey and
certification activities, we must determine whether the documentation in
the record supports the State's position.
At the end of the appeal process, the State finally submitted
documentation which, it claimed, showed that "personnel for whom the
Department of Health utilized generic title XIX codes in claiming
Federal funding for MMIS activities did, in fact, perform such
activities." (State's letter dated February 4, 1983, p. 1) Included were
memoranda and letters discussing the implementation of MMIS,
descriptions of staff needed, descriptions of units working on MMIS,
organizational charts, and annotated computer listings of the people
whose salaries were challenged. The State's documentation efforts were
aimed at showing that certain people worked in MMIS units within the
DOH, but its documentation is not persuasive.
(8) First, the State submitted no documentation related to its Fraud
and Abuse efforts. It argued that the passage of time since the audit
period made it "extremely difficult to locate the necessary
documentation within the time parameters established by the Board."
(State's letter dated February 4, 1983, p. 1) As discussed above, the
State has had an obligation since the inception of the audit to provide
such documentation, first to the Agency, then to us. The State's excuse
is unacceptable, and based on a complete lack of documentation, the
appeal as to the Fraud and Abuse claim cannot be upheld.
Second, although the State asserted that it looked at both
organizational placement and job descriptions to determine which program
to charge, it provided none of the latter in its submission. Although
it may be true that job descriptions alone may not be sufficient
evidence of what work people actually do on a day-to-day basis, the
absence of them leads the Board to conclude that the State's submission
is incomplete.
Finally, the Agency's examination of some the documentation to see if
organizational placement in "MMIS units" really meant that the MMIS
charges were correct called into question the State's position. It was
assumed by both the Agency and the Board that the State, when it
submitted documentation, would submit information that supported its
assertions. Yet, using information and documents generated during the
audit, the Agency reviewed the documentation submitted by the State for
27 employees and found the following:
(a) Salaries of 19 of the 27 were actually assigned to the
certification fund (not MMIS) during all or part of the period the State
claimed the people were working in the New York City office which was
established to perform "prior approval/claims" tasks related to MMIS.
This finding comes from an analysis of how the salaries were funded and
not on the activity codes reported in TER. The State's list of these
people indicated hat more than one-half supposedly spent all of their
time on MMIS.
(b) 2 of the individuals continued to report work under the general
Medicaid activity codes after April 1, 1979. As explained on page 5 of
this decision, the State has concurred with disallow ances for the six
months prior to April 1, 1979 in this situation.
(c) 3 had reported all their time under activity codes other than the
three general Medicaid codes in question.
(9) (d) 1 person's salary was divided between certification funds and
the MMIS fund. The separate MMIS code was used for claiming MMIS work.
The State, in responding to the Agency's analysis, did not challenge
the Agency's findings or present evidence showing why the Agency's
conclusions were incorrect. Instead, it questioned the examination of a
"sample" of 27 individuals and drawing any conclusions from this
"sample". In a subsequent conference call, the Agency explained that
the 27 individuals examined were taken from the first two lists
submitted by the State (Exhibit X) of persons assigned to MMIS
activities during part of the period in question. More than one-half
were supposedly working fulltime on MMIS, according to those lists. The
Agency eliminated duplicate names on the two lists, and examined the
records for the 27 remaining.
We do not view the question to be whether the whole disallowance can
be upheld based on an examination of the recrids of 27 people selected
on an admittedly non-random basis. Rather, we see the issue as one of
an obligation to document and start with the proposition explained above
that the State has an obligation to document the allowability and
allocability of all of its costs. In this case, it has done so in an
incomplete fashion. The Agency called into question the State's
position that organizational placement was determinative for its claims.
The State did not refute these Agency findings in any substantive way.
We also do not find it unreasonable that the Agency, having examined
in depth the work and pay records for 27 individuals and having found
the State's position to be unsupported by those records, did not pursue
its examination for all of the people named on the voluminous computer
lists. There is, therefore, no basis for overturning the disallowance.
4. Amount in Dispute
The Agency's disallowance of $237,292 pertaining to MMIS and Fraud
and Abuse activities represents the difference between the 75%-90% rates
of FFP applicable to these activities and the 50% rate generally
available for Medicaid administration activities. The State asked that
we consider the entire $1,497,896 FFP claimed for these activities as in
dispute even though the Agency has agreed to pay the State $1,260,604
(representing 50% of all MMIS and Fraud and Abuse costs) even if the
State loses its appeal. The State's reasoning was that it had also
claimed the $1,497,896 under the Medicare program. If the Board were to
find the costs not to be reimboursable at the higher rate, but the
Agency were still to provide $1,260,604, the State might face a Medicare
disallowance. (Summary of Telephone Conference dated October 14, 1982,
p. 2)
JULY 07, 1984