Wisconsin Department of Health and Social Services, DAB No. 534 (1984)

GAB Decision 534
Docket No. 83-7

April 29, 1984

Wisconsin Department of Health and Social Services;
Ford, Cecilia Sparks; Teitz, Alexander Garrett, Donald

The Wisconsin Department of Health and Social Services (appellant,
State) appealed a disallowance by the Health Care Financing
Administration (respondent, Agency, HCFA) under Title XIX of the Social
Security Act. The respondent disallowed $1,153,587 of appellant's claim
for federal financial participation (FFP) in costs associated with
surveying and certifying acute care and long term care (LTC) facilities.

Based on our analysis below, we sustain the disallowance in part and
remand the remainder to the Agency for consideration of certain issues.
/1/

(2) Statement of Case

Our decision is divided into four sections.

* The first section concerns the disallowance of $627,778 in
expenditures for the period from July, 1970 through September, 1976 and
$88,980 for the quarter ended March 31, 1977 because the State lacked
appropriate time distribution records to support its allocation to Title
XIX. The survey and certification activities in question benefited not
only the Title XIX (Medicaid) program but also State programs and in
some instances the Title XVIII (Medicare) program. Rather than disallow
the State's entire claim, the Agency limited its disallowance to costs
above what the Agency concluded was an equitable cost distribution among
the three programs and a proper reflection of the benefits received by
Title XIX. The Agency further concluded that the policy on cost sharing
in the inspection of long-term care (LTC) facilities, which was
discussed in prior Board decisions, was not relevant to the proper
allocation of costs here. Finally, the Agency concluded that statutory
restrictions on the filing of claims precluded it from reversion any
part of the $88,980 disallowance based on higher gross expenditures than
those on which the State had based its original claim.

* The second section concerns issues relating to the Agency's
disallowance of $37,170 out of a claim of $62,504 for costs of training
at Tulane University from 1970 to 1976. The Agency determined that the
State had failed to document an allocation to Title XIX of more than 50
percent of total costs for the employees concerned and that the State
had used an incorrect federal financial participation (FFP) matching
rate to costs allocable to Title XIX from some employees.

* The third section concerns a disallowance of $150,862 for the
period July, 1970 through September, 1976 for survey and certification
costs based on the Agency's determination that the State had applied
incorrect FFP matching rates. /2/

(3) * The fourth section concerns the disallowance of $83,571 for the
period July, 1970 through June, 1976 because of the State's alleged
failure to document that an employee performed work related to Title
XIX.

I. Issues Relating to the Disallowances of $627,778 FFP and $88,980
FFP.

The Agency disallowed $627,778 in expenditures for survey and
certification of acute care and LTC facilities for the period July 1,
1970 through September 30, 1976 and $88,980 for the period January 1
through March 31, 1977 based on the State's failure to properly document
allocability of these expenditures to Title XIX.

The record indicates that State employees had the responsibility to
survey and certify facilities within the State under Titles XVIII and
XIX and for State-only program responsibilities, such as licensing.
Respondent's Appeal File, Exhibit A, Tab B. In some instances the same
facility would have to be surveyed for all three programs (XVIII, XIX,
State licensing) and in other instances for only two programs (State
licensing and Title XIX). The Agency found that the State did not
employ a method of recording time distribution, since there were no time
studies to apportion time to the different program responsibilities, and
the surveyors did not apportion their time and effort to the various
program responsibilities they served. Respondent's Appeal File, Exhibit
A, Tab B; Respondent's letter dated December 20, 1983. Instead, State
accountants apportioned total activity costs to the various program
responsibilities using standardized allocation ratios developed by the
program managers and supervisors on the basis of their program
experience. See, State's Brief, Atts. 3 and 4. The Agency, rather than
disallowing all of the costs the State allocated to Title XIX because of
the State's failure to keep the requisite records, determined that it
would allow a portion of the activities for each facility depending on
the number of programs involved. Under the Agency's method, if Title
XIX was one of three programs involved (including State licensing), the
Agency allowed one-third of the costs of the Activities; if Title XIX
was one of only two programs, the Agency allowed fifty percent. If, for
a particular activity, the Agency was unable to determine, based on the
State's records, whether Title XIX was involved (4) at all, the Agency
disallowed the entire claim for that activity. The Agency noted that
the disallowance was not based on satistical sampling, but that the
activities were examined individually.

The State argued on appeal that its claim was properly documented and
should be allowed in full. The State contended that the regulation on
documentation was general in nature and permitted more than one method
of documentation under the circumstances here. The State argued that
its higher level of allocation was supported by documentation prepared
by program managers and supervisors of surveyors and that this
documentation was sufficient under the regulations. The State also
argued that State experience for subsequent periods (where time
distribution records were available) would justify an allocation that
was at least as high as the State here had claimed. Indeed, according
to the State, it had consistently underclaimed its costs for the period
in question.

Further, the State contended that the method used by the federal
auditors to allocate costs to Title XIX was not consistent with this
Board's decision in Pennsylvania Department of Public Welfare, Decision
No. 277, March 31, 1982. The State argued that in Pennsylvania, the
Board determined that where state licensure requirements are
substantially the same as federal certification requirements, the State
may be reimbursed for both its state licensing and federal certification
personnel costs.

Finally, the State argued that it had higher gross survey and
certification costs for the quarter ended March 31, 1977 than the Agency
had recognized based on its original claim, and that these higher costs
would permit reversal of the $88,890 disallowance and an offset of
$130,836 against any portion of the disallowance upheld for the period
1970-1976.

Analysis

A. Time Distribution Records.

The documentation requirement cited by the Agency in support of the
disallowance is 45 CFR Part 74, Subpart Q, Appendix C, Part II.B.10.b.
(1976). That provision states:

b. Payroll and distribution of time. Amounts charged to grant
programs for personal services, regardless of whether treated as direct
or indirect costs, will be based on payrolls documented and approved in
accordance (5) with generally accepted practice of the State or local
agency. Payrolls must be supported by time and attendance or equivalent
records for individual employees. Salaries and wages of employees
chargeable to more than one program or other cost objective will be
supported by appropriate time distribution records. The method used
should produce an equitable distribution of time and effort.

We cannot agree with the State that its method was consistent with
the requirements of the regulation. The State did not employ a method
of recording time distribution since there were no time studies from the
period in question to apportion time to the different program
responsibilities and the surveyors did not apportion their time and
effort to the various program responsibilities they served. The State
presented only allocation ratios developed by program supervisors based
on their program experience and knowledge and the "time and attendance"
records of the employees. /3/

The regulation provides that salaries and wages of employees
chargeable to more than one grant program "will be supported by
appropriate time distribution records." The use of the words "time
distribution" in the context of employees (6) working on more than one
program indicates that the State must have some form of "records" that
show a measurement of time distribution among the programs.

Thus, the State here has omitted a crucial step in its documentation
of allocating costs, i.e., tangible evidence in the form of records
indicating a distribution of time among different program
responsibilities. We believe that the regulations do not require the
Agency to accept a program manager's best guess as to what the proper
allocation would have been. Moreover, time and attendance records do
not make up for this gap in that they would generally show the
employee's total time at work, not a breakdown of time according to
program.

Further, while the supervisors' estimates may have been reasonable
and perhaps understand costs in relation to the State's allocation of
costs in subsequent periods (where the State's documentation was not
disputed by the Agency), the regulation in question clearly does not
require the Agency to apply a subsequent period's experience to a proper
period especially where, as the Agency alleged, relevant aspects of the
subsequent period's experience were not similar to the prior period.

It is a basic principle of grants law that the grantee has the burden
of documenting the allowability of costs. See, e.g., New York State
Department of Social Services, Decision No. 407, April 14, 1983; New
York State Department of Social Services, Decision No. 204, August 7,
1981; see also, 1 Cappalli Fed. Grants & Coop. Agreements 84:30 (1982).
We conclude here that the State has not met its burden of documentation
to justify a higher allocation for the activities at issue here.

B. Agency's Policy on Cost Sharing in Inspection of LTC Facilities.

While we conclude that the State did not keep appropriate time
distribution records in accordance with the regulations, we agree with
the State that the methodology used by the auditors in the reallocation
of that portion of the costs relating to the inspection of LTC
facilities is not consistent with the Agency's policy as identified in
the Board's decision in Pennsylvania, supra. n4 In (7) Pennsylvania, the
Board found that it was Agency policy, for the period beginning at least
in 1976 and continuing through 1978, that the State need not share in
the cost of inspections of LTC facilities participating in the Title XIX
program where the State licensure requirements were identical or
substantially identical to the requirements for federal certification.
In the Board's decision in Nebraska Department of Health, Decision No.
373, December 30, 1982, the Board quoted from the Agency's disallowance
letter in that appeal which stated that application of the principle
that States share in the costs of LTC inspections prior to fiscal year
(FY) 1979 was inconsistent with program procedures in effect at the
time. The Agency admitted before the Board in Nebraska that before FY
1979 the situation concerning states' sharing in the costs of inspection
of LTC facilities for compliance with health and safety standards was
confused. The Agency, therefore, in Nebraska refused to accept the
auditors' recommendation that the State share in the cost of inspection
for the period from July 1, 1975 through September 30, 1978. Nebraska,
supra, at p. 11. Further, there was no indication in Nebraska that the
Agency even required before FY 1979 that State licensure requirements be
identical or substantially identical to federal requirements. /5/

In the instant case the Agency did not argue that the Board had
improperly identified Agency policy in Pennsylvania or that the
disallowance statement quoted in Nebraska was inaccurate. Rather, it
argued that Pennsylvania was inapposite because the State had not
demonstrated that it claimed "such FFP" on its quarterly expenditures
reports, and that the State failed to present time distribution records
documenting and identifying such costs. Agency's Reply to State's
Brief, p. 7.

(8) We disagree on both accounts. To the extent that the Agency's
policy, identified in Pennsylvania and Nebraska and relevant Policy
Interpretation Questions, applies to particular activities in this
portion of the disallowance, the State does not need to present time
distribution records documenting and identifying the costs according to
program. Rather, the State need only document which programs were
covered by the particular inspections and how much time the entire
inspection took. Further, the State clearly has made a claim for these
activities up to the higher Title XIX allocation percentages the State
used when it filed the quarterly expenditures reports giving rise to the
disallowances for the activities here. If, for example, the State
claimed 60 percent of gross certification activities as allocable to
Title XIX and the Agency only allowed fifty percent of gross activities
when under its policy it could have allowed 100 percent of those
claimed, the State would be entitled to an additional 10 percent on the
basis of the claim now before us. Accordingly, we remand this portion
of the disallowance back to the Agency for consideration of the effect
of its policy on that portion of the costs here claimed for inspection
of LTC facilities. If the State does not agree with the Agency's
resolution of the issue, it may return to the Board within 30 days of
the Agency's decision. /6/

C. Effect of Claims Restrictions on Alleged Higher Gross Expenditures.

The Agency originally disallowed the State's entire claim of $375,325
FFP for failure to support its allocations of survey and certification
costs to Title XIX for the quarter ended March 31, 1977. The Agency,
after examination of the State's (9) records, reduced the disallowance
to $88,980 FFP. After the Agency had reduced the disallowance a meeting
was held on March 13, 1980, at the State's request, to give the State
the opportunity to present additional documentation supporting its claim
for FFP during the quarter. The State presented information extracted
from time reports during the period April 1977 through December 1977 to
indicate that it underclaimed its expenditures for the March 1977
quarter.

The Agency reviewed the additional information presented by the State
and prepared an internal memorandum dated May 27, 1980 summarizing the
results of that review. Respondent's Exhibit B, Tab 7. The Agency
found that State's information "disclosed no evidence to support the
State Agency's position" because the State's information could not be
verified. The Agency concluded that "(in) fact, the records strongly
support the Regional Office's previous findings and recommendations that
costs of $109,923 (FFP $88,980) be disallowed."

On January 22, 1981, the attorney for the State wrote a letter to the
Agency's attorney explaining why the State's position should be
accepted. This letter explained that the Agency's comparisons in its
May 27, 1980 memorandum were invalid because the percentages for the
March 1977 quarter, the quarter in dispute, were computed using a gross
expenditure figure of $656,119 rather than the gross expenditure figure
of $1,159,798, which the State contended was the correct figure. /7/
The State indicated that application of the higher gross expenditure
figure showed that the State had not overclaimed but substantially
underclaimed the expenditures allocated to Title XIX during the March
1977 quarter. The State, therefore, requested that the Agency's
disallowance actions be dropped, and that it be provided an offset of
$130,836.

(10) On March 10, 1981, in an internal Agency memorandum, the Agency
indicated that the percentages in section 3 of the May 27, 1980
memorandum for the March 1977 quarter were incorrect and should be
changed as indicated by the State. Respondent's Appeal File, Exhibit B,
Tab 12. The Agency, however, stated without further explanation that
these changes did not affect the overall conclusion of the memorandum
that the recommended disallowance of $88,980 in FFP be sustained.

Subsequently, on December 13, 1982, the Agency issued the current
disallowance finding that the State had submitted no documentation to
show that Title XIX received benefit in an amount which would result in
the allowance of any part of the $88,980 in FFP. State's Notice of
Appeal, Att. 1.

The State's position is essentially that in the communication dated
January 22, 1981, it informed the Agency that for the March 1977 quarter
it had total gross expenditures of $1,159,789, not $656,119, the figure
used by the federal auditors. The State asserted that the Agency has
never contradicted the State's affidavit which stated that the federal
auditors agreed that, to properly apply the percentages calculated by
the agency, the proper gross expenditure figure should be $1,159,798.
The State contended that if the Agency allowed $286,345 of the $375,325
originally claimed by the State based on a gross expenditure figure of
$656,119, that if the correct gross expenditure figure of $1,159,798 is
used, the result would be an allowable expenditure figure of $506,161.
Therefore, based on this larger allowable expenditure figure, the
$88,980 disallowance should be reversed and the State should be given an
offset credit of $130,836 against any part of the disallowance which is
sustained for the period July 1, 1970 through September 30, 1976.

The Agency argued in response that the disallowance of $88,980
resulted from consideration of gross expenditures of $656,119. The
Agency contended that the disallowance has no relation to the larger
gross expenditures now asserted by the State. The Agency argued that
instead of the $375,325 FFP actually claimed by the State on its
quarterly statement of expenditures report (QER), the State is seeking
$506,161 FFP based on its alleged higher gross expenditures.

The Agency also argued that the State's request for reversal of
$88,980 based on higher gross expenditures and its offset request is
barred by statute because it was not filed within (11) the requisite
time period. The Agency argued that, in any event, the State has never
filed a claim for the additional amount of FFP requested in accordance
with program regulations. The Agency contended that neither the State's
affidavit nor the State's January 22, 1981 letter to the Agency can
substitute for filing claims on a QER as required by regulation.
Therefore, the Agency argued that the $88,980 disallowance cannot be
reversed, and the State, in any event, is not entitled to offset
unclaimed expenditures against a disallowance.

Analysis

After each quarter, a state is required to submit a QER for each of
the public assistance programs. 45 CFR 201.5(a)(3) (1976 through 1982).
Based on this report, the Agency will make any adjustments for over or
underpayments by comparing what a state has expended with its grant
award. Therefore, the Agency uses the QER to determine how much FFP the
State will finally receive in each program. See section 1903( d)(1) and
(d)(2) of the Social Security Act and 45 CFR 201.5. Furthermore, states
are required to maintain adequate fiscal records to support their claims
for federal funds. See 45 CFR 205.60 and 45 CFR 205.145 (1976). This
prevents a state from claiming any amount of FFP without a reasonable
basis for its claim at the time it makes its claim.

In the instant case, after the original disallowance was issued
denying the State's entire claim for $375,325 FFP, the auditors
performed a review of the State's records and decided to disallow
$88,980 in FFP. The information presented by the State to support its
claim indicated for each activity code within each responsibility area
total expenditures allocated to Title XIX based on standardized
allocation ratios developed for each activity code. This information
indicated total gross expenditures of $656,119. The State has never
presented any evidence to demonstrate that when it claimed $375,325 in
FFP on its QER it contemplated total gross expenditures larger than
$656,119. Thus, we conclude that the State's original claim was limited
to gross expenditures of $656,119.

Further, we agree with the Agency that the State has not yet filed a
claim based on the State's alleged higher gross expenditures. Although
the Agency argued that continuing appropriation resolutions for fiscal
years 1982 and 1983 barred any further claim, we need not address
whether those (12) statutory provisions apply here. Even under the
provisions of section 1132 of the Social Security Act (which the State
argued was applicable) the State still would have had to file a claim
with the Agency by May 15, 1981. "Claim" is defined at 45 CFR 95.4
(1981) as:

. . . a request for Federal financial participation in the manner and
format required by our program regulations, and instructions or
directives issued thereunder.

Neither the State's letter of January 22, 1981 nor the State's
affidavit constitute a claim for FFP. Program regulations at 45 CFR
201.5 provide that claims for expenditures be filed on a QER. The
State's correspondence with Agency counsel is simply not in the form and
manner of 45 CFR 201.5. Furthermore, neither the January 22, 1981
letter nor the affidavit even attempts to make a "claim" of the Agency
for FFP not previously claimed. The State in these communications did
not request additional FFP in the amount of $506,161 nor seek to adjust
its propr claim but instead asked the Agency to withdraw its
disallowance because the State could have claimed more than it did. /8/

Inasmuch as we have concluded that the State has not made a claim for
$506,161 in FFP based on larger gross expenditures, we need not reach
the issue of whether the difference between this amount and the amount
the State actually claimed may be used as an offset credit against any
(13) part of the remaining disallowance of $1,064,607. This Board
determined in New York State Department of Social Services, Decision No.
507, January 31, 1984, that as a threshold issue to whether the use of
offset may be appropriate, it must first be decided whether the State is
legally entitled to the funds which the State is attempting to use as an
offset. Since the State has not filed a claim for the $506,161 and the
Agency has not verified whether these costs are allowable and whether
the claim is timely, the State has no present entitlement to these
funds. Therefore, as we stated in New York, supra, the State is not
entitled to use these funds as an offset against the rest of the
disallowance.

We conclude that the State has not demonstrated that its claim of
$375,325 in FFP on its QER related to gross expenditures larger than
$656,119 and that, as a result, it filed a claim based on the alleged
higher gross expenditures. The disallowance of the $88,980, therefore,
may not be reversed based on the State's claim of higher gross
expenditures. As we have already indicated, however, we are remaining
this portion of the disallowance for consideration of the effect of the
Agency's policy for reimbursement of costs for the inspection of LTC
facilities.

II. Tulane University Training Costs.

The Agency disallowed $37,170 FFP, out of a total claim of $62,504,
for a training course held at Tulane University. /9/ It is undisputed
that this course provided training necessary for survey and
certification activities in both the Medicaid and Medicare programs.
The Agency had disallowed one-half of the total claimed costs on the
basis of the equal benefit of the training course to both the Medicaid
and Medicare programs. The State argued that approximately nine out of
ten facilities surveyed by its employees were certified for Medicaid
purposes and that the proper allocation for the Medicaid program should
be 90 percent. The Agency argued in response that as long as the
individual had to be qualified to service two programs, regardless of
the number of institutions involved under (14) either program, then the
allocation should be 50-50. Board's Summary of March 21, 1984, p. 3.
In a telephone communication to the Board on February 15, 1984, after
verifying its policy on this issue, the Agency conceded that an
allocation larger than 50 percent might have been possible "if supported
by actual time spent by the employees on each of the programs." Id. at
p. 5. The Agency did not indicate, however, whether any alternative
documentation (in lieu of time distribution records of the type
previously discussed) would be sufficient when viewed alongside the
position descriptions the State did submit. It is possible that the
Agency would still require some form of time distribution record or time
study. On the other hand, it is possible that, in addition to the
position descriptions, the only documentation needed would relate to the
actual number of facilities in the State subject to survey and
certification under either program by the employees taking the course.

Accordingly, we remand this issue to the Agency for clarification of
its documentation requirements with respect to training course
expenditures and a determination as to whether the State has met or can
meet those requirements. (This remand does not apply to the five
employees discussed below, however.) If the State still does not agree
with the Agency's resolution of the issue, it may return to the Board
within 30 days of receiving the Agency's decision.

The State did not submit position descriptions for five employees and
indicated it no longer had such descriptions in its possession. The
position descriptions are necessary to indicate whether the employees'
work responsibilities relate to survey and certification activity. As
we discussed above, the State has the burden of providing documentation
to support its claim. Since the State has not provided any
documentation, we sustain the disallowance of $4,148 FFP in costs
claimed for these five employees. We also sustain the undisputed
disallowance of $15 for a mathematical error.

The only remaining issues relating to the costs of the training
course concern the percentage of FFP available for individuals taking
the course whose job functions may not have been directly related to the
inspection of facilities. (Training for inspectors is reimbursable at
100 percent FFP under 45 CFR 250.120(d).) The Agency disallowed $1,098
for individuals whose job descriptions indicated they were skilled
professional medical personnel for whom the rate of (15) FFP would be 75
percent. The Agency also disallowed $1,625 for five individuals whose
job descriptions indicated that they were primarily involved in
administration of the program and did not directly inspect facilities
for certification. We agree with the Agency on both points. We cannot
say based on the record before us that the State has met its burden of
documenting that these individuals were inspectors of LTC facilities and
as such entitled to 100 percent reimbursement. See, below, Section
III., Analysis for a more detailed discussion of the State's burden of
documentation under these circumstances. Accordingly, we uphold this
portion of the disallowance for the training costs.

III. Disallowance of $150,862 FFP for the period July 1, 1970 through
September 30, 1976 due to incorrect application of FFP matching rates.

This issue relates to the federal matching rate applied to the costs
allocated to Title XIX for survey and certification costs. The Social
Security Act provides special rates of reimbursement for personnel of
the State Agency responsible for certain administrative functions.
Section 1903(a)(2), (3), and (4) of the Social Security Act. The types
of personnel functions and their corresponding FFP rates, as established
by the Act and prescribed by regulation, are as follows:

a. 45 CFR 250.120(d) (1976) (now deleted) - 100 percent FFP for
compensation, travel, and training costs of personnel of the State
licensing agency having responsibility for inspecting LTC facilities for
compliance with applicable health or safety standards.

b. 45 CFR 250.120(a) (1976) (now 42 CFR 432.50(a) and (b)(1)) - 75
percent FFP for salary and other compensation, travel, and training
costs of skilled professional medical personnel, and staff directly
supporting such personnel, in the State Medicaid agency, administering
the medical assistance program at the State and local level.

c. 45 CFR 250.120(e) (now 42 CFR 432.50(a) and (b)(6)) - 50 percent
FFP for costs of all other staff employed in the administration of the
State plan.

The Agency reviewed the State's personnel functions and records and
determined that the State claimed incorrect FFP percentages in a number
of instances. The Agency disallowed (16) the difference between the
rate claimed and the rate which should have been claimed. Notice of
Appeal, Att. 1, Enclosure B. The Agency also gave the State a credit
where the State should have claimed a higher federal matching rate. Id,
Enclosure C.

The State is not appealing $146,087 from a total disallowed of
$316,088 and the Agency has given the State a credit of $19,139, the
difference between costs claimed at a lower FFP matching rate and the
higher matching rate allowed by the Agency. Therefore, the amount in
dispute before us on this issue is $150,862 in FFP. State's Notice of
Appeal, Att. 4.

Analysis

Under Title XIX of the Social Security Act, states are entitled to 50
percent FFP for amounts expended by the State in the administration of
the state plan. Where a State is seeking reimbursement of costs for
personnel of the State Agency at a rate greater than the 50 percent, we
have held that the grantee has the initial burden to document the costs
claimed and to show that the claim for reimbursement at the higher level
is proper. See, Missouri Department of Social Services, Decision No.
395, February 28, 1983; New York Department of Social Services,
Decision No. 204, August 7, 1981. For example, in New York, we
concluded that a state must have documentation to show that the
personnel for whom the State claims at a 75 percent rate are doing job
functions which qualify them as skilled professional medical personnel.

The State here never presented in its briefs specific argument and
supporting documentation for each category of cost claimed to justify
the reimbursement rates of 100 and 75 percent used by it in making its
claim. Instead, the only mention of matching percentages was the
State's assertion that it had underclaimed its costs because all the
activities claimed were entitled to 100 percent FFP pursuant to 45 CFR
250.120(d) even though some had been claimed at the 75 percent level.
Furthermore, the Agency upon review of the State's May 28, 1982
submission found that the State had reclassified a substantial portion
of the costs from the original billings, and thereby removed the
identity of the specific area or facility the activity serviced.
Respondent's Appeal File, Exhibit A, Tab Q. After the reclassification,
the State concluded that all survey and certification effort was for LTC
facilities. Id. The State, however, by its reclassification may be
including, (17) for example, costs for surveying acute care facilities
or performing patient reviews, or non-personnel costs, which are not
personnel costs for inspection of LTC facilities and reimbursable at the
100 percent rate. Therefore, we agree with the Agency that the State's
claim is not supported by documentation to show that all personnel and
the activities they performed were for the actual inspection of LTC
facilities. /10/

The State also contended that the federal auditors erred in
calculating this part of the disallowance by applying a matching
percentage to claimed amounts already adjusted based on the proper
matching percentage. In support of its contention, it submitted a sworn
affidavit which it alleged the Agency never challenged. The federal
auditors' workpapers, however, submitted to the State by the Agency on
December 8, 1981, indicate that the Agency did not apply the matching
percentages to amounts which had already been netted by such
percentages. Respondent's Appeal File, Exhibit A, Item N. The auditors
did not use the factored amounts, the amounts listed by the State as
what the federal reimbursement should be, but used the amounts listed by
the State in its own expenditure reports as total expenditures for
personnel and non-personnel costs. The auditors applied the correct
rate to that amount and came up with the proper amount which should be
claimed. The disallowance was the difference between the amount
actually claimed by the State (18) and the amount determined to be
proper by the Agency. The workpapers, therefore, contradict the State's
allegations and the State's subsequent affidavit which was not supported
by specific documentary evidence.

Therefore, on the basis of our analysis here, we conclude that the
Agency's disallowance should be sustained.

IV. Disallowance of $83,571 FFP for the period July 1, 1970 through
June 30, 1976.

The Agency argued that these claimed costs for the laboratory
evaluation section were based on time records which did not in fact
reflect time spent on the Title XIX program. The Agency claimed that
although the employee charged time to Title XIX, he did not perform work
which could be directly related to Title XIX.

Analysis

The State argued that the employee did perform work which was
directly related to the Title XIX program; the employee inspected and
evaluated laboratories not certified for Title XVIII for purposes of
determining their qualifications for providing testing services to Title
XIX patients. The only evidence submitted by the State during this
appeal to support its claim for this employee is a State memorandum
dated January 6, 1982 from the Chief of the State's laboratory
evaluation section. This memorandum asserts that the employee whose
time was charged to Title XIX, performed inspections of laboratories,
not already certified under Title XVIII (Medicare), in order to certify
these laboratories providing testing services to Title XIX patients.

We do not agree that the documentation submitted by the State is
sufficient to support these costs. The Agency, upon review of the
State's records, indicated that the laboratory evaluation section could
possibly perform work for the benefit of Title XIX. However, during the
period in question, the Agency found that this section, including the
one employee of the section whose time was charged to Title XIX, only
did work benefitting programs other than Title XIX. Respondent's Appeal
File, Exhibit A, Tab F4.

We cannot conclude on the basis of the State's Memorandum alone, made
almost six years after the last fiscal year in which these expenditures
were incurred, that any of the claim for this employee was allowable
under Title XIX. The (19) State did not give us any specific
information concerning the employee's activities. The State did not
show, for example, which laboratories the employee certified, whether
these laboratories provided services to Medicaid recipients for which
FFP was claimed, and whether all of the time charged related to this
type of inspection activity. See 45 CFR 249.10(b)(3) (1976).
Therefore, lacking any such substantiation, we sustain the disallowance.

IV. Conclusion

For the reasons stated above, we sustain the disallowance in part and
remand the remainder to the Agency. In particular:

1. With respect to the disallowance of $627,778 FFP and $88,980 FFP,
we uphold this portion of the disallowance except to the extent that we
remand to the Agency for consideration of the effect of its policy for
inspection of LTC facilities.

2. The disallowance of $37,170 from $62,504 claimed, relating to the
Tulane University training, has been remanded solely to allow the State
an opportunity to present documentation of allocation of costs to Title
XIX above the 50 percent level originally disallowed by the Agency. The
Agency need not consider documentation relating to the five employees
for whom no position description was provided, which covers $4,148 of
the disallowance. We uphold the Agency's application of the FFP
matching rate to certain employees resulting in a disallowance (based on
a 50 percent allocation) to Title XIX of $1,098 and $1,625. We also
sustain the disallowance of $15.

3. The disallowance of $150,862 FFP is sustained. The State did not
dispute $146,087 of the $316,088 disallowed and the Agency gave the
State a credit of $19,139.

(20) 4. The disallowance of $83,571 FFP is sustained. /1/ This
disallowance follows appeals of earlier disallowances (Docket
Nos. 79-47 and 80-107) which were closed on the Board's docket to allow
the parties to negotiate without prejudice to the State's right to
reopen the cases. The State submitted additional information to the
Agency to support its claim during the negotiations. On December 13,
1982, after a review of the State's information, the Agency issued this
disallowance upholding in entirety the previous amount disallowed. The
decision in this appeal is based on the written record including
materials submitted by the parties in the earlier appeals and on the
transcript of a conference held in this appeal. Initially, the State
requested a hearing pursuant to the Board's procedures at 45 CFR 16.11.
Subsequently, the State indicated it did not wish to present any new
evidence but wanted an opportunity for oral argument at an in-person
conference rather than a hearing. The conference under 45 CFR 16.10 was
held on November 8, 1983. /2/ The State did not dispute $146,087
of the $316,088 disallowed and the Agency gave the State a credit of
$19,139 for the difference between costs claimed at a lower FFP matching
rate and costs allowed by the Agency at a higher matching rate.
/3/ The Agency also argued that the State did not have "contemporaneous"
documentation as required by the regulations to support the allocation
of costs to Title XIX. HCFA's Brief, p. 10; HCFA's Reply Brief, pp.
4-7. At the conference held in this appeal, the State argued it had
contemporaneous documentation indicating that the supervisors made
individual judgments for each survey. Transcript, pp. 131-132. The
Agency agreed to travel to Wisconsin and review the records. By letter
dated December 20, 1983, the Agency found, as the previous auditors had,
that the allocation ratios developed by the supervisors were not based
on individual judgments for each survey, but were estimates which were
not supported by time studies or other recognized methods of developing
allocation ratios. While the records showing total activity costs were
generated in the respective expenditure periods, the State's allocation
ratios were not based on a method of recording time distribution.
Therefore, there is no basis in the record to indicate that the
allocation ratios developed by the supervisors were anything more than
the supervisors' best guess. /4/ The record does not demonstrate
how much of the disallowances of $627,778 and $88,980 relate to costs
for inspection of LTC facilities. /5/ There is also an Agency
Policy Interpretation Question (PIQ) 76-132, dated August 5, 1976, that
discusses program allocation of survey activities. Respondent's Appeal
File, Exhibit A, Tab F4. The PIQ states that the costs of survey and
certification activities and follow-up visits related to surveys of LTC
facilities participating in both Title XVIII and Title XIX will be
divided equally between the two programs, a fifty-fifty allocation. The
costs of survey and certification activities and follow-up visits
related to LTC facilities participating in only Title XIX will be
chargeable entirely to Title XIX. /6/ The State also appeared to
be arguing that the audit exception provision of section 1132 of the
Social Security Act and 45 CFR 95.19( b) could permit reversal of an
even larger portion of the disallowance if the Agency's policy in
Pennsylvania were applied to the full amount of gross survey and
certification costs on which the State's original claim had been based.
Even if section 1132 and its exception applied, however, (and we do not
reach that issue) that State has not yet filed a claim for the
additional percentage of costs on a quarterly statement of expenditures
report (see 45 CFR 95.4 and analysis below at Section I.C.). /7/
The record also indicates that on January 8, 1981 a State auditor met
with HCFA auditors to explain the discrepancy between the gross
expenditure figures for the March 1977 quarter. State's Brief, Att. 1.
The affidavit stated that "the federal auditors agreed that in order to
properly apply the percentages they had calculated, the correct gross
expenditure figure should have been $1,159,798." Id. /8/ The State
argued that even if the State's claim was not timely filed, the
exception to the time limit set forth at 45 CFR 95.19(b) for "(any)
claim resulting from an audit exception" is clearly applicable. The
State contended that this exception was designed to prevent the Agency
from time barring claims derived from a particular audit procedure. As
we indicated previously, the State has not filed a claim for the alleged
additional sums it argued it would be entitled to based on the larger
gross expenditures. Even if section 1132 applies here as the State
argues (and we do not reach that issue) the exceptions of 45 CFR 95.19
could be applied only in instances where a State has filed a "claim."
Therefore, consideration of the effect of the audit exception provision
or indeed any other exception in section 95.19 would not be appropriate
until the State files a claim on a QER. /9/ During the pendency of this
appeal the State decided not to contest a $15 item (which we
sustain) and the Agency allowed a $968 item relating to an employee that
had not been listed in an inventory. See Board's Summary of Conference
Call, March 21, 1984. /10/ The State argued that although the
burden of proof may have initially been on the State to show that it
applied the correct matching percentages to the personnel functions
involved, that burden shifted to the Agency when the State, during
negotiations, sent the Agency a submission dated May 28, 1982. The
State further argued that the Agency never met its burden since in the
disallowance notice, it only provided a single conclusory sentence in
response to the State's submission. We cannot agree. Although HCFA's
brief did not elaborate on this submission, its Appeal File, Exhibit A,
Tab Q, contained a thorough analysis of that submission. Therefore, the
Agency did not fail to consider the State's submission, and there is no
basis on which to find the burden of proof had shifted to HCFA and HCFA
had not met this burden.

NOVEMBER 14, 1984