New York State Department of Social Services, DAB No. 788 (1987)

DEPARTMENTAL GRANT APPEALS BOARD

Department of Health and Human Services

SUBJECT:  New York State Department of Social Services

Request for Reconsideration of Decision No. 788

DATE:  February 6, 1987

RULING ON REQUEST FOR RECONSIDERATION

By letter dated December 10, 1986, the New York State Depart-    ment of
Social Services (State) requested reconsideration of the Board's
decision in New York State Department of Social Services, Decision No.
788, September 19, 1986.  The Health Care Financing Administration
(HCFA) requested and was granted an opportunity to comment on the
State's request, and the State subsequently asked for and was given an
opportunity to reply.

Under the Board's regulations at 45 CFR 16.13, the Board has the power
"to reconsider a Board decision where a party promptly alleges a clear
error of fact or law."  For the reasons stated below, we conclude that
there is a substantial question whether the State's request was timely
and that, in any event, the State's allegations are incomplete or
unfounded.  Accordingly, we deny the State's request.

Below, we first discuss the timing of the request.  We then address the
State's allegations regarding each of the two types of costs in question
in this case:  training costs and site preparation costs.  The State had
alleged these costs were properly claimed at 90 percent federal Medicaid
funding as costs of design, development, or installation of the State's
mechanized claims processing system (called the WMS system).  The Board
held in Decision No. 788 that the training costs were reimbursable only
at a 50 percent rate of federal financial participation (FFP) and that
the site preparation costs were reimbursable only at a 75 percent rate.

Whether the request was "prompt"

In determining whether a reconsideration request is prompt, this Board
has not set a hard and fast rule but has examined whether the request
was reasonably timely under the circumstances of the particular case.
Here, the request was not submitted until more than two and one-half
months after the decision was issued.  The State attempted to excuse
this delay by stating that its request was based on "newly discovered
evidence" and that it had informed the Board on October 15, 1986, in a
telephone conference call in a related case (Board Docket No. 86-21),
that it intended to request reconsideration.  When HCFA challenged the
request on the basis that it was not prompt, the State replied that it
had been instructed in the October 15 call to brief Docket No. 86-21
first and that it had begun to prepare its request immediately upon
submission of the brief in that case.

We have a substantial question about whether the State's request should
be considered prompt in light of the following:

o    The tape of the October 15 telephone conference shows that,
     contrary to the State's allegation, the State was not told to brief
     the other case first.  The State was specifically told that it had
     to raise and justify any reconsideration request in this case
     separately from Docket No. 86-21.

o    Even if the State mistakenly thought that it was told to submit its
     brief in Docket No. 86-21 first, this would not excuse the State's
     delay.  That brief was submitted on November 3, 1986, but the
     reconsideration request was not filed until over five weeks later
     on December 10.  The State well knows that the Board usually allows
     no more than 30 days for a submission unless an extension is
     granted, and, indeed, the State initially was given only two weeks
     for its brief in Docket No. 86-21 because of the limited nature of
     the issue raised.

o    The "notice" to the Board and HCFA in the telephone conference call
     was clearly inadequate.  The State merely said it would "in all
     likelihood" request reconsideration of Decision No. 788 based on
     "newly discovered evidence" regarding training costs.  The State
     did not mention any possibility of including the site preparation
     costs in its request.  (Tape of October 15 conference call)  In
     fact, the State misidentified in the call the document addressing
     the training costs, stating that it was a letter from an HHS
     Assistant Secretary, whereas it was a meeting agenda sent to the
     State by a lower level federal official.

o    Although the State indicated in the conference call that it might
     submit a request for reconsideration based on "newly discovered
     evidence," the request is in large part based on evidence which the
     State did not allege was "newly discovered" and on arguments which
     the State had raised before.  1/


We do not need to resolve the issue of timeliness of the State's
request, however, since we deny it on the grounds stated below.

The training costs issue

In Decision No. 788, the Board upheld a disallowance of $291,645,
identified as the difference between "training costs" claimed at the 90
percent rate and those costs at the 50 percent rate.  The disallowance
was based on HCFA regulations in effect during the disallowance period
(October 1, 1977 through March 31, 1982).  During most of this period,
the regulations explicitly provided that the applicable rate was 50
percent for training "personnel engaged in design, development, or
installation of mechanized claims processing and information retrieval
systems . . . ."  42 CFR 432.50(b)(3) (1978).  The Board rejected the
State's argument that this regulation substantially changed the previous
provision at 42 CFR 450.120(1977); the Board found that it was logically
implicit in the previous version that training of such personnel was
reimbursable only at the 50 percent rate.  The Board also rejected the
State's arguments that the regulations were inconsistent with the Social
Security Act or with approval of the State's advanced planning document
for its WMS system and of its cost allocation plan for WMS costs.

The State alleged in its reconsideration request that its newly
discovered evidence showed that the HCFA position upheld by the Board
was inconsistent with HCFA's previous policy regarding training costs.
That evidence is a meeting agenda dated September 28, 1982, which states
in pertinent part:

     Please be prepared to discuss the State's position regarding a
     methodology for distributing New York City WMS development and
     operation costs.

                         *      *      *

     --   Under any cost allocation methodology which the State
          proposes, the following HHS policies apply to specific systems
          development costs:

       --  Site preparation costs are fundable only at the operational
           FFP level (i.e. IV-A 50%; XIX 75%).

       --  Trainer costs are fundable at the development FFP level (i.e.
           IV-A 50%; XIX 90%).

 

       --  Trainee costs are fundable only at the administrative FFP
           level of 50% FFP for IV-A and XIX.

               Request for reconsideration, Ex. 1.

The State incorporated by reference into its request an affidavit by a
State Deputy Commissioner attesting that an HHS official in the Division
of State Systems had telefaxed the agenda to him prior to a meeting on
September 29, 1982, and that at that meeting and in other discussions
"the issue of 90% FFP for trainers during the development phase was
discussed by the operating division representatives as HHS policy."
Appeal file, Docket No. 86-21, Ex. 2.  The State also presented evidence
that the question of training costs was not included in later
discussions as an unresolved issue.  Id., Ex. 3.  The State relied on
this evidence for two propositions:  (1) that all training costs are
"developmental," and (2) in any event, HHS policy was that at least
trainer costs are reimbursable at 90 percent.

The State did not explain, however, how this showed an error in the
Board's decision.  Decision No. 788 was based on the plain terms of the
regulation and the uncontested auditors' finding that the costs here
were for training personnel engaged in design, development, or
implementation of WMS.  The State did not challenge the Board's factual
finding, nor provide any rationale on which we could find that a general
statement regarding HHS policy (even if reaffirmed orally by HHS
officials) could override an applicable regulation.  The State made too
much of the mere reference to these costs as "systems development"
costs. Clearly, the author of the meeting agenda was not using this term
in the technical sense used in HCFA regulations.  As we noted in
Decision No. 788, the State's WMS system was intended to serve other
programs as well as Medicaid and documents relating to the system use
the terms "development and implementation" without tracking the
terminology in the Medicaid regulations.  Moreover, the State's own
evidence shows that the State understood, at least with respect to
"trainee" costs, that the HHS position was that they were not
development costs.  State's appeal file, Docket No. 86-21, Ex. 3, p. 20.

With respect to "trainer costs," the statement in the meeting agenda
regarding HHS policy is (to the extent it applies to Medicaid costs) in
conflict with the plain terms of the appli- cable regulation on training
costs, which clearly includes as "training expenditures" costs such as
instructors' salaries and costs of training materials.  42 CFR
432.55(b)(1978).  The State did not explain how it could reasonably rely
on a state- ment about HHS policy in conflict with the regulations, nor
even allege that it did rely on that statement (in fact, the meeting was
held after the time period in question here).  Even if the statement
could be somehow read as an interpretation of the regulation which
should be binding on HCFA, however, we would find the State's allegation
to be inadequate.  The State did not allege that the costs in question
here were in fact "trainer" costs.  2/  Thus, the State failed to allege
a fact necessary to show that the statement about HHS policy would
provide a basis for altering Board Decision No. 788.

The State did submit a copy of a HCFA Action Transmittal, which the
State alleged indicates that the regulations on which HCFA relied
pertain "only to staffing for administration of medical assistance
programs" and that "all costs relating to a mechanized claims system are
reimbursable at 75% or 90% FFP."  Request for reconsideration, p. 8
(referring to Ex. 3).  The implication of this argument was that somehow
it provided a basis for finding that the HCFA staffing regulations were
not applicable here.

The Action Transmittal addresses the question of whether states may
receive reimbursement for both direct and indirect costs of all
expenditures "allocable to an operational MMIS at 75% or to design,
development, and installation of a MMIS at 90%" in view of the fact that
the regulation at issue here "appears to limit allowable costs to salary
and other compensation, travel and training."  Ex. 3.  In context, a
statement in the Action Transmittal that the regulation "pertains only
to staffing for administration of medical assistance programs" simply
means that that regulation does not cover all costs of a mechanized
system.  The statement certainly cannot reasonably be read as meaning
that the regulation does not cover training costs of a mechanized system
when it explicitly does so.  Moreover, the training costs in question
here are clearly related to staffing for the administration of a medical
assistance program.  See section 1903(a) of the Act; 42 CFR 432.1,
433.15(b)(4).  Finally, the State misreads the Action Transmittal by
saying it provides for enhanced funding for all operational or
developmental costs "related to" a mechanized system; the Action
Transmittal uses terms such as "allocable" or "benefiting" to describe
the costs reimbursable at the enhanced rates.  In Decision No. 788, we
found that HCFA's regulation permitting only 50 percent for training
persons engaged in design, development, or installation of a mechanized
system was consistent with the Act because HCFA could have reasonably
determined that Congress did not intend such costs to be considered
"attributable to" a system and, therefore, to be reimbursed at the
enhanced rate.  The State did not contend that this conclusion was
incorrect.

Thus, we conclude that the State did not allege a clear error of fact or
law based on which we should reconsider our decision on the training
costs.

The site preparation costs

In Decision No. 788, the Board upheld a disallowance of $115,855
representing the difference in FFP in the costs of site prepara- tion
claimed at 90 percent and those costs claimed at 75 percent. The
disallowance was based on HCFA issuances (of which the State had timely
notice) which clearly and unambiguously state that site preparation
costs are reimbursable only at the 75 percent rate.

The State contended that this conclusion was erroneous based on the
September 8, 1982 meeting agenda discussed above, which the State said
indicates "that until the advent of the recent disallowance numerous
operating divisions of [HHS] defined the costs of site preparation as
developmental."  Request for reconsideration, p. 4.  The State relied
for this on the fact that the agenda refers to site preparation costs as
"systems development" costs.

As discussed above, the mere fact that certain WMS costs might have been
considered "developmental" in a broad sense did not mean that they were
necessarily reimbursable at 90 percent FFP. Here, the State's reliance
on the reference to site preparation costs as "development" costs is
particularly misplaced in light of the fact that the meeting agenda
specifically states that such costs are reimbursable only at the
operational 75 percent rate. (See the quote on page 3 above.)  The
meeting agenda provides support for the Board's decision on site
preparation costs rather than indicating that the Board erred.

The State's reliance on regulations published with respect to mechanized
claims processing systems under the Aid to Families with Dependent
Children program (AFDC) is also misplaced.  The State pointed out that
these regulations were intended to parallel the Medicaid regulations on
such systems and that the definitions in the AFDC regulations show that
site preparation should be reimbursed at 90 percent because they
"encompass the phase during which the computers and peripheral equipment
are installed and tested which is, in essence, site preparation."
Request for reconsideration, p. 6, citing Ex. 2.  The definitions are
not different from the Medicaid definitions analyzed in Board Decision
No. 788, however.  We found that the issue was not the timing of when
the costs were incurred, but the nature of the costs, and that HCFA
reasonably interpreted site preparation costs to be the type of costs
which should be charged over a period of time and therefore charged to
operations (at the 75 percent rate), rather than to installation of a
system (at the 90 percent rate).  Decision No. 788, pp. 3-5.  This is
consistent with the Medicaid regulations which provide for the enhanced
rate of 90 percent only for the use of hardware (including peripheral
equipment) to the extent necessary for the design, development, and
installation phase.  3/

Moreover, the State submitted additional evidence which supports the
Board's analysis about the nature of site preparation costs rather than
calling it into question.  Exhibits submitted in Docket No. 86-21 and
incorporated by reference here indicate that the State was told to
amortize certain site preparation costs (capital costs related to the
WMS implementation in New York City) over the life of the improvements
(Ex. 4, Item 4), and that site preparation costs were not considered
part of development of WMS but were considered real property costs which
should be charged as such under the applicable cost principles (Ex. 3,
p. 21).

Thus, the State's allegations regarding site preparation costs are also
insufficient as a basis for reconsideration.

Accordingly, we deny the State's request for reconsideration.

 


               ________________________________ Cecilia Sparks Ford

 


               ________________________________ Alexander G. Teitz

 


               ________________________________ Judith A. Ballard
               Presiding Board Member

 


1.     We also reject the State's argument that the Board should accept
the request as timely because HCFA was not prejudiced by the delay.  The
standard in the Board's regulations serves purposes other than to
prevent prejudice to a party; the Board itself has an interest in
assuring the finality of its decisions within a reasonable time period.

2.     In Docket No. 86-21, the State did allege that the costs at issue
there were "trainer" costs, explaining that this meant they were
expended for the individuals responsible for training staff involved in
the operation of WMS.  But the State made no such allegation here.

3.     We also note that the AFDC regulations differ from the Medicaid
regulations in that, under the AFDC regulations, 90 percent funding is
specifically made available for a broader range of activities, including
"planning" and the rental and purchase of