New York State Department of Social Services, DAB No. 1008 (1989)

DEPARTMENTAL APPEALS BOARD

Department of Health and Human Services

SUBJECT: New York State Department DATE: January 11, 1989 of Social
Services Docket No. 88-153 Decision No. 1008

DECISION

The New York State Department of Social Services (New York) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $1,049,616 in federal financial participation (FFP) claimed
under Title XIX (Medicaid) of the Social Security Act (Act) for the
period January 1, 1984 to September 30, 1987. HCFA found that New York
had incorrectly claimed certain overhead and non-personal services costs
and training costs at the enhanced 75 percent FFP rate available for
compensation or training of skilled professional medical personnel
(SPMP).

In a September 16, 1988 meeting, HCFA and New York agreed to an
adjustment relating to the disallowance of $44,383 for two training
contracts. The amount remaining in dispute is $1,005,233. At issue now
are (1) $439,595 in expenditures for overhead and non-personal services
costs and training costs representing the difference between New York's
claim for 75 percent FFP and the 50 percent FFP rate generally available
for Medicaid administrative costs and (2) $565,638 in expenditures for
three contracts for training employees at State-owned facilities that
HCFA in its disallowance determined could not be claimed as Medicaid
administrative costs at all.

For the reasons discussed below, we conclude that the enhanced 75
percent FFP rate was not available for the disputed costs.
Consequently, we uphold the disallowance of the amounts claimed in
excess of the 50 percent rate for overhead and non-personal services
costs and for training costs attributable to SPMP at state and local
administrative offices ($439,595). With regard to the $565,638 in
expenditures related to training contracts for facility-based employees,
we uphold the disallowance of the claim for FFP at 75 percent, but
return to HCFA for further consideration the issue of whether these
expenditures could properly be claimed as administrative costs at the 50
percent rate.

General Background

Under Title XIX, 50 percent is the FFP rate generally available for
administrative costs of state Medicaid programs. Section 1903(a)(7) of
the Act. An enhanced rate was authorized of "75 per centum of the sums
expended . . . (as found necessary by the Secretary for the proper and
efficient administration of the State plan) as are attributable to
compensation or training of skilled professional medical personnel . . .
." Section 1903(a)(2) of the Act. The implementing regulations provide
that the enhanced rate is available for specified SPMP staffing and
training expenditures, i.e., for salary or other compensation, fringe
benefits, travel, per diem, and training. 42 C.F.R. 432.50(a) and
(b)(1); 433.15(b)(5).

The disallowance was based on a review conducted by HCFA of New York's
claims for SPMP costs for the period July 1, 1986 to December 31, 1986.
Review Report No. 87-NYS-5.1, New York Exhibit 1. The disallowance
included overhead and non-personal services costs for earlier quarters,
starting January 1, 1984, based on the reviewers' finding that New York
had improperly claimed these expenditures for preceding quarters as
well. Also, based on the general findings of the review report with
regard to costs related to training contracts, HCFA expanded the
disallowance to include training contract costs claimed during the
period January 1, 1987 through September 30, 1987.

Discussion

A. Overhead and Non-Personal Services Costs

HCFA disallowed $428,006 attributed to overhead and non-personal
services costs (such as rent, ordinary supplies, and telephone and
computer charges) which New York had claimed at the SPMP rate. The
issue presented is whether the SPMP rate for costs "attributable to
compensation or training" of qualifying personnel applies to overhead
and non-personal services costs.

The regulations applicable to the disputed time period (January 1, 1984
through December 31, 1986) specifically make the enhanced SPMP rate
available only for claims involving expenditures for "salary or other
compensation, fringe benefits, travel, per diem, and training." 42
C.F.R. 432.50(a). This listing of the kinds of costs for which the
enhanced rate is available has been unchanged since 1978. See 43 Fed.
Reg. 45199-201 (September 29, 1978). Changes in the SPMP regulations
have been directed at other issues, such as which personnel may be
considered SPMP. See, e.g., 50 Fed. Reg. 46652 et seq. (November 12,
1985); 43 Fed. Reg. 45199 (September 29, 1978).

While New York argued that "[n]o federal statute or regulation prohibits
enhanced federal funding for overhead and non-personal service costs
which are associated with SPMP," (New York Brief, p. 3) the absence of
an express prohibition does not persuade us that the enhanced rate is
available. Since an enhanced rate is an exception to the generally
available reimbursement rates, the State must meet a higher standard of
proof than the absence of any prohibition on claims at the enhanced
rate. In the context of determining whether disputed positions qualify
for enhanced reimbursement as SPMP, the Board has stated that the 50
percent FFP rate will apply unless enhanced funding is clearly
available. See, e.g., New York State Dept. of Social Services, DAB No.
307 (1982) at p. 13. This principle is equally applicable here.

Furthermore, we know of no policy reason why overhead and non-personal
service costs should be reimbursed under an enhanced rate. The purpose
of Congress in adopting the enhanced rate was to encourage the
employment of SPMP. See Part 2-41-20 of the Medical Assistance Manual
issued with Action Transmittal SRS-AT-75-50 (July 3, 1975). The State
provided nothing to indicate that it would be essential to attaining
this goal to apply the enhanced rate to overhead and non-personal
services costs--costs of a type which would be incurred for any
employee, whether or not an SPMP.

General overhead and other non-personal services costs were not included
in the regulations' list of eligible costs, and we have no basis to go
beyond that express language. Thus, we conclude that the regulations
preclude claims for 75 percent FFP for expenditures for overhead and
non-personal services. This is also an obvious reading of the
statutory language, since overhead and non-personal services costs are
not commonly considered costs of compensation or training.
Furthermore, HCFA is the administrative agency charged with interpreting
the statute and, thus, its longstanding interpretation as expressed in
its regulations has particular authority.

Since we find no authority or policy rationale to support reimbursement
at the SPMP enhanced rate for costs other than actual compensation,
fringe benefit, travel, per diem, and training costs of SPMP, we uphold
the disallowance of $428,006.

B. Training Contract Costs Related to State and Local Administrative
SPMP

HCFA disallowed $11,589 attributed to training of SPMP, who were
employed in State and local administrative offices for the Medicaid
program, in general management subjects. HCFA argued that expenditures
for training bearing no relationship to the SPMP area were not allowable
at the SPMP rate because 42 C.F.R. 432.50(c) limits the enhanced rate to
"those portions of the individual's working time that are spent carrying
out duties in the specified area for which the higher rate is
authorized." New York argued that training costs of SPMP were
reimbursable at the enhanced rate under the Act at section 1903(a)(2)
and the regulations at 42 C.F.R. 432.50, which do not limit the type of
training costs for which the SPMP rate is available, and that these
costs were properly allocated to SPMP.

The HCFA report found that --

[t]he training being provided in five (5) [contracts] did not relate
to the specialized SPMP area. For example, one contract provided
for the training of middle managers dealing with administrative and
supervisory issues only. Another, titled "Administrative
Trainership" concerned itself with training in the areas of
management and supervision, affirmative action and auditing. There
was no Skilled Professional Medical training provided.

New York Exhibit 1 (HCFA review report, p. 7). New York stated that the
training was provided to various staff, including SPMP, and argued that
SPMP such as doctors and nurses often are untrained in management
skills, so training in those areas may enhance the efficient operation
of their functions. New York also stated that the method it used to
distribute the contract costs among various program staff ensured that
only an appropriate percentage of the total cost of these contracts was
charged at the SPMP rate.

Under the regulations, the SPMP rate is narrowly limited to training,
whether medical or administrative, of SPMP related to their functions as
SPMP. As we explain below, in light of the fact that the training here
was in general administrative subjects and there is no evidence in the
record either that the SPMP actually attended the training or that the
training related to their SPMP duties, we find that New York failed to
establish that the training costs here were appropriately charged at the
SPMP rate. See New York State Department of Social Services, DAB No.
204 (1981).

We reject New York's argument that allowability was established by the
manner in which it charged these costs at 75 percent. New York
explained that --

The training . . . was directed towards a mixed target group
consisting of administrative overhead staff funded from all of the
federal Titles. The State allocated the cost of training to each of
the five Titles - with 20 per cent to Title XIX. The State split
the Title XIX allocation between the 75 percent and 50 percent FFP
rates. This split was based on Department statistics which showed
that 18 percent of local district staff and 16 percent of Department
staff within the Title XIX group were eligible for the 75 percent
FFP rate. Thus, the costs charged to SPMP were based upon the
relative number of SPMP staff which attended training.

New York Brief, pp. 6-7.

New York's allegation that its claim was based on the relative number of
SPMP staff which attended training was not supported by any evidence
that SPMP actually attended any of the training sessions. There is no
evidence that the allocation method was part of an approved cost
allocation plan which might have, overall, acted to properly distribute
to SPMP only the proportion of training costs directly attributable to
SPMP functions. Moreover, the allocation method was proportional to
overall SPMP percentages, which would not necessarily reflect the actual
number of SPMP who attended the training and performed SPMP functions
which would be enhanced by the training. Thus, the allocation method
does not ensure that only those costs which were allowable were charged
at the enhanced SPMP rate.

The record shows that the costs disputed here were for general
administrative training, which was not by its nature directly related to
SPMP functions. Without any evidence that the training in fact related
to SPMP duties, we find no basis to reverse the disallowance. The
authority for the enhanced funding is limited by statute and regulation,
as we discussed earlier, to actual compensation and training costs which
are attributable to the employment of SPMP.

Since we find New York did not establish that these training costs were
properly attributable to SPMP training, we uphold the disallowance of
$11,589.

C. Training Contract Costs for Facility-Based Employees

HCFA disallowed $565,638 claimed at the SPMP rate for costs of contracts
to provide training to employees who delivered care in individual,
State-owned facilities. The employees trained were nursing home nurses,
hospital discharge planners, homeless shelter staff, and volunteers.
HCFA found that these training costs were not allowable at the SPMP rate
because they were a direct cost of providing services. New York argued
that the costs were allowable at the SPMP rate because the trainees met
the qualifications to be SPMP and the training was directly related to
the Medicaid program.

New York described these three contracts as follows:

. . . [for Contract No.] C-001753, the training was provided to NYC
staff and volunteers involved in publicly-operated shelters for
homeless. We charged this training primarily to Title XX and
allocated only 5% of the total cost to Title XIX and claimed it at
75% SPMP rate. Involved were dental professionals, all skilled
medical professionals as defined in 42 CFR, Paragraph 432.50(6).

The remaining two contracts . . . involve training provided to
nurses and other skilled professional medical personnel working in
public nursing homes and public hospitals. They were all SPMP.

New York Exhibit 1 (response to draft HCFA review report, dated
September 15, 1987). The record indicates that the latter two contracts
were cosponsored by the State of New York Department of Health. New
York Exhibit 1 (letter from Hendricks to Donahue, dated August 3, 1987,
attached to New York response to draft HCFA review report).

The SPMP enhanced rate of FFP is available under the Act only for
otherwise eligible costs "found necessary by the Secretary for the
proper and efficient administration of the State plan." Section
1903(a)(2) (emphasis added). Whether or not the trainees were qualified
personally to be considered SPMP, in order for training costs to be
eligible for the enhanced rate, the personnel must be performing
administrative functions directly for the Medicaid program itself.

This requirement is reflected in the regulations at 42 C.F.R.
432.50(b)(1) in which the SPMP rate is limited to staff of the Medicaid
agency or "other public agencies." Staff of other public agencies is
defined to include only staff whose duties are in accordance with a
written agreement and "directly relate to the administration of the
Medicaid program." 42 C.F.R. 432.2 and 432.50(d)(2). Moreover, section
432.50(d)(1)(i) of 42 C.F.R. expressly provides that the enhanced SPMP
rate applies only if --

The expenditures are for activities that are directly related to
the administration of the Medicaid program and as such do not
include expenditures for medical assistance.

Although New York asserted that the training here was "directly related"
to the administration of the Medicaid program, there is no evidence in
the record that the trainees were actually SPMP performing
administrative functions directly for the Medicaid program. In fact,
the record demonstrates the contrary. New York did not deny that the
trainees were direct service providers at individual facilities, and
provided no evidence of administrative responsibilities for the Medicaid
program or a direct employment relationship with the Medicaid agency.
While the training may have been related to Medicaid requirements and
may have helped the providers to comply with these requirements, the
training was not provided to qualified personnel who were administering
the Medicaid program itself.

While it is clear that the costs were not appropriately charged at the
SPMP rate, the question remains whether the costs are allowable at the
50 percent rate as administrative costs of the Medicaid agency. HCFA's
reviewers found that the costs should have been claimed as part of the
facilities' per diem rates for services. New York argued that, whether
or not the costs qualify for the SPMP rate, the costs were allowable as
administrative costs and did not have to be incorporated into the
facilities' per diem rates. New York stated that these costs could not
have been incorporated into the per diem rates because the disputed
training programs had been developed separately from the facilities'
normal in-service training and the costs had not been incurred by the
facilities themselves but were incurred, instead, by the central State
agencies administering the Medicaid program. New York Brief, p. 8; New
York Reply Brief, p. 5.

HCFA did not respond to New York's arguments on this issue. Although
HCFA acknowledged in its brief the review finding that the costs were
eligible only as part of the per diem rate, HCFA did not offer any
support for this position. HCFA Brief, p. 18. Instead, HCFA
contradicted that position, stating that "such training costs are
eligible for the more customary 50% rate, rather than the enhanced FFP
rate of 75%" and, thus, appeared not to contest a claim at the 50
percent rate. Id., p. 17. Furthermore, although the review report and
the disallowance letter clearly indicate that the entire claim is
included in the disallowance, in its brief HCFA stated that the amount
at issue was the difference between the claim at the 75 percent rate and
at the 50 percent rate. HCFA Response, p. 2, n. 1.

Since it is not clear whether HCFA would allow the 50 percent FFP rate
for these expenditures, we return the issue for further consideration by
HCFA. If HCFA determines that FFP at 50 percent in the disputed
training costs was contrary to federal requirements or the State plan,
it should inform New York promptly, in a written determination
explaining its reasons. The State may then return to the Board on this
issue within 30 days of receipt of that new determination if it
disagrees with HCFA's determination.

Thus, we affirm the disallowance of the amount claimed for this training
in excess of the 50 percent rate generally available for administrative
costs. We return for consideration by HCFA the issue of whether FFP is
available at the 50 percent FFP rate.

Conclusion

For the reasons discussed above, we uphold the disallowance of amounts
claimed at the enhanced 75 percent rate for overhead and non-personal
service costs, for training costs allocated to SPMP at State and local
administrative offices, and for training costs for facility-based
employees. Since HCFA's position was unclear on whether any of the
disallowed training costs related to facility-based employees could be
claimed at the 50 percent rate, we return without prejudice that issue
for further consideration by HCFA under the schedule set forth above.

________________________________ Judith A. Ballard

________________________________ Alexander G. Teitz

________________________________ Cecilia Sparks Ford Presiding
Board