Department of Health and Human Services
SUBJECT: New York State Department of Social Services
Docket No. 89-134
Decision No. 1115
DATE: November 20, 1989
DECISION
The New York State Department of Social Services (New York/State)
appealed a determination by the Health Care Financing Administration
(HCFA/Agency) disallowing $1,050,702 in federal financial participation
(FFP) claimed by the State under the Medicaid program for the period
April 1, 1986 through March 31, 1987. The disallowance involves claims
made by the State for its Youth Opportunity Program (YOP), an employment
program operated by the State's Office of Mental Retardation and
Developmental Disabilities which places disadvantaged high school
students in a variety of jobs in state- operated long-term care
facilities. Here, the State placed YOP participants in various
intermediate care facilities for the mentally retarded (ICFs/MR). HCFA
disallowed the State's claim for YOP costs finding that they were not
directly related to patient care, but were incurred in order to permit
disadvantaged youth to work at the residential facilities and therefore
reduce the chances of their dropping out of high school.
Before the Board, HCFA conceded that some YOP participants may have
provided services related to patient care, but noted that New York had
failed to demonstrate the extent to which this may have occurred.
Consequently, HCFA did not rule out the possibility that New York might
still be reimbursed for some YOP costs relating to individual
participants if the State could document that the participants had spent
time caring for patients.
Based on the following analysis, we uphold the disallowance in full. We
find that the State's claim in its present form is not allowable because
it includes administrative, supervisory, and training costs for the YOP
program that do not directly benefit the Medicaid program and because
the State has not adequately documented which, if any, of the remaining
costs claimed represented the services of participants that directly
benefited the Medicaid program. However, HCFA has agreed that the State
should have additional time following receipt of this decision to submit
documentation demonstrating that specific YOP participants provided
Medicaid-related services which would entitle the State to partial
reimbursement of its claim. New York should do so within 30 days after
receiving this decision (or such longer period as HCFA allows). HCFA
should promptly notify the State (in writing) of its response and the
State may return to the Board on this issue alone within 30 days of
receiving HCFA's decision.
Background
In order to qualify for FFP under Medicaid, a state must submit a State
plan which meets the conditions specified in section 1902 of the Social
Security Act (Act). A State plan must provide for reimbursement for
services delivered by ICFs/MR. Reimbursement is provided through the
use of rates which are reasonable and adequate to meet the costs
incurred by an efficiently and economically operated facility. See
section 1902(a)(13)(A) of the Act. The costs at issue here were part of
those used to develop the Medicaid payment rate for inpatient services
in ICFs/MR.
In March 1988, HCFA issued a SPECTRUM review of ratesetting policies and
procedures used by New York in developing Medicaid rates for inpatient
services in ICFs/MR. 1/ HCFA reviewed New York's Medicaid ratesetting
procedures through an examination of the State's 1984/85 cost reports
which served as the bases for the reimbursement rate for the period in
question. The auditors found that the State's ICF/MR ratesetting
practices generally conformed with the process outlined in the State
plan. However, the auditors did question the inclusion of YOP costs in
the ICF/MR rates. Consequently, the Agency determined that the YOP costs
were not directly related to patient care and, thus, were unallowable.
See HIM 15, section 2102.2 New York Ex. 1, pp. 1-4. 2/
We previously considered the allowability of YOP costs as charges to
Medicaid in New York State Dept. of Social Services, DAB No. 1036
(1989). 3/ There, the YOP operated in public and private psychiatric
hospitals in the State. The State conceded that the YOP served
primarily as an employment program for disadvantaged youth. However,
the State asserted that that fact did not diminish the nature of the YOP
services. The State indicated that the YOP participants were providing
services at various psychiatric facilities which would otherwise be
performed by regular staff at a greater cost to Medicaid. Thus, the
State concluded, the YOP enhanced the quality of care provided by
participating facilities. Id. at 6-7.
Upon review of the evidence, we found that YOP costs, as a whole, did
not benefit the Medicaid program. Additionally, we found that New York
had failed to adequately document its claim that at least some of the
YOP services did confer a benefit to Medicaid and consequently, the
costs associated with those services should be allowable. However, HCFA
admitted that some of the questioned costs might be allowable, if
properly documented. HCFA expressed a willingness to review such
documentation as the State might be able to provide for specific costs
identified by the Agency as potentially allowable. In New York, we
sustained the general disallowance of YOP costs, as well as a
disallowance of clothing costs charged to Medicaid, but consistent with
HCFA's position gave the State further opportunity to document YOP
costs. Id. at 8-9.
The Basis for the Instant Disallowance
HCFA asserted that the disallowance of the instant YOP costs should be
sustained based on the rationale of the earlier Board decisions
involving New York's attempt to charge YOP costs incurred by psychiatric
facilities to Medicaid. HCFA analyzed the State's documentation of its
current claim in terms of the rationale in New York. HCFA argued that
the State had failed to establish a link between the costs attributable
to individual YOP participants and the provision of specific direct
patient care activities, and that these costs consequently could not be
charged to Medicaid. However, the Agency expressed its willingness to
review further documentation provided by the State (in a manner
consistent with the Board's holding in New York) for certain YOP
position descriptions which, HCFA conceded, might provide services
allowable under Medicaid. Moreover, HCFA noted that, in its response to
the SPECTRUM report, New York acknowledged that it had employed a
limited number of Central Office and on-site staff who perform
supervisory and counseling functions directed primarily at the
participants' self-improvement and that the costs attributable to that
staff ($402,420 in FFP) are not directly related to patient care and
should not have been included in the rate computation. HCFA
specifically asked that the Board issue a decision upholding the
disallowance of the supervisory and counseling costs as well as
upholding the disallowance of the individual YOP costs which may be
subject to further reduction pending review of the State's
documentation. HCFA Brief (Br.), pp. 6-11, New York Ex. 1, pp. 62-63.
Analysis
New York's arguments for reversal of the disallowance were essentially
identical to those first advanced in connection with New York. The
State noted that staff and personnel costs are clearly allowable under
HIM 15, section 2102.2. New York asserted that the YOP participants
performed services similar, if not identical, to those provided by
regular institutional staff. The State compared certain YOP position
descriptions with the related State civil service position descriptions
in an attempt to establish the allowability of the YOP costs.
New York offered no new evidence or legal rationale which would cause us
to reconsider our holding in the earlier decisions. New York
acknowledged in its response to the draft SPECTRUM report that costs
attributable to certain Central Office and on-site staff that performed
supervisory and counseling functions directed at the participants'
self-improvement should not have been included in its rate. New York
did not address further the allowability of these particular costs
($402,420 in FFP) in its briefs. We find that costs which are incurred
solely for the purpose of providing supervision and counselling to the
YOP participants benefit the YOP participants, not the Medicaid program.
Thus, we uphold the disallowance of those particular costs. 4/
With respect to the remainder of the State's claims, we find that the
documentation submitted by New York with its briefs does not establish
the allowability of those claims. This documentation is inadequate as
it merely contains lists of position titles and a limited number of
position descriptions. It is impossible for the Board to determine with
certainty that particular individuals performed functions that directly
related to patient care or that otherwise would have been reimbursable
as part of the facility's rate. As HCFA argued in its brief (at pages
10-11), the State has failed to document what specific dollar amount of
the overall YOP costs claimed would be attributable to the YOP
participants. The State has also failed to set forth how much of the
YOP participants' time (and costs attributable to this time) was spent
on activities (which might be allowable) as opposed to educational and
counselling activities that were designed for the benefit of YOP
participants (and which would clearly be unallowable). 5/
Although the record does not establish that any of these costs are
allowable, New York asked that it be granted the opportunity to provide
further documentation relating to the allowability of services of
individual YOP participants. New York Br., pp. 4-6; New York Reply Br.,
pp. 3-4. HCFA agreed to review additional documentation submitted by
the State in a manner consistent with the review currently being
conducted in connection with the earlier New York decisions involving
YOP costs. HCFA Br., p. 11. Consequently, we conclude that the State
should have an opportunity to submit further documentation.
Conclusion
Based on the facts and analysis above, as well as our analysis of this
same issue in New York which we incorporate here, we sustain the entire
disallowance of the $1,050,702. The disallowance is subject to possible
reduction to the extent the State can, to HCFA's satisfaction, document
the allowability of specific YOP costs that are appropriate charges to
Medicaid (in accordance with the schedule on page 2 above).
Cecilia Sparks Ford
Norval D. (John) Settle
Donald F. Garrett Presiding Board Member
CC/bc&cc DISK:CC6 11/21/89 FINAL D89-134
1. SPECTRUM is the acronym for State Performance Evaluation and
Comprehensive Test of Reimbursement Under Medicaid. See New York
Exhibit (Ex.) 1.
2. HIM 15 is the Health Insurance Manual, a handbook setting out the
principles of reimbursement governing Medicare payments to health care
providers. At their option, states may rely upon Medicare reimbursement
principles when setting Medicaid reimbursement rates. New York has
exercised that option in developing payment rates to ICFs/MR for
inpatient services.
3. See also New York State Dept. of Social Services, DAB No. 1080
(1989), a summary decision which involved the same issues raised in New
York, but a subsequent time period. Hereafter, we refer to these two
decisions either singularly as New York, or simply as the New York
decisions.
4. New York also relied on a Medicare regulation, 42 C.F.R. 413.85(b),
which provides that educational activities conducted by a provider may
be considered allowable if they are "programs . . . usually engaged in
by providers in order to enhance the quality of patient care in an
institution." New York's reliance on this regulation is misplaced.
This regulation necessarily applies to educational activities for the
facility's regular staff and not to programs where participants are
placed in the facility for employment and the placement itself serves as
the education. 42 C.F.R. 413.85(c) recognizes that the educational
activities, including training activities, covered by the regulation
would be those that were customarily or traditionally carried on by
providers for the provider's existing medical and paramedical personnel.
New York has conceded that the YOP is an employment program designed to
serve disadvantaged youth. New York Br., p. 2.
5. HCFA implied that, in New York, the Board limited reimbursement to
patient care services. In that decision, however, we merely contrasted
patient care services (as allowable costs) with services associated with
the administration, supervision and training of YOP participants (which
we concluded were not allowable). We simply did not address the issue
of whether the State is entitled to reimbursement for other services,
(e.g., secretarial and clerical services as well as community store
services), if those services would ordinarily qualify for reimbursement
as part of the facility's rate if performed by the facility's regular
staff. Given the record before us, we have no basis to conclude that
the costs of such services may not be included in the rate simply
because they did not involve patient care services.
The State raised the issue of community store services for the first
time in its reply brief and HCFA has not had an opportunity to respond.
We note that the State withdrew its appeal regarding community store
costs in its prior appeals. Given that action, the State would appear
to have a substantial burden to overcome in showing that the costs of
YOP participants in community stores in ICFs/MR are chargeable to