New York State Department of Social Services, DAB No. 1129 (1990)

DEPARTMENTAL APPEALS BOARD

Department of Health and Human Services

SUBJECT: New York State Department

DATE: January 30, 1990
of Social Services Docket No. 89-127
Decision No. 1129

DECISION

The New York State Department of Social Services (State, NYSDSS)
appealed a determination by the Health Care Financing Administration
(HCFA, Agency) disallowing $65,423 claimed under Title XIX (Medicaid) of
the Social Security Act (Act) for administrative expenditures which the
Agency claimed were made in the quarter from April through June 1986.
The basis for the disallowance was that the claim by the State was not
filed within two years of the close of the calendar quarter in which the
expenditures were made, as required by section 1132 of the Act and 45
C.F.R. 95.7. 1/

The claim arose out of a demonstration project for Monroe County. The
administrative expenses at issue were first incurred by a separate
corporation set up to run the demonstration project (Medicap). Monroe
County paid Medicap and then submitted a voucher to the State. The
State paid Monroe County and then submitted the payment as part of its
claim for federal financial participation on a quarterly claim for
expenditures (HCFA-64) filed on March 30, 1989. HCFA disallowed the
claim solely on the ground that the claim was untimely.

We sustain the disallowance, since we find that the expenditures were
made, under the statute and implementing regulations, when Monroe County
paid Medicap, which was clearly more than two years before the claim was
filed.

Factual Background

HCFA approved a demonstration project under section 1115 of the Act
providing for a capitation prepayment system for a limited number of
Medicaid recipients in Monroe County. 2/ A three-party contract was
entered into for administration of the demonstration project between
NYSDSS, the Monroe County Department of Social Services (MCDSS), and the
Monroe County Medicap Plan, Inc. (Medicap), a not-for-profit
corporation set up to administer the project as a contractor of MCDSS.
HCFA's Response to the Board's Order to Develop the Record, Exhibit
(Ex.) 2.

The State and Monroe County also entered into a separate contract
pertaining to operation of the Medicap Plan. The original contract in
March 1985 (State Ex. 2) was extended and modified (State Ex. 4) to
cover the period involved in this appeal.

Two provisions of this contract are of significance here. The first is
paragraph 5(c). This provided that the State agreed to pay the County
"for expenses incurred in behalf of fulfilling this AGREEMENT," upon the
submission of a properly executed State of New York Standard Voucher.
State Ex. 2, p. 3.

The other provision, a major basis for the State's position that the
claim was timely, is paragraph 16 of the original agreement. This
paragraph reads in part as follows:

The [State] Department and the County agree that the County is an
independent Contractor and not an employee of the Department . . .
.

State Ex. 2, p. 9.

Applicable Federal Requirements

Section 1132 of the Act bars payment of any claim by a state for
expenditures under the various titles of the Act unless the claim is
filed "within the two-year period which begins on the first day of the
calendar quarter immediately following such calendar quarter."

The implementing regulation adds little to this language:

[W]e will pay a State for a State agency expenditure . . . only if
the State files a claim . . . for that expenditure within 2 years
after the calendar quarter in which the State agency made the
expenditure . . . .

45 C.F.R. 95.7.

The definitions are given in 45 C.F.R. 95.4. The definition of "State
agency" for purposes of expenditures under Title XIX is:

any agency of the State, including the State Medicaid agency, its
fiscal agents, a State health agency, or any other State or local
organization which incurs matchable expenses . . . .

Section 95.13 explains when an expenditure for administration is
considered to have been made.

(d) We consider a State agency's expenditure for administration .
. . under title . . . XIX to have been made in the quarter payment
was made by a State agency to a private agency or individual . . .
.

The Issue

The sole issue in this case is when the expenditure was made under the
regulation. If the expenditure was made when Monroe County paid for the
administrative expenses of the Medicap program, then the claim was
clearly too late under the statute and regulation. If the expenditure
was made when the State paid Monroe County, then it was within the
two-year period and was timely.

Analysis

The State's submission identifies expenses of the Monroe County Medicap
Project for the period April 1, 1986 through June 30, 1986. State Ex.
5. The cover page identifies Exhibit 5 as a "Standard Voucher submitted
to the State by Monroe County for administrative costs of the Medicap
Plan," and states that "[d]isallowed costs were contained in this bill."

The exact dates Medicap paid any of these expenses, or when Monroe
County reimbursed Medicap for them, does not appear in the record, nor
are the dates significant. The date which is significant, according to
HCFA, is July 16, 1986, the date on the State voucher in which Monroe
County certified that all the expenditures listed on the attachment to
the voucher "have been made." The claim was not filed by the State
until March 30, 1989, much more than two years after July 1986.
According to HCFA, the payment by Monroe County was payment for
administrative expenses by a "State agency" to a "private agency or
individual," under the language of the regulation, so the claim was
clearly not timely.

The State's position was that the time limits for filing of the claim
did not run from the date the expenditure was made by the County, but
only from the date the State paid Monroe County for the services
rendered. State brief, p. 5. The State's reasoning to support this
position was that in the particular instance Monroe County was not
acting as a "State agency" when it paid the Medicap bills; the critical
payment by a State agency was when the State paid Monroe County on July
20, 1987. The State contended that the two-year filing period did not
begin to run until that date, so the claim was clearly timely. 3/

The State cited 45 C.F.R. 95.13(d), which states that an expenditure for
administration is made in "the quarter payment was made by a State
agency to a private agency or individual . . . ." State brief, p. 4.
The State also admitted that a local district or county would "under the
standard provisions of the Medicaid program, be considered a 'State
agency' for purposes of the time limit in Section 95.7." Id.

The State went on to argue, however, that in this case Monroe County was
under the Medicap waiver acting "as a provider of Medicaid services."
In this instance, the State contended, the County therefore met the
Medicaid Manual definition of a "provider," namely, an individual
facility or entity "furnishing Title XIX services under a provider
agreement with the Medicaid agency." State Medicaid Manual, section
2560.4. The State then cited New Jersey Dept. of Human Services, DAB
No. 1016 (1989), for the statement that the two-year time limit begins
on the date an expenditure was made, which is "the quarter in which any
State agency made a payment to any individual facility or entity
furnishing Title XIX services under a provider agreement with the
Medicaid agency." State brief, p. 5.

The language in New Jersey and in the Medicaid Manual provision cited by
the State apply to medical services, and not to the costs of
administration. As the Medicaid Manual points out, expenditures for
services are made in the quarter in which any State agency made a
payment to the service provider, but expenditures for administration are
incurred in the quarter payment was made by a State agency to a private
agency or individual. Section 2560.4G.1.

We do not see how Monroe County could possibly be considered a "private
agency or individual," but the State attempted to portray it as such.
Its argument was based on paragraph 16 of the contract between the State
and Monroe County, which reads in part as follows:

The [State] Department and the County agree that the County is an
independent Contractor and not an employee of the Department. The
County agrees to indemnify the Department for any loss the
Department . . . may suffer when such losses result from claims of
any person or organization . . . injured by the negligent acts or
omission of the County, its officers and/or employees or
subcontractors . . . .

State Ex. 2, p. 9.

It is obvious that this provision has to do solely with liability and
indemnification, and not with any relationship between the parties as
far as Medicaid payments are concerned. This appears even more clearly
in the three-party agreement, where the provision that MCDSS and Medicap
are independent contractors and not employees of the State is under the
heading Insurance, Liability, and Indemnification. HCFA Exhibit 2,
Article VIII, p. 38. Of course a county agency is not an employee of
the State Department of Social Services. It is an independent
contractor for purposes of absolving the State from any liability for
negligent acts of the County's officers, employees, or subcontractors.
The language does not make the County a private agency or individual.
It is still a State agency as far as the language of the regulation
pertaining to timely claims is concerned. Payment by it to a private
agency or individual for administrative expenses triggers the two- year
claiming period.

The private agency or individual to which Monroe County made payments
for administrative costs could only be the separate Medicap corporation.
The State attached a Monthly Financial Report to the Standard Voucher
(Ex. 5) which contains the disallowed costs. This lists "Monroe County
MediCap" as the "Contractor," so Monroe County did not itself operate
the Medicap program. The Medicap corporation operated the program and
in turn contracted with HMOs. Monroe County, in turn, paid the
corporation. Monroe County was not a provider of services. Therefore
the two-year claiming limitation began when Monroe County, as a State
agency, paid the corporation which operated the Medicap program.

Conclusion

The claim by the State was not filed within two years after the quarter
in which Monroe County, a State agency, paid the administrative costs of
the Medicap corporation in operating the Medicap program. The
disallowance is therefore sustained in full.

_____________________________ Judith A.
Ballard


_____________________________ Cecilia Sparks
Ford


_____________________________ Alexander G.
Teitz Presiding Board Member

1. The original disallowance totalled $97,703, and included three
separate claims. The State appealed only the one Monroe County item
amounting to $65,423.

2. The usual method of payment to providers for medical services to
Medicaid recipients is on a fee for services basis. Under a capitation
prepayment system, the state (or county, or other state agency) instead
contracts with private organizations, such as HMOs (Health Maintenance
Organizations), to provide medical services for a flat fee, or premium,
per recipient per month. A demonstration project approval is necessary,
since the Medicaid recipients involved must use the particular medical
service organization, rather than having the freedom of choice otherwise
available, as well as for other reasons, such as limiting the project to
part of a state.

3. The State tried to explain why it took so long for the State to
pay Monroe County since the request for reimbursement was submitted to
the State by the County on July 25, 1986, but not paid until July 20,
1987. The State offered the explanation that payment could not be made
to the County until execution of a new contract. State brief, p. 3.
Since we find that the expenditure which began the running of the two
year filing period was the payment by Monroe County, and not by the
State to Monroe County, we are not concerned here with any reason for
the delay in the payment by the State to the County. In fact, the State
apparently paid the County for the prior quarter expenditures even
without the signed contract. See HCFA's Response to the Board's Order
to Develop the Record, p.