DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: New York Department
DATE: April 10, 1990
of Social Services Docket Nos. 88-107, 88-188, 89-43, 89-97, 89-152,
89-186, 89-256, 90-66, and 90-69
Decision No. 1145
DECISION
The New York State Department of Social Services (State) appealed
several determinations by the Health Care Financing Administration
(HCFA) disallowing federal financial participation (FFP) claimed by the
State under Title XIX of the Social Security Act (Medicaid). The
appeals were consolidated by agreement of the parties.
The State's claims were for costs associated with its Welfare Management
System in New York City (WMS/NYC). HCFA disallowed both costs claimed at
the 90 percent FFP rate for development of WMS/NYC, and costs claimed at
the 75 percent rate for operation of WMS/NYC. During Board proceedings
HCFA agreed to an increased ceiling on WMS/NYC developmental costs, and
the State agreed to adjust its claims for developmental costs to the
extent they exceeded this ceiling. HCFA Exhibit (Ex.) R-4; Transcript
(Tr.), p. 472. Thus, the developmental costs are no longer in issue
here. The amount currently in dispute is $10,194,187 (see the Appendix
to this decision). This amount represents the difference between FFP at
the 75 percent enhanced funding rate (available for operational costs of
an approved mechanized claims processing and information retrieval
system), and FFP at 50 percent (the rate generally available for
administrative costs of the Medicaid program).
For the reasons stated below, we uphold HCFA's decisions disallowing
$10,194,187 in FFP, claimed for operation of WMS/NYC.
I. Factual Background
A. HCFA's Disallowance
HCFA disallowed the difference between the State's claim for operational
costs of its Welfare Management System for New York City (WMS/NYC) at
the enhanced rate of 75 percent and at the 50 percent rate generally
available for administrative costs. The basis for the disallowance was
that the State had claimed these costs at the enhanced rate before HCFA
certified the WMS/NYC as operational. HCFA claimed that the State,
therefore, failed to meet the prerequisites for enhanced funding for
operations of a mechanized claims processing and information retrieval
system contained in 42 C.F.R. 433.116. That section states, "FFP is
available at 75 percent of expenditures of operation for a mechanized
claims processing and information retrieval system approved by HCFA . .
. ." HCFA's position was further clarified at a subsequent meeting of
the parties, as follows:
HCFA will match Title XIX's share of WMS/NYC operational costs at
the 50 percent FFP rate until HCFA confirms, through an on-site
review, that the city-wide implemented system meets all approved
APD [Advanced Planning Document] requirements which apply to Title
XIX. Once HCFA certifies the system as operationally meeting all
APD requirements, it will approve FFP at the 75 percent rate, from
the date the system is determined by HCFA to be fully operational
city-wide.
HCFA Ex. R-4.
B. Statutory and Regulatory Background
Under section 1903(a)(3) of the Social Security Act (Act), FFP is
available at the rate of 90 percent for costs attributable to the
design, development, or installation of a mechanized claims processing
and information retrieval system approved by the Secretary as being a
system that is likely to provide more efficient, economical, and
effective administration of a state Medicaid plan. FFP is available at
75 percent for costs attributable to the operation of such a system.
Otherwise, administrative costs of Medicaid are reimbursed at 50 percent
under section 1903(a)(7) of the Act. States are now required to have
such a system, and are subject to reductions in funding if the system is
not initially approved or does not pass a subsequent system performance
review. Section 1903(r) of the Act.
HCFA regulations define a "mechanized claims processing and information
retrieval system" as "a system of hardware and software used to process
Medicaid claims, and to retrieve and produce . . . management
information. . . ." 42 C.F.R. 433.111.
The regulations further provide that:
FFP is available at 90 percent in expenditures for design,
development, and installation or enhancement of a mechanized
system, if the system is approved by the Administrator [of HCFA].
42 C.F.R. 433.112(a) (emphasis added).
Department regulations at 45 C.F.R. 95.605 (1986) 1/ define "operation"
of any automated data processing system, as follows:
"Operation" means the automated processing of data used in the
administration of State plans for . . . Title XIX of the Social
Security Act. Operation includes the use of supplies, software,
hardware, and personnel directly associated with the functioning of
the mechanized system. See . . . 42 C.F.R. 433.112 and 42 C.F.R.
433.113 for specific requirements for Title XIX.
Section 433.116(a) of 42 C.F.R. provides that:
FFP is available at 75 percent of expenditures for operation of a
mechanized claims processing and information retrieval system
approved by HCFA, from the first day of the calendar quarter after
the date the system met the conditions of initial approval, as
established by HCFA. . . .
(Emphasis added.) One of the conditions for approval is that the system
"must have been operating continuously during the period for which FFP
is claimed." 42 C.F.R. 433.116(c).
Throughout the period in dispute, the regulation at 42 C.F.R. 433.110
explicitly made the provisions of Chapter 11 of the State Medicaid
Manual (SMM) applicable in implementing the regulations. 2/ Chapter 11
of the SMM defines "Certification Review" at section 11110 E as follows:
. . . the approval process by which HCFA determines if a State
satisfies the approved APD, and/or if a State's title XIX
mechanized claims processing and information retrieval system is
operational and continuously meets requirements for FFP, as defined
in section 1903(a)(3) of the Act, 42 CFR 433, Subpart C and Part 11
of the SMM.
C. WMS and MMIS
MMIS, or Medicaid Management Information System, is the general system
design for a mechanized claims processing and information retrieval
system recommended by HCFA for implementing the requirements of 42
C.F.R. Part 433, Subpart C. SMM, section 11110 M. The WMS is an
eligibility determination system designed to serve the needs of the
different program divisions within the New York State Department of
Social Services that administer different federally assisted programs.
The WMS was designed to provide individual and aggregate data to local
social service districts to assist the local districts in making
eligibility determinations and basic management decisions. While the
WMS/NYC is used to determine recipient eligibility for all programs
supervised by the State, it is not integrated with or a part of the
State's existing MMIS. Rather, it interfaces with the State's MMIS.
This interface occurs when WMS/NYC provides data for an eligibility file
on all Title XIX eligible recipients in New York City. MMIS then uses
this data in the payment of claims made by providers of medical
services. The point of interface between MMIS and the WMS/NYC is the
MMIS Interim Recipient Eligibility File (IREF). 3/ State law required
implementation of the WMS in all upstate New York social service
districts before implementation in the New York City district. The
system was installed incrementally by region in Upstate New York, and
the last region became operational in March, 1982. HCFA performed
certification reviews of the Upstate portion of the system and approved
it as operational.
In 1981, the State began the process of extending the WMS to New York
City. An advanced planning document (APD), which defined the WMS/NYC,
was submitted to HCFA. Supplemental planning documents were submitted
(in 1984 and 1985) which amended the initial APD. As early as October
18, 1984, HCFA informed the State explicitly that approval of additional
developmental costs for WMS was conditioned on an agreement that
included FFP from HCFA at the 90 percent rate for design, development,
and installation, 50 percent rate for operation of modules at pilot
sites and tiers, and 75 percent rate once city-wide implementation was
complete (meaning all modules and subsystems operating throughout New
York City), subject to HCFA review and approval. State Ex. 3.
II. Discussion
A. The WMS/NYC must be approved by HCFA in order to receive
enhanced funding for operational costs of the system.
The State argued that HCFA does not have the authority to require HCFA's
approval of the WMS/NYC as a pre-condition to enhanced funding for
operational costs, because the WMS/NYC is not by definition a mechanized
claims processing and information retrieval system and, therefore, is
not covered by the MMIS regulations.
1. HCFA has the authority to require a review of WMS/NYC in
accordance with regulations and policy for mechanized
claims processing and information retrieval systems.
The applicable regulations and policy require that HCFA perform a
certification review (which is the approval process by which HCFA
determines if a state satisfies the approved APD) and approve a system's
operations as a condition for the State receiving 75 percent FFP. SMM,
sections 11110 E and 11240-11243; 42 C.F.R. 433.116. However, neither
the regulations at 42 C.F.R. Part 433, Subpart C nor the Manual
provisions in Chapter 11 are limited solely to a MMIS. The regulations
specifically apply to any "mechanized claims processing and information
retrieval system" for which a state seeks enhanced funding. 42 C.F.R.
433.110, 433.111, 433.112, and 433.116. Furthermore, Chapter 11
provides for the situation where a state determines it is desirable to
enhance or improve its MMIS:
B. Other mechanized information retrieval systems under title XIX
. . . are eligible for the higher FFP allowed by section 1903(a)(3)
provided: (1) the State has an approved Advanced Planning Document
for the design, development, and installation of a claims payment
and information retrieval system; (2) the systems are used to
store, retrieve, and produce utilization and management information
required . . . for program administration and audit purposes . . .
(5) all procedures that are established in 42 C.F.R. 433, Subpart C
are followed (i.e., the submission of an Advanced Planning
Document, prior HCFA approval is obtained, etc.)
SMM, section 11225 (emphasis added). Thus, a system like the WMS/NYC,
which produces Medicaid information, is actually specifically covered by
the SMM. 4/ Moreover, as HCFA pointed out, HCFA provided 90 percent
enhanced funding for the costs of developing the WMS/NYC only because
HCFA considered the WMS/NYC to be an enhancement to the MMIS under 42
C.F.R. 433.112(a). Indeed, there is no legal authority at all for
enhanced funding under the Medicaid program for operation of an
automated eligibility system such as WMS/NYC other than 42 C.F.R.
433.116. Consequently, either the WMS/NYC must be an enhancement to the
MMIS, eligible for enhanced funding for its development and operation,
but subject to the review procedures for approval of a system, or, it is
an independent system, not eligible for Medicaid enhanced funding and
not subject to the review procedures. Since the State's position is
that WMS/NYC is eligible for enhanced funding, we conclude that HCFA has
the authority to require review of system operations in accordance with
the provisions of 42 C.F.R. Part 433, Subpart C and Chapter 11 of the
SMM, as a condition for the State claiming the 75 percent rate. 5/
2. HCFA informed the State that enhanced funding was subject
to its review and approval.
While the State argued that HCFA's regulations at 42 C.F.R. 433.116 and
the provisions of the SMM did not apply to the WMS/NYC, the record
demonstrates that the State had ample notice and understood that these
provisions would apply to the WMS/NYC. For example, the State's minutes
of a November 8, 1984 meeting with Department officials indicated that
HCFA discussed with the State the application of various sections of the
SMM regarding transitional funding of a system at 50 percent for
operational costs until the system is fully implemented and approved by
HCFA as operational. State Ex. 2. Consistent with the regulatory
provisions that FFP is available at 75 percent for operation of a system
approved by HCFA, HCFA also specifically informed the State that HCFA
reserved the right to review and approve the WMS/NYC after city-wide
implementation was complete. 6/ Id; 42 C.F.R. 433.116; see also Tr.,
pp. 294 and 299. The State, therefore, was informed that HCFA
considered the WMS/NYC, as an enhancement to the MMIS, to be controlled
by the statute, regulations, and policies applicable to mechanized
claims processing and information retrieval systems.
3. Only 50 percent funding is available for Medicaid
administrative costs unless the State shows that the
special requirements for a higher rate are met.
The SMM provides that HCFA will provide only 50 percent FFP for
operation of a system which has not yet been reviewed and approved by
HCFA as fully operational. SMM, section 11255. We reject the State's
argument that this policy is unauthorized.
Because enhanced FFP is special, there are distinct requirements that
must be met to receive FFP at rates above the 50 percent general
administrative rate. In the case of enhanced FFP for operational costs
of a mechanized system, the special requirement is that the system must
be approved by HCFA. As the Board stated in Missouri Dept. of Social
Services, DAB No. 395 (1983):
[W]henever a State is claiming funding under the various special
authorizations in the Act of funding beyond the regular 50% rate,
the State has the burden of showing how it meets the special
qualifications. p. 6.
As we discuss below, the State did not meet that burden here.
Moreover, the Board said in Alabama Medicaid Authority, DAB No. 880
(1987):
The Secretary has the authority to demand more than routine
processing and payment of claims when the states are paid more than
the ordinary 50% FFP for administrative costs. p. 15
We agree with HCFA that it was not the intent of section 1903(a)(3) of
the Act, or 42 C.F.R. 433.116, to give the states a blank check to
enhance existing MMIS systems and receive enhanced FFP for the
operational cost of the enhancements without HCFA first having an
opportunity to ensure that the system meets the requirements of the
approved APD and is, in fact, fully operating on a continuous basis.
HCFA's policy that only 50 percent funding is available for operation of
a system not yet reviewed and approved by HCFA is consistent with
congressional intent to provide enhanced funding only for systems the
Secretary determines are likely to provide more efficient, economical,
and effective administration of the program.
We also note that the transitional funding rule has been HCFA policy
from as early as 1974. This policy was originally enunciated in the
Medical Assistance Manual, PRG-31, dated June 10, 1974, section
7-71-50.18. When the Medical Assistance Manual was replaced with the
SMM in 1981, this provision was superseded by section 11255, although no
substantive changes in language or content were made. This section has
remained unchanged through the period of the present dispute.
Consequently, HCFA policy from 1974 to the present has been that there
will be a period of transitional funding for operations of a system at
50 percent from the time 90 percent funding ceases and until the
complete system is fully operational and approved by HCFA. The State
cannot now reasonably ignore this policy or argue that this policy is a
recent invention of HCFA's.
B. HCFA's authority is not limited to initial approval of the MMIS
or an annual System Performance Review of the MMIS.
The State contended that HCFA authority under the Act is limited to
initial approval of a MMIS, and, thereafter, an annual System
Performance Review (SPR) of the approved MMIS. The State argued that
since its MMIS has already met the necessary statutory and regulatory
standards for initial approval and has passed the annual SPRs, no
further approval is required for the WMS/NYC.
The procedures for initial approval and SPRs, however, are related to
section 1903(r) of the Act. Essentially, HCFA has interpreted that
section as requiring that states have systems to fulfill certain basic
claims processing and management information retrieval functions (for
which the MMIS acts as a model) and that states meet certain performance
standards in operating those systems.
Basically, what the State wants to do is to carry over the approval of
its MMIS to the WMS/NYC, a completely new system performing different
functions. The State's MMIS was certified and approved November 1,
1977, well before the APD for the WMS/NYC was even submitted in 1981,
however. It is inconceivable that HCFA's initial review and approval of
the MMIS could have encompassed a review of a system that was not yet in
existence.
Furthermore, as we discussed above, HCFA's policy has consistently been
that if a State wants enhanced FFP under section 1903(a) of the Act for
an improvement or enhancement to its MMIS, it must follow all the
procedures in 42 C.F.R. Part 433, Subpart C, including the requirement
for system approval. SMM, section 11225. While the State complained
that review of the operation of this complex and expensive system would
be unduly burdensome, the State is seeking reimbursement of millions of
dollars for the operation of this very system. 7/ We cannot accept the
State's contention that HCFA should reimburse it millions for
development and operation of this new system, but should be precluded
from reviewing this very same system simply because HCFA has already
approved the MMIS.
Contrary to what the State argued, its position is not supported by the
legislative history of section 1903(a)(3)(B) of the Act. See State
post-hearing reply, p. 6. Rather, that history is consistent with
HCFA's position that no 75 percent funding is available until a system
meeting certain basic requirements (i.e., an MMIS or the equivalent) is
operating, and that 75 percent funding is available for operation of a
separate system providing an enhancement to the MMIS only if that system
is approved by HCFA.
We also reject the State's argument that once the MMIS is initially
approved, HCFA is then limited to the annual SPR. The State contended
that since the SPR is supposed to include a review of the data supplied
to MMIS, the SPRs of the State's MMIS in 1987 and 1988 were more than
adequate to determine that the WMS/NYC is operational. The State pointed
out that if the State had failed to pass the SPR, it would be subject to
a 10 percent reduction of FFP, not a disallowance of 25 percent FFP. 8/
The annual SPRs are reviews performed by HCFA of the basic claims
processing and information retrieval functions performed by the State's
MMIS; the SPRs do not constitute a review by HCFA of the WMS/NYC for the
purpose of approving the system as operational. The testimony at the
hearing indicated that the SPR is an MMIS review and not a review of the
WMS/NYC. Tr., pp. 331, 334-335, 433-434. While SPR samples of MMIS
data may have included data originating from the WMS/NYC, the SPRs did
not evaluate the WMS/NYC as a whole, nor show that the entire system was
operational. Tr., pp. 327-333. Also, the SPRs did not evaluate, nor
were they intended to evaluate, whether the WMS/NYC operated as its APD
intended, as required for a certification review for approval of a
system. Tr., p. 333; SMM, section 11110 E. The State's MMIS met minimum
SPR performance standards prior to any implementation of WMS/NYC;
continued meeting of those standards could not demonstrate that WMS/NYC
was providing the enhanced performance it was supposed to. Thus, the
annual SPRs of the State's MMIS did not constitute a review of the
WMS/NYC.
Finally, we reject the State's argument that approval outside the SPRs
is not needed because the APDs and SPDs were approved. HCFA policy has
always differentiated between advance approval of the plans for a system
and approval of the operation of the system itself: both are required.
We therefore conclude that neither the initial approval of the MMIS nor
the annual SPRs of the MMIS constituted an operational review of the
WMS/NYC.
C. HCFA has not yet performed an operational review of the
WMS/NYC.
As we indicated above, before the State may receive FFP at the enhanced
rate for the operation of the WMS/NYC, HCFA must review and approve the
system. Moreover, approval of the MMIS and annual SPRs of the MMIS did
not constitute a review of the operation of the WMS/NYC.
The State contended in the alternative, however, that a review performed
in 1986 by an outside consultant for the Department, called the Maximus
review, reviewed the technical aspects of the WMS/NYC and was sufficient
as a review of the operation of the system. The State also contended
that the Maximus report was thorough and was used as the basis for
continued developmental funding of the system.
The purpose of the Maximus review was to provide information on the
feasibility and cost effectiveness of the WMS/NYC, so that the federal
agencies involved could determine whether to provide the funding for
city- wide implementation. Tr., pp. 121, 385, 402, 408; State Ex. 6, p.
1. (This funding was in question in part because of the delays and cost
overruns during the developmental stage.) The State provided no
evidence that HCFA intended the Maximus review to be a certification
review to determine whether the WMS/NYC was fully operational. The fact
that HCFA decided to continue developmental funding of the WMS/NYC on
the basis of the Maximus report is not evidence that WMS/NYC was
operating successfully.
The Maximus report did not reach any conclusions as to whether WMS/NYC
was operational. The report states:
MAXIMUS has avoided assiduously the development of any
recommendations from the study. We were contracted to "get the
facts" and allow the OPDIV's [the Operating Divisions of the
Department] to develop their own recommendations.
State Ex. 6, p. 3.
We also find that the State could not reasonably consider the Maximus
report to be a review of the operation of the WMS/NYC because at the
time of the review in 1986 the system had not been implemented citywide.
Tr., pp. 123- 127; State Ex. 6, pp. 4 and I-83. As discussed above,
HCFA consistently told the State it would not review the system until
after city-wide implementation.
The State acknowledged that HCFA's position of requiring city-wide
implementation as a condition for review had not changed even after HCFA
had received the Maximus review. State Post-Hearing Brief, p. 13. The
State contended that HCFA's failure to amend its position even after the
Maximus report shows that HCFA was unreasonable; we disagree. We find,
rather, that this shows HCFA has been consistent throughout and has
indicated to the State since the beginning of this project that nothing
less than full implementation city- wide would be acceptable.
The State argued that it is unreasonable for HCFA to require the system
to be fully implemented at every site before it will be considered
operational since not all the sites are for medical assistance. The
State claimed that review of the Income Maintenance and Medical
Assistance pilot sites which were operational at the time of the Maximus
review should be sufficient. However, as a HCFA expert in systems
analysis testified at the hearing, a review of one pilot site may be
sufficient to test the software, but it certainly cannot test what will
happen when the system is running at every site. Tr., pp. 145-146.
HCFA provided convincing evidence that until the entire system was fully
implemented at every site, HCFA could not determine whether, for
example, the hardware capacity and the communications network capacity
were sufficient, nor whether there are differences between the sites
which might need adjustment when the entire system is operational. See
Tr., pp. 43, 46, 140-141.
Contrary to the State's assertions, the evidence does not demonstrate
that review of a pilot site is appropriate for determining whether the
system is operational. Testimony of State witnesses shows that they were
confusing the question of when the software operation could be tested
with the question of operation of the system. See, e.g., Tr., pp.
386-387. For FFP purposes, however, the system means both the hardware
and the software. 42 C.F.R. 433.111. Moreover, proper installation
requires proper training of the users of the system. In our view, HCFA
was reasonable in delaying its certification review until it could
ensure that the hardware and software were properly installed in each
site and that the full benefits of the system (as proposed in the APD)
could be realized. 9/
The record also shows that city-wide implementation was necessary in
order to accomplish the requirements of the APD. The APD indicated that
the most important aspect of the WMS/NYC would be the development of an
integrated data base which would replace the multiple computerized and
manual files that existed. HCFA, Ex. R-20, p. I-10; State Brief, pp.
11-12, n. 6. The State denied that the APD required a direct,
electronic interface between the WMS/NYC and the MMIS, as HCFA alleged.
Even if the APD did not provide for an electronic interface, however, it
is clear from the record that the full benefit of the WMS/NYC for
Medicaid could not be realized until the system was implemented
city-wide, because until then the IREF would need to continue to perform
translation and edit functions on Medicaid eligibility data that was not
computer compatible with the MMIS. State Brief, pp. 11-12, n. 6; Tr.,
pp. 307-309.
Consequently, we conclude that HCFA was reasonable in not treating the
Maximus review as an operational review; the Maximus review was
conducted for a different purpose and the system was not fully
implemented city-wide at the time of that review. 10/ D. HCFA's
actions in reviewing the WMS/NYC and Upstate WMS were consistent with
HCFA policy and reasonable.
The State presented testimony at the hearing intended to show that HCFA
treated the review and approval of the Upstate WMS differently from what
it proposed for the WMS/NYC. The State argued that WMS/NYC should be
treated the same as the Upstate WMS. The State alleged that, for the
Upstate WMS, federal funding shifted directly from the 90 percent
developmental rate to the 75 percent operational rate without any period
of transitional funding at the 50 percent rate, and the State expected
that funding of WMS/NYC would be the same.
As discussed above, HCFA's position has always been for mechanized
claims processing systems that states would receive FFP at the 50
percent rate for operation of its MMIS from the point that 90 percent
FFP ceases and until the complete system is fully operational.
Reimbursement at the 75 percent rate is available prospectively from the
date the system is approved and retroactively to the date that the
complete approved system is determined by HCFA to be fully operational.
SMM, section 11255. In Upstate New York, HCFA agreed to set different
operational dates for different counties (reviewed by region).
Apparently, those dates corresponded to the dates set in the State's
cost allocation plan for a shift from the developmental stage of the
Upstate system to the operational stage (which was contingent on when a
county was using WMS to issue Medicaid I.D. cards).
During a meeting in 1984, the parties worked out a detailed
understanding of the definition of the shift between development cost
stage and operation cost stage for WMS/NYC for cost allocation purposes.
A formula was established to determine how and when funding would shift
from the development stage to the operation stage, based on installation
at various sites of one or more system "modules." State Ex. 2.
However, consistent with the transitional funding policy, HCFA made it
clear that at such time as costs changed from development to operation
status, HCFA would provide FFP at 50 percent for these operational costs
until the system was fully implemented city-wide. State Ex. 2., Tr.,
pp. 175 and 294. 11/ Thus, the State had notice that the shift of costs
from the developmental stage for parts of WMS/NYC (when 90 percent
funding would no longer be available) to the operational stage (for
system modules which had been installed) did not automatically mean that
75 percent funding would be available.
The State argued that HCFA was unreasonable to treat the review and
approval of the Upstate WMS differently from the WMS/NYC. The State
suggested that since Upstate WMS was certified in increments by region,
then WMS/NYC could be approved in increments by site. There are several
flaws to the State's reasoning:
o The State did not dispute that it had a prior agreement with
HCFA to review the MMIS and the Upstate WMS incrementally by
region. Tr., pp. 24-27. HCFA did not agree to review WMS/NYC
by site.
o The record indicates that while HCFA understood that the State
was committed to a phased approach for implementation of the
WMS/NYC, HCFA informed the State that it would not accept a
phased evaluation of the system; it would accept only a full
evaluation and reserved the right to review and approve the
system after city-wide implementation. State Exs. 2 and 3.
o The record shows that the WMS/NYC project began in 1981 and that
it required modifications and enhancements different from the
Upstate WMS because of the "uniqueness of the City's size,
caseload, structure and labor unions." HCFA Hearing Ex. R-20,
p. I-6.
o Nothing in the applicable regulations and policy committed HCFA
to incremental review. HCFA's expert testified about his
opinion that, after the Upstate review, an incremental approach
was unsatisfactory. Tr., pp. 26-27, 113. HCFA should not be
required to perform an incremental review where it has found
such a review less than satisfactory.
o As HCFA indicated, states have varying needs, and each
eligibility system is unique, and HCFA requires flexibility in
reviewing the systems to insure that the objectives of the APD
have been met.
o The phased review of Upstate WMS was done as a matter of
convenience since both parties had already agreed to phased
implementation of the MMIS and both the MMIS and the Upstate WMS
reviews could be done simultaneously. WMS/NYC, on the other
hand, was implemented well after the MMIS was certified and
approved.
Thus, we conclude that HCFA acted reasonably in its review of the
Upstate WMS and the WMS/NYC. There is no indication that HCFA's actions
were arbitrary or capricious; rather, they were in full accord with
applicable regulation and policy. 12/
E. Certain issues raised by the State are not now before the
Board.
Before the State may receive FFP at the 75 percent rate for operation of
its system, the system must first be reviewed and approved as
operational. From our discussion above, the State's WMS/NYC has not
been reviewed or approved as operational.
At the hearing, it became apparent that State officials were aware that
HCFA intended to wait until city-wide implementation to review the
WMS/NYC. See, e.g., Tr., pp. 292-294. The State asserted, however,
that HCFA should provide 75 percent funding retroactive to the dates the
funding shifted from 90 percent funding. The State also expressed
concern about what standards HCFA would use in reviewing the WMS/NYC.
The regulations at 42 C.F.R. 433.116 do provide for FFP retroactive to
the first day of the calendar quarter after the date the system met the
conditions for initial approval. HCFA did not deny this. 13/ However,
we do not need to decide the date or dates to which FFP will be
retroactive since HCFA has made no decision regarding when the system
met the conditions for initial approval. Thus, we conclude that the
issue of whether the State can receive FFP at the 75 percent rate
retroactive to any particular date is not properly before the Board.
We also do not need to address the State's concerns that somehow HCFA
will not apply proper standards to the WMS/NYC. HCFA said it would
review the system to determine whether the system was performing the
Medicaid functions and meeting the objectives as stated in the APD and
SPDs. See, e.g., Tr., p. 52. We have no reason to believe that this
review will not be appropriate.
F. The settlement reached in Board Docket Nos. 89-60 and 89-192 is
not relevant here.
The State argued that a settlement reached in two appeals from the
Commonwealth of Pennsylvania was relevant to this dispute. We disagree.
Contrary to what the State argued, the stipulation entered into in those
appeals does not reveal that HCFA has been inconsistent in applying its
policies. Rather, HCFA is taking the same position with respect to
Pennsylvania's system as it is with the WMS/NYC: Pennsylvania will not
receive 75 percent funding until after HCFA's review.
Although the settlement agreement indicates that part of Pennsylvania's
system might be considered fully operational before the entire system,
that part was a replacement for Pennsylvania's MMIS recipient subsystem.
New York admitted that WMS/NYC does not replace the MMIS recipient
subsystem; the enhancement to the MMIS by the WMS/NYC is that the MMIS
receives better eligibility data. Thus, while we do not find the
stipulation of settlement in Pennsylvania relevant to the dispute here,
it is not inconsistent with prevailing HCFA policy.
III. Conclusion
Based on the foregoing, we find that the State improperly claimed 75
percent FFP for the operation of its WMS/NYC because HCFA has not yet
reviewed the system and approved it as operational. Therefore, we
uphold the disallowances of operational costs of the WMS/NYC. By
agreement of the parties, the State should also adjust its claims for
developmental costs in excess of the current ceiling if the State has
not already done so.
_____________________________ Cecilia Sparks Ford
_____________________________ Norval D. (John)
Settle
_____________________________ Judith A. Ballard
Presiding Board Member
APPENDIX
The following is a listing, by docket number, of the amounts agreed upon
by the parties to be in dispute before the Board for operational costs
of the WMS/NYC, and the quarter in which the costs were claimed:
Docket No. Quarter Ended Operational Costs
88-107 12/31/87 $4,336,134
88-188 3/31/88 $894,365
89-43 6/30/88 $756,667
89-97 9/30/88 $904,038
89-152 12/31/88 $769,026
89-186 3/31/89 $682,053
89-256 6/30/89 $1,160,115
90-66 9/30/89 $691,789
90-69 4/1/87 - 9/30/88*/
*/ Involves developmental costs only
1. Some of the definitions contained in this regulation were codified
prior to 1986 in 42 C.F.R. 433.111.
2. The State argued that Transmittal No. 88-14 to the SMM, issued
December, 1988, regarding initial approval of integrated eligibility
systems, was not applicable to this dispute. The transmittal merely
sets out procedures for review of eligibility systems, but, in any
event, HCFA did not rely on the transmittal here.
3. The IREF is a MMIS computer file within the recipient subsystem.
It uses information supplied through a tape. MMIS started to operate
using the existing New York City computer systems as its source for
eligibility data. Medicaid eligible recipient data was contained in a
file called MEF. The IREF translated the tapes from MEF so that they
were compatible with the MMIS computer. The State explained that, as
WMS/NYC was developed, its database grew, resulting in a decrease in the
MEF database serving the MMIS. The State said that when the WMS/NYC is
fully implemented, the MEF will cease to function and the translation
and edit functions of the IREF will cease. State Brief, pp. 11-12, n.
6.
4. Some of the standards for a certification review set out in the SMM
fit a basic system like the MMIS but do not readily fit an eligibility
determination system like WMS. HCFA's point, however, is that the
procedures apply and that HCFA must review and approve the system as
meeting APD requirements and as being in continuous operation before 75
percent funding is available.
5. The regulations and SMM were amended several times while the
WMS/NYC was being developed. At all times, however, the provisions have
made it clear that the 75 percent rate would be available for operation
of a system only if HCFA approved that system and it was in continuous
operation.
6. The record indicates numerous illustrations of the parties'
understanding that HCFA would fund the WMS/NYC for operational costs at
50 percent until city-wide implementation was complete. Once city-wide
implementation was complete, then HCFA's share of the operational costs
would be at 75 percent, subject to HCFA's review and approval, from the
first quarter after the date HCFA determines the system became
operational. State Exs. 2, 3, 4, and 5; HCFA Ex. R-4.
7. The State's complaint seemed to arise from its misconception that
HCFA intended to review all aspects of the WMS/NYC. HCFA clarified
during Board proceedings, however, that it intended to review the
Medicaid functions of the system.
8. Under section 1903(r) of the Act, after HCFA initially approves a
MMIS, HCFA performs an annual SPR to determine if the approved MMIS
continues to operate properly. Failure of the State to meet the
conditions for reapproval may result in reduction of FFP to 70 percent
and no less than 50 percent, but HCFA cannot reduce FFP more than 10
percent in any four quarter period.
9. One of the benefits of WMS/NYC was to be the provision of better
management information to "local social services districts." New York
City is such a district.
10. The State also presented testimony from a State official
responsible for cost allocation matters, designed to show that HCFA had
approved 75 percent funding for WMS/NYC by approving a cost allocation
plan (CAP) which allegedly allocated WMS/NYC operational costs to an
account which was an MMIS account claimed at 75 percent. The CAP
document, however, shows only that HCFA approved a method of allocating
WMS/NYC operational costs among benefiting programs; the approval
document said that the "basis of allocation, i.e., duplicated recipient
count, was reviewed and approved by applicable Federal Officers
including [HCFA]" and that the revision approved "[o]nly cost allocation
procedures . . . and not the [FFP] factors noted in the plan." State
Ex. 22, Att., p. 2. Moreover, this CAP was approved June 28, 1989,
while this case was pending; the State could not reasonably consider
HCFA's approval of the recipient count methodology as overriding HCFA's
position in this case.
11. The State argued that a letter dated June 1, 1984 from the
Assistant Secretary for Management Analysis and Systems indicates that
HHS considered that WMS/NYC would be considered fully operational based
on pilot site review. State Post-Hearing Brief, p. 13; State Ex. 18.
However, this letter simply reiterates the formula for the shift from
development to operational stages as described by the minutes of the
parties' October, 1984 meeting (State Exhibit 2) and, again, restates
that "HHS will consider funding the cost of implementing the WMS
city-wide when the pilot sites are fully operational, and after New York
City's evaluation of them and our independent evaluation. . . ."
Nothing in this letter commits HCFA to providing enhanced funding for
operation of the pilot sites.
12. We also note that the position of the State's main witness that he
"expected" that the State would get 75 percent funding based on the
same
"event-driven shift" in New York City as in Upstate New York was based
on his expectation that HCFA's position was still open to negotiation,
rather than on any lack of notice that HCFA's articulated position
required city-wide implementation. Tr., pp. 292-294. Moreover, the
event which marked the shift in Upstate New York was based on
county-wide implementation, not site installation. Tr., pp. 274-275.
Finally, the cost shift New York agreed to for allocation of WMS/NYC
costs was by installation of system modules at each site, yet even the
State experts agreed that the first site was not fully operational until
all three modules had been installed at that site. Tr., pp. 232-233;
386-387.
13. In any event, HCFA had previously clarified its position that once
HCFA certified the system as operationally meeting all the APD
requirements, HCFA would approve 75 percent FFP from the first day of
the quarter after the date the system is determined by HCFA to be
operational city-wide. HCFA indicated that FFP then could be paid on a
retroactive basis to a date preceding the date the State gave HCFA
notice that its system was operational. Summary of telephone conference
call, dated March 1,