Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Nebraska Department of Social Services
DATE: July 11, 1994
Docket No. A-93-97
Audit Control No. A-07-92-00526
Decision No. 1483
DECISION
The Nebraska Department of Social Services (Nebraska) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $967,670 for the period October 1, 1988 through September
30, 1991. 1/ The disallowed amount represented the difference between
the 75% enhanced funding rate available for administrative costs
"attributable to the operation" of Nebraska's Medicaid Management
Information System (MMIS) under title XIX of the Social Security Act
(Act), and the 50% rate generally available for Medicaid administrative
costs. HCFA based its determination on an audit performed by the Office
of Inspector General, Office of Audit Services (auditors). In addition
to the Board's regular briefing process (see 45 C.F.R. 16.9), we
issued two Orders to Develop the Record and held a telephone conference
to ensure that we understood both parties' arguments and exhibits in
this complicated matter.
In summary, we determine based on our review of this record that: (1)
HCFA's disallowance of expenditures for salaries and related costs for
certain employees should be upheld in part and reversed in part; (2)
HCFA's disallowance of expenditures for data transmission costs billed
by the Division of Communications should be upheld; (3) HCFA's
disallowance of expenditures for data processing direct and shared
billings should be reversed; (4) HCFA's disallowance of expenditures for
data processing support and information systems direct and indirect
costs should be upheld; and (5) costs allocated to Nebraska's Survey and
Utilization Review System cost center should, by agreement of the
parties, be remanded to HCFA for recalculation as discussed below.
Background
In 1972, Congress amended title XIX to include enhanced rates of
reimbursement for administrative costs for the operation of an MMIS.
Section 1903(a)(3)(B) of the Act provides for reimbursement of --
75 per centum of so much of the sums expended during such quarter
as are attributable to the operation of [MMIS] systems . . . .
Section 1903(a)(7) of the Act provides for reimbursement of --
an amount equal to 50 per centum of the remainder of the amounts
expended . . . as found necessary by the Secretary for the proper
and efficient operation of the State plan.
Section 433.15 of 42 C.F.R. (1988) implements the various federal
financial participation (FFP) rates for expenditures for administration.
Section 433.15(b)(4) provides simply:
Operation of mechanized claims processing and information retrieval
systems: 75 percent . . . .
In the subpart of the regulations implementing the MMIS requirements,
MMIS is defined as --
a system of software and hardware used to process Medicaid claims,
and to retrieve and produce utilization and management information
about services that is required by the Medicaid agency or Federal
Government for administrative and audit purposes.
42 C.F.R. 433.111(b). "Operation" is defined as --
the automated processing of data used in the administration of
State plans for Title . . . XIX of the [Act]. Operation includes
the use of supplies, software, hardware, and personnel directly
associated with the functioning of the mechanized system.
42 C.F.R. 433.111(a) (which incorporates by reference this term as
defined at 45 C.F.R. 95.605). Section 432.50 of 42 C.F.R. sets the FFP
rates for Medicaid staffing and training costs. That regulation
provides in pertinent part:
(a) . . . FFP is available in expenditures for salary or other
compensation, fringe benefits, travel, per diem, and training at
rates determined on the basis of the individual's position . . . .
* * *
(b)(2) For personnel engaged directly in the operation of
mechanized claims processing and information retrieval systems, the
rate is 75 percent.
* * *
(6) For all other staff . . . the rate is 50 percent.
(c) Application of rates. (1) FFP is prorated for staff time that
is split among functions reimbursed at different rates.
(2) Rates of FFP in excess of 50 percent apply only to those
portions of the individual's working time that are spent carrying
out duties in the specified areas for which the higher rate is
authorized.
In New Jersey Dept. of Human Services, DAB No. 648 (1985), affirmed in
Reconsideration Ruling dated November 22, 1985, the Board found that
HCFA had a long-standing policy that 75% FFP was available for all costs
of MMIS operations, whether charged directly or indirectly including
overhead costs such as the central support services costs described in
Office of Management and Budget (OMB) Circular A-87. 2/ The Board
further found that HCFA had not clearly established a policy that denied
the enhanced funding rate for certain overhead costs, based on the
concept that these costs were too remote.
In response to the Board's decision in DAB No. 648, HCFA issued Revision
8 to Part 11 (Revision 8) of the State Medicaid Manual (SMM), which
became effective on July 31, 1986. The general principle expressed in
Part 11 is that enhanced FFP should be available for manual intervention
which is necessary to make the computer system perform its automated
functions properly, but not for other clerical or manual processing
activities which would be done by a state even in the absence of an
MMIS. See SMM sections 11275.27 and 11275.32.
Revision 8 also amended section 11275.30 of the SMM to provide:
Only the direct overhead costs resulting from the operation or
development of an MMIS are eligible for the enhanced FFP rates.
Such costs are usually the non-personnel costs such as electricity,
rent, shared facilities, caused by the operation of the MMIS.
Overhead costs not directly resulting from the MMIS cost center are
reimbursed at the 50-percent FFP rate. Such costs are the
statewide overhead (A-87) costs and the costs associated with the
State agency's overhead functions (personnel staff, budget staff,
legal staff, commissioner's office, etc.) assigned to the MMIS cost
center through the State agency's cost allocation plan. This
applies also with respect to a fiscal agent's costs.
Two Board decisions discussing Revision 8 are of particular relevance
here: Oklahoma Dept. of Human Services, DAB No. 1188 (1990), and New
York State Dept. of Social Services, DAB No. 1205 (1990).
In DAB No. 1188, the Board found that section 11275.30 of the July 1986
version of the SMM did not preclude enhanced reimbursement for personnel
costs of an indirect nature incurred by the unit operating the MMIS and
which are not statewide or department-wide central services costs
allocated through a cost allocation plan.
In DAB No. 1205, the Board ruled on personal services and travel costs
for certain overhead costs incurred either at the divisional or
departmental level in the department which administered the Medicaid
program, but not in the division that operated the MMIS. The Board
described the two divisions in question as "peer components of the
department." The appellant there contended that 42 C.F.R. section
432.50 applied to make 75% FFP available for the disputed personnel and
travel costs and that some of the disputed costs were eligible for
enhanced FFP because management and administration staff within the
Medicaid division supported all of the program areas for which the
division was responsible, including the division that administered the
MMIS. The Board ruled against the appellant, finding that enhanced FFP
is not available for activities that support all departmental or
divisional activities. In addition, the Board found that one way of
determining whether an activity qualified as a direct operational
activity of an MMIS, thereby being eligible for enhanced FFP, was to
analyze whether the activity would be performed in the absence of
the MMIS. Finally, the Board determined that the costs in question were
either department-wide costs or analogous to department-wide overhead
costs, and that the cost allocation plan descriptions for the divisional
allocation account at issue distributed costs of overall program
management of a division not directly responsible for MMIS operations.
Analysis
I. Salaries and related costs ($150,011)
Initially, HCFA determined that some or all of Nebraska's salaries and
related costs for each of 27 positions in seven cost centers were
improperly claimed at the enhanced FFP rate. As a result of information
provided by Nebraska, only five positions remain in dispute. Each of
these positions was charged to the Survey and Utilization Review System
(SURS) cost center. With regard to these five positions, Nebraska
provided four position descriptions and one performance review. HCFA
reviewed these documents and concluded that a certain percentage of the
salaries and related costs paid for three individuals in these positions
qualified for the enhanced FFP rate. However, Nebraska argued that the
percentages allowed by HCFA were too low, and that it was entitled to be
paid the higher percentages identified in the audit report, if not still
higher percentages which Nebraska had calculated for purposes of this
appeal.
HCFA, the auditors and Nebraska maintained that the employees spent the
following percentages of their time in activities that were eligible to
receive the enhanced FFP rate:
Employee Auditors HCFA Nebraska
Employee T. 15 3.19 100 Employee C. 13
3.19 85 Employee F. 25 0 91 Employee B.
10 0 81 Employee L. 5 3.19 9
Thus, HCFA determined that three of the five employees each spent 3.19%
of their time, or two days per quarter, on activities eligible for
enhanced funding, and that the remaining two employees spent no time on
such activities. The auditors had found that some percentage of all five
employees' time was spent on eligible activities. Nebraska's percentages
were all higher than those found by the auditors. The types of
activities performed by the employees in these positions, as described
by the auditors, are undisputed by the parties. The only dispute is the
percentage of time dedicated to activities eligible for reimbursement at
an enhanced FFP rate. See Nebraska's appeal file, Ex. 24 at 3.
The auditors determined that the five positions in the SURS unit
involved first-line review of SURS reports, eligible for the enhanced
FFP rate, and follow-up investigations, eligible only for the
administrative FFP rate. However, the auditors found that Nebraska did
not develop or maintain documentation for allocating efforts between
those eligible and ineligible for the enhanced FFP rate. The auditors
therefore reviewed the employees' position descriptions and talked to
the employees to determine the activities performed by them to arrive at
the percentages of work eligible for reimbursement at the enhanced FFP
rate.
HCFA maintained that it determined different percentage allocations than
the auditors based on an independent review of the available
documentation and personal knowledge of a HCFA employee of the work
performed by the individuals during the relevant time period. Tape of
Board telephone conference, March 25, 1994. Further, HCFA noted that in
other instances, it disallowed lower amounts than those recommended by
the auditors. 3/ Additionally, HCFA submitted an exhibit and maintained
that the exhibit explained the reasons for its determination. See Res.
Ex. 2. The exhibit consists of one page which lists the names of the
five employees, the SMM and C.F.R. references, the duties allowable at
75% FFP (identified by somewhat cryptic phrases), and the allowable
amount based on the percentages chosen by HCFA (i.e., two days per
quarter for three employees).
Nebraska argued that the best indicator of SURS staff time eligible for
enhanced FFP is a time study that it conducted in February 1993. 4/ In
the alternative, Nebraska asserted that the percentage of time found by
the auditors should be used.
Based on the record before us, we find that the percentage of time
recommended by the auditors for reimbursement at the enhanced FFP rate
should govern here. The auditors took an on-site, first-hand look at
the situation. Their review occurred closer in time to the relevant
time period than either HCFA's or Nebraska's. Further, the auditors
talked to the employees to determine the percentages of work eligible
for enhanced funding and noted the basis for their percentage
determinations in their workpapers. See Nebraska's appeal file, Ex. 24
at 3.
In contrast, HCFA failed to provide a reasonable basis for the lower
percentages it determined to be eligible for the enhanced FFP rate for
the employees in question. HCFA's position that it based its percentages
on "an independent review of the position descriptions and personal
knowledge of a HCFA employee of the work performed by the individuals"
does not adequately explain the basis for its determination. Unlike the
auditors, HCFA did not identify which of several duties in the
performance review and job descriptions it considered sufficiently
MMIS-related to merit enhanced funding. For example, for employees T.
and C. HCFA made a conclusory statement that each employee spent "2 days
[per quarter] on SURS related activities," without identifying which of
several SURS-related activities (totalling more than two days) listed in
the position description were the ones HCFA was crediting as eligible
for enhanced funding. As for employee L., even after Nebraska pointed
out that the performance review considered by HCFA had no days-per-
quarter data in it, HCFA did not explain how it arrived at its
conclusion that she spent two days per quarter on eligible activities.
Thus, HCFA's statements do not provide any basis for disregarding the
auditors' findings. Even if HCFA disallowed less than amounts
recommended by the auditors in other instances, that does not establish
that the percentages applied by HCFA here are correct. Finally, we
reject HCFA's assertion that the exhibit it produced in this proceeding
explained the reasons for its determination. The exhibit merely shows
HCFA's calculation of the amount HCFA allowed, based on two days per
quarter for the three employees selected by HCFA as eligible for
enhanced funding. See Res. Ex. 2.
Similarly, we cannot accept Nebraska's position as reasonable. The time
study was done in February 1993, more than four years after the
beginning of the period covered by the disallowance. Nebraska did not
explain how this time study could properly be applied to determine how
the workers in the positions in question allocated their time in an
earlier period. The Board has long held that, while sampling in its
purest form envisions samples from the same period in question, common
sense would dictate that samples from another period may be used if it
can be established that no substantial change has occurred so as to
invalidate the procedure. See Ohio Dept. of Human Services, DAB No. 900
(1987). The Board has also held that the party asserting the use of
data for unsampled periods has the burden of showing that circumstances
relating to the sampled and unsampled periods are such that the data can
be used for the unsampled period. See Missouri Dept. of Social
Services, DAB No. 1021 (1989). Nebraska failed to provide any evidence
to meet this burden here, however.
Further, the time study advanced here is based strictly on Nebraska's
theories of what is MMIS-related work. The time study does not clearly
identify the types of activities that Nebraska claims are eligible for
enhanced funding. Instead, all work included in the time study is
simply listed under a "SURS matrix project" category, without any
additional explanation. See Nebraska's appeal file, Ex. 31.
Accordingly, even if the time study correctly reflects the allocation of
the individuals' time during the period in question here, we cannot
determine whether the time was spent on activities eligible for enhanced
funding.
Based on the foregoing, we reverse HCFA's disallowance for salaries and
related costs to the extent that it exceeds the disallowance amount
recommended by the auditors, and we uphold the remaining disallowance
amount. II. Data transmission costs billed by the Division of
Communications ($341,898)
HCFA found that Nebraska claimed ineligible data transmission costs at
the enhanced FFP rate. The claims were for costs of computer modems,
telephone lines, installation charges, circuit charges, and
administrative fees that the auditors found were related to Nebraska's
eligibility determination system, a function that is expressly excluded
from enhanced FFP by the SMM. See SMM 11275.25. 5/ The auditors
reasoned that the overclaim occurred because Nebraska believed that
approval of its cost allocation plan for charging costs to federal and
non-federal programs constituted approval for claiming all allocated
costs at the enhanced rate. See Nebraska's appeal file, Ex. 9, at 5
(audit report).
In a telephone conference, Nebraska conceded that all of the disallowed
data transmission costs, except for $11,753, represented costs that were
properly disallowed. Tape of Board telephone conference, March 25, 1994.
Nebraska asserted that the $11,753 represented data transmission costs
for a communication line for Omaha hospitals to access the MMIS system.
HCFA agreed to review any documentation that Nebraska could provide to
explain how these costs related to the MMIS system, and the Board gave
Nebraska two opportunities to provide the documentation. Ultimately,
HCFA found that Nebraska's documentation did not provide the specific
information needed to determine the allowability of enhanced funding for
the communication lines. In particular, HCFA determined that:
Neither the referenced Exhibit 41 (your response of November 18,
1993), nor your letter indicate (1) how the data transmission costs
were allocated to activities; (2) what the specific claimed costs
were for; and (3) how you computed the $47,102 ($11,753 FFP) that
you believe is eligible during the period in review.
HCFA letter dated April 11, 1994.
A state has the burden of documenting its costs adequately to support
its claim for enhanced FFP. See, e.g., North Carolina Dept. of Human
Resources, DAB No. 1025 (1989). We agree with HCFA's April 11, 1994
letter indicating that Nebraska's submissions were missing the basic
information that was needed to support its claim. For example, although
Nebraska submitted invoices for the costs of transmission lines for
these hospitals, it provided no evidence that the data transmitted was
for the purposes of claims processing rather than eligibility
determination. Nebraska has now had several opportunities to provide
adequate documentation to support its claim and has failed to do so.
Therefore, we uphold HCFA's disallowance of the data transmission costs.
However, since Nebraska continues to correspond with HCFA concerning
what documentation is required in support of its claim, HCFA is not
precluded by this decision from reassessing the disallowance based on
its review of any further documentation submitted to it by Nebraska.
III. Data processing direct and shared billings ($316,496)
The auditors found that indirect data processing costs were passed by
the Central Data Processing Division (CDPD), through eight indirect cost
centers, to the Department of Social Services through billing rates
developed in accordance with an approved cost allocation plan. HCFA
determined, based on the auditors' recommendation, that indirect data
processing costs from five indirect cost centers were ineligible for the
enhanced FFP rate because they were not directly related to MMIS
operations. The five cost centers that were disallowed were:
(1) Administration. Costs of management and provision of data
processing services, including salaries of managers, data
processing applications analysts, data processing information
services staff, and support staff; costs of CDPD space,
maintenance, supplies, telephone, etc.
(2) VM/CMS Systems Management and (3) MVS Management. 6/ Costs
associated with division-wide managers and programmers and
equipment dedicated to installation and maintenance of operating
systems and proprietary application software and user consultation
in support of these components of the network.
(4) Communication Network Technical Support. Costs associated with
the technical, management and design aspects of remote
teleprocessing.
(5) Application Information Center. Costs associated with
maintenance of user-oriented, demand processing environment and
assisting clients in operating their own data processing systems.
The auditors relied on the SMM and DAB Nos. 1188 and 1205 for their
conclusion that a part of Nebraska's claim for indirect data processing
costs was not eligible for reimbursement at the enhanced FFP rate. In
particular, the auditors maintained that CDPD's arrangement with
Nebraska closely paralleled the situation in DAB No. 1205. In its
brief, HCFA maintained that since the CDPD provides data processing
services to all state agencies, CDPD indirect costs were either
department-wide costs or analogous to department-wide costs that HCFA
has properly determined should be ineligible for enhanced FFP.
Nebraska agreed that the costs were collected in cost centers
categorized as indirect cost centers in the CDPD. However, Nebraska
argued that the CDPD is a part of the Department of Administrative
Services, which has sole and direct responsibility for the hardware,
software, personnel resources, and facilities required for and used in
the operation of the MMIS. Moreover, Nebraska argued that these costs
represented functions necessary to keep the computer network, of which
the MMIS is a part, operating properly. According to Nebraska,
operation of the MMIS is supported by two major CDPD functional areas --
on-line, real time processing of Medicaid claims via telecommunications
links and off-line batch processing of claims as requested by MMIS
staffers. Tape of Board telephone conference, March 25, 1994.
Nebraska also maintained that the costs billed by CDPD do not include
statewide costs or costs associated with its overhead functions as
described in Revision 8 of the SMM. Further, Nebraska provided evidence
to show that its overhead costs are budgeted in and paid from separate
and distinct budget entities than the costs claimed at the enhanced FFP
rate. Specifically Nebraska established that statewide costs or costs
associated with overhead functions were paid from either the Director's
Office budget Program 49 or budget Program 509, which are not claimed at
enhanced FFP levels. See Nebraska's Response of Appellant, Ex. 41.
We find that these costs are entitled to enhanced funding because they
are costs necessary to keep the MMIS operating. HCFA did not dispute
Nebraska's characterization of CDPD as the state entity responsible for
operating the MMIS. Consequently, we find, contrary to HCFA's position,
that these costs are not the types of costs excluded from enhanced
funding by Revision 8 of the SMM, i.e., statewide overhead costs and
costs associated with a state's overhead functions (personnel staff,
budget staff, legal staff, commissioner's office, etc.). As noted above,
the general principle expressed in Revision 8 is that enhanced FFP
should be available for manual intervention which is necessary to make
the computer system perform its automated functions properly, but not
for other clerical or manual processing activities which would be done
by a state even in the absence of an MMIS. See SMM sections 11275.27
and 11275.32. The functions encompassed by these cost centers are all
functions required to keep MMIS running properly, and would not be
needed in the absence of an MMIS. In other words, these costs are
comparable to direct overhead costs of MMIS operations, such as shared
facilities, entitled to enhanced funding. In this case the "shared
facilities" are equipment and personnel required to support the smooth
functioning of the MMIS.
Further, nothing in the audit report or in HCFA's brief explains how the
principles of DAB Nos. 1188 and 1205, which were claimed as support for
the disallowance, apply to the facts of this case. The auditors relied
on the SMM and DAB Nos. 1188 and 1205 for their conclusion that a part
of Nebraska's claim for indirect data processing costs was not eligible
for reimbursement at the enhanced FFP rate and, in particular,
maintained that CDPD's arrangement with Nebraska closely paralleled the
situation in DAB No. 1205. In its brief, HCFA maintained that since the
CDPD provides data processing service to all state agencies, CDPD
indirect costs were either department-wide costs or analogous to
department-wide costs that HCFA has properly determined should be
ineligible for enhanced FFP. Our review of DAB Nos. 1188 and 1205,
however, reveals that the rationales applied there actually support
Nebraska's claim for enhanced funding.
In DAB No. 1188, we stated that costs charged in an indirect manner to a
function are no less costs of that function than costs direct charged to
that function. 7/ We reasoned that the availability of enhanced funding
does not rest on simple characterizations of costs as "indirect."
8/
Further, we determined that (1) 42 C.F.R. 432.50 does not require that
staff time spent on administrative support be direct charged to a cost
objective reimbursable only at 50%, and (2) section 11275.30 of the SMM
does not preclude 75% FFP for personnel costs of an indirect nature
incurred by the unit operating the MMIS system. In DAB No. 1205, the
Board found that the test of whether the activity would be performed in
the absence of the MMIS was a valid test for determining whether
overhead activities qualified for enhanced reimbursement, because it
helped identify the function as directly related or remote from actual
operation of the MMIS.
Applying these principles to this case, we find that the indirect data
processing costs at issue here (that is, the higher level of indirect
data processing costs which is attributable to MMIS demand on the
system) would not be necessary without the MMIS as part of the computer
network. While these costs are operational costs of an entity outside
the Medicaid agency, these costs are directly related to the MMIS.
Moreover, Nebraska, by providing evidence to show that its statewide
costs or costs associated with overhead functions were paid from other
sources, has taken specific steps to ensure that costs specifically
excluded by Revision 8 (such as the cost of the Director of the Medicaid
agency's office) are not included. Further, the fact that the costs are
indirectly charged does not preclude them from being reimbursed at an
enhanced FFP rate.
We conclude that Nebraska demonstrated that the indirect data processing
costs, and the cost centers from which they originate, which were found
ineligible by the auditors, are as integral a part of the required MMIS
data processing services as those direct costs, and the cost centers
from which they originate, which HCFA determined to be eligible.
Therefore, we reverse HCFA's disallowance with regard to these costs.
IV. Data processing support and information systems direct and
indirect costs ($120,914)
The auditors determined that Nebraska's claim for enhanced FFP included
indirect costs, department-wide costs, and statewide costs of the data
processing support and information systems cost centers. The auditors
stated that the SMM disqualifies both overhead costs not directly
allocable to the operation of an MMIS and indirect costs from
reimbursement at the enhanced FFP rate. HCFA agreed with the auditors
that three types of costs were ineligible for the enhanced FFP rate on
this basis.
During the telephone conference, Nebraska conceded that two of the cost
categories were precisely the type of costs excluded by the SMM and were
therefore ineligible for the enhanced FFP rate. 9/ Tape of Board
telephone conference, March 25, 1994. The remaining cost category
consisted of Medicaid personnel costs for a long-range information
strategy plan which were claimed in the data processing support cost
center. The auditors reported that the stated mission of the
information strategy plan was to "efficiently and effectively provide
accurate and timely information to the appropriate staff and support the
functions of the agency." Nebraska's appeal file, Ex. 9 at 11 (audit
report). The costs claimed were for Medicaid staff salaries for
individuals assigned to the development of the plan.
Nebraska argued that there is nothing in the auditors' workpapers that
shows that the MMIS did not benefit from the long-range information
strategy plan. Nebraska also contended, and HCFA did not dispute, that
it claimed only that part of the cost of the plan which in its view
benefitted MMIS. Nebraska maintained that this amount was 34.04% of the
total cost, or $40,830.92.
We find that there is no basis for concluding that even a portion of the
cost of the plan was directly related to the operation of the MMIS. The
Board has previously found that since an enhanced rate is an exception
to the generally available reimbursement rates, a state must meet a
higher standard of proof than the absence of any prohibition on claims
at the enhanced rate. See, e.g., New York State Dept. of Social
Services, DAB No. 1008 (1989). We note that an information strategy
plan could encompass activities related to an MMIS, e.g. a strategy for
generating reports from the existing system, since an MMIS is an
information retrieval system. However, Nebraska did not provide any
evidence that the costs were incurred for this type of activity or any
other allowable function. It appears that such a plan would be more apt
to be related to a need to enhance or change the system. Moreover,
Nebraska did not dispute the auditors' description of the purpose of the
strategy plan as supporting "the functions of the agency." Further,
Nebraska did not submit any evidence to show how this plan was so
directly related to the operation of the MMIS as to make some of its
costs eligible for reimbursement at the enhanced FFP rate. Given the
general purpose of the plan, all of the costs appear to be costs of
Medicaid program management in general, i.e., type of costs that
Nebraska would incur whether it had an MMIS or not. Therefore, we uphold
HCFA's disallowance with regard to the personnel costs for the
information strategy plan.
V. Costs allocated to the SURS cost center ($38,351)
The auditors found that Nebraska claimed enhanced FFP for
department-wide, statewide, and administrative salaries of the Medical
Services Division (MSD) which were allocated to the SURS cost center,
contrary to the SMM which provides for enhanced FFP for "costs directly
attributable to the Medicaid program for ongoing automated processing of
claims, payments, and reports."
Nebraska maintained that the auditors had recognized that a portion of
the costs of the MSD would be allowable, but that the auditors
recommended the disallowance because the costs were not supported by
time reports which reflected the employees' work efforts. Nebraska
asserted that there are no workpapers indicating that the auditors ever
asked MSD to provide such information.
HCFA subsequently agreed that some of these costs are allowable. Tape
of Board telephone conference, March 25, 1994. However, HCFA explained
that the amount of allowable costs is dependent on the amount of
salaries allowed in the SURS cost center pursuant to Part I of this
decision. Both parties agreed that the Board should remand these costs
back to HCFA for recalculation based on the Board's determination of the
allowable SURS salary costs. Therefore, we remand the appeal with
respect to the costs allocated to the SURS cost center to be
recalculated based on this determination. If Nebraska disputes HCFA's
recalculation, Nebraska may return to the Board on this issue only.
Conclusion
As discussed fully above, we: (1) uphold HCFA's disallowance for
salaries and related costs in part and reverse in part; (2) uphold
HCFA's disallowance for data transmission costs; (3) reverse HCFA's
disallowance for data processing and shared billings; (4) uphold HCFA's
disallowance for data processing support and information systems direct
and indirect costs; and (5) remand to HCFA for recalculation, consistent
with this decision, the part of the disallowance pertaining to the costs
allocated to the SURS cost center.
Judith A. Ballard
Cecilia Sparks Ford
M. Terry Johnson Presiding Board Member
1. During the course of this appeal, Nebraska provided additional
documentation to HCFA, and the disallowance amount was reduced from
$1,225,800 to the current figure. See Respondent (Res.) brief at 5.
2. OMB Circular A-87 is a guide for state and local government
agencies and contains cost principles and procedures for establishing
cost allocation plans and indirect cost rates for grants and contracts
with the Federal Government.
3. Although HCFA did not identify any specific instances in which it
disallowed lower amounts, it might have done so when it reviewed
additional documentation and reduced parts of this disallowance.
4. A time study is an analysis of the amount of time spent on each
activity within the scope of a particular job. It appears that Nebraska
conducted this time study. However, the exhibit submitted by Nebraska
consists only of time report sheets and categories that are checked for
either 50% or 75%. No additional explanations are provided. Nebraska's
appeal file, Ex. 31.
5. Section 433.111 of 42 C.F.R. specifically provides that
eligibility determination systems are not part of mechanized claims
processing and information retrieval systems or enhancements to those
systems.
6. VM, CMS and MVS are types of computer systems.
7. Direct costs are those that can be identified specifically with a
particular cost objective. Indirect costs are those (a) incurred for a
common or joint purpose benefiting more than one cost objective, and (b)
not readily assignable to the cost objectives specifically benefited,
without effort disproportionate to the results achieved. OMB Circular
A-87, E. and F.
8. Nebraska maintained, and HCFA did not dispute, that when it
simply changed the characterization of one cost center (other than the
five in question here) from indirect to direct, HCFA allowed the costs
claimed at the enhanced FFP rate. See Nebraska's appeal file, Exs. 34
and 36; tape of Board telephone conference, March 25, 1994.
9. Nebraska conceded that salaries remaining in the information
systems cost center, after salaries directly identified to various state
and federal programs were excluded, and department-wide costs, except
for departmental training costs, were ineligible for enhanced funding.
Thus, as will be discussed in the text, only $40,830.92 is at issue