New York State Department of Social Services, DAB No. 1540 (1995)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: New York State Department of Social Services

DATE: October 16, 1995
Docket No. A-95-202
Decision No. 1540

DECISION

The New York State Department of Social Services (State)
appealed a determination by the Health Care Financing
Administration (HCFA) disallowing $265,633 in federal
financial participation (FFP) claimed for the quarter
ended March 31, 1995. The disallowance amount
represented the difference between the 75 percent
enhanced funding rate available for administrative costs
"attributable to the operation" of the State's Medicaid
Management Information System (MMIS) under Title XIX of
the Social Security Act (Act), and the 50 percent rate
generally available for Medicaid administrative costs.
HCFA determined that the State had claimed FFP at the
enhanced rate for MMIS overhead expenditures not directly
attributable to the MMIS cost center. HCFA based its
determination on the State Medicaid Manual provision
limiting enhanced FFP for overhead to "[o]nly the direct
overhead costs resulting from [MMIS] operation."
Revision 8 to Part 11 of the State Medicaid Manual,
section 11275.30.

The issues presented by this case were previously raised
and addressed in New York State Dept. of Social Services,
DAB No. 1023 (1989), and New York State Dept. of Social
Services, DAB No. 1205 (1990). In DAB No. 1023, the
Board found that it was within HCFA's discretion to
establish a policy that distinguishes between indirect
costs that originate from the State's Medicaid agency,
and would thereby qualify for the enhanced funding rate,
and statewide and department-wide indirect costs that
originate from other sources, which would thereby qualify
only for the normal 50 percent rate. Further, the Board
found in DAB No. 1023 that the State had notice of HCFA's
policy and was therefore bound by it.

In DAB No. 1205, the Board found that New York's reliance
on the personnel costs regulation at 42 C.F.R. 432.50 to
support the availability of 75 percent FFP for the
disputed expenditures was misplaced. The Board held that
the personnel costs included in the disallowance were
clearly incurred for overhead type activities which HCFA
had reasonably determined were too remote from actual
system operation to qualify for enhanced FFP. Further,
the Board found that the availability of enhanced FFP for
costs for personnel directly engaged in MMIS operations
does not establish the availability of the enhanced rate
for any personnel whose costs are allocated down to MMIS
operations.

Although the State disagreed with the Board's analyses in
DAB Nos. 1023 and 1205, the State requested that the
Board issue a summary decision in this case. HCFA also
agreed to this course of action.

We therefore sustain the disallowance of $265,633 based
on the reasons and analyses in DAB Nos. 1023 and 1205,
which we incorporate here in full. We note, furthermore,
that the Board concluded that HCFA could reasonably
restrict enhanced reimbursement for remote overhead costs
in New Jersey Dept. of Human Services, DAB No. 1071
(1989). In New Jersey v. U.S. Dep't of Health and Human
Services, 748 F. Supp. 1120 (D.N.J. 1990), the court
concluded that HCFA's policy was "valid" and upheld DAB
No. 1071.


Judith A. Ballard


Norval D. (John) Settle


Cecilia Sparks Ford
Presiding Board Member