Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Tennessee Department of Finance and Administration
Docket No. A-96-25
Control No. TN/95/001/ADM
Decision No. 1578
DATE: May 29, 1996
DECISION
The Tennessee Department of Finance and Administration
(Tennessee) appealed the decision of the Health Care
Financing Administration (HCFA) disallowing $4,323,358 in
federal financial participation (FFP) claimed under title
XIX of the Social Security Act (Act). The costs were
claimed for development expenses of an eligibility
determination system which were incurred during the nine
quarters ended September 30, 1993. HCFA determined that,
under the applicable regulation, the costs were not
allowable at the 90% rate of FFP available for
development of a Medicaid management information system
(MMIS). The disallowance represents the difference
between the amount claimed at the 90% rate of FFP and the
amount claimable at the 50% rate of FFP generally
available for administrative costs under Medicaid.
Tennessee contended that the regulation upon which HCFA
relied does not apply because an Advance Planning
Document (APD) for Tennessee's eligibility determination
system was approved prior to the effective date of the
regulation. Tennessee also contended that the regulation
is invalid because it is inconsistent with the statute.
Finally, Tennessee contended that the reduction in FFP
was inappropriate since the project in question was
funded by several other programs which reimbursed
Tennessee for the costs at a higher rate than the 50% FFP
allowed by HCFA.
For the reasons discussed below, we find the regulation
was applicable because the costs in question were
incurred pursuant to APD updates submitted after the
effective date of the regulation. Since the Board is
bound by all applicable regulations, we must therefore
uphold the disallowance. In any event, we find that the
regulation is consistent with the statute, which
authorizes enhanced funding for mechanized claims
processing and information retrieval systems without
defining that term as including eligibility determination
systems. Moreover, the fact that other agencies paid a
higher rate of FFP for their share of the costs of
Tennessee's eligibility determination system simply has
no bearing on the rate payable by HCFA under title XIX
and the implementing regulations.
Relevant Statutes and Regulations
Under section 1903(a)(3) of the Act, the federal
government offered an incentive to the states to develop
and operate certain types of mechanized Medicaid claims
processing and information retrieval systems by providing
enhanced FFP instead of the usual administrative rate
under section 1903(a)(7). 1/ The objective of this
incentive was to use automation to achieve "more
efficient, effective, and economical administration" of
state Medicaid programs, and to reduce costs and improve
services. State Medicaid Manual, Section 11105 (June
1990), made applicable by 42 C.F.R. 433.110(a)(1).
Enhanced funding is available for the costs of both
development and operation of an MMIS. At issue here is
whether development costs of Tennessee's eligibility
determination system were eligible for enhanced funding.
Section 1903(a)(3)(A)(i) of the Act provides for the
payment to states of--
90 per centum of so much of the sums expended during
such quarter as are attributable to the design,
development, or installation of such mechanized
claims processing and information retrieval systems
as the Secretary determines are likely to provide
more efficient, economical, and effective
administration of the plan . . . .
The implementing regulations at 42 C.F.R. 433.112(a)
provide that--
FFP is available at the 90 percent rate in State
expenditures for the design, development,
installation, or enhancement of a mechanized claims
processing and information retrieval system only if
the APD is approved by HCFA prior to the State's
expenditure of funds for these purposes. 2/
The regulations define a "mechanized claims processing
and information and retrieval system" as--
the system of software and hardware used to process
Medicaid claims from providers of medical care and
services furnished to recipients under the medical
assistance program and to retrieve and produce
service utilization and management information . . .
.
42 C.F.R. 433.111(b). Effective November 13, 1989,
this provision was amended to provide that "[e]ligibility
determination systems are not part of mechanized claims
processing and information retrieval systems . . . ." At
the same time, a new subsection (c) was added to section
433.112, which provided:
Eligibility determination systems are not part of
mechanized claims processing and information
retrieval systems and are not eligible for 75
percent FFP under this subpart. These systems are
also not eligible for 90 percent FFP for any APD
approved after November 13, 1989.
The term "APD," or "Advance Planning Document," refers
to
"a written plan of action to request funding approval for
a project which will require the use of [automatic data
processing] equipment." 45 C.F.R. 95.605 (made
applicable by 42 C.F.R. 433.111(a)). The term "APD"
includes an "Advance Planning Document Update (APDU)."
Id. An APDU may be submitted on an as-needed basis "to
request funding approval for project continuation when
significant project changes are anticipated . . . ." Id.
In the preamble to the regulatory amendments which were
effective November 13, 1989, HCFA acknowledged that,
since 1977, it had made 90% FFP available for the
development of eligibility determination systems (subject
to approved APDs). HCFA stated that the rationale for
this enhanced funding was that "applications for
eligibility were `claims' and that a system processing
these `claims' was a part of the mechanized claims
processing information retrieval system." 54 Fed. Reg.
41966, 41967 (October 13, 1989). However, HCFA noted
that in 1981, Congress amended title IV-A of the Act (Aid
to Families with Dependent Children (AFDC)) to expressly
provide for 90% FFP for the development of eligibility
determination systems. HCFA stated that, since Congress
did not amend title XIX in a similar fashion, HCFA was
not required to make enhanced FFP available for the
development of eligibility determination systems, nor was
this any longer necessary since the enhanced funding
provided under title IV-A was an adequate incentive for
states to develop such systems. Id. at 41968. (Most
determinations of Medicaid eligibility are based on AFDC
eligibility determinations. See section
1902(a)(10)(A)(i)(I) of the Act.) HCFA initially
proposed, based on this rationale, to change its policy
to preclude enhanced funding under title XIX for the
development of eligibility determination systems.
However, in response to comments objecting to the
reduction of FFP for such systems on the basis that some
states had substantial sums invested in developing the
systems, HCFA stated that it was revising the proposed
regulations--
to offer 90 percent FFP for development of an
integrated eligibility determination system when the
APD was approved before the effective date of these
final rules, November 13, 1989. Any APDs or
revisions to APDs approved after November 13, 1989,
will be funded at 50 percent.
54 Fed. Reg. 41966, 41971 (October 13, 1989).
As indicated above, during the relevant time period,
title IV-A of the Act authorized 90% FFP for development
of statewide mechanized claims processing and information
retrieval systems which, inter alia, "control and account
for. . . all the factors in the total eligibility
determination process . . . ." See sections 403(a)(3) and
402(a)(3) of the Act. The statutory authority for this
enhanced funding was withdrawn with respect to calendar
quarters beginning on or after April 1, 1994. Public Law
No. 103-66, 13.741(a). In addition, the Food Stamp
program administered by the Department of Agriculture
provided for enhanced funding for automatic data
processing and information retrieval systems (at 75% FFP
until October 1, 1991 and at 63% FFP beginning October 1,
1991). See 7 U.S.C. 2025(g), as amended by Public Law
No. 101-624, 1752.
Statement of Facts
The Tennessee Medicaid Program began the development of a
computer system called the Automated Client Certification
and Eligibility Network for Tennessee (ACCENT) in 1984.
ACCENT was designed to provide a computerized eligibility
determination and recording system for three joint
Federal-State programs --Medicaid, Food Stamps and AFDC.
Each of these programs is administered on the state level
by the Tennessee Department of Human Services. In 1984,
that department submitted an APD for the development of
ACCENT.
Tennessee later decided to change the scope of ACCENT in
order to make it more interactive. In August 1989, APD
revision number 12, which included detailed plans for the
interactive system, was submitted and approved. Revision
number 12 provided for participation in the ACCENT
development costs in the following proportions: Medicaid
28%, AFDC 27%, and Food Stamps 45%. APDUs were submitted
until the completion of the ACCENT project in 1994.
Discussion
1. HCFA properly determined that only 50% FFP was
available for ACCENT pursuant to the applicable
regulation.
Tennessee argued that 42 C.F.R. 433.112(c) by its terms
precludes enhanced funding for eligibility determination
systems only where the APD for the system is approved
after November 13, 1989, and that this section is thus
inapplicable in this case. This argument has no merit.
Section 95.605 of 45 C.F.R. includes within the
definition of APD various types of APDs, including APDUs.
Tennessee stipulated (at ACF Exhibit 4) that the costs in
question were claimed pursuant to APDUs submitted after
November 13, 1989. Thus, section 433.112(c) on its face
precludes enhanced funding for the costs claimed pursuant
to the APDUs. Moreover, the preamble to the amended
regulation clearly states that enhanced funding would not
be available for costs claimed pursuant to APDUs approved
after November 13, 1989. Thus, Tennessee clearly had
timely notice of HCFA's interpretation of the regulation.
Tennessee also argued that section 433.112(c)
retroactively eliminates enhanced funding for a
previously approved project, and that this retroactive
application was improper. We disagree that section
433.112(c) had a retroactive effect in this case.
Instead, it was applicable on a prospective basis because
it was published October 13, 1989 and precluded enhanced
funding only for eligibility determination systems (or
revisions to those systems) approved after November 13,
1989. Therefore, as HCFA noted in the preamble to the
amended regulation, states which submitted and had
approved APDs for eligibility determination systems
through November 13, 1989 could have received enhanced
funding for those systems even after November 13, 1989.
We have held before that eligibility for enhanced funding
is "special," must be provided for specifically by
statute or regulation, and is available only when the
state has shown that it meets all the qualifications for
enhanced funding. New York State Dept. of Social
Services, DAB No. 1405, at 16-17 (1991), citing
Pennsylvania Dept. of Public Welfare, DAB No. 996, at 3
(1988), and Missouri Dept. of Social Services, DAB No.
395, at 6 (1983). Clearly, Tennessee's arguments fall
far short of this standard. Accordingly, we conclude
that, pursuant to section 433.112(c), the costs in
question here were not properly reimbursable at 90% FFP,
but only at the 50% rate of FFP available for
administrative costs under title XIX.
Tennessee nevertheless argued that the Board was not
bound by the regulation in this instance, even though the
Board's regulations provide that the Board is bound by
all applicable laws and regulations. 45 C.F.R. 16.14.
Tennessee contended that since the Board was bound by
both statute and regulation, the Board could refuse to
apply a regulation that it found to be invalid due to
conflict with a statute. Tennessee also asserted that
since the Board had discretion under section 16.14 to
determine whether a regulation was "applicable," the
Board could refuse to apply a regulation if it found the
regulation to be inconsistent with the governing statute.
In addition, Tennessee asserted that, notwithstanding
section 16.14, the Board has in prior decisions
considered whether a statute is inconsistent with a
regulation, citing Oklahoma Department of Human Services,
DAB No. 1436 (1993), and Kentucky Department of Medicaid
Services, DAB No. 1524 (1995).
Tennessee's reliance on these decisions is misplaced. In
both decisions, the Board reasoned that it was bound by
the applicable regulation but noted in any event that the
regulation was consistent with the statute. These
decisions did not address the situation of a regulation
in conflict with a statute. Moreover, as we discuss
below, that situation is likewise not present in this
case.
2. The regulation is not inconsistent with the statute.
Tennessee contended that the regulation upon which the
disallowance is based "is inconsistent with the
authorizing statute" and that the regulation represents
an impermissible "attempt to limit a statute by
regulation." Brief of Appellant at 8-9.
We see no basis for Tennessee's position that the
regulation is inconsistent with the statute. Section
1903(a)(3)(A)(i) provides for enhanced funding for
mechanized claims processing systems. The regulation
merely explains the meaning of the term "mechanized
claims processing systems," which is nowhere defined in
the statute. Moreover, Tennessee did not point to
anything in the legislative history which shows that
Congress specifically intended to include eligibility
determination systems as part of mechanized claims
processing systems. Thus, HCFA did not limit the statute
in providing in section 433.112(c) that mechanized claims
processing systems do not include eligibility
determination systems.
Tennessee further contended that HCFA could not preclude
enhanced funding for eligibility determination systems
absent a statutory amendment. To support this argument,
Tennessee noted that the AFDC and Food Stamps programs
reduced or eliminated enhanced funding only after their
respective statutes were amended. However, simply
because a reduction in the FFP rate was effectuated by
statute in the other programs does not necessarily mean
that a regulatory change would not have sufficed there.
In any event, since section 1903(a)(3)(A)(i) of the Act
does not specifically authorize enhanced funding for
eligibility determination systems, HCFA could properly
provide by regulation that this section would no longer
be read to authorize such funding. 3/
3. 50% FFP was appropriate for the HCFA share of the
joint agency project.
Tennessee argued that HCFA should not be permitted to
limit FFP for the ACCENT project because it was a joint
agency project for which other funding agencies paid a
higher rate of FFP. As noted previously, the ACCENT
project was jointly funded by Medicaid, AFDC, and Food
Stamps. Tennessee argued that HCFA's participation at a
lower rate of reimbursement would discourage interagency
cooperation. In support of its argument, Tennessee
pointed to language in the AFDC, Food Stamps, and
Medicaid statutes requiring that the systems for which
enhanced funding was provided be compatible with systems
in other public assistance programs. Even if this
language could be read to require interagency
cooperation, however, Tennessee's argument is unavailing
since, as previously discussed, the Board is bound by the
applicable regulation precluding enhanced funding. In
any event, Tennessee did not provide any evidence that
HCFA's payment at the 50% rate as required by law would
have discouraged interagency cooperation on the ACCENT
project, or otherwise frustrated congressional intent
that compatible systems be developed.
Conclusion
For the foregoing reasons, we uphold the disallowance of
$4,323,358.00 in full.
___________________________
Judith A. Ballard
___________________________
Norval D. (John) Settle
___________________________
M. Terry Johnson
Presiding Board Member
1.
Such a system is usually referred to as an MMIS because
that is the name for the prototype system developed by
HCFA.
2.
Prior to November 13, 1989, this provision did not
expressly require prior approval of an APD by HCFA.
3.
The situation with respect to the AFDC program is
arguably distinguishable since the mechanized claims
processing and information retrieval systems for which
enhanced funding was authorized under title IV-A were
required to meet the requirements of section 402(a)(3) of
the Act, which refers to the eligibility determination
process.