Indiana Family and Social Services Administration

The Indiana Family and Social Services Administration (Indiana) appealed a determination by the Health Care Financing Administration (HCFA) disallowing $5,880,230 in federal financial participation (FFP) claimed under title XIX of the Social Security Act (Act) for the period February 5 through June 22, 1995. HCFA disallowed the difference for that time period between Indiana's claims for costs at the 75 percent rate available for operation of a Medicaid Management Information System (MMIS), and the 50 percent rate available generally for administrative costs in the Medicaid program.

The enhanced 75 percent rate for a MMIS is available only from the time that HCFA approves the MMIS as "operating continuously" under standards in the Social Security Act, the regulations, and HCFA's State Medicaid Manual. The issue in this appeal is when Indiana's MMIS began operating continuously so that Indiana was entitled to begin receiving enhanced funding. HCFA approved Indiana's MMIS as of June 23, 1995, on the grounds that Indiana first began operating its MMIS to process a backlog of Medicaid claims for services provided to beneficiaries who were also eligible for Medicare ("crossover claims") during the week ending on that date. Indiana argued that it purposely withheld the backlogged claims from processing because they lacked Medicare provider numbers required for processing. Indiana argued that its MMIS was fully capable of processing those claims, and that it was entitled to enhanced funding as of February 5, 1995, because that was when Indiana finished implementing its MMIS and began using it to process other types of claims, and when it had the capacity to process crossover claims.

For the reasons explained below, we sustain HCFA's determination in principle, subject to adjustment to reflect that Indiana began processing the backlog of claims during the week beginning June 17, 1995. We find that as a condition for the receipt of enhanced FFP, the applicable regulatory provisions require that a state must be utilizing its MMIS to process all types of claims. We find that Indiana admittedly failed to use its MMIS to completely process electronically submitted crossover claims, and that the evidence supports a conclusion that the reasons for this failure were systemic problems that were not corrected until Indiana began to process the backlog of such claims.

Applicable Law, Regulations and Guidelines

Under section 1903(a)(3) of the Act, FFP is available at 75 percent for costs "attributable to the operation" of a "mechanized claims processing and information retrieval system" approved by the Secretary of the Department of Health and Human Services as being a system that is likely to provide more efficient, economical, and effective administration of a state Medicaid plan. See also 42 C.F.R. § 433.15(b)(4). Such a system is generally referred to as a Medicaid Management Information System (MMIS). 45 C.F.R. § 95.605. Otherwise, administrative costs that are necessary for the proper and efficient administration of the Medicaid state plan may be reimbursed at the 50 percent rate. Section 1903(a)(7) of the Act; 42 C.F.R. § 433.15(b)(7). Thus, a state may receive only 50 percent FFP prior to the time that it is actually operating an approved MMIS.

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. "Operation" means "the automated processing of data used in the administration of State plans for Title . . . XIX of the Social Security Act." 45 C.F.R. § 95.605. To be approved by HCFA, the MMIS "must have been operating continuously during the period for which FFP is claimed." 42 C.F.R. § 433.116(d).

Section 433.110 of 42 C.F.R. makes the provisions of Chapter 11 of the HCFA State Medicaid Manual (SMM) applicable to a state's operation of its MMIS. One of the conditions for the receipt of enhanced FFP is that "the complete system with all its component subsystems is and has been operating continuously, processing all claims types, during all periods for which 75 percent FFP is claimed." SMM § 11210.

Background and argument

Indiana's MMIS is called the Advanced Information System (AIM), and is run by a contractor, Electronic Data Systems (EDS). Indiana reported that it began implementing its AIM system in May 1993, and that implementation was complete, and the system compliant with all appropriate regulations, as of February 5, 1995.

HCFA's determination of the operational date was based on an on-site review of the AIM system during August 1996, which HCFA said showed that several AIM subsystems did not meet the certification requirements until November 21, 1995. HCFA Exhibit (Ex.) 1. HCFA then issued a disallowance for the enhanced funding that Indiana had claimed for the period of February 5 through November 21, 1995.

In April 1998, while the appeal was pending, the parties met to attempt to resolve the dispute. The appeal file indicates that during these discussions, Indiana expressed concern that HCFA's November 21, 1995 certification date had been "based on a combination of events rather than a specific event." Indiana Brief (Br.) at 4; Ex. B. Consequently, HCFA agreed that certification would hinge on the completion of a specific task, the ability to process Medicare electronic Part B crossover claims. "Crossover claims" refers to claims for services provided to beneficiaries who are eligible for both Medicare and Medicaid benefits. See SMM § 3909; Colorado Dept. of Social Services, DAB No. 1272 (1991). Once Medicare pays its share of the claim, the claim then "crosses over" to Medicaid for processing.⁽¹⁾ HCFA Ex. 10. Indiana reported that the AIM system permitted a new approach to the processing of crossover claims. "Instead of reimbursing the Medicare co-insurance and deductible amounts on crossover claims," Indiana stated, "the Indiana AIM System was designed to reimburse crossover claims up to the Medicaid maximum allowable amount." Indiana Br. at 6.

In a letter dated May 7, 1998, HCFA informed Indiana that it had revised the certification date of the AIM system from November 21, 1995 to June 23, 1995.⁽²⁾ Indiana Ex. B. HCFA asserted that AIM was not capable of processing Medicare crossover claims on a "normal flow basis" prior to June 23, 1995. The determination was based on a finding from HCFA's on-site review that the implementation of the AIM system had resulted in problems with the processing of crossover claims. HCFA reported that a backlog of more than 250,000 "electronic [Medicare] Part B crossover claims" existed as of the week ending June 16, 1995; this backlog was processed during the week ending June 23, 1995. HCFA Ex. 1.

HCFA argued that the AIM system was unable to process crossover claims as they were "loaded" into the system by EDS, resulting in a growing backlog of unprocessed crossover claims. HCFA cited AIM weekly status reports showing that the number of crossover claims awaiting initial processing increased steadily prior to the June 23, 1995 certification date. The reports showed that as of the week ending May 12, 1995, there were 164,000 Medicare Part B crossover claims to be processed for the first time; 167,000 unprocessed claims as of the week ending May 19; 184,00 as of May 26; 211,418 as of June 2; 230,000 as of June 9; and 250,000 as of June 16. The next weekly report, as of June 23, showed zero Part B claims to process for the first time, meaning that the backlog had been cleared. HCFA Exs. 3-9. HCFA's May 7, 1998 letter to Indiana stated that the "entire backlog was processed during the week ending June 23, 1995." Indiana Ex. B.

Indiana did not dispute the figures cited by HCFA, or take issue with HCFA's decision to base certification on AIM's processing of Medicare electronic Part B crossover claims. Indiana argued that the backlog of crossover claims did not result from any deficiency in the AIM system, which Indiana asserted was operational as of February 5. Instead, Indiana argued, the unprocessed crossover claims accumulated because Indiana made a conscious decision to withhold the claims from processing because providers had failed to supply their Medicare provider numbers during "a complete re-enrollment of all Indiana Medicaid providers." Indiana Br. at 5.

Indiana stated that in processing crossover claims, the AIM system cross-referenced Medicaid and Medicare provider numbers to facilitate payment to the correct Medicaid provider. Indiana Ex. D. Indiana reported that large numbers of crossover claims would thus have been rejected because the AIM system lacked correct Medicare numbers for many providers, requiring the claims to be resubmitted. To avoid the rejection/resubmittal process, Indiana decided to withhold the crossover claims from processing until the providers submitted their Medicare provider numbers and the claims could be processed without rejection. Id. Indiana stated that the processing of these claims was therefore suspended, and EDS, the contractor, obtained a listing of Medicare providers and performed a "thorough quality review of the Medicare provider numbers on the Indiana AIM provider database," and contacted providers when discrepancies could not be resolved. Indiana Br. at 7. All of the backlogged claims, Indiana argued, were processed within the time limit for processing claims provided in the Medicaid regulations. Citing 42 C.F.R. § 447.45(d)(4)(ii).

Indiana argued that the AIM system had the capability to issue payment for error-free claims within 30 days of receipt, and that it successfully processed paper claims. Indiana argued that to the extent that the system could correctly process paper claims, the system could correctly process any electronic claim inputted into the system. Indiana also introduced AIM production reports and AIM screen printouts from February 1995 to show that crossover claims were adjudicated in the first AIM processing cycle, prior to the decision to suspend processing electronic crossover claims. Indiana Exs. F-J; 2. Indiana also reported that the AIM system processed electronic crossover claims in March 1995. Indiana further argued that its MMIS should have been certified earlier because it complied with requirements for MMIS approval in the regulations and the SMM that HCFA cited in correspondence to Indiana, in response to Indiana's request that HCFA specify the regulatory support for the certification determination. Indiana Ex. E.

As noted earlier, a state may receive enhanced 75 percent FFP in the costs "attributable to the operation" of its MMIS from the time that HCFA, based on an on-site review, determines that the complete system, with all its component subsystems, is and has been operating continuously, processing all claims types, during all periods for which 75 percent FFP is claimed. Section 1903(a)(3)(B) of the Act; 42 C.F.R. § 433.116; SMM § 11210. Enhanced FFP is available under the Act for the operation of an approved MMIS, and the 75 percent rate is available only from the time the complete approvable system is operating continuously. 42 C.F.R. § 433.116; SMM § 11210; see Georgia Dept. of Medical Assistance, DAB No. 882 (1987). Thus, the statute contemplates providing enhanced funding for costs attributable to the operation of an MMIS processing all claims. Moreover, the Board has repeatedly held that enhanced funding is special, and that states claiming enhanced funding have the burden to document their eligibility. California Dept. of Health Services, DAB No. 1539 (1995), and cases cited therein.

In this case, it is undisputed that when Indiana began using its AIM system in February 1995, there developed a substantial backlog of unprocessed electronic crossover claims which increased in size until the claims were finally processed as of the week ending June 23, 1995, the certification date determined by HCFA. That the backlog of unprocessed crossover claims may have resulted from a decision to withhold the processing of these claims because of problems in securing Medicare provider numbers during the re-enrollment of Indiana Medicaid providers is not grounds for certifying Indiana's system as of February 5, 1995. The AIM system could not be deemed fully functional, as Indiana argued, if Indiana's provider database lacked critical information that was required for the system to operate on a routine basis. The responsibility to procure this information in a timely manner to ensure the full and continuous operation of the AIM system rested with Indiana. As HCFA noted, Indiana should have completed the updating of its provider database prior to claiming enhanced FFP for its AIM system. HCFA Br. at 9-10.

Moreover, HCFA here pointed to other evidence that calls into question Indiana's position that its AIM system was capable of functioning properly when it was brought on line in February 1995 and suggests multiple reasons for Indiana's failure to process crossover claims through its AIM system. HCFA cited a May 30, 1995 "Indiana Medicaid Update" from Indiana's own systems contractor EDS to Indiana Medical Assistance providers describing problems with the AIM system. The Medicaid Update stated that:

A backlog of Medicare/Medicaid crossover claims has also been incurred with the implementation of the IndianaAIM System. This backlog occurred as a result [of] difficulties incurred when processing the Medicare crossover tapes in the new IndianaAIM System. The systematic changes required to process electronic crossover claims in the new system are currently being implemented and tested. These system modifications are anticipated to be completed in 30 days. At this time, all outstanding electronic crossover claims received by EDS from Medicare will be processed.

HCFA Ex. 2, at 3.

HCFA also provided an affidavit from the director of billing for an Indiana physicians group recounting difficulties with Indiana's claims processing around the time that Indiana implemented its AIM system. She reported difficulties in having EDS enroll their physicians as part of the re-enrollment of providers. She stated that the physicians group never received a satisfactory response from EDS to numerous inquiries about the re-enrollment delays, and that providers discussed these problems at a May 1995 meeting of the Indiana State Medical Association Medicaid Coalition. HCFA Ex. 10. HCFA provided portions of the minutes from that meeting, which reflect frustration with the delays in processing crossover claims and note that "EDS is changing the payment methodology for Crossover claims. There are no definite answers on an implementation time frame." The minutes describe "an unacceptable situation" with a system that "cannot be reprogrammed in two months time" and note that there "is no reasonable explanation for the delay." HCFA Ex. 11, at 5. HCFA also argued that the continued growth of the backlog of unprocessed Medicare claims was evidence that these claims were "loaded" onto the AIM system but were not processed. HCFA Br. at 7.

Although Indiana reiterated its position that the backlog of crossover claims resulted from providers' failure to supply Medicare numbers and the subsequent decision to withhold crossover claims from processing, we find that the evidence in the record establishes that the AIM system had more problems than just the missing provider numbers. Indiana did not convincingly explain why EDS conceded difficulties processing Medicare crossover tapes. Indiana's explanation that the language in the EDS "Indiana Medicaid Update" was purposely broad to avoid placing blame on the provider community is not credible. It is unlikely that EDS would have described the problem as a need for "system modifications" and "systematic changes" that had to be "tested" if there were no systemic problem. Moreover, the providers clearly were under the impression that "reprogramming" was needed. If what was needed was solely more information from the provider community, it would have been in EDS' interest to emphasize this to providers and encourage them to provide it.

Indiana also submitted an affidavit from EDS' Government Relations Manager, who stated that she had reviewed the entire file from the physicians group and had found no correspondence from or to the billing director who provided the affidavit for HCFA. Indiana Ex. 1. She also reported that the Medicaid enrollment applications were mailed to providers in January 1994 with instructions to return them in 30 days, but that many providers gave incorrect Medicare numbers, omitted them, or failed to respond to subsequent verification correspondence. Id. Indiana's evidence that some providers did not supply Medicare numbers as part of the re-enrollment is consistent with a conclusion that one problem causing Indiana's failure to process crossover claims through the AIM system was an insufficient database. Similarly, the EDS employee's statement in her affidavit that she found no correspondence with the physicians group billing director does not directly refute the billing director's assertion that complaints were made with EDS, since the billing director did not assert that she personally corresponded with EDS. The EDS employee's affidavit also does not refute the billing director's report of delays in being re-enrolled, which is consistent with the minutes' report that providers experienced delays in and were dissatisfied with Indiana's processing of crossover claims.

Regardless of the cause, however, the evidence of both parties affirms that the AIM system was not continuously processing electronic crossover claims prior to the certification date. Whether this was due to problems requiring reprogramming, as argued by HCFA, or was entirely a question of developing an accurate database, as Indiana maintained, is not dispositive to our analysis, since the result was the same: Indiana had not yet begun to operate its approved MMIS, since the AIM system was not "operating continuously, processing all claims types." Section 1903(a)(2) of the Act; 42 C.F.R. § 433.116; SMM § 11210. Permitting enhanced FFP for a system prior to its full implementation would conflict with the statutory purpose of making enhanced FFP available in order to ensure more efficient, economical, and effective administration of the Medicaid program. Section 1903(a)(3) of the Act; New York State Dept. of Social Services, DAB No. 1145 (1990).

Indiana argued that HCFA did not provide specific definitions of terms such as "fully operational" (SMM § 11255) and "normal flow basis" (a term used in HCFA's May 7, 1998 letter establishing the earlier certification date of June 23, 1995). We find that HCFA's determination in this case and its use of those terms were consistent with the Act's provision of enhanced funding for the "operation" of an MMIS, the regulations' requirement that the MMIS "must have been operating continuously" as a condition for receipt of that funding, and the requirement in the SMM that a state have an MMIS that "is and has been operating continuously, processing all claims types." Section 1903(a)(3) of the Act; 42 C.F.R. 433.116(d); SMM § 11210.

Indiana also argued that the AIM system qualified for enhanced funding because it timely processed the backlog of crossover claims within the six-month time limit for the processing of such claims provided by the regulations. 42 C.F.R. § 447.45(d)(4)(ii).⁽³⁾ Withholding claims to resolve the issue of Medicare provider numbers was permitted by the regulations, Indiana argued, so long as it processed the claims within six months.

The fact that a state can timely process claims would not entitle it to enhanced FFP, where its MMIS failed to meet the requirements for MMIS certification in the Act, regulations, and the SMM. Indiana was not eligible for enhanced FFP earlier than the date the system was operating continuously, processing all claims types. Once Indiana did begin using its AIM system to successfully process the backlogged crossover claims, as of the week beginning June 17, 1995, it became eligible for the enhanced funding. It is irrelevant whether Indiana had or had not complied with the requirements for timely processing for these claims.

Moreover, it would not be reasonable to find that Indiana's MMIS was continuously operating during the time period at issue merely because the backlog of claims was ultimately processed within the six-month time frame allowed by the regulations. As the Board observed in Alabama Medicaid Agency, 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 percent FFP for administrative costs. This disallowance involves specific requirements that a state must meet in order to receive enhanced FFP beyond the standard 50 percent otherwise provided for administrative costs. While Indiana might have been entitled to that 50 percent FFP by processing the crossover claims within the six-month time frame, it did not become entitled to enhanced funding until it began continuously operating its AIM system to process those claims.

Indiana further argued that its MMIS should have been certified earlier because it complied with the requirements for MMIS approval in the regulations and the SMM that HCFA cited in correspondence with Indiana. Indiana Ex. E. Specifically, Indiana argued that the AIM system complied with the requirements that an MMIS be "compatible with the claims processing and information retrieval systems used in the administration of Medicare for prompt eligibility verification and for processing claims for persons eligible for both programs," and compatible with Medicare claims processing and information retrieval systems for the processing of Medicare claims. 42 C.F.R. § 433.112(b)(3); SMM

§§ 1115C, 11205. Indiana also argued that its MMIS satisfied the requirement of SMM section 11325 that a claims processing system ensure that all input submitted to the subsystem is processed completely.

The fact that AIM may have complied with some of the SMM and regulation provisions for MMIS certification would not entitle Indiana to earlier enhanced FFP, because Indiana failed to fulfill other requirements in the SMM, as well as in the Act and regulations, discussed above. Moreover, the evidence establishes that the electronic claims were "input" into the system at least to the extent that they were received by EDS for processing. This is not a situation where a state merely determined not to input a limited subset of claims because they were defective or incomplete as submitted. The evidence indicates instead system problems with programming and an incomplete database.

Finally, Indiana argued that the AIM system processed electronic crossover claims during the first AIM processing cycle, in February 1995, and that it processed paper claims successfully and produced claims processing reports as required by the SMM. Indiana also reported that "24,298 electronic crossover claims were adjudicated in March 1995." Indiana Br. at 8. These arguments do not provide a basis for reversing the disallowance. Indiana did not deny that a backlog of unprocessed electronic crossover claims began to accumulate beginning in February, when the AIM system was brought on line. While AIM may have produced reports and processed some paper crossover claims, this does not entitle Indiana to earlier enhanced FFP. The electronic crossover claims are reasonably viewed as a claim type, with respect to which the system was not operating continuously until the week beginning June 17, 1995.

Even if Indiana had presented evidence to support its assertion that it processed and adjudicated some electronic crossover claims in March 1995, however, Indiana would not prevail here.⁽⁴⁾ Such evidence would not necessarily show that the system processed electronic crossover claims correctly on a continuous basis, or contradict the evidence that in May 1995 EDS was still making system modifications and could not process the growing backlog until those modifications were completed in June 1995. Indiana has the burden to show that the approved MMIS was "operating continuously."

Based on the above analysis, we conclude that Indiana's MMIS was "operating continuously" and eligible for certification as of the week beginning June 17, 1995 and ending June 23, 1995, the certification date determined by HCFA. We therefore uphold the resulting disallowance of the difference between Indiana's claims for costs at the enhanced 75 percent rate and the 50 percent rate available generally for administrative costs in the Medicaid program prior to the week beginning June 17, 1995. As noted above, at the time that HCFA issued the original disallowance of $5,880,230, it had certified the AIM system as of November 21, 1995. HCFA should thus issue a revised determination as to the disallowance amount making any adjustments that may be necessary to reflect the revised certification date of June 17, 1995. If Indiana disagrees with the calculation, it may appeal on this limited issue only within 30 days after receiving the revised determination.

1. The SMM defines "Medicare Crossover Payment" as payment authorization by the state Medicaid agency for the Medicare deductible and coinsurance amounts. SMM § 11601(E).

2. HCFA's initial disallowance, by letter dated December 2, 1997, was for $5,880,230. HCFA's May 7, 1998 letter notifying Indiana that it was moving the AIM certification date from November 21 to June 23, 1995 contains no indication that HCFA reduced the disallowance to reflect the earlier certification date, and HCFA's brief describes the $5,880,230 disallowance amount as enhanced FFP payments "for the period of February 5, 1995 through June 22, 1995." HCFA Br. at 1. As we note in our discussion, we find Indiana's MMIS was eligible for certification as of the week beginning June 17, 1995, as it was during that week that Indiana began operating its system to process the backlog of claims. HCFA should ensure that the disallowance amount properly reflects the earlier certification date.

3. This section provides that if a claim for payment under Medicare has been filed in a timely manner, the state may pay a Medicaid claim relating to the same services within six months after the state or the provider receives notice of the disposition of the Medicare claim.

4. Indiana's claim that 24,298 electronic crossover claims were adjudicated in March 1995 is not supported by any of the evidence Indiana submitted, which was geared towards showing that the AIM system was functional during its first production run in February 1995. It is not clear from Indiana's submissions whether Indiana in February 1995 suspended the processing of all electronic crossover claims pending completion of the provider database update, or whether Indiana processed electronic crossover claims from those providers for whom updated database information had been obtained. In its brief, Indiana stated that, as updates were made to the provider database, all of the suspended crossover claims for that specific provider were reprocessed and adjudicated. Indiana Br. at 7. Similarly, the affidavit from the EDS Government Relations Manager states that "[p]roviders with the highest volume of claims in a 'hold' or 'suspended' status were prioritized for research," and that "the Medicare information was confirmed and if necessary, the AIM provider file updated. Once completed, these claims were released from a 'hold' or 'suspended' status for adjudication." Indiana Ex. 1, ¶ 22. These statements suggest that Indiana processed electronic crossover claims as incremental updates to the provider database were completed, prior to the week ending June 23, 1995, when Indiana processed the backlog of claims. However, other portions of Indiana's submissions suggest that Indiana suspended the processing of all electronic crossover claims until it completed the database update. Indiana's brief went on to state (after the above citation) that after discovering the problem associated with incomplete provider numbers, Indiana decided to withhold processing additional crossover claims. Indiana Br. at 7. Furthermore, Indiana's Director of Medicaid Program Operations stated in an affidavit that in February 1995, a conscious decision was made to withhold processing of Medicare crossover claims. Indiana Ex. D.