SUBJECT: Montana Department of Public Health
and Human Services

DECISION

The Montana Department of Public Health and Human Services (Montana) appealed a disallowance by the Centers for Medicare & Medicaid Services (CMS) of $470,254 in federal financial participation (FFP) under title XIX (Medicaid) of the Social Security Act (the Act). Montana claimed these funds as administrative costs for its Medicaid Transportation Management System during fiscal years 2001 through 2003. At issue is whether Montana was entitled to reimbursement for 75% or 50% of these administrative costs. The disallowed funds represent the difference between reimbursement at 75% and reimbursement at 50%.

We uphold this disallowance in full. As explained below, we conclude that CMS correctly applied a reimbursement rate of 50% and properly disallowed the additional amount claimed by Montana.

Background

Medicaid is a program that provides medical assistance to poor people. It is jointly funded and administered by the states and federal government. A state with an approved Medicaid state plan is eligible to receive FFP for amounts expended as medical assistance under the state plan, as well as for certain administrative costs. See section 1903 of the Act. ⁽¹⁾

[Page 2] Section 431.53 of 42 C.F.R. provides that a Medicaid state plan must "specify that the Medicaid agency will ensure necessary transportation for recipients to and from providers." Costs for arranging Medicaid transportation services are administrative costs. ⁽²⁾

Administrative costs that are necessary for the proper and efficient administration of the Medicaid state plan are generally reimbursed by the federal government at a rate of 50%. Section 1903(a)(7). The Act authorizes enhanced reimbursement for certain types of administrative costs. Montana relies on two of these enhanced reimbursement exceptions to the 50% rate. Under section 1903(a)(2)(A), costs incurred for the services of some skilled professional medical personnel (SPMP) are reimbursed at 75%. Under section 1903(a)(3)(C)(i), costs "attributable to the performance of medical and utilization review by . . . an entity which meets the requirements of section 1152 . . . under a contract entered into under section 1902(d)" are reimbursed at 75%.

A state's obligation to conduct medical and utilization reviews comes from section 1902(a)(30)(A) of the Act. That section requires that Medicaid state plans provide for methods and procedures "to safeguard against unnecessary utilization of . . . care and services and to assure that payments are consistent with efficiency, economy and quality of care . . . ." Congress and CMS have prescribed medical and utilization review standards and procedures for effectuating this requirement. See sections 1151-1163, 1902(a)(33)(A), and 1902(d) of the Act, and Table 1 after 42 C.F.R. § 456.1 (setting forth a list of Medicaid statutory utilization review requirements for different types of providers and related regulations); 42 C.F.R. Part 456. Under section 1902(d) of the Act, a state may satisfy these review functions by contracting with a Quality Improvement Organization (QIO) or QIO-like entity to perform medical and utilization reviews. See also 42 C.F.R. § 456.2(a)(2). Additionally, section 1158 of the Act provides:

(a) [A Medicaid state plan] may provide that the functions specified in section 1154 of this Act may be performed in an area by contract with a utilization and quality control peer review organization that has entered [Page 3] into a contract with the Secretary in accordance with the provisions of section 1862(g).
(b) In the event a State enters into a contract in accordance with subsection (a), the Federal share of the expenditures made to the contracting organization for its costs in performance of its functions under the State plan shall be 75 percent (as provided in section 1903(a)(3)(C) of the Act.) ⁽³⁾

Montana contracted with the Mountain-Pacific Quality Health Foundation (MPQHF) to satisfy its section 1902(a)(30)(A) medical and utilization review obligations. MPQHF was a QIO, as that term is defined by section 1152, and qualified to conduct "medical and utilization review" of Medicaid services as that term is used in section 1903(a)(3)(C)(i). Id. By a separate contract, Montana contracted with MPQHF to administer its Medicaid Transportation Management System. Montana Att. E, at 1.

Montana argues that, under section 1903(a)(3)(C)(i), it is entitled to enhanced reimbursement for all of its administrative costs under the transportation contract because MPQHF was a QIO. Alternatively, Montana argues that, under section 1903(a)(2)(A), it is entitled to enhanced reimbursement for the portion of costs attributable to the compensation and support of MPQHF's SPMP under the transportation contract. Finally, Montana argues that CMS may not disallow these costs because it did not first defer them pursuant to 42 C.F.R. § 430.40.

1. Montana is not entitled to enhanced reimbursement for all of the costs paid to MPQHF under the transportation contract simply because MPQHF was a QIO.

Montana argues that it is entitled to 75% reimbursement for all costs under the transportation contract on the ground that MPQHF was a QIO. Montana asserts that CMS employees knew Montana claimed the enhanced reimbursement "because MPQHF was a [QIO]" and "stated that the 75% FFP was appropriate and would be utilized." Montana Att. F, Aff. of King at 2. CMS does not deny [Page 4] Montana's assertions about the oral statements of CMS employees. ⁽⁴⁾ CMS Br. at 3.

We reject Montana's argument. Enhanced reimbursement is available for costs "attributable to the performance of medical and utilization review by . . . an entity which meets the requirements of section 1152 . . . under a contract entered into under section 1902(d)." Section 1903(a)(3)(C)(i) (emphasis added). MPQHF meets the requirements of section 1152. However, to qualify for the enhanced rate for all sums paid to MPQHF under the transportation contract, Montana would also have to prove that all of these costs were "attributable to the performance of medical and utilization review" and that this contract was "entered into under section 1902(d)," i.e., that a purpose of this contract, as stated in section 1902(d), was to satisfy Montana's obligation "for the performance of medical or utilization review functions required under [title XIX] of a State plan with respect to specific services or providers."

Montana does not assert that the claimed costs were all "attributable to the performance of medical utilization and review" for "the performance of medical or utilization review functions required under [title XIX] of a State plan with respect to specific services or providers." Further, such an assertion would not be supported by the evidence. As CMS points out, the stated purpose of this contract was for "the design, development, implementation, and operation of a Montana Medicaid Transportation System," not for performing QIO reviews described at 42 C.F.R. Part 456. CMS Br. at 3, citing Montana Att. B. Finally, Montana's exhibits show that the majority of MPQHF's costs involved activities related to the routine operation of a transportation system such as operating a call center from which recipients request transportation; processing in-state transportation requests by determining coverage of service, eligibility of the client, the closest provider, and the least costly means of travel; issuing approval/denial letters; verifying appointment attendance; and recovering overpayments. Montana Ex. D, at 2; Montana Ex. 2, at 2.

[Page 5] The alleged fact that CMS employees told Montana that it could receive enhanced reimbursement for all administrative costs under the transportation contract does not make such reimbursement allowable. As explained above, enhanced reimbursement for all of these costs is not authorized by section 1903(a)(3)(C)(i) and, therefore, only 50% is available under section 1903(a)(7). ⁽⁵⁾ A federal government employee cannot obligate the government to pay funds in violation of statutory authority; therefore, Montana cannot retain these funds on the ground that it received incorrect information. See Office of Personnel Management v. Richmond, 496 U.S. 414, 424 (1990), reh'g denied, 497 U.S. 1046 (1990) (holding plaintiff could not prevail on the basis of a erroneous advice of government official because payments of money from the Federal Treasury were limited to those authorized by statute and that to allow payments in violation of a statute would be a violation of the Appropriations Clause); Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 64 (1984)(holding that an error in advice by a government agent was not sufficient to estop the government); Minnesota Dept. of Human Services, DAB No. 1791 (2001) (relying on the preceding cases in holding that the state could not prevail on the basis of incorrect advice allegedly received from a Health Care Financing Adminstration official); and Mississippi Division of Medicaid, DAB No. 1302 (1992) (relying on the preceding cases in holding that the state was not entitled to higher Medicaid reimbursement rate where payment under the higher rate would violate the Act).

[Page 6] 2. Montana is not entitled to enhanced reimbursement for a portion of its administrative transportation expenditures on the ground that some of these services were performed by SPMP.

Administrative costs incurred for "sums expended . . . as are attributable to compensation . . . of skilled professional medical personnel, and staff directly supporting such personnel, of the State agency or any other public agency" are reimbursed at 75%. Section 1903(a)(2)(A).

Montana represents that, to perform under the contract, MPQHF contracted with two doctors and employed three intake review specialists, one administrative assistant, one and a quarter clerical support, one administrator, and two registered nurses. Montana Br. at 16, citing Montana Att. E. Montana asserts that 23.31% of the expenditures under the contract were attributable to the work of the nurses and doctors as SPMP and to supporting costs for that work. Id., citing Montana Atts. D, E. Montana concludes that, under section 1903(a)(2)(A), it is therefore entitled to enhanced reimbursement for 23.31% of the amount paid to MPQHF under the transportation contract. Montana at 2-3, 9-17.

This argument must fail because MPQHF's employees were not employees of Montana's Medicaid agency or another public agency. Section 1903(a)(2)(A) authorizes an enhanced rate for SPMP "of the State agency, or any other public agency." CMS has interpreted this language to mean personnel who are in an "employee-employer relationship with the Medicaid agency" or are "employed in State or local agencies other than the Medicaid agency who perform duties that directly relate to the administration of the Medicaid program." 42 C.F.R. § 432.2. ⁽⁶⁾ [Page 7] Montana does not argue that MPQHF's employees or contractors were its employees or employees of another public agency. Indeed, the transportation contract explicitly stated that MPQHF employees were not "employees of the Department . . . ." Montana Att. B, at 11, 41.

Therefore, we conclude that Montana is not entitled to enhanced reimbursement for a portion these expenditures under section 1903(a)(2)(A) as costs attributable to compensation of SPMP.

3. The present record does not support a finding that a specific portion of the MPQHF's work under the transportation contract constituted medical and utilization review of transportation services under sections 1902(a)(30)(A) and 1903(a)(3)(C)(i).

Montana also represents that some of the activities under the transportation contract involved "medical utilization and review" and that it contracted with MPQHF because MPQHF was qualified to conduct such reviews. Montana Br. at 2, 8, 11. Presumably, Montana is suggesting that some part of MPQHF's activities under the contract fell within the language of section 1903(a)(C)(3)(i) stating that enhanced reimbursement is available for "medical and utilization review" conducted by a QIO. The record does not support a finding that any costs were allocable to the enhanced rate on this basis, however.

[Page 8] Montana has the burden to show here that the criteria in section 1903(a)(3(C)(i) were met. A state seeking FFP bears the burden of showing that its claims are "allowable" (satisfy applicable reimbursement requirements). New York State Dept. of Health, DAB No. 1636 (1997); West Virginia Dept. of Human Services, DAB No. 1107 (1989); Indiana Dept. of Public Welfare, DAB No. 958 (1988). The Board has held that this burden is heavier when FFP is being claimed, as it is here, at an enhanced rate, requiring a clear showing that all claimed costs meet applicable reimbursement requirements:

[A]n enhanced FFP rate is an exception to the generally available reimbursement rates, and a state must accordingly meet a higher standard of proof to justify a claim at an enhanced rate. Otherwise, a state might try to improperly shift costs to programs, or parts of programs, with enhanced funding.

Illinois Dept. of Children and Family Services, DAB No. 1530, at 43 (1995) (citations and internal quotations omitted); see also New York State Dept. of Social Services, DAB No. 1008 (1989) (indicating that "the 50 percent FFP rate [applicable to most program-related administrative costs] will apply unless enhanced funding is clearly available" (emphasis added)).

Montana has failed to carry this burden for the following reasons.

• Part 456 of 42 C.F.R. sets forth Medicaid standards for states in reviewing utilization of services. Section 456.21 of subpart B "prescribes utilization control standards applicable to all services provided under the State plan." ⁽⁷⁾ Section 456.22 requires a Medicaid agency to have "procedures for the on-going evaluation, on a sample basis, of the need for and the quality and timeliness of Medicaid services." Section 456.23 requires a Medicaid agency to have a post-payment review process. Montana does not explain which provisions of the transportation contract related to or fulfilled these requirements. It does not assert that work under the transportation contract substituted for work that it would have otherwise had to [Page 9] purchase under its medical and utilization review contract with MPQHF.



• While some of the contract activities may fit the regulatory description of activities for which a state may contract with a QIO, not all of them did. In general, if costs are only partially allocable to an enhanced rate, a state must have an approved methodology for allocating the costs. ⁽⁸⁾ 45 C.F.R. § 95.507(b)(4).



• While Montana produced evidence purporting to identify costs under the transportation contract allocable to SPMP activities, the evidence did not show that all of these alleged SPMP activities were equivalent to medical utilization and review activities under section 1903(a)(3)(C)(i) and 42 C.F.R. Part 456.
  

4. The fact that CMS did not defer these claims under 42 C.F.R. § 430.40 does not preclude it from disallowing the claims.

Section 430.40 of 42 C.F.R. concerns the deferral of Mediciad claims. It provides that CMS may defer payment of claims only if the Regional Administrator or CMS Administrator "questions [a claim's] allowability and needs information in order to resolve the question" and defers the claim within 60 days of receipt of the related Quarterly Statement of Expenditures (QSE).

Citing section 430.40, Montana argues that CMS was required to defer its claims for the costs at issue here within 60 days of receipt of Montana's QSEs. Montana Br. at 7. Montana concludes that CMS's failure to issue such deferrals means that it "has not met the procedural requirements to disallow this claim and the $47[0],254 should be allowed." Montana Br. at 7.

This argument is baseless. The purpose of section 430.40 is to put a state on notice when the Regional Administrator finds a problem with its claim and to enable CMS to withhold reimbursement pending additional review of the claim. In this case, CMS timely notified Montana when the Regional Administrator determined there was a problem with Montana's transportation claims on the December 2003 QSE. CMS Ex. 1. Pursuant to the resulting discussion with CMS, Montana amended its December 2003 QSE to claim 50%, rather than 75%, for these expenses and claimed [Page 10] them at 50% in the following quarters. Id.; CMS disallowance letter dated 1/6/2005. Thus, the Regional Administrator had no reason to defer the December 2003 claim since Montana withdrew it. While the Regional Administrator subsequently disallowed similar expenditures for fiscal years 2001, 2002 and 2003, there is no indication that the Regional Administrator had questions about these claims at the time they were paid and, therefore, had no basis to defer them.

Further, as the Board noted in California Dept. of Health Services, DAB No. 1490 (1994), the Act contains no time limit for the issuance of a disallowance, and sections 430.40 and 430.42 do not restrict CMS's authority to issue disallowances.

Conclusion

For the reasons set forth above, we uphold this disallowance in full.

Cecilia Sparks Ford

Donald F. Garrett

Judith A. Ballard
Presiding Board Member

1. The current version of the Social Security Act can be found at www.ssa.gov/OP_Home/ssact/comp-ssa.htm. Each section of the Act on that website contains a reference to the corresponding United States Code chapter and section. Also, a cross reference table for the Act and the United States Code can be found at 42 U.S.C.A. Ch. 7, Disp Table.

2. Under 42 C.F.R. § 440.170(a)(2), when a state makes direct vendor payments to a provider, the transportation costs are reimbursed by CMS as medical assistance. Otherwise, transportation costs are reimbursed as administrative costs. Id.

3. CMS has implemented the requirements of section 1154 for Medicare at 42 C.F.R. Part 476.

4. We note that, while Montana entered into the contract with MPQHF as early as 1999 and claimed enhanced reimbursement as early as fiscal year 2001, it does not assert that it discussed the contract details with CMS employees until the Spring of 2002. Montana Att. E, at ¶ 4.

5. In cases where a state's reading of a statute or regulation is reasonable, the Board has held that a state is entitled to rely on its own reasonable interpretation of the statute or regulation in the absence of notice of the federal agency's contrary interpretation. See, e.g., Georgia Dept. of Community Health, DAB No. 1973 (2005); Utah Dept. of Health, DAB No. 1307, at 13 (1992), citing Maine Medicaid Fraud Control Unit, DAB No. 1182, at 12 (1990); see also Maryland Dept. of Human Resources, DAB No. 1667, at 26 (1998), citing Community Action Agency of Franklin County, DAB No. 1581 (1996), and decisions cited therein. These cases are not applicable here because Montana's position, that all of its administrative costs under a transportation contract are entitled to enhanced reimbursement simply because MPQHF was a QIO, is not a reasonable interpretation of section 1903(a)(3)(C)(i).

6. Section 432.2, as amended in 1985, defines SPMP as -

physicians, dentists, nurses, and other specialized personnel who have professional education and training in the field of medical care or appropriate medical practice and who are in an employer-employee relationship with the Medicaid agency . . . .

In the related preamble, CMS stated:

An employer-employee relationship must exist between the State agency and the skilled professional medical personnel and directly supporting staff. As evidenced by the statutory language and legislative history of section 1903(a)(2), the 75 percent FFP rate is applicable to costs of specific personnel and staff of the Medicaid agency or any other public agency. We have consistently interpreted this provision to authorize the 75 percent FFP rate only for personnel who are employed by the agency. Therefore, in most cases, FFP at 75 percent is not authorized for contracts with private organizations or independent contractors. There are instances in which the agency contracts for personnel services as a common method of securing the services of skilled professional medical personnel without going through the formalities of merit hiring. If a Medicaid agency claims FFP at 75 percent for these personnel, it must demonstrate that a documented employer-employee relationship exists between them and the Medicaid agency.

50 Fed. Reg. 46,652, at 46,656 (Nov. 12, 1985).

7. Subsequent sections of 42 C.F.R. Part 456 set forth utilization review standards for specific types of providers, such as hospitals, intermediate care facilities, and inpatient psychiatric services.

8. Montana is not precluded by this decision from seeking from CMS the requisite approval for such an allocation methodology as to future reimbursement.