in as many increments as there are sites of a computer installation. We will discuss each of New York's contentions seriatim.
A. The Secretary Properly Applied SSM § 11255 When He Decided to Fund at 50% FFP the Operation of the Partially Installed WMS/NYC, and Would Not Fund WMS/NYC operations at 75% FFP until New York Installed the Entire WMS/NYC Citywide
As noted above, the transition funding policy provides that "FFP at the 50-percent level is available for operation of any subsystem from that point that the 90-percent FFP ceases until the complete system is fully operational.. . ." SMM § 11255 (emphasis added). New York asserts "that Since the WMS was approved as an enhancement to the MMIS and not as an independent mechanized claims processing and information retrieval system, the appropriate system to examine for purposes of the 'transition' funding policy was the MMIS as enhanced by the WMS -- and not the WMS standing alone as an independent system." Plaintiff's Reply Brief at 11 (emphasis added). New York goes on to argue "that since the WMS was only an enhancement of the MMIS, and the MMIS unquestionably remained fully operational throughout the period at issue and used the data produced by the WMS at the operating sites, it was arbitrary and capricious for HCFA to apply the 'transition' funding policy to the WMS as an independent system and deny operational funding on the ground that the WMS was not operating at all sites Citywide." Plaintiff's Reply Brief at 11-12. In essence, New York maintains that when SMM § 11255 states that 50% FFP will continue "until the complete system is fully operational," SMM § 11255 means that FFP of 50% will continue until the underlying MCPIRS is completely installed and running. The Secretary asserts that the phrase "until the complete system is fully operational" means that the FFP of 50% will continue until the complete system, i.e., the system with all the enhancements described in the APD installed, is operational. Thus, it is apparent that the key bone of contention between the Secretary and New York is the interpretation of the phrase "until the complete system is fully operational" in SMM § 11255.
The Supreme Court has made clear
that an agency's construction of its own regulations is entitled to substantial deference. In situations in which the meaning of [regulatory] language is not free from doubt, the reviewing court should give effect to the agency's interpretation so long as it is reasonable, that is, so long as the interpretation sensibly conforms to the purpose and wording of the regulations. Because applying an agency's regulation to complex or changing circumstances calls upon the agency's unique expertise and policymaking prerogatives, we presume that the power authoritatively to interpret its own regulations is a component of the agency's delegated lawmaking powers.
Martin v. Occupational Safety & Health Review Comm'n, 111 S. Ct. 1171, 1175-76, 113 L. Ed. 2d 117 (1991) (citations and quotation marks omitted). Because both New York's interpretation of SMM § 11255 and the Secretary's interpretation of SMM § 11255 are plausible, and because the law mandates that we treat with substantial deference the Secretary's interpretation of his own regulation, we do not find the Secretary's interpretation of SMM § 11255 to be arbitrary and capricious.
In sum, we hold that the Secretary properly applied SMM § 11255 when he decided to fund at 50% FFP the operation of the partially installed WMS/NYC, and would not fund WMS/NYC operations at 75% FFP until New York installed the entire WMS/NYC Citywide.
B. It was Within the Secretary's Power to Fund at 50% FFP the Operation of the Partially Installed WMS/NYC, Even Assuming the Secretary Never Funded Upstate WMS at 50% FFP.
New York asserts that because the Secretary approved the operation of upstate WMS incrementally by site, and funded each site at 75% FFP as each site became operational, the Secretary's refusal to do so for WMS/NYC was arbitrary and capricious.
The Supreme Court has held that if an Administrative Agency changes its position on an issue, and "there appears to have been good reason for the change," the agency's new position is entitled to substantial deference. See Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 355-56, 104 L. Ed. 2d 351, 109 S. Ct. 1835 (1989) (substantial deference was due to a regulation, which superseded a previous regulation, because there was a "well-considered basis for the change"); National Labor Relations Bd. v. Local Union No. 103, 434 U.S. 335, 351, 98 S. Ct. 651, 54 L. Ed. 2d 586 (1978) ("An administrative agency is not disqualified from changing its mind; and when it does, the courts still sit in review of the administrative decision and should not approach the statutory construction issue, de novo and without regard to the administrative understanding of the statutes."). In the case before us, the record indicates that the Secretary determined that the type of incremental approval he engaged in when he made funding decisions about upstate WMS was not a viable methodology to use when evaluating systems as complex as WMS/NYC. R. 938-39.
Therefore, it was well within the Secretary's discretion to change his funding policy when he funded WMS/NYC, and we cannot conclude that the Secretary's decision to make that change was arbitrary and capricious.
C. The Transition Funding Provision Reasonably Requires Review and Operation of the Entire WMS/NYC and Not Merely Component Sites
New York's final argument is that each of the 92 sites of the WMS/NYC can qualify as a "fully operational" system within the meaning of SMM § 11255, and that therefore, each WMS/NYC site met the requirements for 75% FFP as each site became operational. We disagree.
SMM § 11255 provides that 50% FFP terminates only when "the complete system is fully operational and meets the requirements of § 11210 [conditions of system operation approval]." As we noted above, the Secretary's definition of "complete system," as the system with all the enhancements described in the APD installed, is not arbitrary and capricious. See § IV(A) supra. Therefore, we accept the Secretary's interpretation of SMM § 11255.
New York's contention, at its core, is that because an individual WMS/NYC site is capable of operating and rendering benefits to the MMIS independent of other sites, each site should be viewed as its own system. However, New York did not propose, nor did the Secretary agree to fund some working fractional portion of the WMS/NYC "whether or not installation was complete at all sites Citywide." Plaintiff's Memorandum in Support of its Motion for Summary Judgment at 24. Rather, New York proposed in the APD, and the Secretary only agreed to fund an integrated, citywide system which would confer benefits on New York's administration of the Medicaid program. Until New York concluded installation of the WMS/NYC throughout the City, the Secretary could not determine whether the communications network capacity was sufficient, or "whether there are differences between the sites which might need adjustment when the entire system is operational." R. 13 (citing R. 1077-78). In short, the review of a particular site's operation was not sufficient to determine whether the entire citywide system was operational. Thus, the Secretary's decision to fund the WMS/NYC at 75% FFP only after New York installs the entire system citywide was not arbitrary and capricious.
New York argues that the transition funding policy, by its terms, only applies "to a situation where one subsystem of a system is installed and operating before the other subsystems of the system are completed." Plaintiff's Memorandum in Support of its Motion For Summary Judgment at 26 (emphasis in original). New York then simply goes on to assert that an "an office is not a subsystem," but a complete system, and that therefore, once a WMS/NYC site is up and running, the operation of the site was entitled to 75% FFP. We disagree.
The Secretary's definition of the word "subsystem" in SMM § 11255 apparently embraces a single site that is part of a larger system of interconnected sites. Though this may not be the only possible definition of "subsystem," we find this definition to be reasonable. Therefore, the Secretary's decision to fund the operation of individual WMS/NYC sites at 50% FFP until the entire WMS/NYC system is installed and interconnected must be upheld.
We observe that New York, in order to support its position about the interpretation of the word "subsystem," has cited a dictionary definition of subsystem which provides that a subsystem is "any system that is part of a larger system; component system." Plaintiff's Memorandum in Support of its Motion for Summary Judgment at 27 n.16 (quoting Webster's New World Dictionary of the American Language (2d ed. 1984)). However, because an individual WMS/NYC site is part of a system of interconnected sites, this definition supports, rather than refutes the Secretary's assertion that an individual WMS/NYC site can be considered a subsystem.
In sum, we do not find the Secretary's decision to fund the operation of individual sites of the WMS/NYC at 50% FFP prior to the installation of the entire WMS/NYC to be arbitrary and capricious.
The Secretary's motion for summary judgment is granted, and New York's motion for summary judgment is denied.
Dated: New York, New York
January 29, 1993
KENNETH CONBOY, U.S.D.J.