Legal Opinions - U.S. 4th Circuit Court of Appeals: October 14, 2008

Daily Record, The (Baltimore), Oct 14, 2008

Administrative Law

Medicaid funding regulations

BOTTOM LINE: Centers for Medicare and Medicaid Services did not exceed its authority in promulgating regulations for state to follow in calculating post-eligibility income of nursing home residents.

CASE: Md. Dep't. of Health and Mental Hygiene v. Centers for Medicare and Medicaid Services, US4th No. 07-1512 (decided Sept. 25, 2008) (Judges Michael, Motz & KEELEY (sitting by designation)). RecordFax No. 8-0925-60, 22 pages.

COUNSEL: Kathleen Evelyn Wherthey, Office of the Attorney General of Maryland, Baltimore, MD, for Petitioner. Noreen Cornelia O'Grady, United States Department of Health & Human Services, Office of General Counsel, Philadelphia, PA, for Respondent.

FACTS: As part of the Medicaid program, states provide payment for certain medical and nursing home expenditures using federal and state funds. As the federal agency charged with program oversight, Centers for Medicare & Medicaid Services (CMS) was charged with promulgating rules that state Medicaid agencies were required to follow.

The instant dispute arose with respect to competing interpretations of 42 U.S.C. [section]1396a(r)(1)(A), which provides, in pertinent part, that "with respect to the post- eligibility treatment of income for individuals who are institutionalized," states should deduct expenses for "necessary medical or remedial care recognized under State law but not covered under the State plan...subject to reasonable limits the State may establish on the amount of these expenses."

Pursuant to that statute, CMS promulgated regulations requiring states to deduct uncovered but medically necessary expenses that nursing home residents incurred before becoming eligible for Medicaid benefits from the amount of post-eligibility income those residents must contribute to the cost of their nursing home care. See 42 C.F.R. [section]435.726(c)(4).

Maryland amended its State Medicaid Plan (the SPA) to eliminate deductions for uncovered medical expenses Medicaid recipients incurred before becoming eligible for benefits.

When CMS disapproved the amendment, Maryland filed a petition for review of that determination in federal district court, which ultimately upheld the CMS decision.

Maryland appealed that decision to the 4th Circuit, which affirmed.

LAW: Under the Administrative Procedure Act, 5 U.S.C. [section]706(2), a court may only "'set aside agency action, findings, and conclusions' when they are found to be 'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law'." West Virginia v. Thompson, 475 F.3d 204, 209 (4th Cir. 2007) (quoting 5 U.S.C. [section]706(2)). The court may also "set aside agency actions 'in excess of statutory jurisdiction, authority, or limitations, or short of statutory right'" or "'without observance of procedure required by law'." Id. (quoting 5 U.S.C. [section]706(2)(C)-(D)).

When CMS's disapproval of an SPA depends on construction of the Medicaid statute, a court views that administrative interpretation "through the lens of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)." Thompson, 475 F.3d at 212. Chevron requires the court to reject administrative constructions that are contrary to clear congressional intent.

First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. Chevron, 467 U.S. at 842-43.

A reviewing court must accord an agency's interpretation "substantial deference" in determining whether its construction is permissible. Rust v. Sullivan, 500 U.S. 173, 184 (1991). Nonetheless, where "the [agency's] reasoning couples internal inconsistency with a conscious disregard for the statutory text," the statutory interpretation must be rejected. Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 292 (2006). Deference in the interpretation of the Medicaid statute is "particularly warranted." Thompson, 475 F.3d at 212.

Designed to provide medical assistance to persons whose income and resources are insufficient to meet the costs of necessary medical care, the Medicaid program functions as a partnership between the federal government and the states. See 42 U.S.C. [section]1396a(a)(10). After a state elects to participate in the program, the federal government shares the costs of providing medical assistance in a ratio that varies from state to state. See 42 U.S.C. [section]1396a(a)(2). In return, the state agrees to comply with the Medicaid statute and any administrative regulations properly promulgated by CMS. See 42 U.S.C. [section]1396a(a)(1).

Consistent with Medicaid's character as a poverty program, two basic categories of applicants are eligible to receive medical assistance under Medicaid: the "categorically needy" and the "medically needy." 42 U.S.C. [section]1396a(a)(10). It was the income of those medically needy applicants that was impacted by Maryland's SPA. Medically needy applicants have become impoverished through medical expenditures; while they have sufficient income to afford basic living expenses, they cannot afford expensive medical care. Id.