Commonwealth of Mass. v. Sebelius

• Decision Date: 11 March 2011
• Docket Number: No. 09–2392.,09–2392.
• Citation: 638 F.3d 24
• Parties: Commonwealth of MASSACHUSETTS, Plaintiff, Appellant,v.Kathleen SEBELIUS, et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

638 F.3d 24

Commonwealth of MASSACHUSETTS, Plaintiff, Appellant,

v.Kathleen SEBELIUS, et al., Defendants, Appellees.

No. 09–2392.

United States Court of Appeals, First Circuit.

Heard Nov. 4, 2010.Decided March 11, 2011.

Kenneth W. Salinger, Assistant Attorney General, Administrative Law Division, with whom Martha Coakley, Attorney General, was on brief for appellant.Daniel Tenny, Attorney, Appellate Staff, Civil Division, Department of Justice, with whom Tony West, Assistant Attorney General, Carmen Ortiz, United States Attorney, Mark B. Stern, Attorney, Appellate Staff, Civil Division, Department of Justice, David S. Cade, Acting General Counsel, Nancy S. Nemon, Chief Counsel, Region I, and Clifford M. Pierce, Assistant Regional Counsel, Department of Health and Human Services, were on brief for appellees.Before LYNCH, Chief Judge, BOUDIN and HOWARD, Circuit Judges.

LYNCH, Chief Judge.

The Commonwealth of Massachusetts, by the administrator of “MassHealth,” its state Medicaid program, appeals from a dismissal of its lawsuit against federal officials for failure to state a claim under Fed.R.Civ.P. 12(b)(6). The Commonwealth claims that the federal Centers for Medicare & Medicaid Services (CMS) and associated entities violated the federal Medicaid statute when they refused to allow the Commonwealth to recover reimbursement directly from CMS in four cases of “retroactive dual eligibility.”

In each of these four cases, an individual who received Massachusetts Medicaid funds to pay for medical services was later deemed retroactively eligible for federal Medicare funds for the period in which the individual received those services. The state is trying to secure reimbursement for its past Medicaid payments by directly petitioning the federal government for reimbursement rather than going back to the providers of services, whom the Medicare program clearly recognizes as appropriate claimants. This dispute is not over whether the Commonwealth should ultimately be reimbursed by Medicare, but whether it has chosen a permissible mechanism to recover reimbursement. Cf. Massachusetts v. United States, 522 F.3d 115, 129 n. 8 (1st Cir.2008).

The Commonwealth, for understandable reasons, argues that its obligations under the federal Medicaid statute, as stated in 42 U.S.C. § 1396a(a)(25)(B) and 42 C.F.R. § 433.139(d), require that it seek and recover reimbursement directly from CMS in these cases of retroactive dual eligibility, and that this is the Commonwealth's exclusive avenue. Secretary Sebelius and the defendant administrators of CMS and associated entities deny this and reply that the Commonwealth must instead seek reimbursement from providers, who then in turn must obtain payment from Medicare.

The federal defendants argue this is so because 42 U.S.C. § 1395f(a) and 42 C.F.R. § 424.33 only allow “providers” to receive payments from Medicare, and the Commonwealth is, as it admits, not a provider. Defendants argue that to meet its obligations to recover reimbursement under the Medicaid statute, the Commonwealth must request reimbursement from individual providers, who then must obtain payment from the federal Medicare agency. The federal defendants say that this is the procedure used by other states to recover reimbursement, that they have been consistent in their interpretation, and that Massachusetts is simply wrong when it asserts this interpretation leaves it with no way to recover reimbursement in accordance with the Medicaid statute.

In this matter of statutory interpretation, the district court held that the Medicare statute unambiguously forbids the Commonwealth from recovering reimbursement directly from CMS. In the alternative, it held that even if the Medicare statute were ambiguous, CMS's interpretation must be sustained under Chevron, U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), and Auer v. Robbins, 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997).

We requested at oral argument, and subsequently received, additional briefing on what mechanisms would be available for the Commonwealth to obtain reimbursement if its position were not accepted. We affirm the district court's judgment, albeit on different reasoning.

I.

The federal Medicare and Medicaid statutes, which compose Title XVIII and Title XIX of the Social Security Act, interact. Medicare is a health insurance program for those who are over age 65 or have certain disabilities. ¹ 42 U.S.C. § 1395 et seq. By contrast, Medicaid is a health insurance program for low-income individuals; it is funded by both the federal government and state governments.² 42 U.S.C. § 1396 et seq.

Medicaid is generally supposed to be a “payer of last resort.” Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 291, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006) (quoting S.Rep. No. 99–146, at 313, 1986 U.S.C.C.A.N. 42, 280 (1985)). This means that “when an individual is entitled to Medicare and eligible for Medicaid, Medicare, like any other third party, is the primary payor,” and Medicaid may only pay a claim “to the extent that payment allowed under the applicable payment schedule ... exceeds the amount of Medicare's payment.” Medicaid Program: State Plan Requirements and Other Provisions Relating to State Third Party Liability Programs, 55 Fed.Reg. 1423, 1429 (1990). State Medicaid agencies must “take all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services” that would otherwise be paid by Medicaid. 42 U.S.C. § 1396a(a)(25)(A). It is not disputed that Medicare is a third party under this provision.³

Under the federal Medicaid statute and its accompanying regulations, state Medicaid agencies must follow two sets of requirements when addressing third-party liability.⁴ First, if probable third-party liability is established at the time a claim is filed with the state agency, the agency must reject the claim and return it to the service provider. 42 C.F.R. § 433.139(b)(1); 42 U.S.C. § 1396a(a)(25)(A). Second, if a state Medicaid agency only “learns of the existence of a liable third party” or “benefits become available from a third party” after Medicaid has paid the claim, the Medicaid agency must “seek recovery of reimbursement.” 42 C.F.R. § 433.139(d)(2); see also 42 U.S.C. § 1396a(a)(25)(B). The Commonwealth relies on the second statute and regulation, arguing they require that it seek and obtain reimbursement directly from CMS when the liable third party is Medicare.⁵

The defendants argue that several provisions of the federal Medicare statute, particularly 42 U.S.C. § 1395f(a), forbid the Commonwealth from recovering reimbursement directly from CMS. With some exceptions not relevant here, “payment for services ... may be made only to providers of services” if filed “in such manner, and by such person or persons as the Secretary may by regulation prescribe.” 42 U.S.C. § 1395f(a)(1). By regulation, in 42 C.F.R. § 424.33, the Secretary has prescribed that “claims for services of providers” must be “[f]iled by the provider.” The Commonwealth argues, and the defendants agree, that it is not a provider. The defendants argue that while the Commonwealth may not recover reimbursement directly from CMS, it may fulfill its obligation under the Medicaid statute by asking providers to obtain payment from Medicare.

The defendants argue that providers must comply with such requests by filing a “demand bill” with Medicare. The Medicare statute requires that providers agree to “make adequate provision for return” of money “incorrectly collected” from individuals. 42 U.S.C. § 1395cc(a)(1)(C). CMS regulations state that a “payment properly made to a provider by an individual not considered entitled to Medicare benefits will be deemed to be an ‘incorrect collection’ when the individual is found to be retroactively entitled to benefits.” 42 C.F.R. § 489.40(b). CMS argues that this regulation, though it refers to payments made by individuals rather than state Medicaid agencies, requires that providers return state Medicaid funds in cases of retroactive dual eligibility. It argues that providers that do not comply with this requirement face sanctions, including termination of participation in Medicare. See 42 U.S.C. § 1395cc(b)(2)(A); 42 C.F.R. § 489.53(a)(1).

One reason the Commonwealth takes the position that it may recover reimbursement directly from Medicare is its interpretation of a decision of the Massachusetts Supreme Judicial Court, Atlanticare Medical Center v. Commissioner of the Division of Medical Assistance, 439 Mass. 1, 785 N.E.2d 346 (2003). In that case, a group of private healthcare providers challenged a Massachusetts regulation that required healthcare providers to return state Medicaid payments when a liable third-party insurer was identified after payment. The providers argued that Massachusetts placed an undue burden on providers by making them responsible for recovering payment from third parties. Id. The Supreme Judicial Court struck down the state regulation. In the course of its ruling it reasoned that the state regulation was inconsistent with the federal Medicaid statute, namely 42 U.S.C. § 1396a(a)(25)(B), and that state Medicaid agencies must seek reimbursement directly from liable third parties. Id. at 350.

Some of the reimbursement claims at issue in Atlanticare belonged to individuals who were retroactively deemed eligible for Medicare. We stress that neither the parties nor the issues before this court are the parties or issues that were before the Supreme Judicial Court. In Atlanticare, the issue was the validity of a state regulation; further, the regulation governed reimbursement from all types of third parties, not merely instances involving Medicare. As CMS has noted, the state regulation did not make allowances for the fact that Medicare and Medicaid are not coextensive in coverage; it required providers to return...