Atlanticare Med. Center v. Com'R of Div.

• Decision Date: 20 March 2003
• Citation: 785 N.E.2d 346,439 Mass. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: ATLANTICARE MEDICAL CENTER & others<SMALL><SUP>1</SUP></SMALL> v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE.

785 N.E.2d 346

439 Mass. 1

ATLANTICARE MEDICAL CENTER & others¹ v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued December 2, 2002.

Decided March 20, 2003.

Peter V. Kent (Charlene E. Kent, Marblehead, with him) for the plaintiffs.

John E. Bowman, Jr., Assistant Attorney General, for the defendant.

Present: MARSHALL, C.J., GREANEY, SPINA, COWIN, SOSMAN, & CORDY, JJ.

MARSHALL, C.J.

At issue in this case is whether the division of medical assistance (division), the Commonwealth's administrator of its Medicaid program, has the authority to enforce its reimbursement regulation, 130 Code Mass. Regs. § 450.316(E) (1998) (reimbursement regulation), which requires that healthcare providers return payment to the division in the event that a liable third party is identified after the division has paid the provider for services.² At issue are only those cases where the healthcare provider properly complied with the division's due diligence regulation, which requires a provider to make "diligent efforts" to obtain payment from third-party "resources" before it seeks Medicaid payments from the division, see 130 Code Mass. Regs. § 450.316, first par. (1998) (due diligence regulation),³ but a potential third-party insurer was later identified. For reasons detailed below, we conclude that the division does not have such authority.

The plaintiffs, a group of six hospitals (hospitals), brought an action in the Superior Court against the division seeking judicial review under G.L. c. 30A, § 14, of substantially similar administrative decisions by the division's acting commissioner, which ordered the hospitals to return monies to the division pursuant to its reimbursement regulation, 130 Code Mass. Regs. § 450.316(E).⁴ The hospitals also sought a declaration to the effect that 130 Code Mass. Regs. § 450.316(E) was unlawful as inconsistent with 42 U.S.C. § 1396a(a)(25)(B) (2000).⁵ See G.L. c. 30A, § 7. The parties filed cross motions for judgment on the pleadings. A judge in the Superior Court entered a judgment annulling the administrative decisions and declaring the reimbursement regulation to be inconsistent with the Federal statute and thereby unlawful. The commissioner filed a timely notice of appeal. We transferred the case from the Appeals Court on our own motion.

1. Background. "Medical assistance is a cooperative Federal and State program which provides payment for medical services to eligible individuals and families." Haley v. Commissioner of Pub. Welfare, 394 Mass. 466, 467, 476 N.E.2d 572 (1985). Federal funds are provided to participating States, conditioned on the State's compliance with various statutory requirements. See 42 U.S.C. §§ 1396a et seq. (2000). One such set of requirements pertains to the recovery of funds from liable third parties. See 42 U.S.C. § 1396a(a)(25). The State or local agency must "take all reasonable measures to ascertain the legal liability' of third parties (including health insurers ...) to pay for care and services available under the plan." See 42 U.S.C. § 1396a(a)(25)(A). Reasonable measures include "the collection of sufficient information ... to enable the State to pursue claims against such third parties," 42 U.S.C. § 1396a(a)(25)(A)(i), and the development of a plan for pursuing such claims. See 42 U.S.C § 1396a(a)(25)(A)(ii). Where the State or local agency pays for services and later discovers a liable third party, the State or local agency must seek reimbursement, provided it is cost effective to do so. 42 U.S.C. § 1396a(a)(25)(B).

Massachusetts, as a Medicaid participant, has established a Medicaid program to conform with the Federal statutory scheme. See Haley v. Commissioner of Pub. Welfare, supra at 472, 476 N.E.2d 572 ("the Legislature intended the ... benefits program to comply with the Federal statutory and regulatory scheme"). See also G.L. c. 118E, § 9 (establishing Medicaid program "pursuant to and in conformity with" Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq.). The division administers the program, see G.L. c. 118E, § 1, and is "authoriz[ed] to promulgate regulations which give effect to legislative mandates" (citations omitted). Thomas v. Commissioner of the Div. of Med. Assistance, 425 Mass. 738, 746, 682 N.E.2d 874 (1997). See G.L. c. 118E, §§ 7 and 12. Exercising this power, the division promulgated 130 Code Mass. Regs. § 450.316(E), its reimbursement regulation. See note 3, supra. This regulation applies where, although the provider has made the required "diligent effort" to identify liable third parties before billing the division, a third-party insurer is identified after the division has paid the provider. Compare 130 Code Mass. Regs. § 450.316, first par., with 130 Code Mass. Regs. § 450.316(E). In such a case, the regulation requires the healthcare provider to return to the division payments made to the provider under the Medicaid program.⁶

In 1998, the division sought to enforce the reimbursement regulation with respect to the six plaintiff hospitals. The material facts prompting the division's action are undisputed. In the three years prior to the division's enforcement action, each hospital had provided medical services to individuals deemed eligible for Medicaid benefits. It is undisputed that, in all but two instances not at issue here, the hospitals made diligent efforts to identify liable third-party insurers, in conformity with the division's due diligence regulation. When the hospitals were unable to identify liable third-party insurers, they sought and received payment from the division. Subsequently, in 1998, the division informed the hospitals that it had identified third parties responsible for the claims, and, pursuant to the reimbursement regulation, ordered the hospitals to return the Medicaid payments to the division and to rebill the liable third parties. In some instances, Medicare was the newly discovered third party; the patients serviced by the hospitals in those instances had become retroactively eligible for Medicare benefits. In those instances, no amount of "diligent efforts" by the healthcare providers would have identified a liable thirdparty insurer — Medicare — as Medicare provided the insurance coverage retroactively, i.e., only after the healthcare services had been provided. The remaining instances involved private insurers. The hospitals unsuccessfully appealed from the recovery orders to the commissioner. On appeal, a judge in the Superior Court annulled the decisions. Construing 42 U.S.C. § 1396a(a)(25)(B), the judge concluded that the Federal statute mandated that an administrating agency, such as the division, itself seek reimbursement directly from liable third parties, and that the division's reimbursement regulation was inconsistent with that directive. The judge declared the regulation unlawful to the extent that it required the hospitals to return payments to the division and rebill liable third parties. The commissioner appeals from this decision. We affirm.

2. Discussion. Our review of an administrative action is "limited to a determination whether the State action is arbitrary, capricious, or contrary to law." Tarin v. Commissioner of the Div. of Med. Assistance, 424 Mass. 743, 750, 678 N.E.2d 146 (1997), quoting Massachusetts Hosp. Ass'n v. Department of Pub. Welfare, 419 Mass. 644, 652, 646 N.E.2d 1044 (1995). We will declare an agency regulation void if "its provisions cannot by any reasonable construction be interpreted in harmony with the legislative mandate." Thomas v. Commissioner of the Div. of Med. Assistance, supra at 746, 682 N.E.2d 874, quoting American Family Life Assur. Co. v. Commissioner of Ins., 388 Mass. 468, 477, 446 N.E.2d 1061, cert. denied, 464 U.S. 850, 104 S.Ct. 160, 78 L.Ed.2d 147 (1983). The division argues that the reimbursement regulation, 130 Code Mass. Regs. § 450.316(E), is consistent with 42 U.S.C. § 1396a(a)(25)(B), which the division contends permits, if not directs, a State or local agency administering the Medicaid program to seek reimbursement from providers. Accordingly, the division argues that the Superior Court judge erred in concluding that the division lacked the authority to implement the regulation. On the other hand, the hospitals, in conformity with the judge's decision, maintain that 42 U.S.C. § 1396a(a)(25)(B) requires the division to recover directly from the liable third party. We first consider, therefore, the meaning of the Federal statute.

We exercise de novo review over questions of statutory construction. Raytheon Co. v. Director of the Div. of Employment Sec., 364 Mass. 593, 595, 307 N.E.2d 330 (1974). Although we generally defer to an agency's interpretation of a statute that it is charged with administering, an "incorrect interpretation of a statute ... is not entitled to deference." Massachusetts Hosp. Ass'n v. Department of Med. Sec., 412 Mass. 340, 345-346, 588 N.E.2d 679 (1992), quoting Kszepka's Case, 408 Mass. 843, 847, 563 N.E.2d 1357 (1990). In discerning a statute's meaning, "[w]e interpret the words used in a statute with regard to both their literal meaning and the purpose and history of the statute within which they appear." Massachusetts Hosp. Ass'n v. Department of Med. Sec., supra at 346, 588 N.E.2d 679. Applying this rule, we first consider the plain language of 42 U.S.C. § 1396a(a)(25)(B). See note 5, supra.

The natural reading of the text of § 1396a(a)(25)(B) is that the State or local agency must seek reimbursement from a liable third party, provided it is cost effective to do so. See, e.g., Wesley Health Care Ctr., Inc. v. DeBuono, 244 F.3d 280, 281 (2d Cir.2001) (§ 1396a[a][25][B] requires that, "[i]f third party liability is discovered after medical care has been provided, the [S]tate agency must seek reimbursement from the third party" [emphasis added]). The statute clearly designates the "State or local agency" as the entity...