Atlanticare Med. Ctr. v. Div. of Med. Assistance

• Decision Date: 21 July 2020
• Docket Number: SJC-12828
• Citation: 149 N.E.3d 343,485 Mass. 233
• Parties: ATLANTICARE MEDICAL CENTER & others v. DIVISION OF MEDICAL ASSISTANCE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

485 Mass. 233

149 N.E.3d 343

ATLANTICARE MEDICAL CENTER & others¹

v.DIVISION OF MEDICAL ASSISTANCE.

SJC-12828

Supreme Judicial Court of Massachusetts, Suffolk..

Argued February 10, 2020

Decided July 21, 2020

Douglas S. Martland, Assistant Attorney General, for the defendant.

Charlene E. Kent, for the plaintiffs.

Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.

KAFKER, J.

In the instant case we are asked to revisit a decision issued by this court in 2003 involving State Medicaid reimbursements, in light of subsequent developments to the relevant Federal law. At issue is the State's Medicaid program, MassHealth, which provides insurance for indigent residents of the Commonwealth.² In Atlanticare Med. Ctr. v. Commissioner of the Div. of Med. Assistance, 439 Mass. 1, 3, 5, 785 N.E.2d 346 (2003) ( Atlanticare I ), this court affirmed a judgment declaring that part of a State Medicaid regulation, 130 Code Mass. Regs. § 450.316(E) (1998),³ was inconsistent with the Federal Medicaid scheme. The regulatory provision required health care providers to return payments to MassHealth where a third-party insurer was later identified as liable for the payment that MassHealth had already paid out. Id. at 2, 785 N.E.2d 346. We concluded that the Federal Medicaid scheme tasked the State Medicaid agency, not individual providers, with seeking reimbursement from liable third-party insurers, including Medicare. Id. at 6-7, 785 N.E.2d 346. We thus held that the State regulation impermissibly shifted the burden for seeking reimbursement onto health care providers, in violation of the Federal statutory scheme. Id. at 14, 785 N.E.2d 346. In so holding, we rejected the argument that MassHealth would be unable to directly seek reimbursement where the liable third party at issue was Medicare. Id. at 11, 785 N.E.2d 346.

Pursuant to our ruling in Atlanticare I, MassHealth began seeking reimbursements directly from Medicare, rather than from providers, where Medicare was identified as a liable third-party insurer. The Center for Medicare & Medicaid Services (CMS), a division of the Department of Health and Human Services (HHS) that oversees the administration of Medicaid and Medicare at the Federal level, refused to issue reimbursements from Medicare to MassHealth, however. See Daley v. Secretary of the Executive Office of Health & Human Servs., 477 Mass. 188, 190, 74 N.E.3d 1269 (2017) ; Massachusetts v. Sebelius, 638 F.3d 24, 25 (1st Cir. 2011) ( Sebelius ). CMS maintained that Medicare funds could only be paid out to providers, not MassHealth, and that MassHealth could only obtain Medicare reimbursements by going through providers. Sebelius, supra. MassHealth brought suit against CMS in Federal court, challenging this position. Id. at 29. In a 2011 ruling, the United States Court of Appeals for the First Circuit agreed with CMS's position, and held that the Federal Medicare scheme prohibited State Medicaid agencies, including MassHealth, from receiving funds from Medicare. See id. at 36. At around the same time, a Federal Medicare regulation was amended to acknowledge the practice of State Medicaid agencies obtaining Medicare reimbursements through providers, rather than seeking such reimbursements directly from Medicare. See 42 C.F.R. § 424.44(b)(3) (2019).

In light of the First Circuit's holding and the amendment to 42 C.F.R. § 424.44(b), MassHealth sought to modify the declaratory judgment and restore MassHealth's ability to obtain reimbursements from providers, rather than liable third parties. For the reasons discussed infra, we conclude that MassHealth has demonstrated a sufficient change in circumstances to warrant modification of the judgment. We further conclude, however, that only a narrow modification of the judgment is necessary to allow MassHealth to seek reimbursement where the liable third party is Medicare. Accordingly, we order that this case be remanded to the Superior Court for modification of the judgment in accordance with this opinion.

1. Background. a. Overview of Medicaid and Medicare. Medicare is a Federal program that provides health care benefits to the elderly and disabled. See Briggs v. Commonwealth, 429 Mass. 241, 243, 707 N.E.2d 355 (1999) ; 42 U.S.C. §§ 1395 et seq. Medicare is supported entirely by Federal funds and is administered by the Federal government. See Briggs, supra. Medicaid, by contrast, is a health care program designed to assist the needy and indigent. See id.; 42 U.S.C. § 1396 et seq. Unlike Medicare, Medicaid follows a model of "cooperative federalism" between the State and Federal governments (citation omitted). See Harris v. McRae, 448 U.S. 297, 308, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980) ( McRae ). State participation in Medicaid is voluntary, but those States that choose to participate must develop a State plan in compliance with Federal requirements. See Massachusetts Eye & Ear Infirmary v. Commissioner of the Div. of Med. Assistance, 428 Mass. 805, 812, 705 N.E.2d 592 (1999). State Medicaid plans must comply with requirements set forth in the Federal statutory scheme, as well as Federal regulations promulgated by HHS. See id. In exchange, "the Federal Government agrees to pay a specified percentage of ‘the total amount expended ... as medical assistance under the State plan ...." McRae, supra, quoting 42 U.S.C. § 1396b(a)(1). Although States must comply with Federal requirements, Medicaid is designed to provide some flexibility to the States to formulate a plan tailored to each State's individual needs. See Danvers Pathology Assocs., Inc. v. Atkins, 757 F.2d 427, 428 (1st Cir. 1985).

Eligibility for Medicaid and Medicare are not mutually exclusive. An individual who is both elderly and indigent may be "dual eligible[ ]" for both programs. See Briggs, 429 Mass. at 244, 707 N.E.2d 355. See also Connecticut Dep't of Social Servs. v. Leavitt, 428 F.3d 138, 141 (2d Cir. 2005) ( Leavitt ) ("Because elderly Americans are covered by Medicare, and poor Americans are covered by Medicaid, the elderly poor are covered by both programs. These beneficiaries are known as ‘dual eligibles’ "). Where an individual is dual eligible, and receives a health care service that could be covered by either Medicare or Medicaid, Medicare is to pay in the first instance. See Leavitt, supra ; 42 U.S.C. § 1396a(a)(25)(A). This is because Medicaid is designed to be a "payer of last resort." Arkansas Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 291, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006). Under this principle, Medicaid is not to be used to fund a health care expense where another funding resource is available. Shweiri v. Commonwealth, 416 Mass. 385, 388–389, 622 N.E.2d 612 (1993). The Federal statutory and regulatory scheme outlines two methods for ensuring that Medicaid remain the payer of last resort where another funding resource is identified: "cost avoidance" and "pay and chase." See Miller v. Gorski Wladyslaw Estate, 547 F.3d 273, 278 (5th Cir. 2008).

i. Cost avoidance. Cost avoidance is the primary method of ensuring that Medicaid funds are not used where another funding resource is available. See id. States are required to "take all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services available under the plan" before paying out Medicaid funds. See 42 U.S.C. § 1396a(a)(25)(A). A third party is defined as "any individual, entity or program that is or may be liable to pay all or part of the expenditures for medical assistance furnished under a State plan." 42 C.F.R. § 433.136 (2010). Reasonable measures include the submission of a plan to the Secretary of HHS "for pursuing claims against such third parties."

42 U.S.C. § 1396(a)(25)(A)(ii). In accordance with these requirements, Massachusetts has promulgated a regulation mandating that providers make "diligent efforts to obtain payment first from other resources ... so that the MassHealth agency will be the payer of last resort." 130 Code Mass. Regs. § 450.316 (2019).

Where a State is able to establish the "probable existence" of third-party liability at the time when a claim is filed, "the agency must reject the claim and return it to the provider for a determination of the amount of liability." 42 C.F.R. § 433.139(b)(1) (2019). Once such a liability determination is made, "the agency must then pay the claim to the extent that payment allowed under the agency's payment schedule exceeds the amount of the third party's payment." 42 C.F.R. § 433.139(b)(1). Where probable third-party liability cannot be established, or where benefits are not available at the time the claim is filed, the State Medicaid agency is responsible for paying the claim. See 42 C.F.R. § 433.139(c).

ii. Pay and chase. In the regular course, the Commonwealth's "diligent efforts" requirement ensures that MassHealth does not pay for health care services that could have been paid for by a third-party insurer. See 130 Code Mass. Regs. § 450.316. Instances arise, however, where a liable third party is identified after Medicaid has already paid the provider. For example, individuals who are eligible for Medicaid may become retroactively eligible for Medicare as well. See, e.g., 42 C.F.R. § 406.6(d)(4) (2019) (individual who signs up for Medicare Part A coverage at some point after he or she first becomes eligible is entitled to retroactive benefits). Such individuals are referred to as "retroactive dual eligibles." In such instances, Medicaid employs the secondary "pay and chase" method of handling third-party liability, which consists of the following:

"in any case where such a [third-party] legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State or local agency will seek reimbursement for such assistance to the extent of such legal

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