Duke University Medical Center v. Bruton, COA98-940.

• Decision Date: 06 July 1999
• Docket Number: No. COA98-940.,COA98-940.
• Court: North Carolina Court of Appeals
• Parties: DUKE UNIVERSITY MEDICAL CENTER, Mission-St. Joseph's Health System, Inc., Moses Cone Health System, The North Carolina Baptist Hospitals, Inc., Wake Medical Center, Petitioner-Appellees, v. H. David BRUTON, M.D., Secretary of the North Carolina Department of Health and Human Services; The North Carolina Department of Health and Human Services, Division of Medical Assistance, Respondent-Appellants.

516 S.E.2d 633

134 NC App. 39

DUKE UNIVERSITY MEDICAL CENTER, Mission-St. Joseph's Health System, Inc., Moses Cone Health System, The North Carolina Baptist Hospitals, Inc., Wake Medical Center, Petitioner-Appellees, v. H. David BRUTON, M.D., Secretary of the North Carolina Department of Health and Human Services; The North Carolina Department of Health and Human Services, Division of Medical Assistance, Respondent-Appellants.

No. COA98-940.

Court of Appeals of North Carolina.

July 6, 1999.

Turner Enochs & Lloyd, P.A., by Thomas E. Cone, Greensboro, for petitioner-appellees.

Attorney General Michael F. Easley, by Assistant Attorney General Kathryn J. Thomas, for respondent-appellants.

MARTIN, Judge.

Petitioners sought a declaratory ruling from the North Carolina Department of Human Resources, now the North Carolina Department of Health and Human Services (DHHS), regarding the validity of a policy of DHHS's Division of Medical Assistance (DMA), which denies Medicaid payments for hospital services rendered to recipients who were otherwise eligible but had failed to also file for Medicare. This policy was initiated in the June 1995 Medical Bulletin of the Claims Analysis Unit of DMA and was described as follows:

Effective for claims processed on or after June 1, 1995, Medicaid will deny claims for recipients age 65 and over who are entitled to Medicare benefits but fail to apply. You may bill the recipient for Medicare-covered services if he fails to apply for Medicare benefits. Claims will be denied with [the entry of] ... "Recipient is entitled to Medicare but failed to apply. Service is not covered. Bill recipient."

The policy was reviewed and upheld by DMA.

Petitioners sought judicial review of DMA's ruling in Guilford County Superior Court. Upon review of the declaratory ruling, the superior court found that the June 1995 Medical Bulletin effectively initiated a policy to "deny claims for recipients age 65 or over who are entitled to Medicare but failed to apply." The superior court also noted the existence of a "buy-in" agreement between the State and the Federal Department of Health and Human Services which "requires DMA to take certain actions to enroll potentially Medicare-eligible Medicaid recipients, but does not impose responsibility for this enrollment on Medicaid recipients."

After reviewing the "buy-in" agreement, relevant federal and state law, and the state Medicaid Plan, the superior court concluded that DMA's policy was unauthorized. Citing 42 C.F.R. § 435.608, the superior court concluded that DMA may not require Medicare enrollment as a condition of eligibility for the receipt of Medicaid, and that Medicare was not a condition of Medicaid coverage, except under the limited circumstances not applicable to this case. In addition, the superior court concluded that the DMA policy was not a properly promulgated rule within the meaning of the North Carolina Administrative Procedure Act (NCAPA), G.S. § 150B-18, and was therefore not binding on the public. Finally, the superior court concluded that federal statutes and regulations regarding third party coverage did not authorize DMA to deny claims on the grounds that Medicare provided third party coverage under these circumstances, and that DMA was required by federal law to pay for Medicaid services on behalf of such individuals without delay. The declaratory ruling was therefore reversed, and respondent agency now appeals.

I. Standard of Review

Appellate review of a judgment of the superior court entered upon review of an administrative agency decision requires that the appellate court determine whether the superior court utilized the appropriate scope of review and, if so, whether the superior court did so correctly. ACT-UP Triangle v. Com'n for Health Serv., 345 N.C. 699, 483 S.E.2d 388 (1997). The nature of the error asserted by the party seeking review dictates the appropriate manner of review: if the appellant contends the agency's decision was affected by a legal error, G.S. § 150B-51(1)(2)(3) & (4), de novo review is required; if the appellant contends the agency decision was not supported by the evidence, G.S. § 150B-51(5), or was arbitrary or capricious, G.S. § 150B-51(6), the whole record test is utilized. In re Appeal by McCrary, 112 N.C.App. 161, 435 S.E.2d 359 (1993). G.S. § 150B-4(a) permits review of an agency's declaratory ruling in the same manner as that of an order in a contested case. Therefore, the standard of review for the agency's declaratory ruling is determined by G.S. § 150B-51. "Under section 150B-51, a reviewing court is permitted to reverse or modify the agency's decision if the rights of the petitioners may have been prejudiced because the agency's findings, inferences, conclusions, or decisions are affected by error of law." D.G. Matthews & Son, Inc. v. DENR, 131 N.C.App. 520, 522, 508 S.E.2d 331, 333 (1998), disc. review denied, 350 N.C. 92 (1999). Because appellees alleged in their petition for judicial review that appellants erroneously construed state and federal law regarding the relation between Medicare and Medicaid, our standard of review is de novo. See id.; Friends of Hatteras Island v. Coastal Resources Comm., 117 N.C.App. 556, 452 S.E.2d 337 (1995)

. In de novo review, an appellate court may substitute its judgment for that of the agency. See id.

II. Background

A summary of the Medicare and Medicaid acts is helpful in understanding DMA's policy and its operation with respect to the patients and health providers involved with this case.

A. Medicare

Title XVIII of the Social Security Act, entitled "Health Insurance for the Aged and Disabled," 42 U.S.C. §§ 1395-1395ccc, established the Medicare program, administered and funded by the federal government. Medicare provides health care benefits to the elderly and disabled: an individual must be at least 65 years old or disabled to be eligible. 42 U.S.C. §§ 1395c and 426(a). These individuals are commonly referred to as Medicare-eligible patients.

Medicare coverage is primarily divided into two parts. Part A covers all inpatient hospital expenses through an insurance plan. See 42 U.S.C. §§ 1395c to 1395i-4. Enrollment is essentially automatic for Medicare-eligible patients receiving this benefit. Part B covers certain physician services, hospital outpatient services, and other health services not covered under part A. See 42 U.S.C. §§ 1395j to 1395w-4(j). Part B coverage is not freely or automatically available to all Medicare-eligible patients, who must first enroll in the part B insurance program by paying insurance premiums ("Part B insurance premiums"). See §§ 1395o -1395s. Once this is done, the federal government pays most of the "reasonable costs" of outpatient hospital services and most of the "reasonable charges" for physician services rendered to the insured. § 1395. The part B patients themselves must pay the remaining charges for the outpatient hospital services and physician services (co-payments or coinsurance), as well as an annual deductible. Id.; § 1395cc(a)(2)(A). Together, the part B premiums, deductibles and coinsurance are generally referred to as "Part B cost-sharing." Reasonable costs and charges for the services covered under part B are established pursuant to the Medicare Act and its implementing regulations. See § 1395w-4(a), (b).

However, payment of Medicare cost-sharing would pose a problem for some poor Medicare-eligible patients. As explained below, Congress resolved this problem by requiring payment of Medicare cost-sharing under state Medicaid plans.

B. Medicaid

Congress established the Medicaid program as Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., in 1965 to provide "federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons." Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L.Ed.2d 784, 794 (1980). States participating in the optional program are entitled to federal financial participation (FFP) and are thereby reimbursed for a portion of their costs. See Atkins v. Rivera, 477 U.S. 154, 106 S.Ct. 2456, 91 L.Ed.2d 131 (1986); McKoy v. North Carolina Department of Human Resources, 101 N.C.App. 356, 399 S.E.2d 382 (1991). "Although participation in the Medicaid program is entirely optional, once a State elects to participate, it must comply with the requirements of Title XIX," Harris, 448 U.S. at 301, 100 S.Ct. at 2680, 65 L.Ed.2d at 794, and the requirements of the Secretary of Health and Human Services. Atkins, 477 U.S. at 157, 106 S.Ct. at 2458-59, 91 L.Ed.2d at 137. Participating states must serve (1) the "categorically needy," defined as families with dependent children eligible for public assistance under the Aid to Families with Dependent Children ("AFDC") program, 42 U.S.C. § 601 et seq., and (2) the aged, blind, and disabled persons eligible for benefits under the Supplemental Security Income ("SSI") program, 42 U.S.C. § 1381 et seq. See 42 U.S.C. § 1396a(a)(10)(A); Harris, 448 U.S. at 301 n. 1, 100 S.Ct. at 2680 n. 1, 65 L.Ed.2d at 795 n. 1; Elliot v. North Carolina Dept. of Human Resources, 115 N.C.App. 613, 446 S.E.2d 809 (1994), affirmed, 341 N.C. 191, 459 S.E.2d 273 (1995).

C. Interaction Between Medicare and Medicaid

Some individuals are eligible for benefits under both the Medicare and Medicaid Acts; they are either elderly or disabled, and they are poor. These individuals are commonly called "dual eligibles." 42 U.S.C. §§ 1395v & 1395i-2(g). While dual eligibles are, by definition, eligible for Medicare part A enrollment and part B insurance coverage, because they are impoverished there exists the risk that they will be unable to afford cost sharing requirements.

Medicare and Medicaid statutes have addressed this problem by creating a "buy-in" program, under which participating states with Medicaid plans use Medicaid funds (i.e., state funds for which federal matching funds under Medicaid are...