Lewis v. Hegstrom

• Decision Date: 08 August 1985
• Docket Number: No. 84-3679,84-3679
• Citation: 767 F.2d 1371
• Parties: , Medicare&Medicaid Gu 34,848 Harry LEWIS and the Portland Gray Panthers, individually and on behalf of all others similarly situated, Plaintiffs-Appellees, v. Leo T. HEGSTROM, individually and in his capacity as Director of the Department of Human Resources of the State of Oregon; Keith Putman, individually and in his capacity as Administrator of the Adult and Family Services Division of the State of Oregon, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1371

767 F.2d 1371

10 Soc.Sec.Rep.Ser. 247, Medicare&Medicaid Gu 34,848

Harry LEWIS and the Portland Gray Panthers, individually and on behalf of all others similarly situated Plaintiffs-Appellees, v. Leo T. HEGSTROM, individually and in his capacity as Director of the Department of Human Resources of the State of Oregon; Keith Putman, individually and in his capacity as Administrator of the Adult and Family Services Division of the State of Oregon, et al., Defendants-Appellants.

No. 84-3679.

United States Court of Appeals Ninth Circuit.

Argued Jan. 15, 1985.

Submitted Feb. 19, 1985.

Decided Aug. 8, 1985.

Michael H. Marcus, Portland, Or., for plaintiffs-appellees.

Robert W. Muir, Asst. Atty. Gen., Salem, Or., for defendants-appellants.

Appeal from the United States District Court for the District of Oregon.

Before GOODWIN, SKOPIL and WIGGINS, Circuit Judges.

WIGGINS, Circuit Judge:

This class action civil rights suit involves the proper computation of the period of ineligibility for Medicaid applicants in the state of Oregon who transfer their home for less than fair market value within two years of applying for Medicaid assistance. The sole issue before this court is whether proposed Or.Admin.R. 461-04-070(6)(e), which defines the period of ineligibility for such applicants, is invalid under the Supremacy Clause on the ground that it conflicts with 42 U.S.C. Sec. 1396p(c)(2)(B).

The district court conducted a careful review of the statute and its legislative history. It concluded that "[t]he logical reading of [the language of the statute] supports plaintiffs' position," Lewis v. Hegstrom, 581 F.Supp. 183, 187 (D.Or.1983), and awarded judgment accordingly. ¹

We believe that the court below placed undue emphasis upon isolated words of the statute in seeking an understanding of Congress' intent and in doing so failed to construe ambiguous statutory language in a manner which achieved the statute's overall object. We hold that proposed Or.Admin.R.

461-04-070(6)(e) is consistent with federal law, and we reverse.

BACKGROUND

A. Medicaid

Medicaid is a cooperative federal-state program established in 1965 as Title XIX of the Social Security Act (the Act), 79 Stat. 343, as amended, codified at 42 U.S.C. Sec. 1396 et seq., to provide federal financial assistance to states that elected to reimburse specified costs of medical treatment for needy individuals. See generally Schweiker v. Gray Panthers, 453 U.S. 34, 36, 101 S.Ct. 2633, 2636, 69 L.Ed.2d 460 (1981). Participating states must each develop a plan containing "reasonable standards for determining eligibility for and the extent of medical assistance." Id. (quoting 42 U.S.C. Sec. 1396a(a)(17) ). State plans must comply with the requirements imposed by the Act and the implementing regulations. See 42 U.S.C. 1396a(b); Schweiker v. Gray Panthers, 453 U.S. at 37, 101 S.Ct. at 2636. As long as a state complies with the requirements of the Act, it has wide discretion in administering its local program. Dawson v. Meyers, 622 F.2d 1304 (9th Cir.1980), vacated on other grounds sub nom, Beltran v. Myers, 451 U.S. 625, 101 S.Ct. 1961, 68 L.Ed.2d 495 (1981).

An applicant is entitled to Medicaid if he or she satisfies the eligibility criteria established by the applicant's state. Schweiker v. Gray Panthers, 453 U.S. at 36-37, 101 S.Ct. at 2636.

In its state plan, each state determines the rate of reimbursement to medical facilities for medical care provided. 42 U.S.C. Sec. 1396a(a)(13)(A). The state reimbursement rates are subject to the Secretary's approval. Id. Once a state plan is approved by the Secretary, the state is reimbursed by the federal government for a portion of the funds expended by the state.

Oregon has adopted a state plan which fixes the maximum rate at which a facility may be reimbursed at 75 percent of its actual allowable costs. Or.Admin.R. 411-70-440(2) (1983). In Oregon, Medicaid recipients are required to contribute to the cost of their care all of their income and resources above a minimal amount which may be kept for personal needs. Or.Admin.R. 411-70-045(2) and 411-70-095 (1983). In practice, participating medical facilities in Oregon receive, on the average, $1,350 per month per patient under this reimbursement formula, $1,000 of which is paid by the state and the balance of $350 is paid to the facility by the Medicaid patient for his or her own care.

Since the enactment of the Boren-Long amendment in 1980, P.L. 96-611, Sec. 5, 94 Stat. 3567 (1980), codified at 42 U.S.C. Secs. 1382b(c) and 1396a(j)(1) (1981), the Medicare Act has recognized that the principle of providing assistance only to those in need could be defeated by transfers of assets for less than fair market value in order to establish eligibility. To bar improper claims by individuals who transfer assets for less than fair market value, the federal statute declared, in general, that applicants who make such transfers may be rendered temporarily ineligible for assistance. 42 U.S.C. Sec. 1396a(j)(1) (1981). This statute was commonly referred to as the federal transfer of assets rule.

A transfer of the home, however, continued to be accorded more solicitous treatment. In 1982, when this action was commenced, federal law provided that homes were exempt from the federal transfer of assets rule. 42 U.S.C. Sec. 1382b(a)(1) (1982). Notwithstanding the federal exclusion of homes from the transfer of assets rule, Oregon elected to include homes as a resource in determining Medicare eligibility under its state transfer of assets rule. Or.Admin.R. 461-04-070 (1982). This action was filed in July 1982, to challenge that Oregon practice.

While this suit was pending in district court, Congress enacted the Tax, Equity and Fiscal Responsibility Act, P.L. 97-248, 96 Stat. 370 (1982), (TEFRA). TEFRA repealed 42 U.S.C. Sec. 1396a(j) (1981) and replaced it with a more detailed transfer of Pursuant to the authority granted under 42 U.S.C. Sec. 1396p(c)(2)(B)(i), Oregon amended various of its rules pertaining to Medicaid eligibility, including Or.Admin.R. 461-04-070. The amendment to Rule 461- On December 12, 1982, a second amended complaint was filed in this action challenging Oregon's new regulations. The plaintiffs alleged that the temporary Rule 461-04-070, and other rules governing an applicant's Medicaid eligibility, exceeded TEFRA's limitations and, therefore, were invalid under the Supremacy Clause. ³

                assets rule, 42 U.S.C. Sec. 1396p(c). 2   Effective September 3, 1982, TEFRA made the home countable as a resource for purposes of determining Medicaid eligibility, under specified circumstances.  States were expressly authorized to establish a period of ineligibility in cases where Medicaid applicants had transferred their home for less than fair market value within two years of applying for benefits.  42 U.S.C. Sec. 1396p(c)(2)(B)(i)
                04-070 initially was in the form of a temporary rule.  Or.Admin.R. 461-04-070 (September 1982)
                

After extensive settlement negotiations, the parties reached an agreement on all of the issues, with the exception of the validity of Rule 461-04-070(6)(e).

Oregon adopted a "permanent" version of Rule 461-04-070 on March 11, 1983. ⁴ The "permanent" version included a separate subsection addressing the computation of the period of ineligibility resulting from the transfer of a home for less than fair market value. Or.Admin.R. 461-04-070(6)(e) (1983). Subsection (6)(e) of the "permanent" rule provided:

For purposes of this section, the period of ineligibility shall last for one month for every full $1000 [one thousand dollars] of uncompensated value beginning with the first month in which Title XIX medical assistance payments would be payable to the skilled nursing facility, intermediate care facility or medical institution.

Or.Admin.R. 461-04-070(6)(e).

The version of Rule 461-04-070(6)(e) proposed by Oregon during the settlement negotiations is identical to the permanent rule adopted on March 11, 1983. The plaintiff class rejected the proposed rule on the ground that it conflicted with federal law.

The relevant federal statute, 42 U.S.C. Sec. 1396p(c)(2)(B)(i), provides that in the event of a transfer of a home for less than fair market value the individual shall be ineligible for medical assistance for a period of 24 months, or for a lesser or longer period of time "as bears a reasonable relationship (based upon the average amount payable under the state plan as medical assistance for care in a skilled nursing facility ) to the uncompensated value of the home."

The plaintiff class argues here, as it did in the district court, that the period of ineligibility must be determined by dividing the total amount actually paid to the institution ($1,350) into the uncompensated value of the home. Oregon contends that the period of ineligibility is properly determined by dividing the amount paid to the institution by the state ($1,000) into the uncompensated value of the home.

It is apparent that the dispute between the parties is over the proper interpretation of the language "based upon the average amount payable under the state plan as medical assistance for care in a skilled nursing facility." Dramatically different consequences flow from the two differing interpretations of this language. For example, the transfer of a home for $27,000 less than fair market value would result in 27 months of ineligibility, under Oregon's interpretation of its regulation, but only 20 months of ineligibility if the plaintiff class is correct. The district court ruled in favor of the plaintiff class. Lewis v. Hegstrom, 581 F.Supp. 183.

The crux of this appeal is whether proposed Oregon rule 461-04-070(6)(e) is inconsistent with 42 U.S.C. Sec. 1396p(c)(2)(B)(ii)(I) and (II) and must yield to the Supremacy Clause.

ANALYSIS

We begin with the settled proposition that state regulations which are inconsistent with federal law are invalid under the Supremacy...