McCoy v. State, Dept. of Health and Welfare

Decision Date05 December 1995
Docket NumberNo. 21563,21563
Citation907 P.2d 110,127 Idaho 792
CourtIdaho Supreme Court
Parties, 49 Soc.Sec.Rep.Ser. 702, Medicare & Medicaid Guide P 43,995 Sheila McCOY, Plaintiff-Appellant, v. STATE of Idaho, DEPARTMENT OF HEALTH AND WELFARE, Defendant-Respondent. Pocatello, September 1995 Term

Alan G. Lance, Idaho Attorney General; Brent E. Asay, Deputy Attorney General, Pocatello, for respondent. Brent E. Asay argued.

TROUT, Justice.

This appeal arises from a denial of Medicaid coverage by the Idaho Department of Health and Welfare (Department) for a gastric bypass surgery deemed to be medically necessary by the appellant's physicians. We vacate the order of the district court denying coverage and remand for further proceedings consistent with this opinion.

I. BACKGROUND

Sheila McCoy is disabled and receives aid under the Supplemental Security Income (SSI) program. As an SSI recipient, McCoy is also entitled to medical coverage under Medicaid. McCoy's primary medical problem, from which she has suffered since the age of 12, is morbid obesity. This has resulted in a number of other health problems including congestive heart failure, hypertension, sleep apnea, and severe joint problems. McCoy has attempted a number of eating programs to reduce her weight all of which have been unsuccessful. McCoy's doctor ultimately referred her to a physician in Salt Lake City for evaluation as a possible candidate for gastric bypass surgery. The consulting physician concluded that the surgery was appropriate in McCoy's case and, in his opinion as well as that of McCoy's primary physician, would correct most of her other health problems as well.

The Department conducted a hearing at which both of McCoy's physicians testified that the surgery was medically necessary to treat McCoy's health problems. Notwithstanding this finding of medical necessity, which was uncontested by the Department, reimbursement for the surgery was denied based upon a state regulation excluding coverage for all medical procedures for the treatment of obesity. The hearing officer refused to invalidate this regulation as violative of federal law and McCoy appealed the Department's decision to the district court. The district court affirmed the Department's order excluding coverage finding it appropriate for a state to prioritize the medical needs of its citizens and restrict coverage of specific conditions based upon the state's financial position.

II. STANDARD OF REVIEW

On appeal, we will review an agency's decision independent of the district court's determination. Boise Group Homes, Inc. v. Idaho Dep't of Health & Welfare, 123 Idaho

[127 Idaho 794] 908, 909, 854 P.2d 251, 252 (1993) (citing Dovel v. Dobson, 122 Idaho 59, 831 P.2d 527 (1992). Under the Idaho Administrative Procedure Act, the agency's decision must be affirmed unless the agency's findings and conclusions are:

(a) in violation of constitutional or statutory provisions;

(b) in excess of the statutory authority of the agency;

(c) made upon unlawful procedure;

(d) not supported by substantial evidence on the record as a whole; or

(e) arbitrary, capricious, or an abuse of discretion.

Willig v. Idaho Dep't of Health & Welfare, 127 Idaho 259, 261, 899 P.2d 969, 971 (1995) (citing I.C. § 67-5279(3)).

III. MEDICAID COVERAGE OF SURGERY

Title XIX of the Social Security Act establishes Medicaid and authorizes grants to states in order to finance medical care for indigent Americans. 42 U.S.C. §§ 1396-1396v. Each state's participation in Medicaid is optional, but once a state voluntarily elects to participate in the program, it must comply with the requirements imposed by the Act and applicable regulations. Alexander v. Choate, 469 U.S. 287, 289 n. 1, 105 S.Ct. 712, 714 n. 1, 83 L.Ed.2d 661 (1985). Participating states are given considerable flexibility in determining the scope of coverage they must provide although care must be given to needy individuals in at least seven general categories of medical services including inpatient hospital services, outpatient hospital services, and physician's services. Hern v. Beye, 57 F.3d 906, 910 (10th Cir.1995) (citing 42 U.S.C. § 1396d(a)(1)-(5), (17), (21)). There is no requirement, however, that a state provide funding for all medical treatment falling within one of these general service categories and, consistent with the objectives of Title XIX, a state may limit funding of services to only those that are deemed medically necessary. Beal v. Doe, 432 U.S. 438, 444, 97 S.Ct. 2366, 2371, 53 L.Ed.2d 464 (1977). See also 42 C.F.R. § 440.230(d) (a state agency "may place ... limits on a service based on such criteria as medical necessity").

Payment for McCoy's surgery was denied by the Department in this case pursuant to a state regulation which excludes from coverage the costs of physician and hospital services for "[a]ll medical procedures for the treatment of obesity." IDAPA 16.03.09065.02.1. McCoy asserts that the Department must provide coverage for her surgery since both her primary physician and attending specialist deemed it medically necessary to treat her congestive heart failure, hypertension, sleep apnea, and joint problems. The medical necessity of the gastric bypass surgery was not contested by the Department and, in fact, the hearing officer noted in his findings that McCoy's congestive heart problem, sleep apnea, joint problems, and, more than likely, her hypertension, would be fully resolved following the elimination of McCoy's obesity and conceded the medical necessity of the surgery.

Neither Title XIX nor the federal regulations explicitly provide that coverage of every procedure that a physician may deem medically necessary is required. 1 The United States Supreme Court has similarly failed to provide state agencies and courts with clear direction on this issue noting only that "serious statutory questions might be presented if a state Medicaid plan excluded necessary medical treatment from its coverage." Beal, 432 U.S. at 444, 97 S.Ct. at 2371. As a result, the circuits have divided with some courts finding that there is no statutory requirement that states provide medically necessary service. See Preterm, Inc. v. Dukakis, 591 F.2d 121, 125 (1st Cir.1979) (dictum in Beal does not signal a flat rule that all services within the mandatory categories deemed medically necessary by a patient's physician must be provided by the state plan); Curtis v. Taylor, 625 F.2d 645, 652 The United States Supreme Court has given the states some guidance, however, and stated that they have broad discretion to adopt standards for determining the extent of medical assistance they will provide, "requiring only that such standards be 'reasonable' and 'consistent with the objectives' of [Title XIX]." Beal, 432 U.S. at 444, 97 S.Ct. at 2371 (citing 42 U.S.C. § 1396a(a)(17)). Many courts have found that the touchstone for evaluating whether a state plan is reasonable is whether medically necessary procedures are covered. See Hern, 57 F.3d at 911 n. 3. A state's refusal to provide medically necessary care has, on more than one occasion, been found to be arbitrary. Montoya v. Johnston, 654 F.Supp. 511, 513-14 (W.D.Tex.1987) (citing Meyers v. Reagan, 776 F.2d 241 (8th Cir.1985); Mitchell v. Johnston, 701 F.2d 337 (5th Cir.1983)). Other courts have noted the heavy burden that this requirement would impose on a state's budget since the term "medical necessity" is theoretically limited only by the number of practicing physicians. See, e.g., Preterm, 591 F.2d at 125. The court in Preterm pointed specifically to the opening section of the Medicaid statute in support for its contention that the Social Security Act does not mandate the provision of all necessary medical services as a substantive requirement on the states:

(5th Cir.1980) (a state may limit services based on a judgment of degree of medical necessity so long as it does not discriminate on the basis of medical condition). Other circuits have held, to the contrary, that participating states must provide all medically necessary services that fall under one of the mandatory coverage categories. See Dexter v. Kirschner, 972 F.2d 1113, 1117 (9th Cir.1992) (participating states "must provide assistance to pay for medically necessary inpatient hospital and physician's services for eligible persons") (emphasis in original); Weaver v. Reagen, 886 F.2d 194, 198 (8th Cir.1989) (a state must provide "treatment that is deemed 'medically necessary' in order to comport with the objectives of the Act").

For the purpose of enabling each State, as far as practicable under the conditions of such State, to furnish (1) medical assistance on behalf of ... disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services ... there is hereby authorized to be appropriated....

Id. at 124 (emphasis in original) (quoting 42 U.S.C. § 1396). The court "hesitate[d] to draw the words 'necessary medical services' from their context--an appropriations section--and in effect transport them into a contents section requirement." Id. at 125.

As the court in Preterm noted, there should actually be two levels of judgment as to medical necessity in the scheme set up under Title XIX. Id. The first is the "macro-decision" by the state that only certain kinds of medical assistance are sufficiently necessary to fall under the coverage of its plan and the second is the "micro-decision" of the physician that the condition of a particular patient warrants treatment which the state plan makes available. Id. The Idaho regulation at issue here, i.e. the exclusion of all procedures for the treatment of obesity, reflects Idaho's "macro-decision" that medical assistance for all services that may be used to treat obesity is never sufficiently necessary to warrant coverage. The question this Court must ask...

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