Md Dept. Health v. Medicare and Medicaid Services

• Citation: 542 F.3d 424
• Decision Date: 25 September 2008
• Docket Number: No. 07-1512.,07-1512.
• Parties: THE MARYLAND DEPARTMENT OF HEALTH AND MENTAL HYGIENE, Petitioner, v. CENTERS FOR MEDICARE AND MEDICAID SERVICES, Respondent. National Academy of Elder Law Attorneys, Amicus Supporting Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

542 F.3d 424

THE MARYLAND DEPARTMENT OF HEALTH AND MENTAL HYGIENE, Petitioner, v. CENTERS FOR MEDICARE AND MEDICAID SERVICES, Respondent.

National Academy of Elder Law Attorneys, Amicus Supporting Respondent.

No. 07-1512.

United States Court of Appeals, Fourth Circuit.

Argued: March 20, 2008.

Decided: September 25, 2008.

ARGUED: Kathleen Evelyn Wherthey, Office of the Attorney General of Maryland, Baltimore, Maryland, for Petitioner. Noreen Cornelia O'Grady, United States Department of Health & Human Services, Office of General Counsel, Philadelphia, Pennsylvania, for Respondent. ON BRIEF: Douglas F. Gansler, Attorney General of Maryland, Lorie A. Mayorga, Assistant Attorney General, Office of the Attorney General of Maryland, Baltimore, Maryland, for Petitioner. James C. Newman, Chief Counsel, Region III, United States Department of Health & Human Services, Office of General Counsel, Philadelphia, Pennsylvania, for Respondent. Ron M. Landsman, Rockville, Maryland; Cyril V. Smith, Zuckerman Spaeder, L.L.P., Baltimore, Maryland, for Amicus Supporting Respondent.

Before MICHAEL and MOTZ, Circuit Judges, and IRENE M. KEELEY, United States District Judge for the Northern District of West Virginia, sitting by designation.

Petition for review denied by published opinion. Judge KEELEY wrote the opinion, in which Judge MICHAEL and Judge MOTZ joined.

OPINION

KEELEY, District Judge:

In this case, we consider the Maryland Department of Health & Mental Hygiene's ("Maryland") petition for review of a final decision of the Centers for Medicare & Medicaid Services ("CMS")¹ that disapproved an amendment to Maryland's State Medicaid Plan (the "SPA"). That SPA sought to eliminate deductions for uncovered medical expenses Medicaid recipients incurred before becoming eligible for benefits. Maryland's petition asserts that CMS's rejection of its SPA is based on an unreasonable interpretation of congressional intent regarding the calculation of a recipient's post-eligibility income and violates Medicaid's policy requiring medically needy recipients to contribute to the cost of their care. We have jurisdiction pursuant to 42 U.S.C. §§ 1316(a)(3) and (b), and § 1396(c). Finding no error, we deny Maryland's petition for review and uphold CMS's decision.

I.

Through the Medicaid program, Congress extended medical assistance to unserved, low-income individuals and families. See Social Security Amendments of 1965, Title XIX, Pub.L. No. 89-97, 79 Stat. 286, 343-353 (codified as amended at 42 U.S.C. § 1396a (2006))(the "Medicaid statute"). As part of that program, states provide payment for certain medical and nursing home expenditures using a mix of federal and state funds. As the federal agency charged with providing program oversight, CMS promulgates rules that state Medicaid agencies must follow.

The dispute between CMS and Maryland involves two interpretations of 42 U.S.C. § 1396a(r)(1)(A)(2006), which in part provides that "with respect to the post-eligibility treatment of income for individuals who are institutionalized ...," states should deduct expenses for "necessary medical or remedial care recognized under State law but not covered under the State plan ... subject to reasonable limits the State may establish on the amount of these expenses.² Pursuant to this statutory language, CMS promulgated regulations requiring states to deduct uncovered but medically necessary expenses that nursing home residents incurred before becoming eligible for Medicaid benefits from the amount of post-eligibility income those residents must contribute to the cost of their nursing home care. 42 C.F.R. § 435.726(c)(4).³ Maryland contends that deducting these expenses amounts to "a transfer of money from Medicaid to a [recipient's] pocket," and undermines the financial stability of its Medicaid budget.⁴ Accordingly, its SPA would "[disallow] as a deduction any amount of medical expenses for dates of service before the retroactive period associated with the effective date of Medical Assistance eligibility." Md. Dep't of Health & Hygiene, Reasonable Limits on Amounts for Necessary Medical or Remedial Care Not Covered Under Medicaid, SPA 05-06 (2004). In effect, Maryland seeks to eliminate from its post-eligibility income calculation all deductions for uncovered medical expenses Medicaid nursing home residents incurred before becoming eligible for benefits.

At issue is the financial well-being of nursing home residents in Maryland who, under Medicaid policy, must contribute to the cost of their care. Should Maryland prevail, its financial burden under Medicaid certainly would be reduced. Nursing home residents with incurred medical expenses, however, would no longer be able to use their own funds to pay those bills because the SPA would deprive them of the means to do so.

II.

Our review of CMS's decision is governed by the Administrative Procedure Act. 5 U.S.C. § 706(2) (2006). We may only "`set aside agency action, findings, and conclusions' when they are found to be `arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.'" West Virginia v. Thompson, 475 F.3d 204, 209 (4th Cir.2007) (quoting 5 U.S.C. § 706(2)). We may also "set aside agency actions `in excess of statutory jurisdiction, authority, or limitations, or short of statutory right'" or "`without observance of procedure required by law.'" Id. (quoting 5 U.S.C. § 706(2)(C)-(D)).

We may not, however, "substitute our judgment for that of the agency." Id. at 212. We will overrule the agency's decision only if we find that it has failed to consider relevant factors and committed "`a clear error of judgment.'" Id. (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971)). In determining whether the agency's action was arbitrary, capricious or an abuse of discretion, we consider whether

the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.

Id. (quoting Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)).

When CMS's disapproval of an SPA depends on construction of the Medicaid statute, we view that administrative interpretation "through the lens of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)." West Virginia, 475 F.3d at 212. Chevron requires us to reject administrative constructions that are contrary to clear congressional intent.

First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.

467 U.S. at 842-43, 104 S.Ct. 2778.

We must uphold an agency's permissible construction of a statute and "may not substitute [our] own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency." Id. at 844, 104 S.Ct. 2778. Moreover, we accord an agency's interpretation "substantial deference" in determining whether its construction is permissible. Rust v. Sullivan, 500 U.S. 173, 184, 111 S.Ct. 1759, 114 L.Ed.2d 233 (1991). Nonetheless, where "the [agency's] reasoning couples internal inconsistency with a conscious disregard for the statutory text," we must reject the statutory interpretation. Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 292, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006).

We have recently held that deference in the interpretation of the Medicaid statute is "particularly warranted." West Virginia, 475 F.3d at 212. In that case we determined that the Secretary's disapproval of a proposed plan amendment by West Virginia did not exceed his authority, and noted that "[t]he Medicaid statute is a prototypical `complex and highly technical regulatory program' benefitting from expert administration." Id. (quoting Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994)). We also stated that "[t]he administrative process through which state plan amendments are considered also counsels deference." Id. Moreover,

[r]ecognizing the mechanisms for evaluation of amendments at the agency level, "[w]e take care not lightly to disrupt the informed judgments of those who must labor daily in the minefield of often arcane policy, especially given the substantive complexities of the Medicaid statute."

Id. (quoting Cmty. Health Ctr. v. Wilson-Coker, 311 F.3d 132, 138 (2d Cir.2002)).

III.

Because the outcome of this case depends on an understanding of certain "spenddown" and "post-eligibility" provisions of the Medicaid statute, we begin with a brief summary of the history and overarching purpose of those provisions.

A.

Designed to provide medical assistance to persons whose income and resources are insufficient to meet the costs of necessary medical care, the Medicaid program functions as a partnership between the federal government and the states. 42 U.S.C. § 1396a(a)(10). After a state elects to participate in the program, the federal government shares the costs of providing medical assistance in a ratio that varies from state to state. 42 U.S.C. § 1396a(a)(2). In return, the state agrees to comply with the Medicaid statute and any administrative regulations properly promulgated by CMS. 42 U.S.C. 1396a(a)(1).

Consistent with Medicaid's character as a poverty program, two basic categories of applicants are eligible to receive medical assistance under Medicaid: the "categorically needy" and the "medically needy." 42 U.S.C. § 1396a(a)(10). The categorically needy are applicants...