Michigan Dept. of Social Services v. Shalala

• Decision Date: 30 June 1994
• Docket Number: No. 5:92-CV-95.,5:92-CV-95.
• Citation: 859 F. Supp. 1113
• Parties: MICHIGAN DEPARTMENT OF SOCIAL SERVICES, individually and as assignee and/or subrogee of Lewis Abernathie, Oneda Abbott, Minnie Ackenbach, Gordon Aalderink, Earnest Adams, Rene Abbott, and Carrie Adolph, et al., a representative group of thousands of individuals who have received, or will receive, Medicaid benefits and may be eligible for Medicare benefits, Plaintiffs, v. Donna SHALALA, Secretary, United States Department of Health and Human Services, Blue Cross and Blue Shield of Michigan, Aetna Insurance Company and Travelers Insurance Company, Defendants.
• Court: U.S. District Court — Western District of Michigan

859 F. Supp. 1113

MICHIGAN DEPARTMENT OF SOCIAL SERVICES, individually and as assignee and/or subrogee of Lewis Abernathie, Oneda Abbott, Minnie Ackenbach, Gordon Aalderink, Earnest Adams, Rene Abbott, and Carrie Adolph, et al., a representative group of thousands of individuals who have received, or will receive, Medicaid benefits and may be eligible for Medicare benefits, Plaintiffs, v. Donna SHALALA, Secretary, United States Department of Health and Human Services, Blue Cross and Blue Shield of Michigan, Aetna Insurance Company and Travelers Insurance Company, Defendants.

No. 5:92-CV-95.

United States District Court, W.D. Michigan, Southern Division.

June 30, 1994.

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Frank J. Kelley, Atty. Gen., William R. Morris, Asst. Atty. Gen., Lansing, MI, for plaintiffs.

Daniel M. LaVille, Asst. U.S. Atty., Grand Rapids, MI, Lyn S. Crozier, Office of Gen. Counsel, U.S. Dept. of Health & Human Services, Baltimore, MD, for defendants.

MEMORANDUM OPINION

McKEAGUE, District Judge.

This case presents an attempt by the Michigan Department of Social Services ("DSS") to obtain reimbursement of Medicaid benefits paid by it from the Secretary of the Department of Health and Human Services (hereinafter "Secretary" or "HHS"), as administrator of the Medicare program. Through motions for summary judgment, the parties have raised numerous legal issues. The Court heard oral arguments on these motions on February 7, 1994, and issued a preliminary ruling from the bench; a written opinion and order to follow. This memorandum opinion incorporates and memorializes the Court's rulings.

I. FACTUAL BACKGROUND

DSS is the state agency charged with administering the Medicaid program, providing medical assistance to the indigent. 42 U.S.C. § 1396 et seq. Medicaid is jointly funded by state and federal monies. Among Medicaid benefits is coverage for health care received by eligible persons in a "skilled nursing facility." The named individual plaintiffs in this case are said to be representative of some 10,000 Medicaid beneficiaries who received covered care in a skilled nursing facility.

Under the congressional scheme, "Medicaid is intended to be the payor of last resort." See New York State Dep't of Social Services v. Bowen, 846 F.2d 129, 133 (2nd Cir.1988). Hence, state agencies are required to "take all reasonable measures to ascertain the legal liability of third parties" to pay for Medicaid-covered care and to seek reimbursement for benefits paid to the extent of such legal liability. 42 U.S.C. § 1396a(a)(25)(A) and (B).

Some persons eligible for Medicaid benefits are also eligible for assistance under Medicare, providing benefits for the aged and infirm. 42 U.S.C. § 1395 et seq. Medicare is administered by the defendant Secretary and is funded solely by the federal government. DSS contends the Medicaid beneficiaries of which the individual named plaintiffs are a representative group, are "dually eligible" persons. Having paid Medicaid benefits on their behalf, DSS, as their statutory subrogee or otherwise authorized representative, seeks reimbursement from HHS to the extent of its legal liability. DSS, thus, characterizes HHS as a potentially liable "third party" and purports to be discharging its statutory obligation by seeking reimbursement from HHS.

DSS has pursued reimbursement by availing itself of the Secretary's administrative claims and appeals process. 42 C.F.R. § 424.30 et seq.; 42 C.F.R. § 405.701 et seq. This process requires that a provider of services submit a written request for payment to an HHS fiscal intermediary. The request for payment or claim must be signed by the beneficiary of services. If the beneficiary cannot sign because of physical or mental incapacity, an authorized representative may sign. The intermediary reviews the claim and determines whether it is procedurally proper and whether the subject services are covered by Medicare. If the claim is denied, the intermediary provides notice to the provider and the beneficiary, after which either party may seek reconsideration within 60 days. A party dissatisfied after reconsideration may appeal for a hearing before an administrative law judge in the Social Security Administration Office of Hearings and Appeals. Further review is available before the Appeals Council, and ultimately in the United States District Court.

DSS, being neither a provider nor a beneficiary, availed itself of this process in one of two different ways. First, it signed and submitted more than eight thousand claims as assignee or subrogee of beneficiaries whose skilled nursing care had been covered under Medicaid rather than Medicare. These claims are the subject of count II of the first amended complaint. DSS alleges the Secretary has denied these claims without considering the merits, erroneously concluding that DSS lacks standing. In count II, DSS seeks (1) a declaration that it does have standing to pursue reimbursement and (2) remand of these thousands of claims to the Secretary for review on the merits.

Second, DSS also pursued claims on behalf of 1,165 beneficiaries who had authorized it or its contractor, Sixty Plus, Inc., to serve as their representative. These claims are the subject of count I of the complaint. DSS alleges these claims were erroneously denied through a procedure which violated procedural due process in various particulars. DSS asks the Court to declare that it has standing to pursue these claims, to declare the procedure employed by the Secretary unlawful, and to remand these claims for fair and impartial review on the merits.

II. COUNT II CLAIMS

A. DSS Standing

The question of DSS's standing to pursue the claims contained in count II is the subject of cross-motions for summary judgment. The parties agree it is a question of law. DSS's asserted right to subrogation arises primarily from state statute. Under M.C.L. § 400.106(1)(b)(ii), DSS "shall be subrogated to any right of recovery which a patient may have for the cost of hospitalization, ... and other medical services not to exceed the amount of funds expended by the Department for the care and treatment of the patient." Under Michigan law, the general standards governing subrogation are summarized as follows:

Regardless of whether a right of subrogation arises by operation of law or by contractual agreement, the controlling general principles are the same: the subrogee, upon paying an obligation owed to the subrogor as the primary responsibility of a third party, is substituted in the place of the subrogor, thereby attaining the same (and no greater) rights to recover against the third party. Payment of the subrogated debt or liability is a prerequisite to attaining subrogation rights.

Morrow v. Shah, 181 Mich.App. 742, 749, 450 N.W.2d 96 (1989) (citations omitted).

In support of its position that these state subrogation principles should be recognized under the federal administrative review procedures, DSS cites New York State D.S.S. v. Bowen, 846 F.2d 129 (2nd Cir.1988). In NYSDSS, the Second Circuit recognized the right of a state agency to appeal denials of Medicare coverage as statutory subrogee of Medicaid beneficiaries. The Secretary refuses to recognize the applicability of NYSDSS for two reasons, arguing the ruling is controlling only in the Second Circuit and is factually distinguishable in that it deals with the subrogee's right to appeal, not the right to file initial claims.

The Secretary's reasons are not persuasive. Granted, NYSDSS is not controlling. However, it is practically the only decisional authority on the subrogation standing question and its reasoning is persuasive. No contrary authority from the Sixth Circuit or elsewhere has been cited to the Court. The New York statutory basis for the state's rights in subrogation is substantially identical to Michigan's. The NYSDSS court evaluated the Secretary's objections to standing, based on technical readings of federal regulations and on administrative efficiency concerns, and rejected them as reflecting "tunnel vision."

The Secretary is right in arguing that NYSDSS is technically factually distinguishable, but the difference is immaterial. In fact, as DSS has argued, the fact that it has attempted to enforce its subrogation rights at the initial claim stage, rather than at the administrative appeal stage, would appear to militate even more strongly in favor of finding it has standing as the real party in interest involved ab initio.

Granted, federal statutes and regulations do not explicitly authorize claims and appeals by state agencies. Yet, no good reason to disregard traditional subrogation principles has been offered. The Secretary did not offer persuasive argument to the Second Circuit in NYSDSS; the court refused to give deference to the Secretary's interpretations of the statutes and regulations because they were "inconsistent" and "in defiance of common sense." 846 F.2d at 134. Neither has the Secretary presented persuasive argument to this Court. If NYSDSS represents an aberrational, erroneous ruling, Congress can be expected to have corrected the error through legislation by now, some six years later. It has not done so. There has been no legislative action and no significant judicial action since NYSDSS.

Accordingly, the Court concludes DSS has standing via subrogation to pursue reimbursement of monies it has paid under Medicaid for care for which Medicare may be primarily liable.

B. Subject Matter Jurisdiction

The Secretary also challenges the claims presented in count II on the basis of subject matter jurisdiction. The Secretary correctly argues, based on 42 U.S.C. § 405(h), that judicial review pursuant to 42 U.S.C. § 405(g) is the exclusive basis for federal court jurisdiction over claims arising under the Medicare Act.¹Heckler v. Ringer, 466 U.S. 602, 614-15, 104 S.Ct. 2013, 2021-22, 80 L.Ed.2d 622 (1984); Westchester Mgmt. Corp. v. U.S. Dep't of...