New York State Dept. of Social Services v. Bowen

• Decision Date: 10 June 1987
• Docket Number: No. 83 Civ. 7548 (RJW).,83 Civ. 7548 (RJW).
• Citation: New York State Dept. of Social Services v. Bowen, 661 F.Supp. 1537 (S.D. N.Y. 1987)
• Parties: The NEW YORK STATE DEPARTMENT OF SOCIAL SERVICES and Cesar Perales, as Commissioner of the New York State Department of Social Services, Plaintiffs, v. Otis R. BOWEN, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — Southern District of New York

661 F. Supp. 1537

The NEW YORK STATE DEPARTMENT OF SOCIAL SERVICES and Cesar Perales, as Commissioner of the New York State Department of Social Services, Plaintiffs, v. Otis R. BOWEN, Secretary of Health and Human Services, Defendant.

No. 83 Civ. 7548 (RJW).

United States District Court, S.D. New York.

June 10, 1987.

Robert Abrams, Atty. Gen. of the State of N.Y., New York City, for plaintiffs; Mary Fisher Bernet, Asst. Atty. Gen., of counsel.

Rudolph W. Giuliani, U.S. Atty., South. Dist. of N.Y., New York City, Attorney for

defendant; Paula A. Sweeney, Asst. U.S. Atty., David Engel, U.S. Dept. of Health and Human Services, of counsel.

ROBERT J. WARD, District Judge.

Plaintiff, the New York State Department of Social Services ("NYSDSS"), has instituted this action to challenge a regulation of the Department of Health and Human Services ("HHS"), multiple determinations by the Secretary pursuant to that regulation, and HHS policy on administrative hearings. The plaintiff challenges: (1) multiple determinations by the Secretary that deny NYSDSS (as alleged subrogee of certain Medicare beneficiaries' rights) the right to an administrative hearing on a determination of the amount of Medicare Part A benefits payable for certain extended care services; and (2) HHS regulation 42 C.F.R. § 433.146(b), which specifies that state statutes may not provide for the assignment to the state of Medicaid recipients' rights to Medicare benefits.

Plaintiff contends that the HHS policy and regulations have unlawfully denied NYSDSS its statutory right to an administrative hearing under 42 U.S.C. §§ 405(b) and (g) and § 1395ff(b), which it is entitled to exercise as statutory subrogee (under New York state law) of the individual Medicaid recipients' rights to Medicare benefits. Plaintiff further contends that the HHS policy and regulations unlawfully preclude its pursuit of recoupment from the Medicare program of Medicaid funds expended for extended care services that Medicare erroneously refused to cover. Plaintiff seeks injunctive and declaratory relief pursuant to 28 U.S.C. §§ 2201 and 2202.

Two motions are presently pending before this Court. Plaintiff has moved for summary judgment pursuant to Rule 56, Fed.R.Civ.P. Defendant has moved to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), Fed.R.Civ.P., or, in the alternative, for summary judgment pursuant to Rule 56, Fed.R.Civ.P. For the reasons stated below, this Court denies defendant's motion to dismiss for lack of subject matter jurisdiction, denies plaintiffs' motion for summary judgment, and grants defendant's motion for summary judgment.

BACKGROUND

This case relates to the interaction between cost containment provisions of Medicare and Medicaid, two federal health care financing programs. The instant dispute concerns conflicts which arise when an individual receiving health care services is dually entitled to benefits from both programs.¹

The Federal Medicare Program

Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq., was enacted by Congress in 1965 to establish a federally funded system of health insurance for the aged and the disabled. This system of health insurance, commonly known as Medicare, is administered by HHS.

The Medicare program consists of two parts — Part A and Part B. Part A provides basic insurance against the costs of hospitalization and post-hospitalization care. Part B provides supplemental medical insurance against the costs of other medical and health services. This case involves issues relating to Part A coverage of post-hospitalization care provided to certain indigent Medicare beneficiaries in extended care facilities.

Individuals are entitled to Part A coverage once they have established their eligibility for Social Security benefits under Title II of the Social Security Act, 42 U.S.C. § 1395c. Part A benefits are paid directly to the providers of services on behalf of the Medicare beneficiary. These benefits include coverage of up to 150 days of inpatient hospital services and up to 100 days of post-hospitalization extended care services during any spell of illness. 42 U.S.C. § 1395d(a). Medicare-covered extended care services are primarily medical in nature. They include the care provided by a skilled nursing facility, 42 U.S.C. § 1395x(u); however, they do not include the care of a more custodial nature provided by an intermediate care facility.

To administer the day-to-day operations of the Medicare program, HHS contracts with "fiscal intermediaries." The fiscal intermediaries, which are typically health and accident insurance companies, act as HHS agents in performing claim-related activities, such as the audit and payment of claims submitted by providers of post-hospitalization extended care. In one facet of the audit process, which is at the basis of the dispute in this case, the fiscal intermediary determines whether providers' claims for reimbursement represent services covered under Part A and services that are reasonable and necessary.

In auditing claims submitted by extended care facilities, the fiscal intermediary must make a level of care determination — i.e., determine whether the services provided were skilled nursing care, which is covered by Part A, or custodial care, which is not covered by Part A or Part B of Medicare.

When the fiscal intermediary determines that the care provided was non-covered custodial care, the Medicare beneficiary is entitled to administrative review of the decision (including reconsideration and hearing), as provided in 42 U.S.C. § 405(b), and judicial review of the Secretary's final decision, as provided in 42 U.S.C. § 405(g). 42 U.S.C. § 1395ff(b); 42 C.F.R. § 405.701 et seq.

A provider of services may request reconsideration of a determination that (1) services it provided are not covered by reason of 42 C.F.R. § 405.310(g) (custodial care) or 42 C.F.R. § 405.310(k) (treatment not reasonable or necessary) and (2) either the beneficiary or the provider knew or should have known that services were not covered. A provider is also entitled to an administrative hearing and judicial review of such a determination if the Secretary determines that the individual beneficiary will not exercise his appeal rights. 42 U.S.C. § 1395pp(d).

The Federal-State Medicaid Program

Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., was enacted by Congress in 1965 to create federal-state welfare programs that would pay the costs of necessary medical services provided to certain indigent individuals whose income and resources are insufficient to meet the costs of medical care. These programs, commonly known as Medicaid, are jointly funded by federal and state monies.

Each individual Medicaid program is administered jointly through a federal-state partnership between HHS and a designated state agency. In New York, the designated single state agency responsible for the administration of Medicaid is NYSDSS. The terms of the federal-state partnership are embodied in a state plan, which is submitted by the single state agency and must be approved by HHS. Each state is free to define the scope of its Medicaid program — e.g., eligibility standards, covered services, administrative procedures — within the framework of federal statutory and regulatory requirements. Each state is responsible for administering its own Medicaid program in accordance with federal statutory and regulatory requirements and the federally approved state plan. HHS performs an oversight function — promulgating regulations, reviewing and approving state plans, and monitoring state agency performance—to ensure that state agencies operate their Medicaid programs in accordance with federal requirements and the approved state plans.

One statutory requirement that must be reflected in all state plans is a "third party liability" provision. This provision requires recoupment of federal-state Medicaid funds from third parties who are liable for medical care provided to Medicaid recipients. 42 U.S.C. § 1396a(a)(25). A state plan must also provide that Medicaid applicants, as a condition of eligibility, assign to the state whatever rights they may have to payment for medical care.² 42 U.S.C. §§ 1396a(a)(45) and 1396k(a)(1)(A); 42 C.F.R. §§ 433.145 to 433.149.

In order to comply with the Medicaid assignment of rights requirement, a state may enact a law which provides for automatic assignment to the state of all Medicaid recipients' rights to third party payments for medical care. 42 C.F.R. § 433.146(c). New York state has enacted such statutory assignment provisions.³ However, HHS regulations provide that assignment of rights to medical benefits may not include assignment of rights to Medicare benefits. 42 C.F.R. § 433.146(b).

DISCUSSION

The NYSDSS administers the Medicaid program for New York state pursuant to a state plan approved by HHS. NYSDSS has identified a listing of New York State Medicaid recipients whose initial claims for Medicare reimbursement of costs for services provided in an extended care facility have been denied. In each instance, the claim was timely and the denial was based on HHS determinations that the individual did not require or receive skilled nursing care during part or all of the period in question (i.e. the individual did not require skilled nursing care and, therefore, received only custodial care that is not covered by Medicare).

Each of the providers of services requested reconsideration of the denial through the timely filing of a Reconsideration Request pursuant to 42 U.S.C. § 1395ff; 42 C.F.R. §§ 405.710. HHS again denied benefits on reconsideration on the same grounds. Neither the individuals receiving the care nor the providers requested an administrative hearing of the determination.

At this point in the administrative review process, NYSDSS notified HHS of its subrogation to the rights of these Medicare beneficiaries pursuant to New York State...