Perales v. Sullivan, 1893

• Citation: 948 F.2d 1348
• Decision Date: 12 November 1991
• Docket Number: D,No. 1893,1893
• Parties: , Medicare & Medicaid Guide P 39,709 Cesar A. PERALES, as Commissioner of the New York State Department of Social Services; Robert Abrams, as Attorney General of the State of New York; and The New York State Department of Social Services, Plaintiffs-Appellees, v. Louis W. SULLIVAN, M.D., as Secretary of the United States Department of Health and Human Services, Defendant-Appellant. ocket 91-6092.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 1348

948 F.2d 1348

35 Soc.Sec.Rep.Ser. 521, Medicare & Medicaid Guide

P 39,709

Cesar A. PERALES, as Commissioner of the New York State Department of Social Services; Robert Abrams, as Attorney General of the State of New York; and The New York State Department of Social Services, Plaintiffs-Appellees, v. Louis W. SULLIVAN, M.D., as Secretary of the United States Department of Health and Human Services Defendant-Appellant.

No. 1893, Docket 91-6092.

United States Court of Appeals Second Circuit.

Argued Aug. 15, 1991.

Decided Nov. 12, 1991.

Bernard Bell, Asst. U.S. Atty., New York City, for defendant-appellant.

Darren S. O'Connor, New York City, for plaintiffs-appellees.

Before MINER, WALKER and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge:

Defendant-appellant Louis W. Sullivan, M.D., the Secretary of the United States Department of Health and Human Services (the "Secretary"), appeals from a judgment entered in the United States District Court for the Southern District of New York (Pierre N. Leval, Judge ), granting judgment on the pleadings in favor of plaintiffs-appellees Cesar A. Perales, Robert Abrams, and the New York State Department of Social Services (collectively "the State" or "New York").

This action arises out of the State's request for federal reimbursement under the Medicaid statute, 42 U.S.C. § 1396 et seq., of medical assistance payments the State had made to various persons who were later found disabled. The Secretary denied the State's request, asserting that the State had failed to make individual determinations of disability before filing its claim for federal reimbursement. The Grant Appeals Board ("GAB") of Health and Human Services ("HHS") upheld the Secretary's decision, reasoning that when the State filed its claim for reimbursement, there was no "assurance" that documentation existed to prove that the persons receiving State funds were actually disabled.

The State challenged the ruling of the GAB in the district court. Both the State and the Secretary subsequently moved for judgment on the pleadings. The district court granted the State's motion and overturned the GAB's decision, finding that the GAB's unexpected imposition of a requirement of assurance of documentation was arbitrary and capricious. We agree with the district court and, therefore, affirm.

BACKGROUND

1. The Medicaid Act and Regulations

Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (the "Medicaid Act" or the "Act") establishes a cooperative federal and state program for medical care of indigent persons. Under the Medicaid Act, states reimburse health care providers for their costs in treating low income and disabled patients who are unable to pay for health care. If the state's reimbursement plan meets federal regulations, the state may, in turn, receive reimbursement of its expenses from the federal government.

To qualify for federal reimbursement, a state's plan must meet a host of statutory and regulatory requirements. See 42 U.S.C. § 1396a, 42 C.F.R. § 431 et seq. Among HHS regulations is a requirement that a state seeking federal reimbursement maintain individual records on each recipient of state funds. The records must include information as to the recipient's eligibility to participate in the state's program, as well as statistical, fiscal, and other data. See 42 C.F.R. § 431.17(b).

After "qualification" comes the actual distribution of federal reimbursement. Not surprisingly, this involves yet another myriad of statutory and regulatory guidance. Before the beginning of each quarter, a state that wants federal reimbursement must submit a report to the Secretary estimating how much the state's Medicaid-eligible expenses will be in the upcoming quarter. See 42 U.S.C. § 1396b(d)(1). The Secretary then pays that state a preliminary amount based on this estimate. Id. § 1396b(d)(2). At the end of the quarter, the state submits a quarterly expense report ("QER") to the Secretary. The QER is the state's actual claim for reimbursement. HHS regulations define a QER as:

[A]n accounting statement of the disposition of the Federal funds granted for past periods [which] provides the basis for making the adjustments necessary when the State's estimate for any prior quarter was greater or less than the amount the State actually expended in that quarter.

45 C.F.R. § 201.5(a)(3)

The QER does not contain any case-specific or recipient-specific information. Rather, it summarizes the state's actual If the Secretary believes the state's claim for federal reimbursement is of "questionable allowability," he may, within sixty days, defer reimbursement of the claim. 45 C.F.R. § 201.15(c)(1). If he does, HHS regulations require him to demand that the state "make available for inspection all documents and materials ... necessary to determine the allowability of the claim." 45 C.F.R. § 201.15(c)(2). He must make this demand within fifteen days of the deferral. The state must then give the documentation to the Secretary within sixty days, or request a sixty-day extension to do so. If the Secretary ultimately finds the documentation unsatisfactory, he is required to "promptly notify the State," which must then respond within fifteen days. If the documentation remains insufficient after the state's response, the Secretary "shall promptly disallow the claim." 45 C.F.R. § 201.15(c)(5).

                quarterly expenditures that are eligible for federal reimbursement.   Under HHS practice, a state may submit a QER by simply completing HHS form HCFA-64, specifying the federal reimbursement the state requests and the dates the state incurred the expenses.   No other documentation must be attached to this form
                

Many states, including New York, also have separate programs furnishing health care to people in financial difficulty who are not eligible for Medicaid. Although the Medicaid Act does not prohibit such programs, monies spent by states in these programs are not automatically eligible for federal reimbursement. An individual receiving funds under a state program, however, may later be classified by the state as eligible for Medicaid, and if this happens, the state may submit a claim for federal reimbursement of the funds it expended for the now Medicaid-eligible person. Requests for reimbursement of these state funds are also submitted in a QER.

The states used to be able to file a QER seeking federal reimbursement for monies spent under state programs, regardless of how many years had elapsed since the state actually made payment to a health care provider. This bureaucratic nightmare was eliminated in 1980 when Congress imposed a two-year limitation upon the states to make a claim for reimbursement. The limitation is codified in 42 U.S.C. § 1320b-2:

[A]ny claim by a State for payment with respect to an expenditure made during any calendar quarter by the State ... shall be filed (in such form and manner as the Secretary shall by regulations prescribe) within the two-year period which begins on the first day of the calendar quarter immediately following such calendar quarter; and payment shall not be made under this chapter on account of any such expenditure if claim therefor is not made within such two-year period....

Id. (emphasis added). Under HHS regulations, the two-year limitation begins to run when the state pays a health care provider for an individual's medical care. See 45 C.F.R. § 95.13(b).

2. New York's Medical Assistance Programs

New York's federally approved Medicaid program provides medical assistance to three categories of people. First, New York provides for the "categorically needy," defined as those who receive benefits under Aid to Families with Dependent Children ("AFDC") ¹ and individuals receiving Supplementary Security Income ("SSI") ². Second, New York provides medical assistance to those who qualify for AFDC or SSI, but for some reason do not receive such benefits. Finally, New York supplies medical assistance to individuals who do not qualify for either AFDC or SSI, but who have extremely high medical expenses.

As noted earlier, New York also maintains its own medical assistance programs that do not automatically qualify for federal Rather than risk the loss of federal reimbursement while making an individualized determination of disability for each person, New York developed a statistical technique (from July 1982 until December 1984) by which the State selected a sample of cases where it made payments under Home Relief. The State then determined the percentage of cases where the recipient later became sufficiently "disabled" to qualify for Medicaid. The State calculated its total claim by applying this percentage to the total number of cases in which it made medical payments under Home Relief without HHS reimbursement, and included this figure in each of ten QERs filed from July 1982 to December 1984.

                reimbursement under the Medicaid Act.   One such program known as "Home Relief" provides funds for medical care to individuals whose income and resources are below a certain level determined by the state, but who are still ineligible to receive SSI or AFDC.   Many people receive aid from New York under the Home Relief program.   Some of these people are later found disabled, and thus eligible for SSI and Medicaid.   However, due to the sheer number of people who are eventually determined to be disabled, New York has found itself unable to complete individualized determinations of disability for each person within the two-year statutory limitation of 42 U.S.C. § 1320b-2
                

HHS was dissatisfied with this method of calculating federal reimbursement, and issued deferral notices and requests for further documentation. Discussions ensued between State officials and HHS concerning the State's claims and the State's statistical methods. During these negotiations, the State went back and made actual disability determinations for several thousand cases that had previously been part of...