Tinkham v. Department of Public Welfare

• Decision Date: 27 February 1981
• Citation: 11 Mass.App.Ct. 505,417 N.E.2d 452
• Parties: Mildred E. TINKHAM, conservatrix, v. DEPARTMENT OF PUBLIC WELFARE et al. 1
• Court: Appeals Court of Massachusetts

Page 452

417 N.E.2d 452

11 Mass.App.Ct. 505

Mildred E. TINKHAM, conservatrix, v. DEPARTMENT OF PUBLIC WELFARE et al. ¹

Appeals Court of Massachusetts, Suffolk.

Argued Dec. 15, 1980.

Decided Feb. 27, 1981.

Mary Ellen McCarthy, Holyoke (Suzanne Harris, Cambridge, with her), for plaintiff.

Gerald J. Caruso, Asst. Atty. Gen., for defendants.

Before PERRETTA, DREBEN and NOLAN, JJ.

DREBEN, Justice.

The issue before us is whether the Massachusetts Department of Public Welfare (DPW) is required to discard a method of calculating "the costs ... incurred for medical care" under 42 U.S.C. § 1396a(a)(17) (1976), which was authorized by a 1974 directive of the Department of Health and Human Services ² (HHS), and adopt a more costly procedure prescribed by a 1976 directive of HHS.

In this action for declaratory and injunctive relief and also for review, under G.L. c. 30A, § 14, of a decision of the DPW denying the plaintiff's eligibility for Medicaid payments, the trial judge upheld the DPW and refused to order it to follow the calculations prescribed by the 1976 directive which was contained in HHS' Medical Assistance Manual. ³ He ruled that the 1976 provision "contemplated a material and substantial change from existing policy" and was "of no effect because it was not promulgated pursuant to the notice and comment provisions" of the Administrative Procedure Act (A.P.A.), 5 U.S.C. § 553 (1976). For the reasons stated in this opinion, we agree with the trial judge that the provision of the 1976 manual is not binding on the DPW.

1. The statutory and regulatory provisions. Before discussing the 1974 and 1976 directives of HHS, we shall examine briefly the general framework of Medicaid and the specific statute and regulations which the two directives implement. Medicaid is a federal-state cooperative program which was created in 1965 under Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (1976 and Supp. III 1979). Participation by the States in the program is entirely optional, but once a State chooses to participate, it must comply with the requirements of Title XIX. Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L.Ed.2d 784 (1980). Participating States submit their plans ⁴ for approval to HHS (42 U.S.C § 1316 (a)(1) (1976)), and if approved, the Federal Government will pay a specified percentage of "the total amount expended ... as medical assistance under the State plan." 42 U.S.C. § 1396b(a)(1) (1976). Harris v. McRae, supra at ---, 100 S.Ct. at 2683. A State plan will be approved if it complies with the applicable "statutes and regulations." 45 C.F.R. § 201.3(d) (1980). ⁵

A State which adopts a Medicaid program must provide assistance to the group referred to in the regulations as the categorically needy ⁶ (42 U.S.C. § 1396a(a)(10)(A) (1976)), and may also provide benefits to a group known as the medically needy. ⁷ 42 U.S.C. § 1396a(a)(10)(C) (1976). Massachusetts has elected to include both groups. General Laws c. 118E, § 1. See generally Moe v. Secretary of Admn. & Fin., --- Mass. ---, --- - ---, ^a 417 N.E.2d 388 (1981). The medically needy have income and resources above the limits of the categorically needy, and only receive benefits after they have incurred medical expenses which reduce their income below a prescribed level. The determination of that reduction or "spend down" is the core of the present dispute.

The time period for computing income is prescribed by regulation. DPW "must use a prospective period of not more than six months to compute income." 42 C.F.R. § 435.831(a) (1979). However, neither the statute, 42 U.S.C. § 1396a(a) (17) (1976), ⁸ nor the regulations promulgated thereunder specify the time period during which medical expenses must be incurred in order to reduce income of a given period. In this connection, we note that there are two sets of regulations which we consider. Although the parties have not suggested that the current regulations which were first issued in 1978 do not apply to the plaintiff's claim, we assume without deciding, that the regulations in force at the time of the eligibility period under dispute are applicable to that claim. ⁹ For purposes of declaratory (and injunctive) relief, however, we look to the current regulations. ¹⁰ As will become evident in the course of this opinion, we consider that the regulations in effect both in 1977 and in 1978 are consistent with the position of the DPW on "spend down".

2. The 1974 directive and the 1976 manual instruction. On August 20, 1974, HHS issued a directive requiring States to submit a form, "Attachment 2.6-C", if their State plans included the medically needy. The directive contained an explanation of the various items on the form including a discussion of the computation of excess income and medical expenses.

An examination of the relevant portions of the 1974 HHS directive leads us to conclude, as did the trial judge, that the present method used by the DPW to compute spend down was "specifically authorized" by the 1974 directive. ¹¹ We find it unnecessary to give a detailed explanation of the DPW method and merely note that it provides that excess income for a given period (six months forward and three months back) can only be offset by medical expenses incurred during the same period. We also conclude that the Massachusetts State plan, as last approved by HHS in 1978, contemplated that method of spend down. ¹²

It does not appear in the record whether the 1974 directive was part of the medical assistance manual of HHS, but it is clear that the "Action Transmittal" of July 8, 1976, became § 4-30-30 of the manual. The manual was first issued to participating States in 1971, and is described therein as an "official medium by which the Medical Services Administration issues guides and procedures to States". It "clarifies, explains, and expands upon the meaning of the Regulations and the provisions upon which they are based." In a paragraph headed "Relationship to Regulations", the following statement is made: "The material contained in this Manual is consistent with the Regulations on the subjects and contains no new or different requirements from those in the Regulations " (emphasis supplied).

"Action Transmittal" of July 8, 1976, containing § 4-30-30, was sent to the States as a new insert for the manual and was not published in accordance with 5 U.S.C. §§ 552(a)(1) and 553(b) (1976) of the A.P.A. Section 4-30-30 provides, with certain qualifications not here applicable, that "any medical expenses which are the current liability of the applicant shall be considered including: (1) unpaid expenses incurred at any time prior to the date of application, providing the applicant remains liable for payment" (emphasis supplied).

We agree with the trial judge that this provision "materially affects Massachusetts' liability under its Medicaid plan." Section 4-30-30 prohibits the DPW from computing spend down under the method sanctioned by the 1974 directive. Medical expenses whenever incurred must be used to reduce income.

3. Effect of the 1976 manual provision. The DPW concedes that HHS has the delegated legislative power under 42 U.S.C. §§ 1302 and 1396a(a)(17) (1976 and Supp. III 1979), see note 8 supra, to fill the interstices of the statute by properly promulgated regulations. ¹³ Such regulations could set a specific time or even an unlimited time period during which incurred medical expenses could be used to reduce income. We assume that such regulations would be binding on the DPW. However, the Secretary has chosen not to treat the spend down as a "legislative-type rule", see Morton v. Ruiz, 415 U.S. 199, 236, 94 S.Ct. 1055, 1074, 39 L.Ed.2d 270 (1974), and has, as we have seen, left the regulations silent on the time when medical expenses must be incurred in order to be considered.

The plaintiff, as does HHS, ¹⁴ claims that although HHS did not issue its directive as a regulation pursuant to § 553, HHS was not required to do so. The plaintiff relies on 5 U.S.C. § 553(b)(A) (1976), which exempts "interpretative rules" from the operation of § 553, and urges that § 4-30-30 is an interpretive rule. She claims that the provision, even if not binding, is entitled to great weight as a directive of the agency administering the statute. The DPW on the other hand, claims that the "interpretive" label placed on the manual provision by HHS is not dispositive, that the provision is a change from prior practice and has substantial impact on the Commonwealth, and that in such circumstances it is not binding because it was not promulgated in accordance with the requirements of 5 U.S.C. § 553 (1976).

The DPW's position was adopted by the trial court. There is considerable and persuasive authority that if a directive has substantial impact this fact, and not the label placed thereon by the agency, determines whether the safeguards of the A.P.A. are applicable. Courts adhering to this view characterize such a directive as a substantive or legislative rule subject to § 553. ¹⁵ Other courts do not attempt to distinguish between "interpretive" (or procedural rules which are also exempt) and "substantive" rules, but reach the same result by looking at the basic purpose of the statutory requirements of § 553. They hold that, whatever the characterization, the exemption in § 553(b)(A) does not extend to rules which depart from existing practice and have a substantial impact on the persons regulated. ¹⁶

These authorities and a number of variations thereon ¹⁷ show a judicial reluctance to allow an agency, a body which may be insulated from any political accountability, to impose binding rules which materially affect rights or liabilities without an opportunity to gain the benefit of the views of the parties affected. A similar reluctance by Congress led to the passage of § 553 of the A.P.A. Both are based on considerations of fairness to the parties affected as well as on the premise that a...