West Virginia v. Thompson, 03-1841.

Citation475 F.3d 204
Decision Date19 January 2007
Docket NumberNo. 03-1841.,03-1841.
PartiesState of WEST VIRGINIA, Petitioner, v. Tommy G. THOMPSON, Secretary of the United States Department of Health and Human Services, Respondent.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

ARGUED: Silas Bent Taylor, Senior Deputy Attorney General, Office of the Attorney General of West Virginia, Charleston, West Virginia, for Petitioner. Susan Maxson Lyons, United States Department of Health and Human Services, Office of General Counsel, Washington, D.C., for Respondent. ON BRIEF: Rocco Fucillo, General Counsel, West Virginia Department of Health and Human Services, Charleston, West Virginia, for Petitioner. Peter D. Keisler, Assistant Attorney General, United States Department of Justice, Washington, D.C.; Paula M. Stannard, Acting General Counsel, Kathleen H. McGuan, Associate General Counsel, Mark D. Polston, Deputy Associate General Counsel for Litigation, United States Department of Health and Human Services, Washington, D.C., for Respondent.

Before WILKINS, Chief Judge, WILKINSON, Circuit Judge, and Henry F. FLOYD, United States District Judge for the District of South Carolina, sitting by designation.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Chief Judge WILKINS and Judge FLOYD joined.

OPINION

WILKINSON, Circuit Judge:

The State of West Virginia appeals a final decision by the Secretary of Health and Human Services denying approval of an amendment to West Virginia's Medicaid Plan. Federal law requires that states participating in Medicaid recoup some costs by recovering funds from the estates of recipients of Medicaid-funded long-term care. It also requires that states establish procedures to waive recoveries that "would work an undue hardship as determined on the basis of criteria established by the Secretary." 42 U.S.C. § 1396p(b)(3) (2000). West Virginia sought to implement these provisions by exempting more than $50,000 of every homestead from recovery, through an exemption for home equity up to the statewide mean appraised value of a home. The Secretary disapproved this exemption as too broad to constitute an "undue hardship" exception. We affirm his determination.

I.
A.

Congress makes federal funds available to the states for medical services for needy citizens through the Medicaid program. 42 U.S.C. § 1396; Wilder v. Va. Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510 110 L.Ed.2d 455 (1990). "The cornerstone of Medicaid is financial contribution by both the Federal Government and the participating State." Harris v. McRae, 448 U.S. 297, 308, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980). States that choose to participate in Medicaid have flexibility concerning the services they provide and the manner in which they provide them, but do not possess a blank federal check. In order to be reimbursed for a portion of the cost of care, they must maintain "state plans for medical assistance" that conform to requirements designed in part to safeguard the federal fisc and ensure that care meets federal standards. 42 U.S.C. § 1396a(a); see also Wilder, 496 U.S. at 502, 110 S.Ct. 2510.

While Medicaid seeks to assist those who could not readily afford health care, individuals may sometimes receive benefits in spite of substantial assets. Medicaid generally disregards an individual's home equity interest in assessing long-term care eligibility unless the interest exceeds $500,000. See Pub.L. No. 109-171, § 6014, 120 Stat. 4, 64-65 (codified at 42 U.S.C. 1396p(f)(1)); West Virginia v. Dep't of Health & Human Servs. (West Virginia I), 289 F.3d 281, 284 (4th Cir.2002). Until passage of the Deficit Reduction Act of 2005, even home equity interests of more than $500,000 could be excluded from eligibility calculations. West Virginia I, 289 F.3d at 284. "[T]he effect of this exclusion is to allow someone with a potentially valuable asset to receive benefits along with those who have greater financial need." Id. (internal quotations omitted).

Faced with rising health-care costs, Congress took steps to address this "anomaly" in 1993 by requiring that states attempt to recover costs of care after certain Medicaid recipients' deaths. Id.; see also Omnibus Budget Reconciliation Act of 1993, Pub.L. No. 103-66, § 13612, 107 Stat. 312, 627-28 (codified at 42 U.S.C. § 1396p(b)(1)(B)). Federal law now requires that after the death of a person who began receiving Medicaid assistance at age 55 or older, "the State shall seek adjustment or recovery from the individual's estate" for "nursing facility services, home and community-based services, and related hospital and prescription drug services." 42 U.S.C. § 1396p(b)(1)(B)(i). Prior to 1993, states had been allowed to choose whether or not to attempt to recover costs of care from Medicaid beneficiaries' estates, see West Virginia I, 289 F.3d at 284, and they are still permitted to engage in or abstain from recoveries for other "items or services under the State plan," 42 U.S.C. § 1396p(b)(1)(B)(ii). Potential recipients of Medicaid-funded long-term care are notified of the estate recovery requirement before they accept benefits. West Virginia I, 289 F.3d at 285.

While federal law requires estate recoveries in some circumstances, it prohibits them in others. Estate recovery is not permitted until the death of a surviving spouse, or when the decedent has a surviving child under the age of 21, or when the decedent has a surviving child who is blind or disabled as defined under the statute. 42 U.S.C. § 1396p(b)(2). In addition, federal law requires "undue hardship" waivers by providing, "The State agency shall establish procedures (in accordance with standards specified by the Secretary) under which the agency shall waive the application of this subsection [except in limited circumstances not relevant here] if such application would work an undue hardship as determined on the basis of criteria established by the Secretary." Id. § 1396p(b)(3).

"Undue hardship" is not defined in the Medicaid statute. A House Budget Committee Report commented upon the term, however, stating that in establishing criteria for "undue hardship" the Secretary of Health and Human Services "should provide for special consideration of cases in which the estate subject to recovery is (1) the sole income-producing asset of survivors (where such income is limited), such as a family farm or other family business, or (2) a homestead of modest value or (3) other compelling circumstances." H.R.Rep. No. 103-111, at 209 (1993), as reprinted in 1993 U.S.C.C.A.N. 378, 536.

The Secretary has the responsibility of determining whether proposed state plans and plan amendments meet federal Medicaid requirements. Congress has directed that the Secretary "shall approve" any plan or amendment that complies with federal law. 42 U.S.C. § 1396a(b). The Secretary in turn has delegated approval authority to the Administrator of the Centers for Medicare & Medicaid Services ("CMS"), a component of the Secretary's department formerly known as the Health Care Financing Administration ("HCFA"). 42 C.F.R. § 430.15(b) (2005). The Administrator consults with the Secretary before making a final determination of disapproval. Id. § 430.15(c)(2).

CMS promulgated guidance concerning undue hardship waivers in the State Medicaid Manual. The manual directs states to "[e]stablish procedures and standards for waiving estate recoveries" in cases of undue hardship and to describe the resulting policies in their state plan documents. The manual indicates that undue hardship provisions need not be uniform, stating, "[y]ou have flexibility in implementing an undue hardship provision." It points to the House Report for guidance on the "undue hardship" term and reprints the report's examples, but adds that legislative history does not constitute a legally binding definition. The agency "suggests that you consider the examples listed above in developing your hardship waiver rules," the manual states, "but does not require you to incorporate these examples once you have considered whether they are appropriate for determining the existence of an undue hardship."

CMS amended the State Medicaid Manual to include additional guidance in 2001 — the same year that the Secretary abandoned a proposed rulemaking concerning the estate recovery and undue hardship provisions that had been listed on his agenda in the Federal Register since 1996. The new State Medicaid Manual provision stated, "In defining a homestead of modest value, the methodology the State uses to set a threshold level for the market value of a `homestead of modest value' cannot be set so high as to negate the intent of the estate recovery program." It instructs participating states to "[d]escribe your methodology for determining a home of modest value in your State plan."

The new manual provision includes an example of a permissible waiver, taken from a New Mexico state plan amendment that CMS approved. It states that "a homestead of `modest value' can be defined as fifty percent (50%) or less of the average price of homes in the county where the homestead is located, as of the date of the beneficiary's death." The Secretary has indicated that CMS has since approved other implementations of undue hardship waivers as well.

B.

West Virginia began efforts to exempt estates from recovery in 2001.1 On March 8, it proposed exempting $50,000 of homestead property from all estate recoveries on the grounds that it would not be cost effective to pursue recoveries of such sums. (The State Medicaid Manual provides that states need not engage in estate recovery when doing so would not be cost effective.) After CMS requested additional information such as the cost of recovery, the state's methodology in determining cost effectiveness, and the financial impact of the proposed exemption, West Virginia changed its proposal and its justification. On September 13, 2001, the state proposed...

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