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New York State Department of Social Services and Cesar Perales v. Bowen

decided: April 28, 1988.

THE NEW YORK STATE DEPARTMENT OF SOCIAL SERVICES AND CESAR PERALES, AS COMMISSIONER OF THE NEW YORK STATE DEPARTMENT OF SOCIAL SERVICES, PLAINTIFFS-APPELLANTS,
v.
OTIS R. BOWEN, SECRETARY OF HEALTH AND HUMAN SERVICES, DEFENDANT-APPELLEE



Appeal from order entered in United States District Court for the Southern District of New York, Robert J. Ward, Judge, granting defendant's motion for summary judgment and dismissing complaint. Held, state Medicaid agency can appeal adverse Medicare decisions where state law makes agency subrogee of benefited nursing home patients and federal law mandates states pursue recovery from liable third parties. Reversed and remanded.

Oakes, Newman, and Miner, Circuit Judges.

Author: Oakes

OAKES, Circuit Judge:

The New York State Department of Social Services (NYSDSS or "the Department") seeks to obtain the right to appeal decisions of the United States Department of Health and Human Services (HHS) that deny Medicare benefits to nursing home patients whose health care, as a result of the denials, is paid for by NYSDSS with Medicaid funds. A Medicare beneficiary or the provider of health care can take an administrative appeal, with judicial review, from a denial of Medicare coverage. 42 U.S.C. §§ 1395ff(b), 405(b) and (g) (1982 & Supp. III 1985); 42 C.F.R. §§ 405.701-.750 (1986). HHS maintains that a state Medicaid agency, however, cannot appeal an adverse determination despite state law making the state agency a subrogee of the benefited patient and federal law that mandating states pursue recovery from third parties responsible for the care of Medicaid recipients. When NYSDSS challenged HHS's position and practice, the United States District Court for the Southern District of New York, Robert J. Ward, Judge, upheld the federal agency's position. New York State Dep't of Social Servs. v. Bowen, 661 F. Supp. 1537 (S.D.N.Y. 1987). On the state's appeal we reverse.

STATUTORY BACKGROUND

A. Medicare

Medicare is a federally funded system of health insurance for the aged and disabled administered by HHS. 42 U.S.C. §§ 1395-1395xx (1982 & Supp. III 1985). Individuals eligible under Title II of the Social Security Act may receive benefits under two parts of the Medicare program, only the first of which, Part A, concerns us here. See 42 U.S.C. § 1395c. Part A covers the cost of inpatient hospital services for up to 150 days and post-hospital extended care, such as skilled nursing care, for up to 100 days during any "spell of illness," 42 U.S.C. § 1395d(a), less co-insurance and deductibles under 42 U.S.C. § 1395e.

When HHS or its fiscal "intermediary," 42 C.F.R. § 400.202 (1986) (usually a health insurance company), denies Medicare coverage, the individual or the health care provider may request reconsideration, 42 C.F.R. § 405.710-.717 (1986), and, in the event of denial, may appeal to the HHS Appeals Council, 20 C.F.R. § 404.967 (1987); 42 C.F.R. § 405.724 (1986), and ultimately to the courts. 42 U.S.C. §§ 1395ff(b), 405(b) and (g); 42 C.F.R. § 405.730. HHS, however, denies state agencies the right to appeal even when the state has paid the cost of the beneficiary's care with Medicaid funds and Medicare reimbursement is denied.

B. Medicaid

Medicaid, of course, is a jointly funded federal-state program that pays for necessary medical care for indigent individuals. 42 U.S.C. § 1396 (1982 & Supp. III 1985). As in the case of Medicare, providers of medical services to Medicaid beneficiaries are reimbursed on a fixed schedule of rates. 42 U.S.C. § 1396a(a)(13). When HHS or its fiscal intermediary denies Medicare benefits for skilled nursing care administered to an individual who also qualifies for Medicaid benefits, the state agency responsible for administering the Medicaid program must reimburse the nursing home for the patient's care as well as pay any coinsurance and deductibles under Part A. 42 U.S.C. § 1396a(a)(17). The Medicaid statute mandates that the state agency seek reimbursement from third parties liable for the care and services paid for by Medicaid "where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery." 42 U.S.C. § 1396a(a)(25). Congress amended the Social Security Act in 1977 to permit states to require Medicaid beneficiaries to assign to the state "any rights . . . to support . . for the purpose of medical care . . and to payment for medical care from any third party . . . ." Pub. L. No. 95-142, § 1912(a)(1)(A), 91 Stat. 1175, 1196 (1977) (codified as amended at 42 U.S.C. § 1396k(a)(1)(A)). At the same time Congress added a new section that imposed sanctions to deter private insurers from restricting coverage so as to shift liability to Medicaid. Id. § 11(a)(o), 91 Stat. at 1196 (codified as amended at 42 U.S.C. § 1396b(o)). The section does not mention public insurance programs. In the Deficit Reform Act of 1984, Congress made mandatory the assignment to the state Medicaid agency of a Medicaid recipient's rights to third-party reimbursement, requiring such assignment obligations to be included in each state plan. Pub. L. No. 98-369, § 2367(a), 98 Stat. 1108 (codified as amended at 42 U.S.C. § 1396a(a)(45)), and, in the Consolidated Omnibus Budget Reconciliation Act of 1985, Congress specified that state agencies must seek reimbursement from liable health insurers. Pub. L. No. 99-272, § 9503, 100 Stat. 205 (codified as amended at 42 U.S.C. § 1396a(a)(25)). The new provisions also required state agencies to "collect[ ] . . . sufficient information . . to enable the State to pursue claims against such third parties" and submit to the Secretary a third-party recovery plan or risk fiscal sanctions. Id.

C. New York Law

Not surprisingly, New York State law complements the federal scheme. New York Social Service Law § 363-a (McKinney 1983) designates NYSDSS as the state agency responsible for administering the Medicaid program. Section 367-a(2)(b) subrogates the Department to "any rights [an applicant or recipient of medical assistance] may have to medical support or third party reimbursement" and section 366(4)(h) (McKinney Supp. 1988) requires Medicaid recipients to assign their rights to benefits from third parties to NYSDSS. New York State Insurance Law § 3212(e)(3)(A) (McKinney 1985 & Supp. 1988) provides that the Department's right of subrogation under any health insurance program shall be valid to the extent benefits are available to the individual.

FACTUAL BACKGROUND

This case arose as a result of HHS's refusal to grant Medicare Part A benefits to 102 elderly nursing home residents, each of whom was a dual Medicare/Medicaid beneficiary. In each case, the patient's nursing home submitted a timely request for Medicare payment for the skilled nursing care provided. HHS or its intermediary denied each request after determining that the patient did not require skilled nursing care and only received custodial care, which is not covered by Medicare. The nursing home filed a timely request for reconsideration pursuant to 42 C.F.R. § 405.710-.711, which in each case resulted in HHS's affirming its determination that none of the patients required or received care covered by Medicare. The obligation to reimburse the nursing homes thus fell upon NYSDSS, as payor of last resort under the Medicaid program. NYSDSS, after determining that in each instance the decision of HHS or its intermediary was wrong and that skilled nursing care had been both necessary and provided, notified HHS that it was the statutory subrogee of the recipients' Medicare rights under state law and, as subrogee, filed hearing requests pursuant to 42 U.S.C. §§ 405(b), 1395ff(b). HHS dismissed the requests on ...


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