Connecticut Department of Social Services v. Leavitt
Docket: Docket No. 03-6052
Court: Court of Appeals for the Second Circuit; October 28, 2005; Federal Appellate Court
This case involves a dispute between the State of Connecticut and the federal government regarding the payment responsibilities for health-care costs, specifically whether Medicaid or Medicare should cover certain home health-care services. In 1999, the Connecticut Department of Social Services and a group of residents eligible for both Medicaid and Medicare sued the Secretary of Health and Human Services in federal court to alter the handling of Medicare claims for home health-care services. In 2002, the district court largely ruled in favor of the plaintiffs but granted some claims to the Secretary. A subsequent order in 2003 directed the Secretary to implement specific claims-processing practices requested by the plaintiffs.
Medicaid, jointly funded by state and federal governments, provides health care for low-income individuals, while Medicare serves the elderly. Elderly individuals who qualify for both programs are referred to as "dual eligibles." Both programs may cover home health-care services, but federal law mandates that Medicare is the primary payer, with Medicaid as the payer of last resort. Occasionally, state Medicaid agencies mistakenly pay for services that should be covered by Medicare, which leads to the state's interest in obtaining reimbursement from Medicare for those payments. The administration of Medicare falls under the Center for Medicare and Medicaid Services (CMS), which contracts fiscal intermediaries to process claims rather than handling them directly. Connecticut must engage with these intermediaries to secure Medicare coverage for home health-care services previously paid by Medicaid.
The lawsuit involves Connecticut's dissatisfaction with United Government Services (UGS), a fiscal intermediary for Medicare, regarding its handling of claims for home health-care services for dual eligible beneficiaries when Medicaid has already covered these services. Connecticut has filed a federal suit against the Secretary of Health and Human Services (HHS), who oversees the Centers for Medicare & Medicaid Services (CMS) and UGS. The dual eligibles, represented by the Center for Medicare Advocacy, are concerned about the financial implications of whether Medicare or Medicaid pays for their services, as Medicaid can seek reimbursement from their estates if it pays without receiving funds from Medicare.
The district court granted summary judgment in favor of Connecticut and the dual eligibles on most claims, ruling that UGS's practices violated federal laws and the Fifth Amendment's Due Process Clause. However, the Secretary has appealed this decision. On appeal, the court reversed the district court's ruling and remanded for judgment in favor of the Secretary. The plaintiffs alleged that the Secretary failed to ensure UGS provided timely and accurate determinations on claims, seeking an injunction to enforce requirements for clear written decisions, timely determinations on “clean claims,” regular monitoring of UGS’s compliance with Medicare guidelines, and performance evaluations of UGS. The material facts were undisputed, with the legal issues being the central focus of the case.
The district court identified four challenges raised by the plaintiffs regarding the practices of the Secretary and UGS: 1) UGS's refusal to issue "notices of initial determination" for claims submitted by beneficiaries; 2) inadequacy of UGS's explanations for its claims decisions; 3) UGS's failure to send copies of claims decisions to beneficiaries' representatives; and 4) the Secretary's failure to ensure timely and accurate claims decisions by UGS. The court ruled against the plaintiffs on the fourth issue, which they did not cross-appeal, leaving the first three issues for review.
The first issue centers on the process for Medicare reimbursement, which begins with filing a claim followed by an "initial determination" from UGS regarding payment. If UGS denies a claim without issuing a "notice of initial determination," beneficiaries cannot appeal the decision. The document highlights a critical concern for Connecticut regarding the submission of claims by Home Health Agencies (HHAs); if claims are not submitted or are defective, UGS does not issue determinations. Connecticut argues that it can file claims on behalf of beneficiaries in such cases, but the Secretary contends that only providers can file claims for home health-care services. The district court supported Connecticut's position, affirming that beneficiaries have the right to file claims directly with UGS and receive determinations, based on Medicare statutes and the Due Process Clause. However, the current regulations indicate that claims for services must be filed by the provider, not by beneficiaries or their representatives.
Regulation 42 C.F.R. 424.34 limits beneficiaries' ability to file direct claims for services, specifically excluding home healthcare agencies and nonparticipating hospitals from this provision. When read together with 42 C.F.R. 424.33, these regulations indicate that beneficiaries cannot directly claim home healthcare services. However, a separate regulation, 42 C.F.R. 405.702, implies that beneficiaries may file claims for home health services directly with intermediaries, which creates a potential inconsistency. The Secretary of Health and Human Services proposes two methods to reconcile these conflicting regulations. First, he notes that beneficiaries are allowed to file certain direct claims under 424.34, suggesting that 405.702's reference to "request for payment" could include beneficiaries. Second, he attempts to define "request for payment" as a "term of art" referring to the signature on a claim form. However, this interpretation fails to resolve the inconsistency, as it still suggests that beneficiaries can file claims directly, contradicting the limitations imposed by 424.33. Thus, the conflict remains unresolved, highlighting the ambiguity in the regulations concerning beneficiaries' rights to file claims for home health services.
The term “request for payment” is disputed as a legal term within Medicare regulations. Section 424.40 refers specifically to a “request for payment statement,” which implies that this is the correct terminology rather than simply “request for payment.” While the regulation title supports the Secretary’s claim, the lack of a definition for “request for payment” in the Medicare global definitions (42 C.F.R. 400.200) raises questions about its usage. Definitions in other sections (42 C.F.R. 402.3 and 42 C.F.R. 1003.101) suggest a general meaning related to applications for payment, implying that if the term had a specific meaning elsewhere, it would be defined accordingly. Therefore, the Secretary's term-of-art argument is rejected.
The court ultimately accepts the Secretary's interpretation, which states that Medicare beneficiaries cannot directly request initial determinations about home health-care claims from intermediaries. This conclusion is based on two main points: First, significant deference is given to the agency’s interpretation of its own regulations, particularly regarding 42 C.F.R. 424.33, which requires providers to submit claims. Second, a statutory amendment effective October 1, 1999, explicitly prohibits home health service coverage unless claims are submitted by the agency (42 U.S.C. 1395y(a)(21)). Upholding the district court's decision would contradict this statute, as it mandates that only providers can file such claims.
The district court's finding that the Secretary violated the Due Process Clause by refusing to process claims from beneficiaries would also imply that the statute itself is unconstitutional, as it requires the very practice the court deemed unconstitutional. Consequently, the court concludes that the Secretary's refusal to process beneficiary-filed claims does not violate constitutional rights, thus rejecting the district court’s ruling on this matter.
The district court ruled that UGS's practices violated beneficiaries' procedural due-process rights but did not analyze each practice individually, treating them as a whole. An examination of UGS's specific refusal to process home health-care claims reveals it does not infringe upon due-process rights. The analysis follows the three-part Mathews v. Eldridge test, which considers: 1) the private interest of the beneficiaries; 2) the risk of erroneous deprivation and the value of alternative procedures; and 3) the government interest in maintaining the current procedures. Since Connecticut is not a "person" entitled to due-process rights, the focus is solely on the beneficiaries' interests, which, while real, are limited. The beneficiaries—eligible for both Medicaid and Medicare—are primarily concerned about potential estate reductions due to Medicaid recoupment of benefits after death. Although the beneficiaries’ interest in minimizing estate depletion is recognized as a property right, the court finds that due process does not require the additional procedural safeguard of allowing beneficiaries to file claims directly with Medicare. The current errors in filing claims can be remedied through existing legal avenues, and the recommended approach for Medicaid would be to refuse payment for claims it believes should be covered by Medicare, thereby practicing cost avoidance.
Cost avoidance is emphasized over the traditional practice of Medicaid agencies paying claims upfront and investigating liability afterward, a method referred to as "paying and chasing." In a 2004 ruling, CMS stated that previous provisions allowing extensions for filing Medicare claims contributed to this inadequate cost avoidance, leading to improper claim submissions to Medicaid. According to 42 C.F.R. 433.139(b), if a Medicaid agency identifies probable third-party liability, including Medicare, upon receiving a claim, it must reject the claim and return it to the provider for liability determination. However, some states have been improperly paying Medicaid claims despite knowing beneficiaries qualify for Medicare, later realizing that many of these claims should have been billed to Medicare. This indicates a lack of diligence from providers in submitting claims and suggests that states are not adhering to cost avoidance principles. CMS expects Medicaid agencies to verify liability before payment, aligning with existing regulations. Additionally, the "demand bill" procedure allows beneficiaries to request that Home Health Agencies (HHAs) bill Medicare, even if the HHA anticipates denial of coverage. If an HHA fails to file a demand bill upon a valid request, they are prohibited from charging the beneficiary or other payers. This procedure aims to ensure beneficiaries can obtain initial determinations regarding coverage.
CMS clarified that states can recoup Medicaid payments from providers when Medicaid has covered a Medicare-eligible claim, provided that a beneficiary or their representative requests the provider to file a claim with Medicare, and the provider fails to submit a timely and complete claim or necessary documentation. The strong incentive for Home Health Agencies (HHAs) to file claims reduces the need for beneficiaries to directly file with intermediaries. If a Medicaid agency neglects cost avoidance and a beneficiary fails to instruct the HHA to file a demand bill, existing state and federal laws sufficiently protect the beneficiary's interests against Medicaid recoupment from their estate, thus not requiring additional procedures. Federal law mandates state Medicaid agencies to seek reimbursement from all sources except the beneficiary, placing liability on HHAs for failing to file demand bills. Connecticut raised concerns about recovering from HHAs without an initial Medicare coverage determination. However, HHAs have a contractual obligation to ensure their bills to Medicaid are valid. Connecticut could pursue refunds through state contract law rather than relying solely on Medicare determinations. If Connecticut's contracts with HHAs are not favorable, the Due Process Clause is not an appropriate means to modify those contracts.
Beneficiaries’ interests in avoiding estate recovery are not significantly threatened under the current procedural regime, as defended by the Secretary. Connecticut may have the standing to sue as a third-party beneficiary of provider agreements between home health agencies (HHAs) and the Centers for Medicare & Medicaid Services (CMS), which stipulate that providers cannot charge beneficiaries or state Medicaid agencies for Medicare-covered services. If HHAs have billed Medicaid for such services, they violate their agreements, allowing Medicaid to potentially recover funds directly from the HHAs if it can prove its status as a third-party beneficiary.
Beneficiaries' procedural due-process rights remain intact as Medicaid is required to seek reimbursement from other sources before accessing a beneficiary’s estate. While it would be more efficient for Medicaid to have a Medicare coverage determination from the Medicare contractors, the Constitution does not mandate the Secretary to facilitate this process for state agencies.
The district court found that the Medicare Summary Notices (MSNs) provided by UGS for initial determinations were defective for not referencing the regulatory basis for denials and failing to inform beneficiaries about claims that were not timely or complete. Consequently, it ordered that future notices must include these citations and relevant information. However, the district court incorrectly ruled the MSNs defective based on the absence of details about procedurally defective claims. The Medicare regulations require notices to detail the basis for determinations, but beneficiaries are not entitled to notices for procedurally defective claims, which UGS is not obligated to address. Thus, the MSNs cannot be deemed defective for omitting such information.
The district court incorrectly determined that the Medicare Summary Notices (MSNs) were defective for lacking statutory or regulatory citations. According to 42 U.S.C. 1395h(j)(1), when UGS denies a claim for home health services, it must provide a written explanation that includes the statutory or regulatory basis for the denial. While the statute suggests that citations could be included, it does not mandate their inclusion. The Secretary's argument against addressing the content of the notices was rejected, as the plaintiffs claimed the notices were inadequate, and the statutory language implies that legal citations might be necessary. However, the Secretary's interpretation allowing the omission of citations aligns with the Medicare statute's requirement for clear language in notices, creating a tension between clarity and citation requirements. The regulation governing the content of initial determination notices only requires a detailed explanation of the basis for the determination, without explicitly necessitating citations. The lack of statutory or regulatory citations was the sole flaw identified by the plaintiffs, and no other legal inadequacies were cited. The 2003 amendment to the Medicare statute further clarifies that notices must include reasons for determinations, procedures for obtaining additional information, and notification of appeal rights, but does not mandate the inclusion of statutory or regulatory citations.
The statute indicates that regulatory citations are not required in the initial notice of determination but can be provided upon request. The court declines to uphold the district court’s decision that UGS violated the Due Process Clause of the Fifth Amendment by not including these citations, as the district court did not justify the necessity for such citations and the plaintiffs failed to provide the required explanation.
Regarding the issuance of notices of initial determination, the district court ruled that UGS must send these notices not only to dual eligibles but also to their representatives. However, the court disagrees, referencing Medicare regulations which state that notices should be mailed only to the individual and service provider at their last known addresses. The regulations explicitly indicate when representatives should receive notices, and since section 405.702 does not require sending notices to representatives in this context, they are not entitled to them. The district court mistakenly relied on broader Social Security Act regulations, which are subordinate to specific Medicare regulations. The court concludes that the Due Process Clause does not necessitate sending notices to representatives, as beneficiaries’ interests are sufficiently protected by their own receipt of the notices. Ultimately, the judgment in favor of the plaintiffs is reversed.
Medicare Part B provides coverage for physician services to seniors who must buy in, and it is not the focus of this case. The Centers for Medicare & Medicaid Services (CMS), previously known as the Health Care Financing Administration (HCFA), administers Medicare home health-care services through Regional Home Health Intermediaries (RHHIs). Although the Secretary raised subject-matter jurisdiction objections, these were not pursued on appeal. The district court's jurisdiction under the federal mandamus statute, 28 U.S.C. § 1361, was upheld.
Medicaid beneficiaries must assign their rights to payment from other sources, like Medicare, to the state as a condition for receiving benefits, making Connecticut subrogated to these rights. Connecticut has contracted with the Center to act on behalf of beneficiaries as their subrogee and legal representative.
The case highlights concerns about UGS's rejection of procedurally inadequate claims from Home Health Agencies (HHAs) without issuing initial determinations. The Secretary's defense of this practice, citing regulations that do not require an initial determination unless a proper claim is filed, is questionable. The district court interpreted the complaint as challenging UGS's refusal to issue determinations for requests from beneficiaries rather than HHAs. The plaintiffs argue that UGS's procedures violate Medicare regulations, but did not contest the district court's interpretation on appeal. Consequently, it was concluded that UGS is not legally obligated to issue initial determinations in response to beneficiary requests related to HHAs' failed or defective claims. Additionally, CMS's guidelines on demand bills appear to provide conflicting protections compared to statutory and regulatory requirements.
Providers must file a provider agreement with CMS to participate in Medicare, which prohibits them from charging beneficiaries for Medicare-covered services. This requirement is also reflected in 42 C.F.R. 489.21, applicable to beneficiaries. The demand-bill guideline mandates that providers absorb costs if they do not submit a demand bill when requested, extending beyond the statutory requirements of 42 U.S.C. 1395cc(a)(1). However, this guideline necessitates a timely request from beneficiaries before it enforces the prohibition against charging. The statute itself does not obligate beneficiaries to request that providers bill Medicare; thus, beneficiaries or their state Medicaid agency can demand a refund from a Home Health Agency (HHA) for fees paid when Medicare would have covered the services, even if no demand bill was requested. Furthermore, a Medicaid agency might pursue legal action against an HHA for noncompliance with 42 U.S.C. 1395cc(a)(1), but establishing a federal cause of action under this statute is challenging, as federal courts are generally reluctant to do so, as noted in DiLaura v. Power Authority of N.Y.
