4th Cir. defers to fed govt in Medicaid case
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The Court of Appeals for the Fourth Circuit gave great deference to CMS in a decision regarding CMS’s disapproval of an amendment to West Virginia’s Medicaid Plan defining undue hardship for estate recovery. West Virginia v. Thompson, 2007 WL 121563 (4th Cir. Jan. 19, 2007).
There was a long history to West Virginia’s battle with CMS over estate recovery, as the Fourth Circuit briefly noted. West Virginia had refused to engage in estate recovery until the federal government threatened to withhold federal financial participation. West Virginia responded by authorizing estate recoveries; however, the state brought federal litigation against the federal government, challenging the requirement to engage in estate recovery as unduly coercive in violation of the Tenth Amendment. The state lost its suit; the Fourth Circuit held that the estate recovery provision was not on its face so coercive as to raise a potential Tenth Amendment problem. West Virginia v. Dep’t of Health & Human Servs., 289 F.3d 281 (4th Cir. 2002).
The latest battle was over West Virginia’s definition of undue hardship. Federal law requires states to 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). In 2001, CMS amended the State Medicaid Manual to include guidance concerning the estate recovery and undue hardship provisions. The new manual provision includes an example of a permissible waiver, taken from New Mexico, which excludes from recovery homes of “modest value,” defined at fifty percent or less of the value of the average price of homes, based on countywide home values. Subsequently, West Virginia utilized a statewide measure to determine homes that were of “modest value,” instead of a countywide measure. CMS disapproved the proposed amendment to the state plan as overbroad. West Virginia sought administrative review. The CMS hearing officer recommended affirming the disapproval of the plan amendment; the hearing officer concluded that “the State’s methodology … has the effect of exempting a high percentage of homes in many of the states’ counties and therefore, will negate the intent of the estate recovery program.” The CMS Administrator adopted the hearing officer’s proposed decision in May 2003, and West Virginia appealed the agency’s decision.
The Fourth Circuit affirmed. West Virginia’s first argument was that the Secretary exceeded his authority when he rejected the state’s proposed hardship waiver without first establishing regulations to define undue hardship. West Virginia argued that criteria for defining the scope of undue hardship waivers had to be established through notice-and-comment rulemaking. The Fourth Circuit concluded that this argument “is unfounded.” The court stated: “Agencies are ordinarily permitted to choose in adjudication among permissible meanings of statutes they are charged with administering, without spelling out their interpretations beforehand through notice-and-comment rulemaking.” The court noted that other provisions of the Social Security Act require the agency to establish procedures through notice and opportunity for public comment, and gave several examples. The lack of any reference to notice and public comment in the applicable statutory provision defeated West Virginia’s argument.
West Virginia further argued that the Secretary’s rejection of the proposed amendment was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” in violation of the Administrative Procedures Act, 5 U.S.C. § 706(2)(A). The court applied a Chevron deference test, pursuant to Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The court held that the Secretary did not act arbitrarily or capriciously or interpret the Medicaid statute in an unreasonable fashion, when he disapproved West Virginia’s proposed “undue hardship” waiver. The court noted that in one county more than 83 percent of the homes were valued below the state’s proposed definition of “modest value.” The court held that the Secretary was not statutorily precluded from taking such variations into account, or from requesting that West Virginia use more refined data for the threshold for modest value. The court found that it was not a clear error of judgment for the Secretary to conclude that the state’s definitions negated the intent of the estate recovery program enacted by Congress. The court held that the Secretary’s interpretation of undue hardship was a reasonable construction of statutory terms over which Congress had delegated interpretive authority. The court noted that the statute explicitly grants the Secretary power to determine the basis for the criteria for determining undue hardship, requiring deference to the Secretary.
It is unlikely that this decision would be reversed by the Supreme Court, given the high court’s record of deference to the federal government in Medicaid matters. See, e.g., Wisconsin Dept. of Health & Family Services v. Blumer, 534 U.S. 473 (2002).