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New Jersey v. Department of Health and Human Services

February 5, 1982



Author: Adams

Before: ADAMS, ROSENN, and SLOVITER, Circuit Judges

ADAMS, Circuit Judge.

The State of New Jersey petitions from a decision of the Grant Appeals Board of the Department of Health and Human Services (HHS) which denied federal reimbursement under the Medicaid program for medical services provided by the State over a two-year period to certain aged, institutionalized individuals. New Jersey contends that the Board erred in four respects: first, by concluding that the State's Medicaid plan in effect for the period in question did not cover the individuals with respect to whom New Jersey seeks reimbursement; second, by holding that HHS was not estopped from insisting on the disallowance by reason of allegedly inaccurate and misleading advice Department officials furnished to the State; third, by refusing to allow the State to revise its Medicaid plan retroactively in order thereby to become eligible for federal assistance; and fourth, by miscalculating the amount of the disallowance ultimately imposed. After determining that we have jurisdiction under 42 U.S.C. § 1316(a) to entertain this appeal, we reject each of the contentions advanced by New Jersey and deny the petition for review.



Title XIX of the Social Security Act, 42 U.S.C. § 1396, provides for the appropriation of federal monies to enable each state, "as far as practicable under the conditions in such State," to furnish medical assistance and rehabilitation services to certain individuals "whose income and resources are insufficient to meet the costs of necessary medical services." 42 U.S.C. § 1396. A state is not obliged to participate in what is commonly referred to as the "Medicaid" program. If it chooses to do so, however, it must submit to and have approved by the Secretary of HHS*fn1 a "State plan" that satisfies various statutory and regulatory requirements. Id. at § 1396a(a) & (b). Once such a plan has been approved and takes effect, a state is entitled to federal grants representing reimbursement for a portion of the expenditures it incurs in providing specified medical services to eligible persons under the plan. Id. at § 1396b; see 45 C.F.R. § 201.5. No reimbursement is available for any amounts paid by a state to or on behalf of any "ineligible individuals." 42 C.F.R. § 447.59(b).

At the time New Jersey entered the Medicaid program,*fn2 Title XIX required, among other things, that a state plan extend medical assistance to all "categorically needy" individuals -- that is, to "all individuals receiving aid or assistance" under any of a number of that state's income-assistance programs, such as the Old Age Assistance program.*fn3 In addition, a state, at its option, could also provide Medicaid coverage to those persons referred to as "medically needy" -- that is, to individuals who had "income and resources" in excess of the various eligibility ceilings for any of the public-assistance programs, but insufficient to meet "the costs of necessary medical or remedial care and services."*fn4 Under the terms of the statute, if a state elected to create a "medically needy" program, it was obligated to extend coverage to "all medically needy groups that correspond to the covered categorically needy groups," 45 C.F.R. § 248.10(b)(5) (1976 ed.) (emphasis added) (current version at 42 C.F.R. §§ 435.300-.325). Thus, for example, a state that provided Medicaid assistance to "categorically needy" persons participating in the Old Age Assistance and the Aid to the Blind programs could not include in its plan the "medically needy" aged without simultaneously including any "medically needy" blind persons with similar financial and non-financial characteristics. 42 U.S.C. § 1396a(a)(10)(B) (1970 version) (current version at 42 U.S.C. § 1396a(a)(10)(C)).

Pursuant to regulations that accompanied Title XIX, a state was empowered to include within its Medicaid plan certain individuals, not classifiable as either "categorically needy" or "medically needy" in their own right, who nonetheless qualified for coverage because they were members of one of six so-called "optional categorical groups." See 45 C.F.R.§ 248.10(b)(2) (1976 ed.) (current version at 42 C.F.R. §§ 435.200-.231).*fn5 For purposes of this appeal, only one such "optional categorical group" need be mentioned. Medicaid reimbursement could be obtained, if a state so desired, for medical services provided to

[p]ersons in a medical or intermediate care facility who, if they left such facility would be eligible for financial assistance under another of the State's approved plans. This includes persons who have enough income to meet their personal needs while in the facility, but not enough to meet their needs outside the facility according to the appropriate State plan....

45 C.F.R. § 248.10(b)(2)(ii) (1976 ed.) (current version at 42 C.F.R. § 435.211).


With this general statutory and regulatory background in mind, we proceed to discuss the facts involved in this particular appeal. Before it joined the Medicaid program, New Jersey provided benefits through a state-administered Medical Assistance for the Aged (MAA) program to elderly residents who lacked sufficient means to obtain necessary medical services. See 44 N.J. Stat. Ann. §§ 7-76 et seq. (West). New Jersey included in the MAA arrangement certain elderly persons who had income and resources in excess of the OAA eligibility limits.*fn6 The present controversy involves the status of this group of individuals -- persons ineligible for OAA who nonetheless participated in the State's MAA program -- under the New Jersey Medicaid scheme that became effective in January 1970.

The Medicaid plan ultimately adopted by New Jersey and approved by the Secretary of HHS did not purport to provide Medicaid coverage for all individuals who previously had been receiving MAA assistance. Former MAA recipients who qualified for federal OAA payments were, of course, incorporated into the State's plan by reason of being "categorically needy," see 42 U.S.C. § 1396a(a)(10) (1970 version) (current version at 42 U.S.C. § 1396a(a)(10)(A)). Those members of the MAA population with income and resources in excess of OAA standards, however, were intentionally excluded from Medicaid coverage by the State. Apparently, New Jersey officials believed, for reasons discussed in Part III(B) of this opinion, that if such individuals were included within its Title XIX plan, then the State would be obligated to extent Medicaid benefits to all similarly-situated "medically needy" individuals financially disqualified from categorical-assistance programs.*fn7 Rather than enact such an extensive and far-reaching "medically needy" program,*fn8 New Jersey decided to forego any attempt to bring OAA-ineligible MAA recipients within the scope of its Medicaid plan, and instead chose to continue to provide medical assistance to such persons at its own expense. Grant Appeals Board Decision No. 115 (Aug. 8, 1980), Appendix at 3a.

Aside from covering "categorically needy" persons, though, New Jersey extended Medicaid assistance to members of the "optional categorical group" defined by Regulation 248.10(b)(2)(ii), supra, that is, to those individuals who had "enough income to meet their personal needs" as long as they remained within a medical or intermediate care facility, but who would have qualified for some sort of categorical assistance, such as OAA, had they left the institution. In connection with this aspect of New Jersey's program, during the period from January 1, 1970, through June 30, 1971, the financial standard employed by the State in determining eligibility for its categorical assistance programs took into account the applicant's "special needs." As explained by the Grant Appeals Board, individuals with "incomes in excess of the basic monthly standard of need... could [nonetheless] be eligible for public assistance benefits if their income were below the financial limit augmented to include... special circumstance items... essential for the physical health and safety of persons in specified situations." Grant Appeals Board Decision, supra, Appendix at 4a. One such "special circumstance item" authorized a non-institutionalized OAA client to receive a cash or vendor payment for "homemaker services." See New Jersey Categorical Assistance Budget Manual § 315.1; Record at 212. Effective July 1, 1971, however, New Jersey amended its Medicaid plan by eliminating the "special needs" arrangement and, therefore, the homemaker cash payment. Instead, from that date until September 30, 1973, the State admeasured eligibility for OAA aid by means of a "flat grant" test. Under this latter approach, "[t]he income standard against which institutionalized individuals' incomes were to be compared for purposes of establishing Medicaid eligibility [under Regulation 248.10(b)(2)(ii)] was a set monetary level that remained constant irrespective of any special needs that an individual might have if he were residing in the community." Grant Appeals Board Decision, supra, Appendix at 4a.

In the fall of 1973, administrators in New Jersey's Division of Medical Assistance and Health Services learned, apparently as the result of discussions with Medicaid officials from other states, that many of the OAA-ineligible persons who formerly had been receiving MAA benefits could in fact have been brought within New Jersey's Medicaid arrangement, even without the State's adoption of a comprehensive "medically needy" program. This desired result could be achieved, New Jersey discovered, by extending Medicaid coverage to the "optional categorical group" set forth in Regulation 248.10(b)(2)(ii) and by defining the eligibility standard for OAA aid to include "special needs" such as homemaker services. Under such a configuration, elderly institutionalized individuals who did not receive OAA could nonetheless be covered under Medicaid because: (1) if those individuals were to leave their institutions, they would be unable to afford necessary homemaker services; (2) such individuals would thus be unable "to meet their needs outside the facility"; (3) consequently, they would qualify the OAA payments "according to the appropriate State plan," viz., a Title I plan with a "special needs" standard of eligibility; and (4) they could then be covered under Medicaid as members of the "optional categorical group" defined by Regulation 248.10(b)(2)(ii).

Effective October 1, 1973, New Jersey amended its Medicaid plan to incorporate the above-described arrangement. That is, the State replaced its "flat grant" method of determining OAA eligibility with a "special needs" standard that took into account the cost of homemaker services. The result of this amendment was that "virtually all" of those institutionalized individuals to whom New Jersey had provided MAA benefits at its own expense from January 1970 to October 1973 became eligible for federally funded Medicaid assistance. Letter from G. Riti, Acting Director, Division of Public Welfare, N.J. Department of Institutions and Agencies (Nov. 13, 1973), Appendix at 58a-59a.

In February 1974, New Jersey filed with HHS a retroactive claim for reimbursement of $14.8 million under the Medicaid program for medical services provided, at the State's expense, from January 1970 to October 1973, to OAA-ineligible MAA recipients. In May 1975, the agency's Regional Commissioner denied New Jersey's claim on the ground that the individuals with respect to whom New Jersey sought federal financial assistance had not been covered under the various State Medicaid plans in effect prior to October 1973. In November 1978, the portion of the Regional Commissioner's decision covering the July 1971 to October 1973 period, when New Jersey used a "flat grant" Title I calculation scheme, was upheld by the Administrator of the Department's Health Care Financing Administration. At the same time, however, the Administrator ruled that the State -- assuming proper documentation was forthcoming*fn9 -- could receive reimbursement for that fraction of the $14.8 million disallowance relating to the January 1970 to July 1971 period. The Administrator reasoned that during these initial months, New Jersey's Medicaid plan in fact contained the two elements necessary to trigger Medicaid coverage for institutionalized MAA recipients, namely, Regulation 248.10(b)(2)(ii) and a "special needs" provision in the OAA program. Letter from L. Schaeffer, Administrator, HCFA (Nov. 22, 1978), Appendix at 12a-19a. After further administrative proceedings not relevant to this appeal, at which State officials furnished the documentation discussed in note 9, supra, New Jersey was given credit for disallowances entered for the January 1, 1970, to June 30, 1971, interval.*fn10

New Jersey appealed the Administrator's affirmance of the July 1, 1971, to September 30, 1973, disallowance to the HHS Grant Appeals Board. After concluding that a full-scale evidentiary hearing was unnecessary, because there was no genuine dispute betweenm the parties as to the facts, the Board resolved all contested legal issues in favor of HHS and upheld the agency's disallowance determination. Grant Appeals Board Decision, supra, Appendix at 2a-11a. Shortly thereafter, New Jersey filed a petition for review ...

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