On certification to the Superior Court, Appellate Division, whose opinion is reported at 179 N.J. Super. 541 (1981).
For modification and remandment -- Chief Justice Wilentz and Justices Clifford, Schreiber, Handler, Pollock and O'Hern. Dissenting -- Justice Pashman. The opinion of the Court was delivered by O'Hern, J. Pashman, J. dissenting.
This case concerns judicial waiver of an agency regulation denying Medicaid reimbursement for certain classes of medical services. Specifically, we must decide the validity, as applied to the facts of this case, of a state regulation that prohibits payment for an air cleaner medically needed to stabilize the asthmatic condition of a young patient.
Michael Dougherty is a nine-year-old boy who is eligible for Aid to Families with Dependent Children (AFDC) medical assistance and therefore eligible for Medicaid benefits. He suffers from asthma and allergic rhinitis. Treatment with medication and injections was attempted without success. He was twice hospitalized for several days of care. Twice monthly he required emergency room treatment. In the fall of 1979, after four trips to the emergency room in eight weeks, Michael's allergist prescribed that an "HEPA Cleaner" be installed in Michael's room. This air cleaner removes very small particles of household dust, molds and pollens from the air. Michael's
mother bought the equipment in October 1979 and applied for reimbursement of the purchase price of $269. The Middlesex County local unit of the Division of Medical Assistance and Health Services of the State Department of Human Services denied reimbursement because according to N.J.A.C. 10:59-1.6, the air cleaner was included in a class of environmental control equipment whose primary and customary use is non-medical. The Doughertys requested a fair hearing in accordance with N.J.A.C. 10:49-5.3. At the hearing in February 1980 the evidence showed that Michael's condition had improved since he had been using the air cleaner and that he had had no further hospitalization or emergency room treatment. The Administrative Law Judge reversed the local agency, found the item to be medically necessary and not environmental equipment as defined by the regulation, and recommended reimbursement. On appeal to the Department of Human Services, the Commissioner's designee reversed on the basis that the equipment purchased was an electrostatic air filter, an item for which payment was specifically prohibited by the regulation. The Appellate Division reversed, holding that under the unique circumstances of this case the regulation should be waived to achieve the broader purposes of the New Jersey Medical Assistance and Health Services Act, N.J.S.A. 30:4D-1 et seq. We granted the Department's petition for certification, 88 N.J. 495 (1981).
Title XIX of the Social Security Act established the Medicaid program under which participating states may provide federally funded medical assistance to certain eligible needy persons. 42 U.S.C. § 1396. We have described the program as follows:
Medicaid is a program whose principal aim is that of "enabling each State, as far as practicable under the conditions in such State, to furnish * * * medical assistance [to] individuals whose income and resources are insufficient to meet the costs of necessary medical services * * *." 42 U.S.C. § 1396. In order to achieve this goal, a complex cost-sharing mechanism has been constructed
providing for partial federal funding of medical services rendered to the indigent.
The Medicaid Act represents an exercise in what has been termed "cooperative federalism." Note, "State Restrictions on Medicaid Coverage of Medically Necessary Services," 78 Colum. L. Rev. 1491, 1491 (1978). The program is primarily administered by the State, subject to federal guidelines and constraints. Each participating State is required to adopt a plan, which must be approved by the Secretary of the Department of Health, Education & Welfare (HEW), covering in detail the services to be rendered. 42 U.S.C. §§ 1396, 1396a(a). The plan must provide for five general categories of medical assistance and may include others. 42 U.S.C. § 1396a(a)(13)(B). [ Monmouth Medical Center v. State, 80 N.J. 299, 302-03 (1979)].
The New Jersey Medical Assistance and Health Services Act, N.J.S.A. 30:4D-1 et seq., was enacted to enable the State to obtain the benefits provided by the federal law. The Division of Medical Assistance and Health Services in the Department of Human Services has been charged with implementing and administering a program of medical assistance and directed to do whatever is "necessary to secure for the State of New Jersey the maximum Federal participation that is available with respect to a program of medical assistance, consistent with fiscal responsibility and within the limits of funds available for any fiscal year. . . ." N.J.S.A. 30:4D-7. New Jersey may typically receive a reimbursement from the federal government of 50 percent of the program costs. The Division is authorized to promulgate rules and regulations to carry out that intent, N.J.S.A. 30:4D-7, as well as to provide the Secretary of HEW with the State's plan, N.J.S.A. 30:4D-7(a). Monmouth Medical Center, supra, 80 N.J. at 316.
Although Title XIX does not require states to provide funding for all medical treatment falling within the five general categories, it does require that "State medical plans establish 'reasonable standards . . . for determining . . . the extent of medical assistance under the plan which . . . are consistent with objectives of [Title XIX],' 42 U.S.C., § 1396a(a)(17). . ." Beal v. Doe, 432 U.S. 438, 441, 97 S. Ct. 2366, 2369, 53 L. Ed. 2d 464, 470 (1977). We have never held that our statutory program requires state
reimbursement for all medically necessary services for every patient. Monmouth Medical Center, supra, 80 N.J. at 309.*fn1
There are two questions, then, in this case. Is the agency regulation valid, and was it correctly applied as to this claimant, i.e., was the order of waiver proper?
In Texter v. Dept. of Human Services, 88 N.J. 376 (1982), we recently restated the principles governing review of agency regulations. We held there that "[a]dministrative agencies have wide discretion in selecting the means to fulfill the duties that the Legislature delegated to them." Id. at 383. N.J.S.A. 30:4D-5 and 4D-7 authorize the agency and the Commissioner to adopt rules and regulations to implement the policies of the act. On review, courts presume that an administrative regulation is valid. The burden is on the challenger to demonstrate that the regulation is arbitrary, capricious or unreasonable. New Jersey Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 562-63 (1978); Cole Nat'l ...