April 10, 2008
DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES, RESPONDENT-RESPONDENT, AND MONMOUTH COUNTY BOARD OF SOCIAL SERVICES, RESPONDENT.
On appeal from a Final Agency Decision of the Department of Human Services, Division of Medical Assistance and Health Services, Docket No. HMA-8007-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 25, 2008
Before Judges Graves, Sabatino and Alvarez.
This case involves the financial resources that may be counted in determining a person's eligibility for Medicaid benefits under federal and state law. G.T., a disabled man who co-owns a security alarm monitoring business with his wife, appeals a September 25, 2006 decision of the Director of the State Division of Medical Assistance and Health Services ("the Division"). In that final decision, the Director found that the alarm business's standing contracts with its customers, which have a stipulated value of over $1.7 million, should be included in assessing G.T.'s Medicaid eligibility. We affirm.
The relevant facts, as presented at the trial in the Office of Administrative Law ("OAL") in 2006, are substantially undisputed. G.T., who is currently fifty-four years old, is a long-time resident of Monmouth County. Since 1979 he has been married to I.T. They have two children, a daughter and a son, who were respectively in college and in high school when this matter was tried.
In 1985 G.T. and his wife started a business in New Jersey known as Bounty Alarms, Inc. The business sells, installs and services burglar alarm systems. As of the time of trial, the company had about 2,500 customer accounts. It is stipulated for purposes of this litigation that G.T. and I.T. each have a fifty percent ownership interest in Bounty Alarms, Inc. and also its related limited liability corporation, Bounty Alarms, LLC.*fn1
In September 1995, G.T. was involved in a motor vehicle accident that caused him to sustain a permanent traumatic brain injury. As a result, G.T. is totally disabled. He lived at home with his family until February 2003, when he was admitted to a skilled nursing facility nearby. He continues to reside there. He receives $1,423 monthly in Social Security disability benefits and $1,204 each month in private disability insurance.
Since her husband's 1995 accident, I.T. has managed the family business on a full-time basis. According to her testimony at the OAL trial, I.T. oversees Bounty's staff of technicians and office personnel, schedules customer service calls, negotiates agreements, and handles the collection of delinquent accounts. She draws slightly more than $100,000 in income annually from the business, a sum that Bounty's accountant characterized at trial as being at or below the compensation of similar executives who own and operate small companies in the area. I.T. works out of her residence, and is regularly "on call" to customers who need their alarms repaired or reactivated.
Bounty owns a small amount of tangible property, mainly office furniture and other equipment, which is located in I.T.'s house. As of the time of trial, Bounty's customers typically paid $22.95 per month for their alarm services. The parties have stipulated that the industry standard is to value customer accounts at thirty times the monthly charges, or $688.50 per account. Using that stipulated ratio, the customer contracts are worth 2,500 times $688.50, or roughly $1.7 million.
After moving into the nursing facility in 2003, G.T. filed, with the assistance of his wife and their counsel, an application for Medicaid benefits. The application was rejected by the Monmouth County Board of Social Services. The rejection was principally based on the fact that G.T. has excessive financial resources, in particular his ownership interest in Bounty, that make him ineligible for Medicaid. G.T. appealed the denial of benefits to the Division, which transferred the contested case to the OAL.
After several procedural events that we need not delve into here at length, the matter was ultimately tried before Administrative Law Judge ("ALJ") Joseph Lavery in April 2005. G.T. principally argued that his ownership interests in Bounty's customer contracts, as well as those of I.T., are excludable under the applicable Medicaid statutes and regulations, particularly 42 U.S.C.A. § 1382b(a)(3) and 20 C.F.R. § 416.1220, and related provisions of New Jersey law. In support of that position, G.T. presented testimony from his wife, as well as testimony from Bounty's certified public accountant, describing the nature and the value of the business's customer contracts. The Division did not present any witnesses, but instead relied upon various documents moved into evidence and the legal arguments of counsel.
ALJ Lavery issued his written decision on June 27, 2006. He concluded that the business property of Bounty, including its customer contracts, is not exempt from consideration in evaluating G.T.'s financial eligibility for Medicaid. G.T. then sought review of the ALJ's ruling with the Division Director. On September 25, 2006, the Director issued a final agency decision, ratifying the ALJ's findings. Among other things, the Director determined that federal Medicaid laws and regulations require Bounty's customer contracts to be treated as a non-exempt business asset. Because the value of that asset "vastly exceeds the Medicaid standard" of financial need, the Director concluded that G.T. is not eligible for benefits. Consequently, the taxpayers who fund the Medicaid program are not required to pay for his medical care.
This appeal ensued. G.T. argues that the ALJ and the Director misapplied the Medicaid laws and regulations in treating Bounty's customer contracts as non-exempt business property. Additionally, G.T. argues that the Division's ineligibility determination is arbitrary and capricious, and violated constitutional principles of equal protection and due process. G.T. finally contends that the Division should be estopped from taking the position that the form of ownership of Bounty's assets is irrelevant in assessing G.T.'s Medicaid eligibility.
It is well established that our scope of review of the Director's final decision is circumscribed. Our role as an appellate court is restricted to four inquiries:
(1) whether the agency's decision offends the State or Federal Constitution; (2) whether the agency's action violates express or implied legislative policies; (3) whether the record contains substantial evidence to support the findings on which the agency based its action; and (4) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors. [George Harms Constr. Co. v. N.J. Tpk. Auth., 137 N.J. 8, 27 (1994).]
Fundamentally, "[o]ur function is to determine whether the administrative action was arbitrary, capricious or unreasonable." Burris v. Police Dep't, Twp. of W. Orange, 338 N.J. Super. 493, 496 (App. Div. 2001) (citing Henry v. Rahway State Prison, 81 N.J. 571, 580 (1980)); see also Aqua Beach Condo. Ass'n v. Dep't of Cmty. Affairs, 186 N.J. 5, 16 (2006). "The burden of demonstrating that the agency's action was arbitrary, capricious or unreasonable rests upon the [party] challenging the administrative action." In re Arenas, 385 N.J. Super. 440, 443-44 (App. Div.), certif. denied, 188 N.J. 219 (2006); Barone v. Dep't of Human Servs., 210 N.J. Super. 276, 285 (App. Div. 1986), aff'd, 107 N.J. 355 (1987). Here, that burden lies with G.T.
With respect to G.T.'s claim that the Division has misapplied the pertinent Medicaid statutes and regulations, we note that "[i]t is settled that '[a]n administrative agency's interpretation of statutes and regulations within its implementing and enforcing responsibility is ordinarily entitled to our deference.'" Wnuck v. N.J. Div. of Motor Vehicles, 337 N.J. Super. 52, 56 (App. Div. 2001) (quoting In re Appeal by Progressive Cas. Ins. Co., 307 N.J. Super. 93, 102 (App. Div. 1997)). "Absent arbitrary, unreasonable or capricious action, the agency's determination must be affirmed." Wnuck, supra, 337 N.J. Super. at 56 (citing R & R Mktg., L.L.C. v. Brown-Forman Corp., 158 N.J. 170, 175 (1999)). We are not, of course, bound by the agency's opinions on matters of regulatory law. Levine v. State, Dep't of Transp., 338 N.J. Super. 28, 32 (App. Div. 2001); see also G.S. v. Dep't of Human Servs., 157 N.J. 161, 170 (1999).
As our Supreme Court has recognized, "Medicaid was created to provide medical assistance to the poor at the expense of the public." Mistrick v. Div. of Med. Assist. & Health Servs., 154 N.J. 158, 165 (1998). States that choose to participate in the Medicaid program are required to comply with the applicable federal statutes and Medicaid regulations. Id. at 166. The Department of Human Services, including its Division of Medical Assistance and Services, is responsible for administering the Medicaid program in this State. N.J.S.A. 30:4D-3c. The agency must do so in compliance with federal guidelines, as amplified by state laws that are not inconsistent with those guidelines. Mistrick, supra, 154 N.J. at 166-68.
The applicable federal statutory provision here, 42 U.S.C.A. § 1382b, prescribes that certain discrete categories of resources are excluded when evaluating the financial eligibility of a Medicaid applicant and his or her so-called "community spouse."*fn2 These exclusions were adopted by Congress as part of legislation "intended to end the pauperization of the community spouse by allowing that spouse to protect a sufficient, but not excessive, amount of income and resources to meet his or her own needs while the institutionalized spouse was in a nursing home at Medicaid expense." Mistrick, supra, 154 N.J. at 170. At the same time, Congress sought to ensure that "no one escapes contributing a fair share to nursing home care costs." Id. at 171 (internal quotations omitted).
In relevant part, Section 1382b provides:
(a) Exclusions from resources. In determining the resources of an individual (and his eligible spouse, if any) there shall be excluded--
(3) other property which is so essential to the means of self-support of such individual (and such spouse) as to warrant its exclusion, as determined in accordance with and subject to limitations prescribed by the Commissioner of Social Security, except that the Commissioner of Social Security shall not establish a limitation on property (including the tools of a tradesperson and the machinery and livestock of a farmer) that is used in a trade or business or by such individual as an employee[.] [42 U.S.C.A. § 1382b(a)(3) (emphasis added).]
As contemplated by the statute, the Secretary of Health and Human Services has adopted regulations implementing this statute. These regulations shed further light on the concept of "other property which is so essential to the means of self-support" of an individual. In particular, 20 C.F.R. § 416.1220 states that:
When counting the value of resources an individual (and spouse, if any) has, the value of property essential to self-support is not counted, within certain limits. There are different rules for considering this property depending on whether it is income-producing or not. Property essential to self-support can include real and personal property (for example, land, buildings, equipment and supplies, motor vehicles, and tools, etc.) used in a trade or business (as defined in § 404.1066 of part 404), nonbusiness income-producing property (houses or apartments for rent, land other than home property, etc.) and property used to produce goods or services essential to an individual's daily activities. Liquid resources other than those used as part of a trade or business are not property essential to self-support. If the individual's principal place of residence qualifies under the home exclusion, it is not considered in evaluating property essential to self-support.
[20 C.F.R. § 416.1220 (emphasis added).]
Originally, the federal regulations also set forth monetary limits on how much business income may be classified as "essential to self-support," including a $6,000 cap. See 20 C.F.R. § 416.1222. The Director concedes, however, that the federal government has ceased applying that regulatory cap because the cap appears to be in conflict with the enabling legislation.*fn3
The pivotal question here is whether Bounty's ongoing contracts with its customers for monthly alarm services constitute property "used in a trade or business," as that phrase appears in 20 C.F.R. § 416.1220, and hence should be excluded in calculating G.T.'s financial need for Medicaid.*fn4 As illustrations of such exempt business property used in a trade or business, the regulation specifies "land, buildings, equipment and supplies, motor vehicles, and tools, etc." Ibid. The underlying statute, 42 U.S.C.A. § 1382b(a)(3), also refers to "the tools of a tradesperson and the machinery and livestock of a farmer" as examples of such exempt property used in a trade or business.
G.T. analogizes Bounty's customer contracts to the livestock of a farmer and the tools of a tradesperson. He argues that without the customer contracts, he and his wife would have no alarm business, just as a farmer would have no dairy business without any cows. We agree with the Director and the ALJ that this analogy is unpersuasive.
There is a fundamental qualitative difference between, on the one hand, a business's contracts with its customers and, on the other hand, the assets (such as cows and tools) that it uses to fulfill those contracts. The customer contracts provide for a stream of revenue. They are not "used" in Bounty's business in the same sense that a farmer uses a plow or a cow, or a tradesperson uses a masonry knife or a bag of cement.*fn5 Applying the ejusdem generis principle of statutory construction, the customer contracts at issue here are sufficiently unlike the other examples of exempt property listed in the federal statute and regulation to mandate identical treatment. Gallenthin Realty Dev., Inc. v. Borough of Paulsboro, 191 N.J. 344, 367 (2007) ("'where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words'" (quoting 2A Norman J. Singer, Sutherland Statutory Construction § 47:17 (6th ed. 2000) (emphasis deleted))).
We therefore sustain the Director's determination that Bounty's customer contracts are not exempt assets for purposes of assessing G.T.'s financial need and eligibility for Medicaid. The Director's decision is a reasonable interpretation and application of the federal Medicaid guidelines, and is neither arbitrary nor capricious.
We are mindful that G.T.'s tragic and debilitating accident undoubtedly has caused him and his family to endure major financial burdens and personal hardship. As the Court aptly observed in Mistrick, "[t]he legislative goal of preventing impoverishment of community spouses while insisting on their payment of a fair share of nursing home costs is no doubt difficult to achieve." Mistrick, supra, 154 N.J. at 176-77. Attaining that difficult balance is best reserved to the federal and state agencies entrusted with our tax dollars in administering the Medicaid program, within the confines of the codified statutes and regulations. Viewed in that highly-regulated context, we discern no injustice in the Director's decision to include the $1.7 million in customer contracts as a resource available to this patient's family.
We are also satisfied that the Director's determination does not violate constitutional principles of equal protection and due process. The government's classification of Bounty's customer contracts as non-exempt property, distinct from business assets such as tools and livestock, is entirely rational. Generally, courts are to uphold a governmental classification so long as it is rationally related to a legitimate end. See Romer v. Evans, 517 U.S. 620, 631, 116 S.Ct. 1620, 1627, 134 L.Ed. 2d 855, 865 (1996). Especially in the domain of eligibility for allocating scarce tax dollars to government programs for the poor, a classification with a reasonable basis is constitutional, despite some resulting inequity. See Sojourner A ex rel. Y.A. v. N.J. Dep't of Human Servs., 350 N.J. Super. 152, 172-73 (App. Div. 2002), aff'd, 177 N.J. 318 (2003). Additionally, because the form of the parties' stock ownership in their business is not dispositive to our analysis in affirming the Director's finding of ineligibility, appellant's other constitutional arguments based upon such ownership issues are inconsequential.
We have carefully considered G.T.'s remaining arguments and sub-arguments, including his claim that the agency violated the "law of the case" doctrine in its handling of this matter, and are satisfied that those issues lack sufficient merit to warrant discussion in this written opinion. R. 2:11-3(e)(1)(D) and (E).