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In re N.J.A.C.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


October 7, 2008

IN THE MATTER OF N.J.A.C. 10:71-4.7(B)(4)(II) AND N.J.A.C. 10:71-4.10(M)(1).

On appeal from the Department of Human Services, Division of Medical Assistance and Medical Services.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 22, 2008

Before Judges Lisa and Sapp-Peterson.

Petitioner, the New Jersey Chapter of the National Academy of Elder Law Attorneys, appeals from the denial by the Department of Human Services, Division of Medical Assistance and Medical Services (Division) of its petition for rulemaking. Petitioner requested that the Division amend N.J.A.C. 10:71- 4.7(b)(4)(ii) and N.J.A.C. 10:71-4.10(m)(1) to change the methodology used to calculate the "statewide monthly average" or "average monthly cost" of nursing home services. Essentially, petitioner sought to increase the divisor used to calculate the transfer penalty in instances where individuals transferred non-exempt resources in order to qualify for Medicaid benefits. The higher the divisor, the less time an individual would be excluded from receiving those benefits.

Petitioner argues on appeal:

POINT I N.J.A.C. 10:71-4.7(b)(4)(ii) AND N.J.A.C. 10:71-4.10(m)(1) ARE ULTRA VIRES ON THEIR FACE BECAUSE THEY CONTRAVENE THE PLAIN LANGUAGE OF CONTROLLING FEDERAL LAW.

POINT II N.J.A.C. 10:71-4.7(b)(4)(ii) AND N.J.A.C. 10:71-4.10(m)(1) ARE INCONSISTENT WITH EACH OTHER AND THUS, ARBITRARY AND CAPRICIOUS. POINT III BY NOT ADHERING TO THE MANDATE OF [42] U.S.C.A. §1396p(c)(1)(E), [THE DIVISION] OVER-PENALIZES MEDICAID APPLICANTS WHO HAVE MADE CERTAIN TRANSFERS OF ASSETS WITHIN THE "LOOK BACK PERIOD" WHICH VIOLATES THE INTENT OF CONGRESS.

We reject these arguments and affirm.

I.

The Medicaid program, established in 1965 as Title XIX of the Social Security Act, 79 Stat. 343, as amended, codified at 42 U.S.C.A. §§ 1396 to 1396v, is a federally-created, state-implemented program established to provide federal financial assistance to states that elected to reimburse specified costs of medical treatment for needy individuals. 42 U.S.C.A. § 1396. States that participate in the program must submit a "State Plan" for federal approval, describing the methods and standards by which, among other things, individuals will be found eligible for the receipt of Medicaid benefits. 42 U.S.C.A. § 1396a.

New Jersey's participation in the Medicaid program was authorized by the enactment of the New Jersey Medical Assistance and Health Services Act, N.J.S.A. 30:4D-1 to -19.5. The Secretary of the U.S. Department of Health and Human Services, through the Health Care Financing Administration, administers the program at the federal level. The Division is the State agency designated to administer the Medicaid program in New Jersey. N.J.S.A. 30:4D-7. The Division, in accordance with its statutory responsibilities, has promulgated regulations establishing Medicaid eligibility criteria. N.J.S.A. 30:4D-7(a); N.J.A.C. 10:70-4.1.

Because Medicaid funds are limited, only those applicants with income and non-exempt resources below specific levels qualify. To be eligible, a person must not have available income or assets in excess of prescribed limits. Applicants with income or assets in excess of those limits must "spend-down" before becoming eligible. 42 U.S.C.A. § 1396a(a)(10), (17). In New Jersey, eligibility for Medicaid requires that an applicant not have resources of more than $2000. N.J.A.C. 10:71-4.5(c). Such resources include "any real or personal property which is owned by the applicant . . . and which could be converted to cash to be used for his/her support and maintenance." N.J.A.C. 10:71-4.1(b).

Medicaid requirements mandate a transfer penalty for applicants who transfer or dispose of non-exempt resources for less than fair market value during or after the start of the thirty-six month*fn1 "look-back" period, before the individual becomes institutionalized or applies for Medicaid as an institutionalized individual. 42 U.S.C.A. § 1396p(c)(1)(A). The federal standard of the transfer penalty is set forth as follows:

With respect to an institutionalized individual, the number of months of ineligibility under this subparagraph for an individual shall be equal to--

(I) the total, cumulative uncompensated value of all assets transferred by the individual (or individual's spouse) on or after the look-back date specified in subparagraph (B)(i), divided by

(II) the average monthly cost to a private patient of nursing facility services in the State (or, at the option of the State, in the community in which the individual is institutionalized) at the time of application.

[42 U.S.C.A. §§ 1396p(c)(1)(E)(i)(I)-(II) (emphasis added).]

Thus, individuals who transfer non-exempt assets or resources are treated as though they still have those resources and are paying for their medical care, rather than receiving services from Medicaid. 42 U.S.C.A. § 1396p(c). The transfer penalty is meant to penalize those individuals by denying them Medicaid benefits for a period equal to the time they could have used the transferred resources to pay for their medical care. 42 U.S.C.A. § 1396p(c).

In New Jersey, the transfer penalty is calculated by dividing the uncompensated portion of the transferred non-exempt "resource" or "asset"*fn2 by the "statewide monthly average lowest semi-private room rate for Medicaid nursing facilities as calculated annually." N.J.A.C. 10:71-4.7(b)(4)(ii). Transfers of resources within the stated time frame are presumed to be improperly motivated to obtain Medicaid eligibility, a presumption that can be rebutted by proofs "that the assets were transferred exclusively (that is, solely) for some other purpose" than Medicaid qualification. N.J.A.C. 10:71-4.10(j).

Through its petition for rulemaking, see N.J.S.A. 52:14B-4(f); N.J.A.C. 1:30-4; N.J.A.C. 10:1-4.2, petitioner requested that the Division amend the formulas used to calculate the "statewide monthly average" or "average monthly cost" of nursing home services in the State of New Jersey referred to in N.J.A.C. 10:71-4.7(b)(4)(ii) and N.J.A.C. 10:71-4.10(m)(1). Petitioner contends that the only accurate way the "divisor" can be ascertained is to conduct an annual survey of the "private pay" cost of all long-term care beds in Medicaid certified nursing home facilities in New Jersey. Thus, petitioner proposed the following amendment to N.J.A.C. 10:71-4.7(b)(4)(ii):

The number of months resulting from dividing the uncompensated value of the transferred resource by statewide monthly average cost to a private patient of nursing facility services, rounded up to the nearest dollar, lowest semi-private room rate for Medicaid certified nursing facilities as calculated annually. This monthly average shall be the average of per diem rates for all beds at Medicaid certified nursing facilities, based on a yearly survey to be conducted by the Division, and then multiplied by 30.42.*fn3

Petitioner also proposed the following amendment to N.J.A.C. 10:71-4.10(m)(1):

. . . the number of months equal to the total, cumulative uncompensated value of all assets transferred by the individual, on or after the look-back date, divided by the average cost to a private patient of nursing facility services average monthly cost of nursing home services in the State of New Jersey adjusted annually in accordance with the change in the Consumer Price Index-All Urban Consumers, rounded up to the nearest dollar, as calculated annually. This monthly average shall be the average of per diem rates for all beds at Medicaid certified nursing facilities, based on a yearly survey to be conducted by the Division, and then multiplied by 30.42.

The Division published a notice of action on the petition. See N.J.S.A. 52:14B-4(f); N.J.A.C. 1:30-4; N.J.A.C. 10:1-4.2.

On September 13, 2007, the Division published a notice of denial of the petition for rulemaking. It found that the State's Medicaid program "only pays for semi-private rooms at Medicaid provider nursing facilities," and, for that reason, "the specific language and method requested in the [Petition for Rulemaking] would result in a skewed system which does not address the issue of a penalty period for Medicaid applicants and beneficiaries in a relevant and logical manner." However, as a result of the petition, the Division "determined that there may be a basis for revising the penalty period formula in some alternative method," and stated that it "intend[ed] to perform a statistically reliable sample of semi-private Medicaid reimbursed room rates to see if any adjustment in the methodology contained in the rules should be proposed." This appeal followed.

II.

We first consider petitioner's argument that N.J.A.C. 10:71-4.7(b)(4)(ii) and N.J.A.C. 10:71-4.10(m)(1) are ultra vires on their face because they contravene the plain language of 42 U.S.C.A. § 1396p(c)(1)(E)(II). According to petitioner, the clear and unambiguous language of 42 U.S.C.A. § 1396p(c)(1)(E) requires the Division to consider the cost of all beds in all nursing homes in New Jersey in calculating the Medicaid divisor. Petitioner argues that limiting that cost to the "lowest semi-private room rate for Medicaid-certified nursing facilities," as set forth in N.J.A.C. 10:71-4.7(b)(4)(ii), is far more restrictive than the standard required by 42 U.S.C.A. § 1396p(c)(1)(E).*fn4

Petitioner also contends that applying the increase in the Consumer Price Index-All Urban Consumers (CPI) to "an already flawed [Medicaid] Divisor" as set forth in N.J.A.C. 10:71-4.10(m)(1) is arbitrary and capricious because the CPI does not accurately reflect the actual increase in the cost of nursing facility services, and is far removed from the mandate of 42 U.S.C.A. § 1396p(c)(1)(E).

The Division responds that its interpretation of "private patient," as used in 42 U.S.C.A. § 1396p(c)(1)(E), to include only individuals who are privately paying for semi-private rooms is not arbitrary or capricious and is consistent with federal law because Medicaid does not provide individuals with private rooms. The Division also contends that the use of the CPI to calculate the statewide average monthly rate of nursing facility services is not arbitrary or capricious, and is consistent with state and federal law because the CPI is readily available, is updated annually, and it results in an accurate Medicaid divisor.

Substantial deference is generally accorded by reviewing courts to the interpretation an agency gives a statute that it is charged with enforcing. N.J. Tpk. Auth. v. Am. Fed'n of State, County & Mun. Employees, Council 73, 150 N.J. 331, 351 (1997). "The 'fundamental consideration' in reviewing agency actions 'is that a court may not substitute its judgment for the expertise of an agency so long as that action is statutorily authorized and not otherwise defective because arbitrary or unreasonable.'" In re Distrib. of Liquid Assets Upon Dissolution of Union County Reg'l High Sch. Dist. No. 1, 168 N.J. 1, 10 (2001) (quoting Williams v. Dep't of Human Servs., 116 N.J. 102, 107 (1989)). The judicial inquiry into whether an administrative agency action was arbitrary, capricious, or unreasonable is restricted to three inquiries: (1) whether the agency's action violates the enabling act's express or implied legislative policies; (2) whether there is substantial evidence in the record to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts the agency clearly erred by reaching a conclusion that could not reasonably have been made upon a showing of the relevant factors. [In re Petitions for Rulemaking, N.J.A.C. 10:82-1.2 & 10:85-4.1, 117 N.J. 311, 325 (1989).]

"Thus a regulation can only be set aside if it is proved to be arbitrary or capricious, plainly transgresses the statute it purports to effectuate, or alters the terms of the statute and frustrates the policy embodied in it." In re Adopted Amendments to N.J.A.C. 7:7A-2.4, 365 N.J. Super. 255, 265 (App. Div. 2003). It is well established, however, that agency regulations are presumed valid and are accorded a presumption of reasonableness. In re N.J. Am. Water Co., 169 N.J. 181, 188 (2001). Findings of ultra vires actions are disfavored. N.J. Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 561 (1978). The party contesting the regulation has the burden of proving its invalidity. In re Adopted Amendments to N.J.A.C. 7:7A-2.4, supra, 365 N.J. Super. at 265.

Here, petitioner argues that N.J.A.C. 10:71-4.7(b)(4)(ii) and N.J.A.C. 10:71-4.10(m)(1) are ultra vires on their face because they contravene the plain language of 42 U.S.C.A. § 1396p(c)(1)(E)(II). Petitioner, however, has not met its burden of proving their invalidity.

42 U.S.C.A. § 1396p(c)(1)(E)(II) provides that the number of months of ineligibility . . . shall be equal to--

(I) the total, cumulative uncompensated value of all assets transferred by the individual (or individual's spouse) on or after the look-back date . . ., divided by

(II) the average monthly cost to a private patient of nursing facility services in the State (or, at the option of the State, in the community in which the individual is institutionalized) at the time of application.

Although petitioner advocates for a strict statutory construction of 42 U.S.C.A. § 1396p(c)(1)(E)(II), it has been noted that "[t]he Medicaid Act contains complex, interrelated provisions, and it would be foolhardy to impute a plain meaning to any of its provisions in isolation." Cleary v. Waldman, 959 F. Supp. 222, 228 (D.N.J. 1997), cert. denied, 528 U.S. 870, 120 S.Ct. 170, 145 L.Ed. 2d 144 (1999). "A statute must be read as a whole; words depend upon context; 'they have only a communal existence; and not only does the meaning of each interpenetrate the other, but all in their aggregate take their purport from the setting in which they are used.'" Id. at 228-29 (quoting Tate & Lyle, Inc. v. CIR, 87 F.3d 99, 104-05 (3d Cir. 1996)). Thus, the language of 42 U.S.C.A. § 1396p(c)(1)(E)(II) should not be interpreted in isolation, but rather in the context of the entire Medicaid statute and its application.

"The language of Title XIX confers broad discretion on the State to adopt standards for determining the extent of medical assistance, requiring only that such standards be 'reasonable' and "'consistent with the objectives' of the Act." Monmouth Med. Ctr. v. State, 158 N.J. Super. 241, 249 (App. Div. 1978) (quoting Beal v. Doe, 432 U.S. 438, 444, 97 S.Ct. 2366, 2371, 53 L.Ed. 464, 472 (1977)), aff'd, 80 N.J. 299 (1979), cert. denied, 444 U.S. 942, 100 S.Ct. 297, 62 L.Ed. 2d 308 (1979). The stated purpose of the New Jersey Medical Assistance and Health Services Act is to provide medical assistance, insofar as practicable, on behalf of persons whose resources are determined to be inadequate to enable them to secure quality medical care at their own expense, and to enable the State, within the limits of funds available for any fiscal year for such purposes, to obtain all benefits for medical assistance provided by the Federal Social Security Act . . . . [N.J.S.A. 30:4D-2.]

Therefore, there is no doubt that the Division has "the power to adopt reasonable rules and regulations which are necessary to carry out its functions under N.J.S.A. 30:4D-7 and its federal counterpart, 42 U.S.C.A. §[§] 1396 [to 1396v]." Monmouth Med. Ctr., supra, 158 N.J. Super. at 249.

Medicaid does not provide individuals with private rooms as part of its services. Therefore, the Division's interpretation of "private patient," as it is used in 42 U.S.C.A. § 1396p(c)(1)(E), to include only individuals who are privately paying for semi-private rooms, cannot be said to be "plainly unreasonable." See W.T. v. Div. of Med. Assistance & Health Servs., 391 N.J. Super. 25, 36 (App. Div. 2007) ("An agency's interpretation of the operative law and its own rules and regulations is entitled to prevail as long as it is not 'plainly unreasonable.'")(citing Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313, 327 (1984)). In light of the deference afforded to the Division, N.J. Tpk. Auth., supra, 150 N.J. at 351, we conclude that its interpretation of 42 U.S.C.A. § 1396p(c)(1)(E)(i)(II) is not arbitrary, capricious, or unreasonable. The federal statute only requires the devisor to be based on "the average monthly cost to a private patient."

Next, petitioner contends that the Division's application of the CPI to the Medicaid divisor is arbitrary and capricious. We find the argument unpersuasive.

As pointed out by petitioner, the federal Medicaid plan uses the CPI to make annual adjustments to the minimum and maximum amounts of income and resources that should be protected for a community spouse when an institutionalized spouse is applying for Medicaid. 42 U.S.C.A. § 1396r-5(d) and (g). Thus, the Division's use of the CPI is not, per se, unreasonable.

Furthermore, petitioner has not established that the Division's use of the CPI would result in any substantial difference in the transfer penalty. Although petitioner references the Genworth Financial 2007 Cost of Care Survey (the "Genworth Report"), a national survey of the cost of nursing home services, to help illustrate its position, the utility of the Genworth Report is questionable at best. As explained by petitioner, the Genworth Report is not evidentiary as it has not been validated as required by the New Jersey Rules of Evidence. Moreover, the Genworth Report is based on only a sampling of the Medicaid certified facilities, and it does not state the actual number of beds surveyed. Finally, the CPI is readily available to the Division and is updated annually. Therefore, it cannot be said that the Division's use of the CPI is arbitrary, capricious, or unreasonable.

We find no error in the Division's ruling that N.J.A.C. 10:71-4.7(b)(4)(ii) and N.J.A.C. 10:71-4.10(m)(1) do not need to be amended. They do not conflict with the federal statute.

III.

Petitioner contends that N.J.A.C. 10:71-4.7(b)(4)(ii) and N.J.A.C. 10:71-4.10(m)(1) are inconsistent with each other and would result in different divisors for the penalty period. According to petitioner, the Division "has not made adjustments to the prior three [d]ivisors by application of the N.J.A.C. 10:71-4.7(b)(4)(ii) regulation, . . . but has instead made their adjustment based on N.J.A.C. 10:71-4.10(m)(1)." Thus, by failing to conduct an annual survey of ". . . average monthly cost" of all Medicaid certified long-term beds, in both private and semi-private rooms, the Division violates the federal standard set forth in 42 U.S.C.A. § 1396p(c)(1)(E), as well as its own regulations as provided in N.J.A.C. 10:71-4.7(b)(4)(ii). Petitioner contends that utilizing N.J.A.C. 10:71-4.10(m)(1), by definition, violates N.J.A.C. 10:71-4.7(b)(4)(ii), making the Division's regulatory scheme arbitrary and capricious. We do not agree.

N.J.A.C. 10:71-4.7(b)(4)(ii) provides that the penalty period is calculated by dividing the uncompensated portion of the transferred non-exempt resource by the "statewide monthly average lowest semi-private room rate for Medicaid certified nursing facilities as calculated annually." N.J.A.C. 10:71-4.10(m)(1), however, provides as follows: In accordance with 42 U.S.C. § 1396p(c)(1)(E), the penalty period for asset transfer shall be the number of months equal to the total, cumulative uncompensated value of all assets transferred by the individual, on or after the look-back date, divided by the average monthly cost of nursing home services in the State of New Jersey adjusted annually in accordance with the change in the Consumer Price Index-All Urban Consumers, rounded up to the nearest dollar. Petitioner interprets N.J.A.C. 10:71-4.7(b)(4)(ii) and N.J.A.C. 10:71-4.10(m)(1) in isolation in order to create a potential conflict or inconsistent interpretation. However, when there is a conflict in interpretation, it is a well-established canon of construction that a legislative provision should not be read in isolation or in a way which sacrifices what appears to be the scheme of the statute as a whole. Rather, a statute is to be interpreted in an integrated way without undue emphasis on any particular word or phrase and, if possible, in a manner which harmonizes all of its parts so as to do justice to its overall meaning.

[Zimmerman v. Mun. Clerk of Twp. of Berkeley, 201 N.J. Super. 363, 368 (App. Div. 1985).]

"[W]hatever be the rule of [statutory] construction, it is subordinate to the goal of effectuating the legislative plan as it may be gathered from the enactment 'when read in the full light of its history, purpose and context.'" State v. Gill, 47 N.J. 441, 444 (1966) (quoting Lloyd v. Vermeulen, 22 N.J. 200, 204 (1956)). The rules for the interpretation of regulations are the same as the rules governing statutory interpretation.

Hoeganaes Corp. v. Dir. of Div. of Taxation of Dep't of Treasury, 145 N.J. Super. 352, 359 (App. Div. 1976).

Applying these principles, we conclude that N.J.A.C. 10:71-4.7(b)(4)(ii) and N.J.A.C. 10:71-4.10(m)(1) can be interpreted in harmony with each other to effectuate the legislative plan of Medicaid.

Pursuant to N.J.A.C. 10:71-4.7(b)(4)(ii), the transfer penalty is calculated by dividing the uncompensated portion of the transferred resource by the "statewide monthly average lowest semi-private room rate for Medicaid nursing facilities as calculated annually." As we have stated, because Medicaid does not pay for private rooms, the Division's inclusion of only semi-private rooms in N.J.A.C. 10:71-4.7(b)(4)(ii) is a reasonable interpretation of 42 U.S.C.A. § 1396p(c)(1)(E), and is consistent with state and federal law.

N.J.A.C. 10:71-4.10(m)(1), on the other hand, calculates the transfer penalty by dividing the uncompensated portion of the transferred assets by the "average monthly cost of nursing home services in the State of New Jersey adjusted annually in accordance with the change in the Consumer Price Index-All Urban Consumers, rounded up to the nearest dollar." However, the foregoing is prefaced by the proposition that the penalty period must be calculated "[i]n accordance with 42 U.S.C. § 1396p(c)(1)(E)." N.J.A.C. 10:71-4.10(m)(1). Thus, because the Division interprets 42 U.S.C.A. § 1396p(c)(1)(E) as including only the cost of semi-private rooms, it follows that the "average monthly cost" set forth in N.J.A.C. 10:71-4.10(m)(1) should be interpreted accordingly, to include only the "semi-private room rate for Medicaid nursing facilities." See N.J.A.C. 10:71-4.7(b)(4)(ii). Such an interpretation eliminates any conflict and furthers the legislative plan of Medicaid.

Furthermore, because N.J.A.C. 10:71-4.7(b)(4)(ii) requires that the "statewide monthly average" be "calculated annually," N.J.A.C. 10:71-4.10(m)(1) simply helps explain how that calculation should be made--using the CPI. Accordingly, when N.J.A.C. 10:71-4.7(b)(4)(ii) and N.J.A.C. 10:71-4.10(m)(1) are read in conjunction and interpreted to effectuate the legislative plan, they are not inconsistent. Therefore, the Division's regulatory scheme is not arbitrary, capricious, or unreasonable.

IV.

Finally, we consider petitioner's contention that by failing to accurately calculate the Medicaid transfer penalty divisor, the Division consistently over-penalizes applicants for Medicaid benefits who have made certain non-exempt transfers during the look-back period, which violates the congressional intent of Medicaid. The Division, responds that the opposite is the case, namely that petitioner's attempt to make the divisor as large as possible to reduce the transfer penalties contravenes the congressional intent of Medicaid. We agree with the Division.

Petitioner's argument is premised on the assumption that the Division's use of N.J.A.C. 10:71-4.7(b)(4)(ii) or N.J.A.C. 10:71-4.10(m)(1) to calculate the transfer penalty mandated by 42 U.S.C.A. § 1396p(c)(1)(E) over-penalizes certain Medicaid applicants who made non-exempt transfers during or after the look-back period. Because we have concluded that the Division's calculation of the transfer penalty is consistent with 42 U.S.C.A. § 1396p(c)(1)(E), however, the Division is not over-penalizing those applicants.

Further, Medicaid funds are limited. The Division's responsibility for the administration of the Medicaid program includes "serving as gatekeeper to prevent individuals from using Medicaid to avoid payment of their fair share for long-term care." W.T., supra, 391 N.J. Super. at 37 (citing N.J.S.A. 30:4D-1 to -19.1). Thus, the Division's restrictive interpretation of 42 U.S.C.A. § 1396p(c)(1)(E), to help preserve Medicaid funds, is reasonable and consistent with state and federal law.

Finally, as pointed out by petitioner, the penalty period mandated by the Medicaid statutory scheme is designed to be punitive. See 42 U.S.C.A. §§ 1396p(c)(1)(A),(E). Making an unjustified increase in the Medicaid divisor would result in shorter transfer penalties, lessening the punitive effect of 42 U.S.C.A. § 1396p(c)(1)(E). The likely result would be individuals using Medicaid to avoid paying their fair share for long-term care, which clearly contravenes the congressional intent of Medicaid.

Affirmed.


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