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E.B. v. Division of Medical Assistance and Health Services

Superior Court of New Jersey, Appellate Division

June 5, 2013

E.B., Plaintiff-Appellant,
v.
DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES, Defendant-Respondent. E.S., Plaintiff-Appellant,
v.
DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES, Defendant-Respondent.

Argued May 6, 2013

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

Jonathan M. Crist of the Pennsylvania bar, admitted pro hac vice, argued the cause for appellants E.B. and E.S. (Schutjer Bogar, attorneys; Grant Berger, on the briefs).

Vicki A. Mangiaracina, Deputy Attorney General, argued the cause for respondent (Jeffrey S. Chiesa, Attorney General, attorney; Ms. Mangiaracina and Melissa Raksa, Assistant Attorney General, on the brief).

Before Judges Sabatino, Fasciale and Maven.

OPINION

MAVEN, J.S.C. (temporarily assigned).

These three appeals, two of which (A-0637-11 and A-6110-10) have been previously consolidated and a third one (A-6111-10), which was calendared back-to-back with those cases, [1] challenge the issuance of Medicaid Communication No. 11-03, [2] dated February 22, 2011, by the Division of Medical Assistance and Health Services of the State of New Jersey Department of Human Services (Division or agency) that requires a Medicaid applicant or recipient to complete the Medicaid Designation of Authorized Representative (MDAR) form if the applicant wishes to appoint an authorized representative to act on the applicant's behalf. Plaintiffs brought this action for declaratory relief, seeking either the total elimination or a highly restrictive judicial interpretation of the MDAR form. They argue that the form requirement and the attendant denial of a fair hearing for failure to complete and submit the MDAR form violate federal and state laws, including the New Jersey Administrative Procedure Act (APA), N.J.S.A. 52:14B-1 to -30.

For the reasons that follow, we conclude that the Division did not violate any federal or state laws or regulations regarding its decision to require applicants to complete a standardized assignment form such as the MDAR. Inasmuch as the Division is presently undertaking rulemaking in accordance with the APA to promulgate the adoption of the MDAR form, either in its present form or as it may be revised in light of comments received about the proposed rule, we deem that issue moot without prejudice to plaintiffs' right to appeal the ultimate adoption of a rule. We further direct that the Division proceed expeditiously with fair hearings to address the unresolved Medicaid penalty issues as to E.S. and E.B., provided that plaintiffs or someone on their behalf provisionally complete the Division's currently existing MDAR form, subject to the outcome of the rulemaking process and potential appellate review of the dispositions in the fair hearings.

I.

The precipitating facts underlying these actions involve E.S., a ninety-four-year-old woman who resides at the Masonic Home of New Jersey (Masonic), and E.B., a ninety-five-year-old woman who resided at the Bayshore Health Care and Rehabilitation Center (Bayshore).[3] Masonic and Bayshore are collectively referred to as the "Facilities." E.S. and E.B. shall be jointly referred to as "plaintiffs."[4] In each instance, there is no dispute as to plaintiffs' respective eligibility for certain Medicaid assistance, as each plaintiff applied for and was awarded Medicaid benefits. However, upon receiving their respective determinations, plaintiffs' counsel sent a letter to the Division on behalf of each respective Facility requesting fair hearings to challenge the penalty periods imposed, and in E.B.'s case, also a denial of an Undue Hardship Waiver. In each case, the Division responded by sending counsel the MDAR form to complete if the resident wished to designate the Facility as the authorized representative, prior to the Division scheduling the requested fair hearings or otherwise addressing the merits of the appeals. The Facilities' counsel submitted its own signed but undated authorization forms in lieu of the MDAR form; however, the Division rejected these self-styled forms and no fair hearings were scheduled. These appeals followed.

Plaintiffs now raise the following contentions:

I. THE FACILITIES MAY PURSUE BENEFITS ON BEHALF OF PLAINTIFFS.
A. The Division's Failure to Recognize the Assignment of These Rights and Benefits is Incorrect.
II. THE DIVISION'S FORM REQUIREMENT VIOLATES BOTH FEDERAL AND STATE LAW.
A. The Division's Form Requirement Violates Federal Law.
i. The Division's Form Requirement is Preempted by the Medicaid Act and Regulations.
ii. The Division's Form Requirement Violates the Due Process Clause of the Fourteenth Amendment.
B. The Division's Form Requirement Violates State Law.
i. The Division's Form Requirement Violates N.J.A.C. 10:71-2.5(c).
ii. The Division's Form Requirement Violates N.J.A.C. 10:71-8.8.
iii. The Division Erred by Improperly Interfering with the Facilities' Right to Request an Appeal in Violation of N.J.A.C. 10:49-10.3.
iv. The Division's Form Requirement Violates the New Jersey Administrative Procedure Act.
III. THE DIVISION'S REFUSAL TO PROCESS THE FACILITIES' REQUESTS CONSTITUTES VIOLATIONS OF FEDERAL LAW AND STATE LAW.
A. The Division's Refusal to Process the Facilities' Requests Constitutes Violations of Federal Law.
i. The Division's Refusal to Process the Facilities' Requests Constitutes Violations of Federal Regulations.
B. The Division's Refusal to Process the Facilities' Requests Constitutes Violations of State Law.
i. The Division's Refusal to Process the Facilities' Requests Violates N.J.A.C. 10:71-2.5(c).
ii. The Division's Refusal to Process the Facilities' Requests Violates N.J.A.C. 10:71-8.8.
iii. The Division Erred by Improperly Interfering with the Facilities' Right to Request an Appeal in Violation of N.J.A.C. 10:49-10.3.
iv. Issue Preclusion Prevents Re-Litigation of the Issue of the Standing of a Skilled Nursing Facility to Pursue Appeals on Behalf of Its Residents.

Review of an agency decision by an appellate tribunal is limited. "Deference to an agency decision is particularly appropriate where interpretation of the Agency's own regulation is in issue." I.L. v. Div. of Med. Assistance & Health Servs., 389 N.J.Super. 354, 364 (App. Div. 2006); see H.K. v. Div. of Med. Assistance & Health Servs., 379 N.J.Super. 321, 327 (App. Div.), certif. denied, 185 N.J. 393 (2005); see also Estate of F.K. v. Div. of Med. Assistance & Health Servs., 374 N.J.Super. 126, 138 (App. Div.) (indicating that we give "considerable weight" to the interpretation and application of regulations by agency personnel within the specialized concern of the agency), certif. denied, 184 N.J. 209 (2005). Because the agency decision must be supported by substantial credible evidence, the reviewing court must examine the record to ascertain whether the action was "arbitrary, capricious or unreasonable[, ] or beyond the ambit of the agency's delegated powers." K.P. v. Albanese, 204 N.J.Super. 166, 176 (App. Div.), certif. denied, 102 N.J. 355 (1985); see Univ. Cottage Club of Princeton v. N.J. Dep't of Envtl. Prot., 191 N.J. 38, 48 (2007); see also In re Taylor, 158 N.J. 644, 656-57 (1999).

Also, "a court may not substitute its judgment as to the wisdom of an administrative action so long as it is statutorily authorized and not otherwise defective." K.P., supra, 204 N.J.Super. at 176. Ultimately, the party challenging an agency's action bears the burden of demonstrating that the decision is arbitrary, capricious or unreasonable. In re Arenas, 385 N.J.Super. 440, 443-44 (App. Div.), certif. denied, 188 N.J. 219 (2006); see also Barone v. Dep't of Human Servs., 210 N.J.Super. 276, 285 (App. Div. 1986), aff'd, 107 N.J. 355 (1987).

II.

We begin with a review of pertinent aspects of the Medicaid program. The federal Medicaid Act, Title XIX of the Social Security Act, 42 U.S.C.A. §§ 1396 to 1396w-5, mandates a joint federal-state program to provide medical assistance to individuals "whose income and resources are insufficient to meet the costs of necessary medical services." 42 U.S.C.A. § 1396-1. Once a state joins the program, it must comply with the Medicaid statute and federal regulations. United Hosps. Med. Ctr. v. State, 349 N.J.Super. 1, 4 (App. Div. 2002) (citing Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L.Ed.2d 784, 794 (1980)). It must also adopt "'reasonable standards . . . for determining eligibility for . . . medical assistance [that are] consistent with the objectives' of the Medicaid program, " Mistrick v. Div. of Med. Assistance & Health Servs., 154 N.J. 158, 166 (1998) (quoting L.M. v. Div. of Med. Assistance & Health Servs., 140 N.J. 480, 484 (1995)), and "provide for taking into account only such income and resources as are . . . available to the applicant." N.M. v. Div. of Med. Assistance & Health Servs, 405 N.J.Super. 353, 359 (App. Div.), certif. denied, 199 N.J. 517 (2009); see 42 U.S.C.A. § 1396a(a)(17)(A)-(B).

The New Jersey Medical Assistance and Health Services Act, N.J.S.A. 30:4D-1 to -19.5, authorizes New Jersey's participation in the federal Medicaid program. The Division is the agency within the State Department of Human Services that administers the Medicaid program. N.J.S.A. 30:4D-7. Accordingly, this agency is responsible for protecting the interests of the New Jersey Medicaid Program and its beneficiaries. N.J.A.C. 10:49-11.1(b).

The Division has broad authority to administer the State Medicaid programs and plans, to ensure that those plans "provide such safeguards as may be necessary to assure that eligibility for care and services under the plan will be determined, and such care and services will be provided, in a manner consistent with simplicity of administration and the best interests of the recipients." 42 U.S.C.A. § 1396a(a)(19).

Eligibility for Medicaid in New Jersey is governed by regulations adopted in accordance with the authority granted by the Commissioner of the New Jersey Department of Human Services. N.J.S.A. 30:4D-7. Individuals seeking Medicaid must submit an application to their local County Welfare Agency (CWA)[5] for review for compliance with the regulatory requirements. N.J.A.C. 10:71-1.1. The State Medicaid program is administered in accordance with N.J.A.C. 10:71-2.2, which states:

(a) The Division of Medical Assistance and Health Services is the administrative unit of the Department of Human Services responsible for coordinating the administration of Medicaid Only with the Supplemental Security Income program. This Division provides for payment of claims for, and evaluation of health services rendered under, Medicaid Only; maintains administrative liaison with other departmental divisions; and provides professional, medical and paramedical staff that is advisory to this Division in all matters of health care relevant to the administration of Medicaid Only. This Division contracts with CWAs for reimbursement of costs of administering the Medicaid Only program.
(b) The Division of Medical Assistance and Health Services and the Commissioner of the Department of Human Services shall establish policy and procedures for the application process and supervise the operation of and ...

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