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Lakewood Board of Education v. Department of Human Services

Superior Court of New Jersey, Appellate Division

November 7, 2013



Submitted October 15, 2013

On appeal from the Department of Human Services, Division of Medical Assistance and Health Services, Docket Nos. HMA 888-08, EDU 889-08, and TPP 2462-08.

Schwartz, Simon, Edelstein & Celso, attorneys for appellant (Stephen J. Edelstein, on the brief).

John J. Hoffman, Acting Attorney General, attorney for respondent Department of Human Services, Division of Medical Assistance and Health Services (Melissa A. Raksa, Assistant Attorney General, of counsel; Vicki A. Mangiaracina, Deputy Attorney General, on the brief).

John J. Hoffman, Acting Attorney General, attorney for respondents Department of Education and Department of the Treasury, joins in the brief of respondent Department of Human Services, Division of Medical Assistance and Health Services.

Before Judges Parrillo, Harris, and Guadagno.


Petitioner Lakewood Board of Education (Board) appeals from a final agency decision (FAD) of the New Jersey Division of Medical Assistance and Health Services (DMAHS), dated May 20, 2010, adopting the decision of an administrative law judge (ALJ), dismissing petitioner's claim for Medicaid reimbursement for services rendered to special education students parentally placed in non-public schools. The Board also appeals from the decision of the New Jersey Department of Education (DOE), dated July 15, 2010, finding no additional issues for DOE's jurisdiction, and the deemed adoption of the FAD by the Department of Treasury (Treasury).[1] We affirm.


The Individuals with Disabilities Education Act (IDEA) was enacted by Congress to ensure that all children with disabilities have available to them a free appropriate public education (FAPE). 20 U.S.C.A. § 1400(d)(1)(A). The IDEA provides federal funding to state and local agencies to assist in the education of disabled children. Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 291, 295, 126 S.Ct. 2455, 2458, 165 L.Ed.2d 526, 533 (2006). To receive federal funding, states "must comply with federal requirements designed to provide a [FAPE] for all disabled children." Shore Reg'l High Sch. Bd. of Educ. v. P.S., 381 F.3d 194, 198 (3d Cir. 2004) (citing 20 U.S.C.A. § 1412(a)(1)). As a recipient of such funding, New Jersey has enacted legislation, N.J.S.A. 18A:46-1 to -54, and regulations, N.J.A.C. 6A:14-1.1 to -10.2, to fulfill the IDEA's requirements.

Participating states provide a FAPE to a disabled child through an individualized education program (IEP), which is developed collaboratively by the child's parents, teachers, and local school officials. 20 U.S.C.A. §§ 1414(d)(1), 1401(14), 1412(a)(4). The IEP is the "centerpiece" of the IDEA's system for delivering education to disabled children. Honig v. Doe, 484 U.S. 305, 311, 108 S.Ct. 592, 598, 98 L.Ed.2d 686, 699 (1988). It includes a specific statement of a student's present abilities, goals for improvement, services designed to meet those goals, and a timetable for reaching them. 20 U.S.C.A. § 1414(d)(1)(A)(i).

New Jersey's regulations related to implementing IEPs follow federal requirements. D.S. v. Bayonne Bd. of Educ., 602 F.3d 553, 557 n.1 (3d Cir. 2010). The child study team (CST), which is composed of a school psychologist, a learning disabilities teacher-consultant, and a school social worker, evaluates the child and determines his or her eligibility for special education and related services. N.J.A.C. 6A:14-3.1. Within thirty days of this determination, the CST must meet to develop an IEP. N.J.A.C. 6A:14-3.7. The IEP is reviewed at least annually, see 20 U.S.C.A. § 1414(d)(4)(A)(i); N.J.A.C. 6A:14-3.7; and the child's eligibility for special education is reevaluated at least once every three years, 20 U.S.C.A. § 1414(a)(2)(B); N.J.A.C. 6A:14-3.8(a). If the CST determines that the child's educational needs can be met in a public school environment, the child is entitled to all of the substantive and procedural guarantees of the IDEA. See 20 U.S.C.A. § 1412(a)(1)(A).

Public schools in New Jersey are free to persons over five and under twenty years of age. N.J.S.A. 18A:38-1; N.J.A.C. 6A:22-3.1(a). But "[i]f a parent of a disabled child chooses to forego the public school services, the student is not entitled to the same level of service as a public school student." Moorestown Twp. Bd. of Educ. v. S.D., 811 F.Supp.2d 1057, 1066 (D.N.J. 2011). "No parentally-placed private school child with a disability has an individual right to receive some or all of the special education and related services that the child would receive if enrolled in a public school." 34 C.F.R. § 300.137(a). "The more limited services provided to parentally-placed children in private schools is commonly known as 'equitable participation.'" Moorestown, supra, 811 F.Supp.2d at 1066. Equitable participation entitles disabled children who are parentally placed in private schools to some services from the district where the nonpublic school is located. Ibid.

Special education children enrolled in private schools do not receive IEPs. Instead, service plans are provided for these students.[2] If the local education agency (LEA) made an IEP available and the child's parents nonetheless chose to enroll the child in a private school, the LEA is not required to pay any of the associated educational costs. See 20 U.S.C.A. § 1412(a)(10)(C). The LEA satisfies IDEA's stipulation of ensuring equitable participation by providing services as funds allow. See 20 U.S.C.A. § 1412(a)(10)(A)(iii).

The Medicaid program "is a jointly funded state-federal welfare program whose purpose is to secure quality medical care for persons who could not otherwise afford [it]." In re Medicaid Long Term Care Servs. Bulletin 84-2, 212 N.J.Super. 48, 51-52 (App. Div.), certif. denied, 107 N.J. 31 (1986); See also N.J.S.A. 30:4D-2; 42 U.S.C.A. § 1396. Each state that participates in the Medicaid program "is responsible for developing a program that includes 'reasonable standards' for determining Medicaid eligibility." A.B. v. Div. of Med. Assistance & Health Servs., 407 N.J.Super. 330, 342 (App Div.) (quoting L.M. v. State, Div. of Med. Assistance & Health Servs., 140 N.J. 480, 484 (1995)), certif. denied, 200 N.J. 210 (2009).

In New Jersey, participation in Medicaid is achieved through the New Jersey Medical Assistance and Health Services Act (Act), N.J.S.A. 30:4D-1 to -19. DMAHS is entrusted with the responsibility of implementing the Act.

Prior to 1988, Medicaid did not reimburse special education services, as they were covered under the IDEA. Following amendments to Medicaid in 1988, coverage was extended for medical assistance for covered services furnished to a child with a disability because such services are included in the child's IEP. 42 U.S.C.A. § 1396(c).

In response to this amendment, New Jersey established the Special Education Medicaid Initiative (SEMI) to recover costs associated with providing necessary medical services to Medicaid-eligible students as part of the students' IEPs. See N.J.S.A. 18A:55-3; N.J.A.C. 6A:23A-5.3. Through the SEMI program, school districts are provided with a share of the federal reimbursement. See N.J.A.C. 6A:23A-5.3. Reimbursement is permitted for medically necessary, school-based services that are delivered pursuant to a student's IEP when the service complies with the federal claiming requirements, and is delivered by a qualified service provider. See 42 U.S.C.A. § 1396b(c). Since Section 1396 only specifies cost coverage for medically-based services administered as part of an IEP, parents who place their child in a private school remain ineligible for reimbursement pursuant to SEMI as an entitlement. See ibid.

In 2007, the Board sought reimbursement from the State for services provided to special education students parentally placed in private schools in its district. DMAHS, DOE, and Treasury refused to process the claims through SEMI.

The Board appealed. After a pre-argument conference, we determined the record was inadequate and there was no final judgment of any agency from which to appeal. Without objection of the parties, we remanded to the respective agencies for a joint administrative hearing before the Office of Administrative Law. Following our remand, an ALJ dismissed the Board's claim because the Medicaid statute does not cover special education students who are affirmatively placed by their parents in private schools. DMAHS and DOE issued final decisions adopting the ALJ's holding while Treasury took no final action and is deemed to have adopted the ALJ's decision.

On appeal, the Board contends that the denial of reimbursement was improper because the IDEA, 20 U.S.C.A. §§ 1400 to 1482, does not limit reimbursable school-based medical services to students only enrolled in public schools. The Board contends that the decisions of the ALJ, DMAHS, and DOE warrant reversal due to a misreading of the Medicaid statute and argues "[t]here is nothing in the Act, or any of its implementing regulations, limiting reimbursable school-based health services to those provided to public school special education students."


Our review of final decisions by state administrative agencies is limited to four general 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).]

"Our function is to determine whether the administrative action was arbitrary, capricious or unreasonable." Burris v. Police Dep't, W. Orange, 338 N.J.Super. 493, 496 (App. Div. 2001) (citing Henry v. Rahway State Prison, 81 N.J. 571, 580 (1980)). The burden of demonstrating the arbitrary, capricious, or unreasonable nature of the administrative action falls to the party challenging such action. McGowan v. N.J. State Parole Bd., 347 N.J.Super. 544, 563 (App. Div. 2002).

Generally, "[a]n administrative agency's interpretation of statutes and regulations within its implementing and enforcing responsibility is ordinarily entitled to our deference." In re Appeal by Progressive Cas. Ins. Co., 307 N.J.Super. 93, 102 (App. Div. 1997). Such deference emanates "from the understanding that a state agency brings experience and specialized knowledge to its task of administering and regulating a legislative enactment within its field of expertise." In re Election Law Enforcement Comm'n Advisory Op. No. 01-2008, 201 N.J. 254, 262 (2010).

Despite such deference, however, we are not bound by the agency's legal opinions. Levine v. State, Dep't of Transp., 338 N.J.Super. 28, 32 (App. Div. 2001). Therefore, interpretation of statutes and regulations remains a purely legal issue analyzed under a de novo standard of review. See Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973).

Undertaking a statutory interpretation analysis focuses on ascertaining the Legislature's intent. DiProspero v. Penn, 183 N.J. 477, 492 (2005). We examine the actual words of the statute, affording them their ordinary and commonsense meanings. State v. Gelman, 195 N.J. 475, 482 (2008). If such a meaning is clearly discernible to achieve a definitive answer, the analysis ends. See DiProspero, supra, 183 N.J. at 492. However, if the statute's language remains open "to more than one plausible interpretation" the court may consider extrinsic aids, such as legislative history, to guide its determination. Id. at 492-93.

We first examine the 1988 amendments to the Medicaid statute, extending reimbursement for medical services to Medicaid-eligible special needs students. 42 U.S.C.A. § 1396b(c) provides in pertinent part:

Nothing in this title . . . shall be construed as prohibiting or restricting, or authorizing the Secretary to prohibit or restrict, payment under subsection (a) for medical assistance for covered services furnished to a child with a disability because such services are included in the child's individualized education program established pursuant to part B of the Individuals with Disabilities Education Act . . . or furnished to an infant or toddler with a disability because such services are included in the child's individualized family service plan adopted pursuant to part C of such Act.

A plain language reading of the statute indicates that medical assistance for covered services to Medicaid-eligible special needs students is allowed for children covered by IEPs. The legislative history surrounding the 1988 amendments to Section 1396b(c), supports this conclusion and indicates that "[u]nder the Education for all Handicapped Children Act of 1975, P.L. 94-142, children with handicaps are entitled to a free and appropriate public education in conformity with an [IEP, ] which describes the educational and 'related services' necessary to meet the child's unique needs." 134 Cong. Rec. 3765, 3840 (1988). The lack of mention of any provision for students affirmatively placed in private schools by their parents demonstrates that Congress did not intend to provide benefits to those in this context. Based on a plain language analysis, we construe the statute as only applicable to IEPs covering special needs students placed in public or private schools by IEP teams.

Such a conclusion comports with the decision of the ALJ who determined that "[a] focus on public education is also suggested by the direct reference to FAPE in legislative history pertaining to the Medicaid amendment, 134 Cong. Rec. 3765, 3840. By definition, privately placed students are not entitled to FAPE." This holding is consistent with the plain language of 42 U.S.C.A. § 1396b and 20 U.S.C.A. § 1412(a)(1), along with the legislative history undergirding 42 U.S.C.A. § 1396b(c). Considering the deferential standard of review we afford to administrative agencies in these cases, we find no reason to disagree with this conclusion.

The Board also contends that the term "IEP" functions as a catch-all term encompassing both the State-recommended placements of special needs students in public and private schools along with affirmative parent placement in non-public institutions. Specifically, the Board maintains that the 1988 Medicaid amendments "did not broaden the range of Medicaid-eligible services previously available, but merely clarified that reimbursement was not prohibited because those services happened to be contained in an IEP as well." The Board argues that Congress's lack of delineating whether service plans were incorporated into the IEP framework amounts to an acquiescence that such an inclusion did, in fact, take place. We disagree.

Sections 1396b(c) and 1412(a)(1) establish an inextricable link between IEPs with a FAPE. The fact that the 1988 amendments extended reimbursement to non-public schools, as the Board emphasizes, is inconsequential since students placed in those institutions are directed there by IEP teams as part of fulfilling the FAPE objective. The 1988 amendments do not signal any type of Congressional acquiescence that non-public students have always been covered under the IEP umbrella. Such actions do, however, indicate Congressional clarification that reimbursement for medical services provided to Medicaid-eligible students is predicated by their placement in an institution by a state-appointed team. When parents make such a placement to a private institution, they fall outside the automatic entitlement provisions of IEPs because their connection to a FAPE becomes attenuated.

A further examination of subsequent amendments to the IDEA confirms Congress's intended scope of IEPs. In 1999, the U.S. Department of Education issued regulations incorporating various 1997 amendments to the IDEA which included the term "service plans." Those regulations provided definitive contours within the IEP designation. See 34 C.F.R. § 300.452 (1999).

Congress made a number of modifications to the IDEA via the Individuals with Disabilities Education Improvement Act of 2004 (IDEIA), Pub. L. No. 108-446, 118 Stat. 2647 (2004). Those changes included significant modifications to the definition and scope of IEPs. See Pub. L. No. 108-446 § 614(d)(1)(A)(i)(I)-(VIII), 118 Stat. 2647, 2709. Congress explicitly distinguished between IEP team-driven placements and their parental counterparts in the private school context. The amendment provides:

(i) In general.--Subject to subparagraph (A), this part does not require a local educational agency to pay for the cost of education, including special education and related services, of a child with a disability at a private school or facility if that agency made a free appropriate public education available to the child and the parents elected to place the child in such private school or facility.

[Pub. L. No. 108-446, § 612 (a)(10)(C)(i), 118 Stat. 2647, 2682 (emphasis added).]

Thus, Congress embraced a multi-tiered system of benefits for Medicaid-eligible special need students. Such a student, affirmatively placed by his or her parents in a non-public school setting, is clearly not entitled to services automatically reimbursed by their LEA.

Although the term "service plan" is not mentioned in these statutory amendments, it seems implicit in Congress's modification of the IDEA that the amendment would affect students who receive service plans since those programs are only provided to students who are affirmatively placed in non-public schools by their parents.

The amendment's language and service plans are so inextricably intertwined that to determine Congress was not referring to service plans in this context would fundamentally misread the statute. The Board ignores this provision and focuses on justifying the earlier introduction of service plan terminology by the U.S. Department of Education as a point of clarification that a specific portion of the special needs student population would not be entitled to a full range of benefits under the IEP framework. Yet, if the service plan distinction fell under the IEP guidelines, Congress would have likely amended the IEP definition to include service plans. It failed to do that in either 1999 or 2004. If such evidence supports any definitive conclusion of Congressional intent, it is that the federal Legislature desired to treat the two programs distinctly. Therefore, we find that 42 U.S.C.A. § 1396b(c) impacts only IEPs as distinct from service plans.

This holding is consistent with the determination of the ALJ who stated:

There is little reason to believe that the Congress, without any special mention, equalized the treatment of privately placed students with publically placed students for Medicaid purposes, when that is not the approach of the IDEIA, the very mechanism by which the benefit is delivered. A focus on public education is also suggested by the direct reference to FAPE in legislative history pertaining to the Medicaid amendment, 134 Cong. Rec. 3765, 3840. By definition, privately placed students are not entitled to FAPE. Recognizing that legislative intent is sometimes in the eye of the beholder, it nonetheless appears that 42 U.S.C.A. § 1396b(c) addresses the broad public programming of the IDEIA, see generally New Capitol Bar & Grill Corp. v. Div. of [Emp't] Sec., 25 N.J. 155, 160 (1957).

We agree that Medicaid reimbursement is not mandated for special education services provided to parentally-placed disabled children in non-public schools. We find no support for the Board's claim that Congress intended to include service plans under a broader IEP framework.


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