Petition for Writ of Certiorari — Perales v. Krieger

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i. Supreme Court, U.S.

U, FILED

87-5 495 SEP 28 1967

No. JOSEPH F. SPANIOL, JR.

SET ERK

IN THE

Supreme Court of the United States

October Term, 1987

CESAR A. PERALES, as Commissioner of the

New York State Department of Social Services,

Petitioner,

— against -

MILDRED KRIEGER,

Respondent.

Tor " =

PETITION.1 A WRIT OF CERTIORARI

TO THE AEW; STATE COURT OF APPEALS

ROBERT ABRAMS

Attorney General of the

State of New York

Attorney for Petitioner

120 Broadway

New York, New York 10271

(212) 341-2559

O. PETER SHERWOOD

Solicitor General

LAWRENCE S. KAHN

Deputy Solicitor General

MARYELLEN WEINBERG

ROBERT J. SCHACK

Assistant Attorneys General

of Counsel

QUESTIONS PRESENTED

1. Whether this Court should grant review of the

novel and important federal question posed by the New

York Court of Appeals’ interpretation of 42

U.S.C. § 1396a(a)(10)(B) to require reimbursement for

medical bills paid by recipients prior to applying for

medical asistance (medicaid) where the state and federal

agencies interpret the federal statutory scheme to bar

payments to recipients, and where no other state is

known to have made such direct payments?

2. Whether this Court should grant review to re-

solve the conflict between the decision of the New York

Court of Appeals and severa! federal circuit courts of ap-

peals concerning whether a federal agency’s letter inter-

pretation of its own regulations and governing statutes

had “no force and effect” unless the interpretation itself

was promulgated pursuant to the Administrative Proce-

dure Act, 5 U.S.C.°§ 553?

LIST OF PARTIES

The parties to the proceedings below were the peti-

tioner, CESAR A. PERALES, the Commissioner of the

New York State Department of Social Services, and the

respondent, MILDRED KRIEGER. JAMES A. KRAUSKOPF,

formerly the Commissioner of the New York City Depart-

ment of Social Services, was also a party in the state

court proceedings as Commissioner of the agency respon-

sible for effecting compliance with determinations. and

directives issued by the New York State Department of

Social Services. Because no issue regarding the City De-

partment’s duty to comply is raised herein, and the City

Commisioner did not seek state appellate review, he is

not named as a party herein.

ili

TABLE OF CONTENTS

PAGE

Ee i

NG ek ss Gas scene eceses il

ES Vv

ey dow 5 es cscs se ssenees 1

IE eee eee eee 2

I ee ea keener eewoes 2

ESE 4

POINT I This court should grant review of the

novel and important federal question

posed by the New York Court of Ap-

peals’ interpretation of 42 U.S.C. §

1396a (a) (10) (B) to require direct

payment to recipients, in reimburse-

ment for medical bills paid prior to

applying for medicaid, where the state

and federal agencies interpret the fed-

eral statutory scheme to bar such

urea Wyre... wee nee, ?

POINT Il This court should grant review to re-

solve the conflict between the deci-

sions of the New York Court of Ap-

peals and of several federal circuit

courts of appeals concerning whether

a federal agency’s letter interpretation

of its own regulations and governing

statutes had “no force and effect” un-

less the interpretation itself was

PAGE

promulgated pursuant to the federal

Administrative Procedure Act, 5

oe het @ : Pe eee ee mene 9

RS oe oi bing a gitar en ke an 12

Appendix A—Order and Judgment of the19

Rn I PI iia ig oo as ee en 8s 00S 4s la

Appendix B—Order of the Appellate

Division, Second Department ................... 3a

Appendix C—Opinion and Decision Slip of the

Appellate Division, Second Department .......... Sa

Appendix D—Judgment of the Supreme Court,

NE Soot eens cavcataresuien basis dee 10a

Appendix E—Decision of the Supreme Court,

IE ed pre eee Gee Ut. hoy eaeh Sk 14a

Appendix F—United States Department of Health

Education and Welfare (Health and Human Ser-

vices), Social and Rehabilitation Service, Medical

Services Administration, Medical Assistance

NE Wi 54a o Gk a rs ns os a ee 20a

Appendix G—Letter from Arthur J. O’Leary, HHS

Regional Medicaid Director, to Barbara Blum,

New York State Commissioner of Social Services,

a ree 26a

Appendix H—Statutes and Regulations Involved ... 28a

TABLE OF AUTHORITIES

1. Cases

Anderson v. Butz

550 F.2d 459 (9th Cir. 1977) .......

Bowen v. Kizer

107 S. Ct. 1282 (1987) .............

Blum v. Bacon

#57 08. 123 GOED)... «en ecndees

Columbus Community Hospital v. Califano,

614 F.2d 181 (8th Cir. 1980) .......

Conservative Caucus, Inc. v. United States

650 F.2d 1206, 228 Ct. Cl. 45 (1981)

Cubanski v. Heckler, 781 F.2d 1421

Se ee were

Donovan v. Red Star Marine Services, Inc.

739 F.2d 774 (2d Cir. 1984) ........

Donovan v. Wollaston Alloys, Inc.,

695 F.2d 1 (1st Cir. 1982) ..........

Hogg v. United States, 428 F.2d 274

ee | er

Homan & Crimen, Inc. v. Harris,

626 F.2d 1201 (Sth Cir. 1980) ......

Kessler v. Blum,

591 F.Supp. 1013 (S.D.N.Y. 1984) ...

Morton v. Ruiz

415 U.S. 199 (1974)... 0. cece eee eee

Quern v. Mandley

436 U.S. 725 CADTB) © oss cin nee:

PAGE

St. Mary’s Hospital of Troy v. Blue Cross &

Blue Shield Ass’n, 788 F.2d 888 (2d Cir. 1986) .. 11

Smith v. Miller

fk Gee ee fee. | 11

State of New York v. Lyng

__ F.2d__, Dkt. No. 86-6261, Aug. Tm.

1986—No. 773 (2d Cir. Sept. 23, 1987) ........ 11

United States v. Fitch Oil Co.,

676 F.2d 673 (Temp. Emer. Ct. App. 1982) .... 11

2. Statutes and Regulations

I ee dg icky woe sade bade ea 5, 9-10

A Oe so. oa a area a 2

42 U.S.C.

8 aires ye i bn week ok 7

eh eee hw 0G. 4 1S sw aX wd ba ees 3

Re Ri Le Lon) dy fo own 4 Ra KG ones 3

I goes ene wed ade 4-7, 8

NES sos ve so wk wea vaneseeavvvenes >, 7

ee 2, 4, 7-8

rc OS wk ik oe a eo eS 2-3, 6, 8

42 C.F.R.

29h aig cae 64 Re oles 3, 6

| ee eee 2, 7-8, 10

ae ree eee ae ieee

SGN gt sin bo eu ou a aine we escdinoy iain 3

Se nee See a cae kta sear 3, 7, 10

vii

PAGE

New York Civil Practice Law and Rules

2B: Perr ere ere ree eer re 10

ND Ce oa ee a ae a eee a 4

New York Social Services Law

8) ee eee eee er 2

MR. tar errr re 2-3

Title 18 N.Y.C.R.R.

8 | Perret rrer reer ry errr ese 3

a + PPR errerere er errr errs or a

ee 8 re ere rere 2, x6

3. Other

H. Rep. No. 92-231, 92 Cong., 2d Sess.,

1972 U.S. Code Cong. & Ad. News 4889, 5099.... 3

United States Department of Health Education

and Welfare (Health and Human Services),

Social and Rehabilitation Service, Medical Ser-

vices Administration, Medical Assistance

I oaks ei go as ry 6% hee Wee 88 8 7, 9-13

Letter from Arthur J. O’Leary, HHS Regional

Director, to Barbara Blum, New York State

Commissioner of Social Services, dated

Pg en ee ree 7, 9-13

IN THE

Supreme Court of the United States

October Term, 1987

No.

(a RR i> IR me

CESAR A. PERALES, as Commissioner of the

New York State Department of Social Services

Petitioner,

MILDRED KRIEGER,

Respondent. _

(a RR Ban

PETITION FOR A WRIT OF CERTIORARI

TO THE NEW YORK STATE COURT OF APPEALS

ee ee RR — i em

The petitioner Cesar A. Perales, the Commissioner

of the New York State Department of Social Services,

respectfully prays that a writ of certiorari issue to review

the order and judgment of the New York State Court of

Appeals entered June 30, 1987.

Opinions Below

The Court of Appeals did not write a separate opin-

ion. The order and judgment of the Court of Appeals has

not yet been officially published and is reproduced at la

to the Petition. The opinion of the Appellate Division is

reported at 121 A.D.2d 488 and is reproduced at Sa-9a.

The opinion of the Supreme Court of the State of New

York, County of Kings, is reported at 126 Misc. 2d 70

and is reproduced at 14a-19a.

Jurisdiction

The order and judgment of the New York State

Court of Appeals was entered June 30, 1987. The juris-

diction of this Court to review the order of the Court of

Appeals is invoked under 28 U.S.C. § 1257(3).

Statement of the Case

Respondent Mildred Krieger is a New York State

resident who, but for her income and resources, would be

entitled to receive Supplemental Security Income. As

such, she is eligible for medicaid under New York’s

State plan as one of the medically needy. 42 U.S.C. §

1396d(a); New York Social Services Law (S.S.L.)

§ 366(1)(a)(5) (McKinney’s ed. 1983).

The medically needy become eligible for medicaid

by incurring medical expenses equal to the amount by

which their total income exceeds the cash assistance eli-

gibility level. This figure is called the medicaid recipi-

ent’s “spend-down”. Following a finding of the

recipient’s eligibility, the medicaid program will pay new

charges for qualifying medical services in excess of the

monthly spend-down to participating providers at sched-

uled rates. S.S.L. § 367-a(1); 18 N.Y.C.R.R. § 360.17.

Prior to 1973, states had the option of covering bills in-

curred in the preapplication period. United States De-

partment of Health and Human Services (HHS) Medical

Assistance Manual, Part 3—10.0-9.00, p.1 (22a). Effec-

tive July 1, 1973, the federal statute and implementing

regulations require all states to provide for medicaid cov-

erage, on the same basis, for the costs of qualifying

medical services which a medically needy person re-

ceived during the three months preceding his initial appli-

cation, if the patient would have been eligible in the

month in which he incurred the bill. 42 U.S.C. §

1396a(a)(34); 42 C.F.R. § 435.914(a) (formerly 45

C.F.R. § 206.10{a][4]); 18 N.Y.C.R.R. § 360.16(c). The

purpose of this retroactive coverage is to protect those

eligible for medicaid who do not apply until after they

receive care because they did not know medicaid eligibil-

ity requirements, or because of the sudden nature of their

illness. H. Rep. No. 92-231, 92nd Cong., 2d Sess., 1972

U.S. Code Cong. & Ad. News 4989, 5099.

Medicaid is a vendor-payment program. However,

42 U.S.C. § 1396d(a) provides that a state may, at its

option, reimburse individuals for physicians’ and den-

tists’ services. The federal regulation implementing sec-

tion 1396d(a) provides that a state may make direct

payments for physicians’ and dentists’ services only if the

state’s plan provides for direct payments. 42 C.F.R. §

447.25. The New York State Plan does not provide for

direct payments. See S.S.L. 367-a; Kessler v. Blum, 591

F. Supp. 1013 (S.D.N.Y. 1984). The federal statute and

implementing regulations do not permit states to make

direct payments to recipients other than for physicians’

and dentists’ services. See 42 U.S.C. § 1396d(a); 42

C.F.R. §§ 447.10(c,d); 447.25.

If a participating state does not choose the direct

payment option, it must comply with the vendor payment

requirement of federal law in order to receive federal fi-

nancial participation in its medicaid program. 42 U.S.C.

§§ 1396, 1396a(32). States whose plans provide only for

vendor payment may, however, reimburse patients and

their families who paid for services where the agency has

delayed in processing, or improperly denied their medi-

caid applications. 42 C.F.R. § 431.246 (agency must

make corrective payments promptly, “retroactive to the

date an incorrect action was taken... ”). New York

State’s regulations provide for such corrective payments

when a recipient has paid for medical care after an erro-

neous determination of ineligibility or as a result of un-

justifiable agency delay in approving an application. 18

N.Y.C.R.R. §§ 352.31(f), 360.17(a)(4). Respondent does

not, however, claim that she is entitled to reimbursement

under these regulations.

Prior Proceedings

Respondent commenced a proceeding pursuant to

New York Civil Practice Law and Rules (C.P.L.R.) Arti-

cle 78 in the Supreme Court of the State of New York,

Kings County, in which she sought judgment ordering the

City and State Departments of Social Services, inter alia,

to reimburse her, at the medicaid rate, for medical ex-

penses she incurred and paid for in the three months

prior to her application for medicaid. All other issues

raised by petitioner were settled by stipulation prior to

submission for judgment.

The Supreme Court granted the petition. It rejected

the agencies’ arguments that in New York, medicaid is a

vendor-payment program, and that the agencies may not

make direct payments to a patient unless the patient paid

the bills during a period of unjustifiable delay in the proc-

essing of the medicaid application. Special Term held

that the agencies had not shown a rational basis for dis-

tinguishing between recipients who had paid their bills

and those who had not, calling this distinction “arbitrary

and capricious.” (19a).

The Appellate Division of the Supreme Court, Sec-

ond Department, affirmed. Applying its interpretation of

federal law, the court held that 42 USC. §

1396a(a)(10)(B), which provides that states participating

in the medicaid program must assure that the medical

assistance “made available” to any eligible person not be

iess than that made available to any other eligible person,

requires that the state depart from its vendor payment

program to reimburse patients for bills they paid during

the three-month retroactive period provided for in §

1396a(a)(34). It ruled that since the state satisfies un-

paid bills incurred during this period, and because it

makes direct payments to patients in cases involving

agency error or unjustifiable delay in processing applica-

tions, it must make direct payments for paid bills not

involving agency error or unjustifiable delay. (7a-8a).

The court ruled that it was not required to defer to

an interpretation of applicable federal statutes and regu-

lations contained in a letter from the federal Department

of Health and Human Services (HHS). It held that the

letter implicates recipients’ substantive rights and was in-

effective because it had not been promulgated pursuant

to the notice and hearing requirements of the Administra-

tive Procedure Act, 5 U.S.C. § 553. (8a-9a).

The New York Court of Appeals affirmed on the

opinion of the Appellate Division. (1a-2a).

Reasons for Granting the Writ

POINT I

This court should grant review of the novel and im-

portant federal question posed by the New York

Court of Appeals’ interpretation of 42 U.S.C. §

1396a(a)(10)(B) to r@quire direct payment to recipients,

in reimbursement for medical bills paid prior to apply-

ing for medicaid, where the state and federal agencies

interpret the federal statutory scheme to bar such direct

payments.

A writ of certiorari should issue because the New

York Court of Appeals’ construction of 42 U.S.C. §

1396a(a)(10)(B) presents novel, substantial and impor-

tant federal issues affecting the national administration

of the medicaid program. Quern v. Mandley, 436 U.S.

725, 734 (1978). Moreover, the state court’s construction

of the federal statute conflicts directly with the estab-

lished construction of the statute by HHS, the agency

charged with its enforcement. See Morton v. Ruiz, 415

U.S. 199, 201-2 (1974).

The New York Court of Appeals held that by limit-

ing its obligation to make medical assistance available

during the three ms prior to application to satisfac-

tion of unpaid bills through provider payments, the state

violated 42 U.S.C. § 1396a(a)(10)(B)(i). The court also

relied upon a “parity of reasoning” with the limited ex-

ception to the vendor payment rule, applicable to cases of

agency delay or error, provided for in federal and state

regulations. 45 C.F.R. § 431.246; 18 N.Y.C.R.R. §

360.17(a)(4). The decision thus acknowledged that noth-

ing in the plain language of the statutes or regulations

requires direct payments. The court’s rationale for read-

ing in such a requirement does not survive scrutiny.

Section 1396a(a)(10)(B)(i) of course does not re-

quire payment of equal amounts for all recipients but

only that medical assistance be “made available” on an

equal basis. Petitioner complies by paying participating

providers, on the same basis, for the bills of all eligible

patients. Petitioner does not reimburse those who pay

their own bills, whether incurred before or after accep-

tance as medicaid eligible, except in the event of agency

error or delay, in which case all recipients are reim-

bursed on the same basis.

Petitioner’s practices, which have been invalidated

by the court below, are consistent with the definition of

“medical assistance” in the federal statute: “payment of

part or all of the cost of the following care and services

.. . for individuals, and with respect to physicians’ and

dentists’ services, . . . at the option of the State, to indi-

viduals ... ” (emphasis supplied). 42 U.S.C. §

1396d(a).

As the court below recognized, New York has not

chosen the direct payment option. This course is indis-

putably authorized by Section 1396d(a). As the Court

held in Quern v. Mandley, supra, construing a requirement

of the Aid to Families with Dependent Children Program

contained in 42 U.S.C. § 602(a)(10) which parallels the

equal basis language in 42 U.S.C. § 1396a(a)(10)(B)‘i)

applicable to medicaid, “[s]ince the statute [establishing

the Emergency Assistance (EA) program] clearly offers

the States an option whether or not to adopt-an EA pro-

gram, it is in no sense ‘eviscerated’ when a State chooses

to forgo the offer.” 436 U.S. at 735.

Petitioner’s practices are supported by the federal

agency’s interpretation of the applicable governing stat-

utes and regulations, an interpretation set forth in the

official HHS Medical Assistance Manual and in HHS let-

ters to the state agency. Quoting from the HHS Manual,

Part 3-10.9-00 (pp. 5-6), which cites 42 U.S.C. 8

1396a(a)(32),(34), and 45 C.F.R. §§ 206.10(a)(4),

249.32 (redesignated as 42 C.F.R. §§ 435.914[a], 447.25,

respectively), HHS stated:

. . . State payment for retroactive services is

required only where persons have not paid for

the medical care and services received.”

Letter from Arthur J. O’Leary, HHS Regional Medicaid

Director, to former New York State Commissioner of So-

cial Services Barbara Blum, dated April 16, 1981 (HHS

Letter) (Appendix “G” to the Petition at 26a). Seen. 2

below. It was clearly reasonable for HHS to read to-

gether 42 U.S.C. § 1396a(a)(32), which does not permit

direct payments except where a state has taken the direct

payment option (or in cases of agency error or delay),

and 42 U.S.C. § 1396a(a)(34), which requires payment

of bills incurred during the retroactive period, and to in-

terpret them as barring direct payments for retroactive

bills in a state that declined the direct payment option for

new bills. HHS’ interpretation was entitled to substantial

deference. Blum v. Bacon, 457 U.S. 123, 142 (1982).

The lower court’s ruling should be reviewed because

it is unprecedented and has important consequences. If

not reversed, New York will apparently be the only state

8 as

required to reimburse patients directly for medical bills

which they paid prior to applying for medicaid.’

Moreover, the decision has substantial implications

beyond New York because it is decided as a matter of

construction of federal statutes and because of the Con-

gressional intent that the states provide uniformly for re-

troactive coverage of medical charges prior to medicaid

eligibility. See p. 2 ante. Assuming arguendo that the

court below correctly read the federal statutes, then all

States will be required to make direct payments to pa-

tients who paid bills during the retroactive period, and

HHS must participate in sharing the cost of such pay-

ments.

As noted above, the Court of Appeals based its hold-

ing on its interpretation of 42 U.S.C. §

1396a(a)(10)(B)(i) and not upon State law. The Appel-

late Division opinion mentions the state regulation requir-

ing medicaid coverage during the three months prior to

application, 18 N.Y.C.R.R. § 360.16(c), but that regula-

tion is merely a restatement of the federal requirement in

42 U.S.C. § 1396a(a)(34) and 42 C.F.R. § 435.914(a).

Review should be granted so that New York’s ad-

ministration of the medicaid program will be consistent

with that of other states.

1 A search of case law, confirmed by a survey of other states’

medicaid agencies and discussions with HHS, indicates that no

state has taken the direct payment option provided for in 42

U.S.C. § 1396d(a), and that no state reimburses patients di-

rectly, except to correct agency error or delay.

ae eee

POINT II

This court should grant review to resolve the con-

flict between the decisions of the New York Court of

Appeals and of several federal circuit courts of Appeals

concerning whether a federal agency’s letter interpreta-

tion of its own regulations and governing statutes had

“no force and effect” unless the interpretation itself

was promulgated pursuant to the federal Administrative

Procedure Act, 5 U.S.C. § 553.

The New York Court of Appeals’ construction of the

federal Administrative Procedure Act (APA), 5 U.S.C. §

553, presents novel, substantial and important federal is-

sues affecting the administration of joint federal-state

programs. The state court’s construction of the APA es-

tablishes the novel principle that an agency interpretation

of a regulation that touches upon a recipient’s substantive

rights must itself be promulgated as a regulation.

In holding that the April 16, 1981, HHS letter quot-

ing from the HHS Medical Assistance Manual (HHS

Manual) was of “no force and effect,” the state court

disregarded the federal authorities without expressly find-

ing them in any way inconsistent with, or a departure

from, the governing statute and regulations. In so doing,

the Court of Appeals implied that any time a federal

agency answers a participating state’s query and men-

tions a substantive right, the state agency may not rely on

the letter unless it is formally promulgated as a regula-

tion.

The Court interpreted the quotations from the HHS

Manual in the HHS letter as establishing a substantive

rule without probing further to discover the context of the

quotations, or the statutory and regulatory authority upon

which they were based.2 The usual deference to an agen-

cy’s interpretation of its own regulations and governing

statutes, see p. 7 ante, required the state court to presume

that HHS had a basis in federal law for its letter unless

the court specifically reviewed the authorities cited by

HHS and found them inapposite.

If the state court had reviewed the sources set forth

in the HHS letter, it would have found that neither the

letter nor the HHS Manual announced a new rule or

made any change affecting established rights to payment

for pre-medicaid application bills. What the letter actu-

ally does is answer a specific question concerning such

bills by interpreting two regulations and a statute, as ap-

plied in a state that has not chosen the direct payment

option. See Point I ante. This is exactly the kind of guid-

ance using federal agency expertise on which participat-

ing states depend, and to which the courts usually defer.

The lower court’s ruling that to be effective, the in-

terpretative ruling set out in the HHS letter and Manual

must be promulgated as a regulation pursuant to the

APA, 5 U.S.C. § 553, is inconsistent with several deci-

2 The HHS Manual itself was not in evidence. The courts below

could, however, have taken judicial notice of it as a public docu-

ment containing the federal agency’s internal rules and not sub-

ject to dispute. C.P.L.R. § 4511. The HHS Manual’s introduc-

tion states (21a):

“The material contained in this Manual is consistent

with the Regulations on the subjects and contains no

new or different requirements from those in the

Regulations.”

The portion of the letter that petitioner relies upon itself quotes

from the HHS Manual’s Answers to Questions 10 and 11 in Part

3-10.9-00, pp. 5-6 (23a-25a). Answer 10 continues a discussion

of former 45 C.F.R. §206.10(a)(4) (redesignated as 42 C.F.R. §

435.914[a]) as read in light of the “title XIX requirement that

medical assistance payments (except as specified in 45 C.F.R.

249.32 [redesignated as 42 C.F.R. § 447.25)]) must be made by

the State agency directly to the provider.” (23a-24a).

sions of federal circuit courts of appeals. E.g., State of

New York v. Lyng, ___ F.2d ___, Dkt. No. 86-6261, Aug.

Tm. 1987—No. 773, slip op. at 16-18 (2d Cir. Sept. 23,

1987) (where “there was no prior interpretation of the

food stamp regulations concerning any program like New

York’s restaurant allowance, the Secretary [of Agricul-

ture]’s interpretation did not change any ‘existing rights

or obligations’” and did not have to be published for no-

tice and comment); St. Mary’s Hospital of Troy v. Blue

Cross & Blue Shield Ass’n, 788 F.2d 888, 891 (2d Cir.

1986) (HHS “Manual rules have consistently been held to

be ‘interpretative rules,’ and thus exempt from the notice

and comment requirements”); Cubanski v. Heckler, 781

F.2d 1421, 1427-29 (9th Cir. 1986), cert. granted sub nom.

Bowen v. Kizer, 107 S. Ct. 1282 (1987) (since failure to

promulgate as regulation a legislative rule set out in HHS

Regional Office Manual did not adversely affect a mem-

ber of the public, it remained valid); Donovan v. Red Star

Marine Services, Inc., 739 F.2d 774, 781 (2d Cir. 1984),

cert. denied, 470 U.S. 1003 (1985) (interpretative ruling

in Occupational Safety and Health Administration

[OSHA] manual did not have to be published for notice

and comment); Donovan v. Wollaston Alloys, Inc., 695

F.2d 1, 9 (1st Cir. 1982) (not necessary to publish for

notice and comment OSHA manual provision that did not

adversely affect complainant, i.e., require a change in

behavior); United States v. Fitch Oil Co., 676 F.2d 673,

678 (Temp. Emer. Ct. App. 1982) (Department of En-

ergy statement did not have to be published for notice

and comment where failure to do so did not adversely

affect a member of the public); Smith v. Miller, 665 F.2d

172, 179 n.7 (7th Cir. 1981) (HHS Manual is “intended

. . Only as an interpretative rule”); Conservative Caucus,

Inc. v. United States, 650 F.2d 1206, 1211, 228 Ct. Cl. 45

(1981) (interpretative Postal Service manual rules did not

have to be published for notice and comment); Homan &

Crimen, Inc. v. Harris, 626 F.2d 1201, 1210 (Sth Cir.),

cert. denied, 400 U.S. 975 (1980) (where medicare statute

and regulations did not specifically address a subject,

HHS letter applying them to a set of facts was interpreta-

tive and did not have to be published for notice and com-

ment); Columbus Community Hospital v. Califano, 614 F.2d

181, 187 (8th Cir. 1980) (HHS Provider Reinbursement

Manual for medicare sets forth interpretative rules); An-

derson v. Butz, 550 F.2d 459, 463 (9th Cir. 1977) (inter-

pretative ruling which changes cost to recipients of

allocated food stamps had to be published for notice and

comment); Hogg v. United States, 428 F.2d 274, 280 (6th

Cir. 1970), cert. denied, 401 U.S. 910 (1971) (APA did

not require publication for notice and comment of inter-

nal delegation of authority by the Attorney General that

did not adversely affect a member of the public).

Those cases distinguish between “interpretative”

rules and ones which affect existing rights and obliga-

tions, generally referred to as “substantive” rules.

Donovan v. Red Star Marine Services, Inc., supra, 739 F.2d

at 783. The APA provisions apply with respect to “sub-

stantive” rules only. /d. Since the HHS letter and Man-

ual here did not change any existing rights or obligations,

merely applying the law and regulations to a particular

set of facts, they did not have to be published for notice

and comment. Homan & Crimen. inc. v. Harris, supra,

626 F.2d at 1210.

In declining to give effect to the HHS letter and

Manual, the Court of Appeals erroneously relied on Mor-

ton v. Ruiz, supra, 415 U.S. at 231-238. In Morton, this

Court denied deference to the Manual of the Bureau of

Indian Affairs (BIA Manual) because it established a sub-

stantive rule excluding Indians not living on reservations

from receiving general assistance benefits and because

the rule was inconsistent with the Congressional purpose

of the statute in question. There was thus no statutory or

regulatory source for the substantive rule announced in

the BIA Manual. In the present case, however, the HHS

Manual is-consistent with the statute and regulations and

adds no substantive rule affecting eligibility for benefits.

Review should be granted because the order and

judgment below conflicts with existing precedent. More-

over, the decision has implications beyond New York be-

cause it is an interpretation of a federal statute, and

beyond the administration of the medicaid program be-

cause it is equally applicable to the myriad of other pro-

grams in which the federal government provides funds to

the states to use in implementing federal initiatives in

accordance with federal statutory and regulatory require-

ments.

Conclusion

The petition for a writ of certiorari should be granted.

Dated: New York, New York

September 28, 1987

Respectfully submitted,

ROBERT ABRAMS

Attorney General of the

State of New York

Attorney for Petitioner

O. PETER SHERWOOD

Solicitor General

LAWRENCE S. KAHN

Deputy Solicitor General

MARYELLEN WEINBERG

ROBERT J. SCHACK

Assistant Attorneys General

of Counsel

APPENDIX

APPENDIX A

ORDER AND JUDGMENT OF THE COURT OF APPEALS

Remittitur

Court of Appeals

State of New York

The Hon. Sol Wachtler, Chief Judge, Presiding~

2 No. 181

In the Matter of MILDRED KRIEGER, \

Respondent,

JAMES A. KRAUSKOPF,

COMMISSIONER OF THE

NEW YORK CITY

DEPARTMENT OF SOCIAL SERVICES, > Order

Respondent,

CESAR A. PERALES,

COMMISSIONER OF THE

NEW YORK STATE

DEPARTMENT OF SOCIAL SERVICES,

Bs ellant.

App )

The appellant in the above entitled appeal appeared

by Hon. Robert Abrams, Attorney General of the State of

New York; the respondent(s) appeared by Joan Mangones,

Esq., The Legal Aid Society and John E. Kirklin, Esq.,

The Legal Aid Society.

The Court, after due deliberation, orders and adjudges

that the order is affirmed, with costs, for the reasons

Order and Judgment of the Court of Appeals

stated in the memorandum at the Appellate Division (121

AD2d 448). Chief Judge Wachtler and Judges Simons,

Kaye, Alexander, Titone, Hancock and Bellacosa concur.

The Court further orders that the papers required to be

filed and this record of the proceedings in this Court be re-

mitted to the Supreme Court, Kings County, there to be

proceeded upon according to law.

I certify that the preceding contains a correct record of

the proceedings in this appeal in the Court of Appeals and

that the papers required to be filed are attached.

Donald M. Sheraw, Clerk of the Court

Court of Appeals, Clerk’s Office, Albany, June 30,1987.

APPENDIX B

ORDER OF THE APPELLATE DIVISION,

SECOND DEPARTMENT

At a Term of the Appellate Divi-

sion of the Supreme Court of the

State of New York, Second Judi-

cial Department, held in Kings

County on June 9, 1986

HON. MILTON MOLLEN, Presiding Justice,

HON. LEON D. LAZER,

HON. Guy J. MANGANO, Associate

HON. WILLIAM C. THOMPSON. Justices

In the Matter of MILDRED KRIEGER, b

Petitioner-respondent,

JAMES A. KRAUSKOPF,

COMMISSIONER OF THE

NEW YORK CITY

DEPARTMENT OF SOCIAL SERVICES, » Order

Respondent,

CESAR A. PERALES,

COMMISSIONER OF THE

NEW YORK STATE

DEPARTMENT OF SOCIAL SERVICES,

Appellant. J

In the above entitled proceeding pursuant to CPLR

article 78, inter alia, to review a determination of the

New York State Commissioner of Social Services, dated

September 13, 1983, and made after a statutory fair

Order of the Appellate Division, Second Department

hearing, which failed to direct the local agency to reim-

burse the petitioner for medical expenses incurred and

paid by the petitioner, a Medicaid enrollee, during the

three-month period immediately preceding the filing of

her accepted Medicaid application, the above named

Cesar A. Perales, Commissioner of the New York State

Department of Social Services, a respondent in the court

below, having appealed to this court from a judgment of

the Supreme Court, Kings County, dated October 12,

1984, which annulled the determination denying reim-

bursement and directed the New York City Commis-

sioner of Social Services to reimburse the petitioner for

those expenses; and the said appeal having been argued

by Joseph F. Wagner, Esq., of counsel for appellant and

argued by Lester Helfman, Esq., of counsel for peti-

tioner-respondent (one brief filed), due deliberation hav-

ing been had thereon; and upon this court’s opinion and

decision slip heretofore filed and made a part hereof, it

ORDERED that the judgment appealed from is hereby

unanimously affirmed, with costs.

/s/ Martin H. Brownstein

Acting Clerk of the Appellate

Division

APPENDIX C—

OPINION AND DECISION SLIP OF THE APPELLATE

DIVISION, SECOND DEPARTMENT

In the Matter of MILDRED KRIEGER, Respondent, v

JAMES A. KRAUSKOPF, as Commissioner of the New

York City Department of Social Services, Respondent,

and CESAR A. PERALES, as Commissioner of the New

York State Department of Social Services, Appellant.—In

a proceeding pursuant to CPLR article 78, inter alia, to

review a determination of the New York State Commis-

sioner of Social Services, dated September 13, 1983, and

made after a statutory fair hearing, which failed to direct

the local agency to reimburse the petitioner for medical

expenses incurred and paid by the petitioner, a Medicaid

enrollee, during the three-month period immediately pre-

ceding the filing of her accepted Medicaid application,

the New York State Commissioner of Social Services

(hereinafter the State Commissioner) appeals from a

judgment of the Supreme Court, Kings County (Bellard,

J.), dated October 12, 1984, which annulled the determi-

nation denying reimbursement and directed the New

York City Commissioner of Social Services to reimburse

the petitioner for those expenses.

Judgment affirmed, with costs.

After a statutory fair hearing was conducted on the

issue of the petitioner’s eligibility to receive Medicaid

benefits, the State Commissioner determined that the pe-

titioner could receive Medicaid reimbursement in any

month in which her medical expenses exceeded her sur-

plus income of $19.80. The petitioner commenced this

proceeding, challenging, inter alia, the Commissioner’s

determination as to the period for which she was entitled

to Medicaid reimbursement. Thereafter, all but one is-

sue raised in the petition with respect to the petitioner’s

Medicaid coverage were settled by a stipulation among

Opinion and Decision Slip of the Appellate Division,

Second Department

the petitioner and the city and State Commissioners of

Social Services. The remaining issue is whether the peti-

tioner is entitled to reimbursement for medical services

covered by Medicaid received and paid for by the peti-

tioner during the three-month period preceding the sub-

mission of her Medicaid application. Special Term held

that the petitioner was entitled to reimbursement and, in

that respect, annulled the State Commissioner’s determi-

nation. We agree, and, accordingly, affirm the judgment

entered upon Special Term’s decision.

The pertinent Federal statutes and Federal and State

regulations provide for reimbursement to Medicaid en-

rollees for those covered medical expenses incurred and

paid for during the three-month preapplication period

(see, 42 USC § 1396a [a] [34]; 42 CFR 435.914; 18

NYCRR 360.16 [c]). The State Commissioner contends

on appeal that the petitioner may not be directly reim-

bursed for the payments she made during the three-

month preapplication period, and that payments may

only be made to providers of the services rendered. We

reject this contention.

42 USC § 1396a (a) (10) (B) provides that medical

assistance provided to one individual under the Medicaid

program shall not be less in amount, duration or scope

than the assistance provided to any other individual en-

rolled in the program. This provision specifically applies

to the petitioner (see, 42 USC § 1396a [a] [10] [A] [ii];

§1396d [a] [iii]). Federal statute and regulation further

provide that a State may make payments under the Medi-

caid program to service providers or to individuals if the

State plan so provides (see, 42 USC § 1396a [a, [32]; 42

CFR 447.10 [d]; 447.25). New York’s Social Services

Law § 367-a (1) permits payment only to service

Opinion and Decision Slip of the Appellate Division,

Second Department

providers “except as otherwise permitted or required by

applicable federal and state provisions, including the

regulations of the department [of-Social Services]”. The

New York regulations in turn permit payment to various

providers, and to individuals when there has been an er-

ror made by the Department of Social Services prompt-

ing an individual’s Medicaid application to be rejected

and that individual is later enrolled in the Medicaid pro-

gram (see, 18 NYCRR 360.17 [a] [4]).

We have previously stated that a Medicaid applicant

should not be denied reimbursement simply because So-

cial Services Law § 367-a is a vendor statute (see, Matter

of Lustig v Blum, 80 AD2d 558, 559). In addition, we

have required the Department of Social Services to reim-

burse individuals for Medicaid-covered services which

they received and paid for directly when the delay in

granting the individuals’ Medicaid applications was ex-

cessive (see, Matter of Lustig v Blum, supra; Matter of Cole

v Wyman, 40 AD2d 1033; see also, Matter of Lawrence v

Lavine, 50 AD2d 734).

By parity of reasoning, we perceive of no legally

valid basis for denying the petitioner direct reimburse-

ment in the instant matter. Support for this conclusion

may be found in the requirements of 42 USC § 1396a (a)

(10) (B) and 18 NYCRR 360.16 (c) that equal benefits be

made available to applicants and that such benefits be

made available to applicants in the three-month preap-

plication period. To hold otherwise would lead to the

creation of two classes of Medicaid recipients, one of

which would receive fewer benefits solely because the

members of the class paid their medical bills promptly,

and the other which would receive greater benefits by

way of reimbursement to the providers of medical serv-

Opinion and Decision Slip of the Appellate Division,

Second Department

ices because the members of the class did not pay their

medical bills promptly.

The State Commissioner relies upon a letter from

the Department of Health and Human Services, dated

April 16, 1981, which states that individuals who have

received and paid for Medicaid-covered medical services

during the three-month preapplication period may not be

reimbursed directly. Such reliance is misplaced. Prom-

ulgation of a substantive rule must be accomplished in a

manner consistent with the provisions of the Administra-

tive Procedure Act (5 USC § 553). A substantive rule had

been defined as one affecting individual rights and obli-

gations and having the force and effect of law (see, Chrys-

ler Corp. v Brown, 441 US 281, 301-302). The April 16,

1981 letter and the Medical Assistance Manual upon

which it is based state a substantive rule as the provision

affects individual rights and obligations of those who

have paid for Medicaid-covered services during the three-

month preapplication period. Moreover, if given effect,

the rule would bind the State with respect to repayment

of those services. Yet the record fails to demonstrate

that the procedures required by the Administrative Proce-

dure Act for the promulgation of rules have been fol-

lowed (see, 5 USC § 553; see also, Chrysler Corp. v Brown,

supra, p 303). Therefore, the alleged rule contained in

the letter is of no force and effect (see, Buschmann v

Schweiker, 676 F2d 352, 355-356; Carter v Blum, 493 F

Supp 368, 372).

Nor was the alleged rule published in the Federal

failure to do so precludes the unpublished rule from be-

ing enforced unless the person against whom enforce-

ment is sought to be effected has had actual! and timely

Opinion and Decision Slip of the Appellate Division,

Second Department

notice of the terms of the unpublished rule (see, 5 USC

§552 [aj [1]; Morton v Ruiz, 415 US 199, 233). The re-

cord at bar does not show that petitioner had actual and

timely notice of the provision contained in the letter.

Thus, she may not be adversely affected thereby.

Finally, we hold that the petitioner’s claim presents

a justiciable issue for this court’s determination.

Whether administrative action violates applicable statutes

and regulations is a question within the traditional com-

petence of the courts to decide (see, Matter of Dental

Socy. v Carey, 61 NY2d 330, 335). Mollen, P.J., Lazer,

Mangano and Thompson, JJ., concur.

10a

APPENDIX D

ORDER AND JUDGMENT OF THE

SUPREME COURT, KINGS COUNTY

At a Special Term, Part I of the

Supreme Court of the State of

New York, held in and for the

County of Kings at the Court-

house located at 360 Adams

Street in the Borough of Brook-

lyn, City and State of New York

on the 12th day of October 1984.

PRESENT:

HON. WILLIAM C. BELLARD JUSTICE

In the Matter of the Application of % Index No.

MILDRED KRIEGER, 24194/83

Petitioner,

For a Judgment Pursuant to Article

78 of the Civil Practice Law and

Rules,

—against— > Judgment

JAMES A. KRAUSKOPF,

Commissioner of the New York

City Department of Social Services;

and

CESAR A. PERALES,

Commissioner of the New York

State Department of Social Services,

Respondents. e

lia

Order and Judgment of the Supreme Court, Kings County

The issues in the above entitled proceeding brought

pursuant to Article 78 of the Civil Practice Law and

Rules for a judgment inter alia annulling so much of the

respondent’s decision which failed to order respondents

to reimburse petitioner under the Medical Assistance Pro-

gram (“Medicaid”) for out-of-pocket medical expenses

which exceeded her $19.80 monthly surplus income "

amount for each month from February 1983 through May

1983, (all other issues raised by the First Amended Veri-

fied Petition dated January 12, 1984 having been settled

by Stipulation dated April 25, 1984), having come on to

be heard before the Hon. William C. Bellard on the 23rd

day of May 1984.

NOW, upon reading the Order to Show Cause

signed by the Hon. Thomas J. Mirabile on July 6, 1984

and the Petition of MILDRED KRIEGER verified on July 5,

1984 and the exhibits annexed thereto, and the Notice of

Motion of respondent PERALES dated July 11, 1983 and

Affirmation of SHIRLEY BEDOR ORTEGO in support

thereof dated July 11, 1983 and the exhibits annexed

thereto, and the answer of respondent KRAUSKOPF veri-

fied on July 12, 1983, and the Stipulation of counsel for

the respective parties dated July 22, 1983, and the Copy

Order of the Hon. Frank Vaccaro dated October 4, 1983,

and the First Amended Petition of MILDRED KRIEGER,

verified on January 12, 1984, and the Stipulation signed

by counsel for the respective parties dated January 17,

1984, and the Answer of respondent KRAUSKOPF verified

on April 25, 1984 and the Answer of respondent

PERALES verified on April 25, 1984 and the exhibits an-

nexed thereto, and the Memorandum of Law in Support

of Respondent Perales’ Answer dated April 25, 1984, and

the Stipulation of Partial Settlement dated April 25, 1984,

and the Petitioner’s Memorandum of Law in Support of

seer

12a

Order and Judgment of the Supreme Court, Kings County

the First Amended Petition dated May 23, 1984, and re-

spondent Perales’ Reply Memorandum dated May 31,

1984, and having heard LESTER HELFMAN, of counsel,

to JEFFREY G. ABRANDT, attorney for the petitioner, in

support of the Petition, and SHIRLEY BEDOR ORTEGO, of

counsel to ROBERT ABRAMS, Attorney General of the

State of New York, attorney for respondent Perales and

RICKI ANN FELDMAN, of counsel to JOSEPH M.

ARMSTRONG, attorney for respondent KRAUSKOPF, and

the Court having after due deliberation, on the 4th day of

September 1984 made and filed a decision in writing

granting the petition and annulling so much of the deci-

sion of the respondent State Commissioner which denied

reimbursement to the petitioner, at the medical assis-

tance rate, for medical bills she incurred and paid for in

the three months prior to applying for medical assistance,

NOW, on motion of LESTER HELFMAN, ESQ., of

counsel to the attorney for petitioner, it is hereby

ORDERED AND ADJUDGED that so much of the

Decision After Fair Hearing dated September 13, 1984

which failed to direct respondents to reimburse petitioner

for paid medical expenses incurred in or after the third

month before the month in which the petitioner’s Medi-

caid application was made, specifically from February 1,

1983 through May 11, 1983, is annulled, and it is further

ORDERED AND ADJUDGED that within thirty days

of the entry of this Order and Judgment, respondent

KRAUSKOPF’S successor in office, reimburse petitioner,

at the Medical Assistance reimbursement rate for medi-

13a

Order and Judgment of the Supreme Court, Kings County

cal bills she incurred and paid for between February 1,

1983 and May 11, 1983.

ev ee a ae on a eo ae eo oe ee et Or ae a ee ee ee ee

Oe ee - 8 Ee ae ee oS Se DRe- 8 Se oe Cee SS. 28

14a

APPENDIX E

DECISION OF THE SUPREME COURT, KINGS COUNTY

In the Matter of MILDRED KRIEGER, Petitioner, v JAMES

A. KRAUSKOPF, as Commissioner of the New York

City Department of Social Services, et al., Respon-

dents.

Supreme Court, Special Term, Kings County, September 4, 1984

APPEARANCES OF COUNSEL

Lester Helfman for petitioner. Frederick A.O.

Schwarz, Jr., Corporation Counsel (Ricki Ann Feldman of

counsel), for James A. Krauskopf, respondent. Robert

Abrams, Attorney-General (Shirley Bedor Ortego of coun-

sel), for Cesar A. Perales, respondent.

OPINION OF THE COURT

WILLIAM T. BELLARD, J.

In this CPLR article 78 proceeding, petitioner seeks

reimbursement from respondents for out-of-pocket pay-

ments made by her for medical care and treatment re-

ceived within the three-month period immediately

preceding the date she applied for Medicaid.

Respondent defends the denial of reimbursement

upon the ground that pursuant to New York State’s Social

Services Law payment may only be made to the supplier

or provider of medical care or services, thus they have no

obligation to petitioner. Petitioner contends that once

having determined her to be eligible for medical benefits,

the denial of reimbursement was arbitrary, capricious

and an abuse of discretion.

Petitioner is 78 years old and suffers from angina

pectoris, hypertension, a duodenal ulcer, basal cell carci-

noma and glaucoma. Her rent, food, utilities and other

necessities must be paid for from her only source of in-

come, Social Security benefits.

15a

Decision of the Supreme Court, Kings County

An application for Medicaid benefits was submitted

by petitioner on May 12, 1983, to the New York City

Department of Social Services (N.Y.C.D.S.S.). When

that agency failed to act on petitioner’s application within

the 30-day period mandated by law, petitioner com-

menced this proceeding to compel _ respondent

N.Y.C.D.S.S. to provide her with Medicaid. On July 8,

1983, petitioner was notified that although she was not

eligible for Medicaid because she received $15 a month

more income than was allowable at the time, she never-

theless could receive benefits in any month where her

medical expenses exceeded her surplus income. Peti-

tioner requested and received a fair hearing which was

held on August 1, 1983 resulting in a decision rendered

on September 13, 1983. The decision found, inter alia,

that the city agency failed to timely take action on peti-

tioner’s application. After finding that petitioner had

surplus income of $19.80 a month, the decision stated

that the city agency had to provide petitioner with an op-

portunity to verify her increased health insurance costs

effective July 1, 1983 and recompute her financial eligi-

bility based on these costs and the recently amended in-

come eligibility requirements. The decision made no

provision for reimbursement of petitioner’s out-of-pocket

medical expenses incurred after respondent failed to pro-

vide her with Medicaid.

On October 7, 1983 respondent city agency finally

found petitioner to be eligible for Medicaid from July 1,

1983 to May 31, 1984. However, there remained several

unsettled issues. involving, inter alia, reimbursement of

medical bills. On April 25, 1984, by stipulation, the par-

ties agreed to resolve all issues between them with one

exception, to wit, petitioner’s claim that respondents are

required to reimburse her for paid medical expenses in-

16a

Decision of the Supreme Court, Kings County

curred by petitioner between February 1, 1983 and

May 11, 1983, inclusive.

Thus, the issue presently before the court, in peti-

tioner’s view is whether respondents, despite a determi-

nation that petitioner is eligible for Medicaid coverage,

can refuse to reimburse her medical expenses simply be-

cause those bills have already been paid when such reim-

bursement would be made if the bills were still

outstanding.

Not unexpectedly, respondents frame the issue sim-

ply as to whether the State Commissioner’s failure to di-

rect the agency to reimburse petitioner, at the medical

assistance rate, for medical bills she incurred and paid

for prior to applying for medical assistance is arbitrary

and capricious.

A State, in order to qualify for contribution of funds

from the Federal Government for a medical assistance

program, must conform to the guidelines promulgated by

Congress (US Code, tit 42, § 1351 et seq.). New York

State participates in the Medicaid program and receives

Federal funding under its State plan (Social Services

Law, § 363 et seq.). Under section 1396a (subd [a], par

[32]) of title 42 of the United States Code, “[A] State

plan for medical assistance must provide that no pay-

ment under the plarr-for any care or service provided to

an individual shall be made to anyone other than such

individual or the person or institution providing such care

or service”. Moreover, section 1396a (subd [a], par

[34]) provides that, “in the case of any individual who

has been determined to be eligible for medical assistance

under the plan, such assistance will be made available to

him for care and services included under the plan and

furnished in or after the third month before the month in

which he made application * * * for such assistance if

17a

Decision of the Supreme Court, Kings County

such individual was eligible for such assistance at

the time such care and services were furnished”. It is

also clear that under the appropriate Federal regulations

reimbursement to the recipients of medical services who

have made direct payment to the provider is permitted

(42 CFR 447.10 [d] [2]; 447.25). But, subdivision 1 of

section 367-a of the New York Social Services Law states

that “any payment with respect to any medical assistance

shall be made to the person, institution, state department

Or agency or municipality supplying such medical assis-

tance * * * except as otherwise permitted to required by

applicable federal or state provisions, including the regu-

lations of the department”. The State regulations man-

date that, “[a]ny payment with respect to any item or

medical care under medical assistance shall be made to

the person or institution supplying the care” (18 NYCRR

360.17).

Respondent State Commissioner argues that because

New York Social Services Law and regulations require

payment to be made to the person who provides the

medical service or care, no reimbursement to petitioner

is permitted. The court disagrees with respondents and

concludes there is no merit to this contention since it has

been rejected by the courts time and time again (Matter

of Cole v Blum, 86 AD2d 749; Matter of Lustig v Blum, 80

AD2d 558; Matter of Schwartz v Toia, 68 AD2d 890; Mat-

ter of Lawrence v Lavine, 50 AD2d 734; Matter of Cole v

Wyman, 40 AD2d 1033). Each of the cited cases involved

the issue of a petitioner’s request for reimbursement of

payments for medical care and services. The courts uni-

formly held that an otherwise eligible recipient or his

family may not be reimbursed funds paid directly to the

vendor of medical care unless the expenses were in-

curred during an unjustifiable delay in the agency’s ap-

18a

Decision of the Supreme Court, Kings County

proval of the medical application. However, none of

these cases nor the ones cited by the parties in this pro-

ceeding in their respective briefs are relevant to the cen-

tral question posed herein because they all involve

situations where the recipient made payment after sub-

mitting an application for Medicaid. In the present ac-

tion payment occurred within the three-month period

preceding the date of application. Accordingly, we are

apparently faced with a case of first impression.

18 NYCRR 360.16 (c) states that, “[A]n initial

authorization shall be issued and made effective for inpa-

tient and outpatient care and services provided a person

during the three-month period preceding the month of

application for medical assistance, if the applicant was

eligible in the month in which such care or services were

provided; but in no event shall an authorization be issued

with respect to care or services provided prior thereto.”

The aforesaid regulation was discussed in the case of

Matter of Kohl v Blum (92 AD2d 498), a case that was

concerned with two article 78 proceedings involving

Medicaid reimbursement for payment of personal health

care services. Both petitioners had insisted on their enti-

tlement to repayment of funds expended by them for

medical services within the three-month period prior to

the date of application for Medicaid benefits. The court,

however, declined to render judgment on the issue raised

because both proceedings involved petitioners seeking re-

imbursement for payments made to personal home care

attendants rather than physicians or dentists. Most im-

portantly, in dicta, the court said (supra), 18 NYCRR

“360.16 (c) may reasonably be construed by the agency

to require reimbursement to the recipient for medical as-

sistance provided during the three-month period preced-

ing the month of application only where the services were

19a

Decision of the Supreme Court, Kings County

provided by a physician or dentist.” The decision was

unanimous.

Retroactive reimbursement to a medical assistance

recipient should be determined in light of all circum-

stances of a particular case and should not provide a

windfall (Moran v Lascaris, 61 AD2d 405). It seems to

this court, before whom the above-mentioned issue has

been squarely placed, that under the facts and circum-

stances of this case and in the interests of justice, peti-

tioner herein is entitled to reimbursement for any moneys

she expended for medical care and services expenses

which exceeded her monthly surplus in the three months

preceding her date of application for Medicaid benefits.

Respondents have failed to rationally explain why a re-

cipient who has been granted Medicaid benefits and has

incurred unpaid medical bills during the three months

preceding the application month should be granted reim-

bursement while a similarly situated recipient who has

paid his medical bills is denied reimbursement. Thus,

the State Commissioner’s decision was arbitrary and ca-

pricious.

The petition is granted. The decision of respondent

State Commissioner denying reimbursement to petitioner

is annulled. Respondent city agency (N.Y.C.D.S.S.) is

directed to reimburse petitioner, at the applicable medi-

cal assistance rate, for medical bills she incurred and

paid for in the three months prior to applying for medical

assistance.

20a

APPENDIX F

HHS MANUAL

U.S. Department of Health, Education, and Wel-

fare [Department of Health and Human Services],

Social and Rehabilitation Service, Medical Services

Administration, Medical Assistance Manual

[Page MSA-PRG-1 p.1]

MSA-PRG-1

Introduction 5/31/71

Purpose

The purpose of this Manual is to assist States in im-

plementing SRS Program Regulations pertaining to

the administration of medical assistance. It is an

official medium by which the Medical Services Ad-

ministration issues guides and procedures to States

for the operation of certain aspects of the medical

assistance program under the Social Security Act, as

amended, and related legislation.

Content

This Manual clarifies, explains, and expands upon

the meaning of the Regulations and the provisions

upon which they are based. It may include essential

background information; clarification as to manda-

tory, prohibited, or permissive provisions; scope of

flexibility; interpretation in relation to problems that

arise in working with the regulations; and other re-

lated material such as the Federal Percentages. In-

terpretations and instructions relating to money

payments under Titles I, IV-A, X, XIV, and XVI not

pertaining to medical assistance are issued sepa-

rately but in instances in which all six titles have

21a

HHS Manual

common policy, the interpretations and instructions

are included.

Relationship to Regulations

The material contained in this Manual is consistent

with the Regulations on the subjects and contains no

new or different requirements from those in the

Regulations. Regulations are published in the Fed-

eral Register, appear in the Code of Federal Regula-

tions, and are issued to States as SRS Program

Regulations. The Regulations present the specific

requirements, developed from the Federal legisla-

tion, that States must meet in the State plan and in

claiming Federal financial participation.

x « *

[Page MSA-PRG-1 p.2]

/s/ Howard Newman

Commissioner

Medical Services Administration

22a

HHS Manual

[Part 3-10.9-00 p.1]

Part 3. Application, Determination of Eligibility, and Fur-

nishing Assistance

3-10.9-00 Coverage Prior to Application for Medical

Assistance—Answers to Questions

Legal Background and Authority —

A. Title XIX of the Social Security Act as

amended, Section 1902(a)(34)

B. 45 CFR 206.10(a)(6) (SRS Program Regu-

lation 10-11 (C-14), December 3, 1973).

C. U.S. Senate Report 92-1230, 92nd Con-

gress, 2nd Session, September 26, 1972,

p. 209.

Introductory Statement

Questions have been raised regarding the

proper interpretation of 45 CFR 206.10(a)(6)

which provides for coverage prior to applica-

tion for medical assistance. Prior to enact-

ment of P.L. 92-603, a State, at its own

option, could provide medical services to an

otherwise qualified recipient up to three

months prior to application for Medicaid.

Previously, thirteen States provided three

months retroactive coverage to persons who

were eligible for Medicaid but who did not

apply for assistance until after they received

care either because of not knowing about

Medicaid eligibility requirements, or because

the nature of their illness prevented the filing

of an application. Effective July 1, 1973, sec-

tion 1902 (a)(34) requires all States to pro-

vide coverage for care and services in or after

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HHS Manual

the third month prior to application to those

individuals who were otherwise eligible when

the services were received. 2

Answers to Questions

* * *

[Part 3-10.9-00 p.5]

Question 9:

How will retroactive coverage be applied in

those cases where a person has resided in a

State for less than three months before apply-

ing for Medicaid benefits?

Answer:

45 CFR 206.10(a)(6) requires all States to

provide three months retroactive coverage for

Medicaid if the individual was eligible at the

time services were rendered in the retroactive

period. In States which limit Medicaid cover-

age to persons who are residents of the State,

the retroactive coverage period begins with

the date the applicant established residency

in the State.

Services received prior to the time an individ-

ual establishes residency in the new State are

the responsibility of the previous State pro-

vided that he was, or on application would

have been, eligible in that State and the serv-

ices were covered under its State plan.

Question 10:

If the recipient had paid for care and services

during the three months prior period, would

the State have responsibility for repayment

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HHS Manual

since payment in title XIX provides payments

only to vendors?

Answer:

This regulation does not override the title

XIX requirement that medical assistance pay-

ments (except as specified in 45 CFR 249.32)

must be made by the State agency directly to

the provider. The regulation is applicable to

all medical care and services provided in the

three months prior to month of application

except for physicians’ and dentists’ services

furnished to medically needy persons if the

State plan makes specific provisions for di-

rect payment to the recipient for such serv-

ices (45 CFR 249.32 authorizes a State to

make direct payments to individuals who are

not receiving cash assistance, for physicians’

or dentists’ services). With this exception,

however, State payment for retroactive serv-

ices

[Part 3-10.9-00 p.6]

is required only where persons have not paid

for the medical care and services received in

the three months prior to the month of appli-

cation. If the vendor is willing to refund the

payment to the recipient and bill the State for

the service, the State would then be expected

to make payment provided the service was

necessary and the person was eligible for cov-

erage when the service was rendered.

Question 11:

If the recipient has made partial payment, but

not payment in full (i.e., has not yet made

—————ekeeawE

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HHS Manual

payments up to the reasonable charges recog-

nized by a State under 45 CFR 250.30), does

the State have the responsibility for outstand-

ing unpaid amounts of the bill to providers?

Answer:

Yes. The State is responsible for unpaid

medical care (within the limits of charges it

has established pursuant to 45 CFR 250.30)

which was provided during the three months

prior to month of application provided the

person was eligible at the time such services

were furnished.

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APPENDIX G—HHS LETTER

DEPARTMENT OF HEALTH & HUMAN SERVICES

Healthcare Financing Administration

Refer to: 0:10 Region 11

Federal Building

26 Federal Plaza

New York, NY 10278

APR 16 1981

Mrs. Barbara Blum, Commissioner

New York State Department of

Social Services

40 North Pearl Street

Albany, New York 12243

Dear Commissioner Blum:

This is in response to Russell Schwartz’s recent letter

concerning reimbursement to a recipient for medical

services received and paid for prior to application for

Medicaid.

Mr. Schwartz states that the current procedures is for the

provider to refund the payment to the recipient and then

bill the State for the services rendered. He asks if FFP

would be available if the procedure was modified to per-

mit a provider, (who was paid for services rendered, by a

recipient prior to application for Medicaid) to bill Medi-

caid and upon payment, reimburse the recipient.

FFP would not be available. Section 3-10.9-0 of the

Medical Assistance Manual states: “ .. . State payment

for retroactive services is required only where persons

have not paid for the medical care and services received.

If the vendor is willing to refund the payment to the re-

cipient and bill the State for the service, the State would

then be expected to make payment, provided the service

was necessary and the person was eligible for coverage

when the service was rendered.” Additionally, Section

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HHS Letter

3-10.9-0 states: “The State is responsible for unpaid

medical care within the limit of charges it has established

”

We hope this satisfies your question.

Sincerely,

/s/

Arthur J. O’Leary

Regional Medicaid Director

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APPENDIX H

STATUTES AND REGULATIONS INVOLVED

I. FEDERAL STATUTES

5 U.S.C. § 553. Rule making

(a) This section applied, according to the provisions

thereof, except to the extent that there is involved—

(1) a military or foreign affairs function of the

United States; or

(2) a matter relating to agency management or

personnel or to public property, loans, grants, bene-

fits, or contracts.

(b) General notice of proposed rule making shall be

published in the Federal Register, unless persons subject

thereto are named and either personally served or other-

wise have actual notice thereof in accordance with law.

The notice shall include—

(1) a statement of the time, place, and nature

of public rule making proceedings;

(2) reference to the legal authority under which

the rule is proposed; and

(3) either the terms or substance of the pro-

posed rule or a description of the subjects and issues

involved.

Except when notice or hearing is required by statute, this

subsection does not apply—

(A) to interpretative rules, general state-

ments of policy, or rules of agency organiza-

tion, procedure, or practice; or

(B) when the agency for good cause finds

(and incorporates the finding and a brief state-

ment of reasons therefor in the rules issued)

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Statutes and Regulations Involved

that notice and public procedure thereon are

impracticable, unnecessary, or contrary to the

public interest.

shall give interested persons an opportunity to participate

in the rule making through submission of written data,

views, Or arguments with or without opportunity for oral

presentation. After consideration of the relevant matter

presented, the agency shall incorporate in the rules

adopted a concise general statement of their basis and

purpose. When rules are required by statute to be made

on the record after opportunity for an agency hearing,

sections 556 and 557 of this title apply instead of this

subsection.

(d) The required publication or service of a sub-

stantive rule shall be made not less than 30 days before

its effective date, except—

(1) a substantive rule which grants or recog-

nizes an exemption or relieves a restriction;

(2) interpretative rules and statements of pol-

icy; or

(3) as otherwise provided by the agency for

good cause found and published with the rule.

(e) Each agency shali give an interested person the

right to petition for the issuance, amendment, or repeal

of a rule.

42 U.S.C. § 1396a. State plans for medical assis-

tance

(a) Contents

A State plan for medical assistance must—

* * *

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Statutes and Regulations Involved

* * *

(10)(B) that the medical assistance made

available to any individual described in subpara-

graph (A)—

(i) shall not be less in amount, duration,

or scope than the medical assistance made

available to any other such individual, ...

* * *

(32) provide that no payment under the plan

for any care or service provided to an individual

shall be made to anyone other than such individual

or the person or institution providing such care or

service, under an assignment or power of attorney or

otherwise; except that—

(A) in the case of any care or service pro-

vided by a physician, dentist, or other individual

practitioner, such payment may be made (i) to

the employer of such physician, dentist, or

other practitioner if such physician, dentist, or

practitioner is required as a condition of his em-

ployment to turn over his fee for such care or

service to his employer, or (ii) (where the care

or service was provided in a hospital, clinic, or

other facility) to the facility in which the care or

service was provided if there is a contractual

arrangement between such physician, dentist, or

practitioner and such facility under which such

facility submits the bill for such care or service;

x * ™

(34) provide that in the case of any individual

who has been determined to be eligible for medical

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Statutes and Regulations Involved

assistance under the plan, such assistance will be

made available to him for care and services included

under the plan and furnished in or after the third

month before the month in which he made applica-

tion (or application was made on his behalf in the

case of a deceased individual) for such assistance if

such individual was (or upon application would have

been) eligible for such assistance at the time such

care and services were furnished;

7* x *

42 U.S.C. § 1396d. Definitions

For purposes of this subchapter—

(a) Medical Assistance

The term “medical assistance” means payment of part

or all of the cost of the following care and services (if

provided in or after the third month before the month in

which the recipient makes application for assistance) for

individuals, and, with respect to physicians’ or dentists’

services, at the option of the State, to individuals (other

than individuals with respect to whom there is being

paid, or who are eligible, or would be eligible if they

were not in a medical institution, to have paid with re-

spect to them a State supplementary payment and are

eligible for medical assistance equal in amount, duration,

and scope to the medical assistance made available to

individuals described in section 1396a (a)(10)(A) of this

title) not receiving aid or assistance under any plan of the

State approved under subchapter I, X, XIV, or XVI, or

Part A of subchapter IV, and with respect to whom sup-

plemental security income benefits are not being paid un-

der subchapter XVI of this chapter...

* * *

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Statutes and Regulations Involved

II. Federal Regulations

42 C.F.R. §431.246 Corrective action.

The agency must promptly make corrective payments,

retroactive to the date an incorrect action was taken, if—

(a) The hearing decision is favorable to the appli-

cant or recipient; or

(b) The agency decides in the applicant’s or recipi-

ent’s favor before the hearing.

42 C.F.R. §435.914 Effective date.

(a) The agency must make eligibility for Medicaid

effective no later than the third month before the month

of application if the individual—

(1) Received Medicaid services, at any time

during that period, of a type covered under the plan;

and

(2) Would have been eligible for Medicaid at

the time he received the services if he had applied

(or someone had applied for him), regardless of

whether the individual is alive when application for

Medicaid is made.

(b) The agency may make eligibility for Medicaid

effective on the first day of a month if an individual was

eligible at any time during that month.

eligibility will be made effective.

42 C.F.R. §447.10 Prohibition against reassign-

ment of provider claims.

* ca * =

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Statutes and Regulations Involved

vide that the requirements of paragraphs (d) through (h)

of this section are met.

(d) Who may receive payment. Payment may be

made only—

(1) To the provider; or

(2) To the recipient if he is a non-cash recipi-

ent eligible to receive the payment under § 447.25....

* * *

42 C.F.R. §447.25 Direct payments to certain re-

cipients for physicians’ or dentists’ services.

(a) Basis and purpose. This section implements sec-

tion 1905(a) of the Act by prescribing requirements ap-

plicable to States making direct payments to certain

recipients for physicians’ or dentists’ services.

(b) State plan requirements. Except for groups

specified in paragraph (c) of this section, a State may

make direct payments to recipients for physicians’ or

dentists’ services. If it does so, the State plan must—

(1) Provide for direct payments; and

(2) Specify the conditions under which pay-

ments are made.

* * *

(d) Federal requirements. (1) Direct payments to re-

cipients under this section are an alternative to payments

directly to providers and are subject to the same condi-

tions; for example, the State’s reasonable charge sched-

ules are applicable.

(2) Direct payments must be supported by

providers’ bills for services.

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Statutes-and Regulations Involved

III. STATE STATUTES

New York Social Services Law § 366. Eligibility

1. Medical assistance shall be given under this title

to a person who requires such assistance and who

(a) either (1) is receiving or is eligible for

home relief or aid to dependent children; ..

x * *

(5) although not receiving nor in need of

public assistance or care for his maintenance

under other provisions of this chapter, has not,

according to the criteria and standards estab-

lished by this article or by action of the depart-

ment, sufficient income and_ resources,

including available support from responsible

relatives, to meet all the costs of medical care

and services available under this title, and is

either (i) under the age of twenty-one years or

over the age of sixty-four years or (ii) a spouse

of a cash public assistance recipient living with

him and essential or necessary to his welfare

and whose needs are taken into account in de-

termining the amount of his cash payment or

(iii) for reasons other than income or resources,

is eligible for aid to dependent children or fed-

eral supplemental security income benefits and/

or additional state payments....

* * x

New York Social Services Law § 367-a. Payments;

insurance

1. Any inconsistent provision of this chapter or

other law notwithstanding, no assignment of the claim of

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Statutes and Regulations Involved

any supplier of medical assistance shall be valid and en-

forceable as against any social services district or the de-

partment, and any payment with respect to any medical

assistance shall-be made to the person, institution, state

department or agency or municipality supplying such

medical assistance at rates established by the appropriate

social services district and contained in its approved local

medical plan, except_as otherwise permitted or required

by applicable federal and state provisions, including the

regulations of the department; ...

* * *

IV. STATE REGULATIONS

Title 18 New York Codes, Rules and Regulations

(18 N.Y.C.R.R.)§ 352.31 Estimate of need and ap-

plication of income.

*x * *

(f) Correction of underpayments to current recipients.

Local social services districts shall correct any underpay-

ments to current recipients, and to those who would be

current recipients if the error causing the underpayment

had not occurred, by making appropriate payments in

each case within 30 days after discovery of the underpay-

ments. Such retroactive payments shall not be consid-

ered as income or as a resource in the month paid nor in

the next following month. Judicial determinations which

enjoin or declare invalid departmental policy do not cre-

ate an underpayment.

18 N.Y.C.R.R. § 360.16 Authorization of Medical

Assistance.

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Statutes and Regulations Involved

made effective for inpatient and outpatient care and serv-

ices provided a person during the three-month period

preceding the month of application for medical assis-

tance, if the applicant was eligible in the month in which

such care or services were provided; but in no event shall

an authorization be issued with respect to care or serv-

ices provided prior thereto.

18 N.Y.C.R.R. § 360.17 Method of paying for

medical care. (a) Any payment with respect to any item

of medical care under medical assistance shall be made

to the person or institution supplying the care, except

that payment for services or care rendered by physicians,

dentists, or other practitioners may be made:

* * *

(4) to the recipient, or his/her representative who

directly made payment on behalf of the applicant or re-

cipient, when an erroneous determination of eligibility by

where there is an erroneous agency decision which re-

sults in an applicant or recipient paying for medical serv-

ices which should have been paid under medical

assistance. Direct reimbursement is available regardless

of whether the decision to reverse is the result of the

agency discovering its own error, a fair hearing decision

and/or a court order. Direct reimbursement of medical

bills shall be limited to the rate or fee provided by Medi-

caid at the time the service was rendered.

* * *

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.