202.662.6000
202.662.6291 (fax)
To: National School Boards Association
From: Charles A. Miller, Robert J. Lundman
Re: Medicaid School-Based Administrative Claiming Guide
You have asked us to provide a legal review of the Medicaid School-Based Administrative Claiming Guide, issued by the Centers for Medicare & Medicaid Services (CMS) in May 2003. The Guide addresses when a State Medicaid Agency and schools may claim for Medicaid reimbursement for Medicaid administrative activities performed in the schools and it attempts to restrict administrative claiming in a number of ways. You asked us to address the following issues:
1. Whether the Guide properly excludes the development of an Individualized Education Program (IEP), IDEA “child find” activities, and IEP evaluation and re-evaluation from Medicaid administrative reimbursement.
2. Whether the Guide properly prohibits enhanced FFP (75% rather than 50%) Skilled Professional Medical Personnel (SPMP) administrative claiming in schools.
3. Whether the Guide properly uses “free care” principles to limit administrative claiming.
4. Whether administrative activities must be linked to Medicaid services provided by Medicaid providers and billed to Medicaid.
We address these issues in turn below, as well as the barriers of standing and justiciability (i.e., exhaustion, ripeness, and finality) that would have to be overcome to succeed in any lawsuit challenging the Guide. First, we provide an overview of the results of our research.
OVERVIEW
OF RESULTS
We believe that there is a substantial chance of success on the IEP and SPMP issues, although we cannot predict the outcome with certainly and it is possible that these claims would fail. For both issues, there is an argument that the Guide conflicts with the statute and regulations. As we explain below, there is an argument IEP and SPMP changes run afoul of particular provisions of the statute and regulations that govern these issues. We do not believe that standing on justiciability barriers would prevent a court from reaching the merits of these claims.
The Guide does not define the free care and provider requirements as clearly as the other two issues. This indefiniteness makes it more difficult to assess the likelihood of success on the merits and also creates more serious justiciability concerns. There is a strong possibility that a Court would avoid reaching the merits of these issues until CMS takes action to apply the Guide’s standards.
LEGAL
BACKGROUND
Before
turning to the specific issues, we review the statute and regulation sections
that define what is Medicaid administration.
We then briefly describe how such a challenge could be brought under the
Administrative Procedures Act (APA) and the deference that CMS might receive
from a reviewing court.
The provisions of the Medicaid statute and regulations defining Medicaid administration use general language that provides little guidance on what is and what is not proper Medicaid administration. This generality makes a legal challenge to the Guide difficult, as CMS can provide guidance without violating the text of the statute or regulations, unless other provisions of statute or regulations apply. The Social Security Act provides that States should receive “an amount equal to 50 per centum of the remainder of the amounts expended during such quarter as found necessary by the Secretary for the proper and efficient administration of the State plan.” Social Security Act § 1903(a)(7), 42 U.S.C. § 1396b(a)(7). The regulations restate the standard without any further definition: “a State plan must provide for methods of administration that are found by the Secretary to be necessary for the proper and efficient administration of the plan.” 42 C.F.R. § 431.15.[1] A section of the Social Security Act requires the State to perform some administration relating to the Early and Periodic Screening, Diagnostic, and Treatment (“EPSDT”) benefit. Social Security Act § 1902(a)(43), 42 U.S.C. § 1396a(a)(43) (requiring that State plan provide for informing those eligible for EPSDT of those services, provide and arrange for screening services, and arrange for needed treatment services); see also 42 C.F.R. §§ 441.56(a), 441.61.
A challenge to the Guide would be brought pursuant to the APA. “A Person suffering legal wrong because of an agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof.” 5 U.S.C. § 702. If the statute governing the agency does not provide for a specific form for a review action, then the APA allows for “any applicable form of legal action, including actions for declaratory judgments . . . in a court of competent jurisdiction.” 5 U.S.C. § 703. Under the APA, schools could seek an injunction and a declaratory judgment.[2]
The APA defines the scope of the review as well. In relevant part, the APA instructs the reviewing court to “hold unlawful and set aside agency action . . . found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706.[3]
Courts
apply varying degrees of deference to review of agency action, and a court would
likely give some deference to the Guide. We
do not think heightened Chevron deference would apply here because it
does not apply to statutory interpretations announced in “opinion letters,”
“policy statements, agency manuals, and enforcement guidelines, all of which
lack the force of law.” Christensen
v. Harris County, 529 U.S. 576, 586-87 (2000); see generally Chevron,
U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984); Skidmore v. Swift & Co., 323 U.S. 134 (1944) (describing
persuasive authority due to informal agency statements).
However, United States v. Mead Corp., 533 U.S. 218 (2001) suggests
that heightened deference is due where Congress “delegated authority to the
agency generally to make rules carrying the force of law, and that the agency
interpretation claiming deference was promulgated in the exercise of that
authority.”
ANALYSIS
OF ISSUES PRESENTED
In
the Guide, CMS draws a formalistic distinction between administrative activities
performed in the schools that are performed for medical purposes and those
performed for educational purposes. According
to CMS, schools and States cannot claim as Medicaid administration a number of
activities that are “for the purpose of fulfilling education-related mandates
under the IDEA [Individuals with Disabilities Education Act].”
Guide at 18. These activities
include “child find” activities required by IDEA, the development of an IEP,
and evaluation and re-evaluation of children with an IEP.
CMS’s reasoning -- and the flaws in that reasoning -- can be understood only after exploring the history of the IDEA and Medicaid, and Congress’ clarification of the relationship in 1988. The IDEA was first enacted in 1975 as the Education for All Handicapped Children Act, Pub. L. No. 94-142, the first comprehensive statute targeted to the needs of disabled children. 20 U.S.C. § 1400(c). It was later renamed the Individuals with Disabilities Education Act, or “IDEA”.
The IDEA guarantees disabled children “a free appropriate public education” with an emphasis on providing the “special education and related services designed to meet their unique needs.” 20 U.S.C. § 1400(d)(1)(A). In furtherance of this goal, the IDEA provides federal financial assistance to States that adopt plans to provide disabled children with the education and “related services” described in the statute. 20 U.S.C. § 1411. The statute establishes thirteen categories of disabilities for which services are available. 20 U.S.C. § 1401(3).
One of the central features of the IDEA is its requirement that schools develop a special report for each child known as an “Individualized Education Program,” or “IEP.” 20 U.S.C. §§ 1401(11), 1414(d). An IEP is a comprehensive written report that details the current educational performance and future performance targets for the child, identifies the special education and medical services necessary to foster learning, and lays out a comprehensive educational plan for the upcoming year. 20 U.S.C. § 1414(d)(1)(A). Each child’s IEP is developed by a team of individuals (known as the child’s “IEP Team”) which may include the child’s parent(s), teachers, medical professionals such as physicians, psychologists, or physical therapists, others with special knowledge of the child, and, if appropriate, the child herself. 20 U.S.C. § 1414(d)(1)(B). The most distinctive feature of an IEP is its individuality -- the law requires that each IEP be specifically tailored to the personalized needs of the child. However, the rules and regulations that govern the development of an IEP are uniform, see 20 U.S.C. § 1414, ensuring that the assessment process used to develop each IEP is fairly standardized nationwide.
Under
the IDEA, a school district must provide not only the special education services
outlined in an IEP, but also any “related services” necessary to enable
disabled children to learn. 20 U.S.C.
§ 1400(d)(1)(A). “Related
services” are defined very broadly to include developmental, corrective, and
supportive services such as speech-language pathology, psychological services,
physical and occupational therapy, counseling services, and
diagnostic/evaluative medical services. 20
U.S.C. § 1401(22); see also Cedar Rapids Community Sch. Dist. v. Garret F.,
526 U.S. 66, 73-76 (1999). The
statute also requires districts to pay for services necessary for “the early
identification and assessment of disabling conditions in children.”
For several years after the enactment of the IDEA, it was unclear whether, in the case of Medicaid-eligible children, it was the public schools or state Medicaid programs that bore the ultimate responsibility for paying for the costs of medical services related to the development and implementation of an IEP. CMS (then HCFA) took the position that the medical services provided pursuant to an IEP were educational in nature and therefore schools, rather than Medicaid, bore the financial responsibility. Concerned about the growing medical costs being shouldered by local school districts, Congress stepped in and provided the answer. In 1988, Congress amended the Medicaid statute to make clear that Medicaid could not refuse to pay for a covered service to a disabled child simply because that service was prescribed as part of an IEP. See Social Security Act § 1903(c), 42 U.S.C. § 1396b(c) (added as part of the Medicare Catastrophic Coverage Act of 1988). In 1997, Congress amended the IDEA to provide that the state education agency and the state Medicaid agency had to enter into cooperative agreements regarding the provisions of these school-based medical services, and emphasized that Medicaid’s financial responsibility was to precede that of the school districts. See 20 U.S.C. § 1412(a)(12)(A)(i). The result of these two congressional mandates is that Medicaid cannot refuse to pay for Medicaid-eligible services that are provided to disabled children through the schools. Medicaid must agree to pay for eligible school-based health costs incurred in connection with an IEP.
In the Guide, CMS, as it must, recognizes that section 1903(c) of the act requires it to pay for the medical services that schools provide to Medicaid-eligible children pursuant to an IEP.[4] CMS attempts to carve out the administrative activities that surround those IEP-related services, such as finding children who need the services provided in an IEP or “child find,” developing the IEP, and evaluating and re-evaluating the services provided under an IEP. CMS’s argument is as follows: The IDEA requires a school to provide these medical services and the IDEA places the burden of paying for these services on the schools. Medicaid, therefore, need not pay for them. Section 1903(c) of the act is a limited exception to that rule; it applies only to the medical services provided pursuant to an IEP, not the associated administrative activities.
The schools have a solid argument that the policy announced in the Guide is inconsistent with the Medicaid statute. First, schools could argue that section 1903(c) establishes that Medicaid FFP is available for all otherwise proper Medicaid activities associated with an IEP, and the service-administration distinction that CMS is imposing in the statute is not there. In full, section 1903(c) provides as follows:
Nothing in this subtitle 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 H of such Act.
Social Security Act § 1903(c), 42 U.S.C. § 1396b(c). If an IEP includes medical services, the development of that IEP includes Medicaid administrative activities. The text of section 1903(c) permits this interpretation, but does not mandate it. Most likely, Congress did not consider administrative activities relating to an IEP when it drafted this provision. The provision does not address administrative activities directly; the argument is that the reference to services should be interpreted to include administration related to an IEP as well as services.
This textual argument is strengthened because the schools can portray the Guide as an attempt by CMS to avoid Congress’ instruction in section 1903(c). CMS used the same distinction between educational and medical services prior to Congress’ enactment of 1903(c); now they seek to use that same theory to avoid its impact. A court is more likely to find against an agency that appears to be attempting to avoid a directive from Congress that the agency clearly dislikes. That the agency imposed these rules informally and without much of an opportunity to comment provides further indirect support for the agency’s motive.
The legislative history on this provision is sparse. It does not add much beyond the text of the statute. The conference report mentions 1903(c) and describes it as follows:
The conference agreement clarifies that Federal Medicaid matching funds are available for the cost of health services, covered under a State’s Medicaid plan, that are furnished to a handicapped child or a handicapped infant or toddler, even though such services are included in the child’s individualized education program or individualized family service plan. Under the [IDEA], 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. While the State education agencies are financially responsible for educational services, in the case of a Medicaid-eligible handicapped child, State Medicaid agencies remain responsible for the “related services” identified in the child’s IEP if they are covered under the State’s Medicaid plan, such as speech pathology and audiology, psychological services, physical and occupational therapy, and medical counseling and services for diagnostic and evaluation purposes.
H.R. Conf. Rep. No. 100-661, at 268 (1988). The reference to “evaluation purposes” at the end of this section is helpful because one of the prongs of IEP activities that CMS attacks is evaluation and re-evaluation of the IEP.
Second, schools can attack the premise of CMS’s argument -- that medical service or administration provided by schools to Medicaid recipients is educational and therefore cannot be the basis of Medicaid FFP unless a statutory exception such as section 1903(c) applies. In a series of cases predating section 1903(c), the First Circuit and the District of Massachusetts rejected CMS’s argument that a service is educational rather than medical because the service is required by federal (IDEA) or state educational law. Rather, the courts concluded that the determination should be based on the “nature” of the services -- i.e., whether the services are medical or not as defined under the Medicaid statute. See Commonwealth of Massachusetts v. Heckler, 616 F. Supp. 687, 693-94 (D. Mass. 1985) (“HHS defined ‘education’ by reference to state and federal education statutes and to the Commonwealth’s method of administering the service in question, rather than to the nature of the services themselves. This approach errs on the side of administrative convenience at the expense of compliance with the Medicaid statute in our view.”), aff’d in part and vacated in part, Commonwealth of Massachusetts v. Secretary of HHS, 816 F.2d 796, 802-03 (1st Cir. 1987) (rejecting arguments that Medicaid is “payor of last resort” and that education agency is a liable third-party; “[t]he Secretary must make an inquiry into the nature of the services, not just into what they are called or who provides them”), aff’d in part and rev’d in part, Bowen v. Massachusetts, 487 U.S. 879 (1988) (not addressing this issue). These cases provide strong support for this argument.
Finally, that the “nature” of the activity determines whether an activity is or is not medical also makes more sense than the formalistic rule found in the Guide. If a school employee spends an hour on medical planning during IEP development for a Medicaid eligible child, that is Medicaid administration. If an hour is spent on education planning during IEP development, that is not Medicaid administration. A court reviewing a challenge here -- like the First Circuit and the District of Massachusetts -- should be able to readily grasp this argument.
On November 21, 2002, CMS circulated a State Medicaid Director Letter on Skilled Professional Medical Personnel (“SPMP”) school-based administrative claiming (SPMP Letter). In the letter, CMS announced that “effective January 1, 2003, the enhanced Federal matching rate of 75 percent will no longer be available for activities performed by SPMP school staff.” The Guide echoes the SPMP policy announced in the SPMP Letter. There is a solid argument that this change is inconsistent with the Medicaid statute and regulations.
CMS
concedes that this is a change in policy: “effective
January 1, 2003, the enhanced Federal matching rate of 75 percent will no
longer be available for activities performed by SPMP school staff.”
SPMP Letter at 1. Earlier
guidance from CMS made clear that States could claim the enhanced SPMP rate for
activities in schools. For example,
CMS’s 1997 Technical Assistance Guide on Medicaid and School Health described
administrative claiming in schools and stated that “[a]n enhanced FFP rate of
75% is available for skilled professional medical personnel.
These skilled medical professional staff must have appropriate
credentials as skilled medical professionals, and the activity performed must
require their level of training and credentialing . . . .”
CMS reason for this change is its contention that Medicaid administration in schools does not require SPMP training and skills. According to CMS, SPMP skills and training are not necessary to perform school-based administrative activities because non-SPMP school staff also perform school-based administrative activities. Any activities that might require the advanced skills and training are “likely provided as part of a medical service.” SPMP Letter at 1; Guide at 14-15.
We think there is a strong argument based on the SPMP statute and regulation provisions that this change is overbroad. CMS’s change to SPMP practice in schools goes too far and, in doing so, attempts to overwrite impermissibly statute and regulations. The statute and regulations provide some rather detailed guidance on SPMP claiming. The Act gives the Secretary authority to determine the permissible scope of SPMP claims. It provides for 75 percent reimbursement of “so much of the sums expended during such quarter (as found necessary by the Secretary for the proper and efficient administration of the State plan) as are attributable to compensation or training of [SPMP], and staff directly supporting such personnel, of the State agency or another public agency.” Social Security Act 1903(a)(2), 42 U.S.C. § 1396b(a)(2).
The regulations echo the statutory language. See 42 C.F.R. § 433.15(a) & (b)(5) (providing for 75% FFP rate for “expenditures for administration of an approved State plan” for “[c]ompensation and training of skilled professional medical personnel and staff directly supporting those personnel if the criteria specified in § 431.50 (c) and (d) are met”). The regulations also impose “criteria” that must be satisfied in order for the 75% FFP rate for SPMP to apply. See 42 C.F.R. § 433.15(a) & (b)(5) (providing for 75% FFP rate for “expenditures for administration of an approved State plan” for “[c]ompensation and training of skilled professional medical personnel and staff directly supporting those personnel if the criteria specified in § 431.50 (c) and (d) are met”). The relevant criteria provide that:
1. FFP rates greater than 50% apply only “to those portions of the individual’s working time that are spent carrying out duties in the specified areas for which the higher rate is authorized.” 42 C.F.R. § 432.50(c)(2).
2. Specifically as to the 75% FFP for SPMP, that “[t]he expenditures are for activities that are directly related to the administration of the Medicaid program, and as such do not include expenditures for medical assistance.” 42 C.F.R. § 432.50(d)(1)(i).
3. The SPMP have adequate medical education and training. 42 C.F.R. § 432.50(d)(1)(ii).
4. “The [SPMP] are in positions that have duties and responsibilities that require those professional medical knowledge and skills.” 42 C.F.R. § 432.50(d)(1)(iii).
There are at least three flaws in CMS’s reasoning. First, the statute and CMS’s regulations define what constitutes SPMP services, and they do not limit SPMP activities to those that could not be performed by non-SPMP, despite the relatively detailed “criteria” for SPMP claiming described above. The regulations require, among other things, that SPMP be in “positions that have duties and responsibilities that require those professional medical knowledge and skills,” 42 C.F.R. § 432.50(d)(iii), but this requirement stops well short of CMS’s position in the letter and Guide.
Second,
that SPMP and non-SPMP staff both perform school-based administrative activities
does not indicate that SPMP skills and training are not necessary for at least
some administrative activities. For
example, a doctor would be better able to plan for the provision of school-based
medical services because the doctor understands the medical problems that would
develop; a non-SPMP school administrator would not be able to do that same type
of planning. The permissible time
study codes found in the Guide support this conclusion because they list
activities for which SPMP skills and training would clearly be useful.
Many of the activities found in Code 7.b., “Program Planning, Policy
Development, and Interagency Coordination Related to Medical Services,” Guide
at 31, would require or at least benefit from SPMP’s involvement.
A doctor or other medical professional would be better able to
“identify[] gaps or duplication of medical/dental/mental services to school
age children” than someone without medical training.
In a legal challenge to the SPMP change, the development of facts to
support this argument could be important. For
example, we would need testimony from SPMP providers about the Medicaid
administrative activities they perform in schools that require them to use their
professional medical skills.
Third, CMS’s rationale proves too much. It appears equally applicable to SPMPs outside of the schools. In administering the State plan outside of schools, SPMPs likely also perform administrative activities that non-SPMP perform as well. CMS’s stated rationale in the Guide would likely invalidate most if not nearly all SPMP claiming, since SPMP claiming is all for administration not for the provision of medical services. Moreover, the regulations permit 75% SPMP reimbursement for employees who support SPMP activities but are not themselves SPMP. See Social Security Act § 1903(a)(2)(A), 42 U.S.C. § 1396b(a)(2) (providing for 75% FFP for compensation of SPMP and “staff directly supporting such personnel”); 42 C.F.R. § 433.15(a) & (b)(5) (providing for 75% FFP for compensation of SPMP and “staff directly supporting those personnel” if criteria are met).[5]
The Guide includes a section on “free care” that is unclear in its meaning and potential impact. In the Guide, as well as in other contexts, CMS is attempting to use free care to limit Medicaid claiming for activities performed by schools and other State agencies.[6] The Guide states that the free care principle could limit Medicaid claiming by limiting the types of services, not administration, for which Medicaid can pay unless there is a statutory exception. Guide at 20-21. For this reason, a challenge to this portion of the Guide would have difficulty overcoming the justiciability barriers discussed below in part VI because CMS does not spell out how “free care” affects administrative claiming.
The “free care” principle is not found in the statute or in the regulations. The statute and regulations do contain provisions on third-party liability. If a third party -- for instance, a insurance company -- is responsible for the costs of a Medicaid service, then the State must bill that third-party insurer. See Social Security Act § 1902(a)(25), 42 U.S.C. § 1396a(a)(25); 42 C.F.R. §§ 433.135-.154; see also Guide at 21. The free care principle is distinct, in CMS’s view. In the Guide, CMS states that the free care rule “precludes Medicaid from paying for the costs of Medicaid-coverable services and activities which are generally available to all students without charge, and for which no other sources for reimbursement are pursued.” Guide at 20. Further, free care means that
Medicaid cannot reimburse for routine school-based vision and hearing screenings or other primary and preventive services provided free of charge to all students. In order for Medicaid payment to be available for these services, the provider must:
1) establish a fee for each service that is available;
2) collect third party insurance information from all those served (Medicaid and non-Medicaid); and
3) bill other responsible third party insurers.
Guide
at 20. Although this is not
particularly clear in the Guide, this three-part free care test does not require
schools to bill all students for all services in order to seek Medicaid
reimbursement for the service. See
also State Medicaid Manual § 5340 (“Services
without charge, for purposes of Medicaid, means that no individual or family is
charged for medical care and third party reimbursement is not sought.”
(emphasis added)); Technical Assistance Guide at 35-36 (similar).
We
are aware of no court decisions discussing the free care principles.
The Departmental Appeals Board, however, has rejected earlier attempts by
CMS (then HCFA) to establish a broader free care concept.
The Board defined free care so as to incorporate the three requirements
listed above and found in the Guide, and also held that States need not seek
third party reimbursement if it would be “futile” to do so.
See
The Guide appears consistent for the most part with this earlier guidance from CMS and the Board, but is vague in how the agency will apply free care. Also, the Guide does not appear to use free care directly to limit administrative claiming; most of the free care discussion focuses on Medicaid services. For these reasons, we believe that a challenge to the free care discussion in the Guide might not satisfy the justiciability barriers discussed below.
Currently, some schools seek Medicaid reimbursement for administration where the school neither participates in the Medicaid program as a provider nor refers students to Medicaid providers and CMS has apparently permitted this practice. The Guide attempts to prohibit this. “In order for a medical service to be reimbursable, the provider furnishing the service must be participating in the Medicaid program and bill for the service.” Guide at 16. A school can satisfy the requirement by either providing Medicaid services itself or referring students to a Medicaid provider in the community. Rather than verifying and tracking referrals to community providers to confirm whether the provider is a Medicaid provider, CMS suggests the use of a “provider participation rate.” Guide at 17. In the example in the Guide, this rate would be applied to referral activities to reduce the Medicaid claim to reflect the percentage of provider referrals that are to Medicaid providers.
Nothing in the statute or regulation addresses this issue directly, and the Guide does not cite anything. CMS would likely rely on the general statutory provision regarding administrative claiming, arguing that administration that is not linked to Medicaid services is not “necessary . . . for the proper and efficient administration of the State plan,” Social Security Act § 1903(a)(7), 42 U.S.C. § 1396b(a)(7). While there are potentially strong arguments that this is bad policy and an unwarranted change in practice, there are no specific provisions of the statute or regulations on which to rely, unlike the IEP and SPMP issues discussed above.
Moreover, there are stronger justiciability concerns with respect to this issue. It is not as clearly presented as a discrete legal issue as the IEP and SPMP challenges. A court might conclude that this issue should only be decided after there is a concrete claim that has been denied.
The concept of standing concerns the issue of who is a proper plaintiff to bring suit. Below we discuss why a court would likely find that schools meet these requirements and thus have standing to bring suit. It is clear that States would have standing to challenge the Guide, as they are the direct recipients of federal Medicaid spending.
The
notion of standing is derived from Article III, which demands at a minimum that
a party seeking judicial relief have a sufficient “personal stake in the
outcome of the controversy.” Baker v. Carr, 396
An
“injury in fact” occurs when there is “an invasion of a legally protected
interest which is (a) concrete and particularized, and (b) actual or imminent,
not conjectural or hypothetical.” Lujan, 504
Finally,
the plaintiff must show that the injury is “likely” to be redressed by a
favorable decision. Lujan, 504
Turning to the specific issues here, a court is likely to find that the schools having standing to sue to challenge the Guide. The schools have suffered an actual injury, which can be seen either as a lose of the opportunity to be eligible for certain federal fund reimbursement or as a threatened economic harm. This injury is directly linked to the Guide which, among other policy changes, now bars enhanced SPMP rate reimbursement and prevents schools from receiving reimbursement for IEP-related administrative activities. That the school districts are affected by these policy changes via funds they receive from the State is unlikely to affect a court’s analysis, as both the injury to the State and the school districts will be redressed through favorable relief.
Finally,
if a State is involved in the suit, it is unlikely that a court will even
consider whether schools have standing. Generally,
where a governmental entity directly affected by an agency decision is a
plaintiff, the standing of other representative plaintiffs need not be
determined. See, e.g., Watt v.
Energy Action Educ. Found., 454
Justiciability
encompasses a number of different doctrines that address whether and when a
court can and will hear the merits of a case.
Most relevant here are the three related doctrines of finality,
exhaustion, and ripeness that all address issues of timing -- i.e., when
a suit can be brought. We
believe that it is unlikely that these three doctrines will bar the SPMP and IEP-related
claims discussed above. Although the
doctrines overlap, a recent decision distinguishes them as follows:
“Although essentially intertwined the three doctrines are distinct in
that finality relates to the conclusion of action by the agency, exhaustion
addresses the use of administrative remedies available to redress such action,
and ripeness focuses on the fitness of issues for judicial review.”
Arizona v. Shalala, 121 F. Supp.2d 40, 47 (D.D.C. 2000), rev’d
on other grounds,
Judicial
review is generally limited to final agency action.
See 5 U.S.C. § 704. Agency action is final where the
decisions “marks the consummation of the agency’s decisionmaking process.”
Whitman v. American Trucking Ass’n., Inc., 531
Under
the exhaustion doctrine, a court may decline to review agency action if the
party seeking review had an opportunity to pursue further administrative review,
was required to do so, and did not, unless the court excuses the failure to
exhaust because of futility. See,
e.g., Tribune Co. v. FCC, 133 F.3d 61 (D.C. Cir. 1998); Glisson v. United
States Forest Serv., 55 F.3d 1315 (7th Cir. 1995).
Application of the requirement of exhaustion, however, is within the
discretion of the court. NLRB v.
Marine & Shipbuilding Workers Local 22, 391
Finally,
the ripeness doctrine is “peculiarly a question of timing,” meant to prevent
courts from prematurely interfering before “an administrative decision is
formalized and its effects felt in a concrete way.” Thomas v. Union Carbide
Agric. Prod. Co., 473
Turning
to the specific issues here, we believe a court would be unlikely to dismiss an
action challenging the SPMP or IEP-related policies based on the justiciability
barriers. While courts have reached conflicting resulting when they have address
finality, exhaustion, and ripeness issues in the context of Medicaid, a strong
argument can be made that the claims here should survive any such challenges.
First, the Guide appears to embody final agency action. Particularly with
regard to the ban on SPMP enhanced rate reimbursements, the new policy is stated
in unambiguous terms and regulated parties are provided with specific dates as
to when enforcement will commence. The
IEP-related policies are also stated in mandatory, unambiguous language.
CMS would find it difficult to argue that the disallowance and
Departmental Appeals Board appeal procedures could result in any change their
policy or approach; these proceedings would likely be found to be futile.
The issues are primarily legal ones; extensive factual development would
not be required.
Other
policies in the Guide, such as the “free care” policy, are ambiguous.
CMS does not spell out how this policy affects administrative claiming.
A challenge to this policies is much more likely to be dismissed for lack
of finality or ripeness.
In addition to the substantive challenged discussed above, we have considered whether schools could challenge CMS’s failure to issue formal regulations and follow formal APA notice-and-comment procedures, see 5 U.S.C. § 553. It is clear that the Guide imposes new requirements on the States that would require changes in their current administrative claiming practices. Despite this, we do not see this as a particularly profitable angle of attack.
An
agency can promulgate “interpretative rules” and “general statements of
policy” without following rulemaking procedures.
5 U.S.C. § 553(b)(3)(A). An
“interpretative rule” is one that is “issued by an agency to advise the
public of the agency’s construction of the statutes and rules which it
administers.” Shalala v.
The distinction between interpretative and legislative rulemaking has been described as “tenuous,” “fuzzy,” “blurred” and “enshrouded in considerable smog” -- all of which is borne out by the case law. Community Nutrition Inst. v. Young, 818 F.2d 943, 946 (D.C. Cir. 1987). In general, however, courts are not likely to be swayed by the argument that CMS has adopted policies that depart from its previous practices, unless those previous practices are themselves enshrined in statute or regulation. See, e.g., Chief Probation Officers of California v. HHS, 118 F.3d 1327 (9th Cir. 1997).
In addition to the unpredictably of the issue, there are practical considerations that weighs against bringing such a claim. Even if it was successful, CMS still could go back and issue the same rules, following formal rulemaking procedures. A court might see this as an easy way out and, at the end of the day, schools would not be better off.
[1]
See also, e.g., State Medicaid Manual § 4302.2.H.2 (in
discussion on EPSDT, stating that “[a]dministrative case management
activities must be found necessary for the proper and efficient
administration of the State Plan”); CMS, Medicaid and School Health:
A Technical Assistance Guide 42-43 (August 1997) [hereinafter
Technical Assistance Guide] (“Activities for which administrative claims
are made must directly relate and support the Medicaid state plan or waiver
services.”).
[2] The APA also requires that the agency action be “final.” 5 U.S.C. § 704 (“Agency actions made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review.”). The finality requirement is discussed later in this memorandum, along with the related justiciability barriers of exhaustion and ripeness.
[3] One aspect of the Guide that appears objectionable to schools and States is that CMS has singled out schools for disparate treatment with the Guide. Although we do not believe that this alone would support a legal challenge, it lends at least atmospheric support to an APA-arbitrariness argument.
[4] CMS states that section 1903(c) does not apply to section 504 of the Rehabilitation Act and Medicaid cannot pay for services as well as administration provided pursuant to a section 504 plan. Guide at 19.
[5] There is no support in the Departmental Appeals Board decisions for CMS’s new position in the letter and Guide (the Departmental Appeals Board is an independent part of HHS that, among other things, hears appeals from disallowance determinations). The Board decisions that address SPMP-issues mostly focus primarily on whether a particular class of employees qualifies as SPMP. See, e.g., New York State Dep’t of Social Servs., Decision No. 1473 (DAB 1994); New Jersey Dep’t of Human Servs., Decision No. 1434 (DAB 1993).
[6] CMS has recently used the “free care” principle, as well as other rationales, to disapprove State Plan Amendments that would add targeted case management services in schools and other state agencies. Some States have challenged these disapprovals.
[7]
In these two Board cases,
The Board held that the term “without
charge” must be read to allow Medicaid reimbursement to the State even if
recipients are not charged for the services, as long as available third
party reimbursement is sought.
The Board also established that the “free care” principles do not
require a State to actually bill third parties if such billing would be
futile. CMS does not require
States to bill insurers for services the insurers do not cover.
In California II, the Board notes that health insurers do not
typically cover case management services, and therefore “billing was
likely a futile exercise.”
[8] In addition to the cases discussed above, there are many others where a plaintiff seeks review of an informal agency action. We have not undertaken a thorough review of all such cases at this point (we would do so in the course of any litigation), but we are confident that there would be analogous cases to support a challenge to the IEP and SPMP issues.