Maryland Department of Health and Mental Hygiene v. Centers for Medicare and Medicaid Services, 542 F.3d 424 (2008)

In Maryland Department of Health and Mental Hygiene v. Centers for Medicare and Medicaid Services, 542 F.3d 424 (2008), the State of Maryland petitioned for review of a final decision of the Centers for Medicare & Medicaid Services (CMS) disapproving an amendment to the Maryland State Medicaid Plan (SMP). Maryland’s SMP would have eliminated deductions for uncovered Medicaid recipients incurred prior to becoming eligible for Medicaid. Upholding CMS’s decision, the Fourth Circuit reviewed two interpretations of 42 U.S.C. § 1396a(r)(1)(A), which in part provides that “with respect to the post-eligibility treatment of income for individuals who are institutionalized …,” states should deduct expenses for “necessary medical or remedial care recognized under State law but not covered under the State plan … subject to reasonable limits the State may establish on the amount of these expenses. CMS regulations require states to deduct uncovered but medically necessary expenses that nursing home residents incurred before becoming eligible for Medicaid benefits from the amount of post-eligibility income those residents must contribute to the cost of their nursing home care. 42 C.F.R. § 435.726(c)(4). Reviewing the statutory history associated with a brief change in CMS policy, and Congress’s swift action reversing that change, the Court found:

Ultimately, we are not the arbiter of whether Maryland or CMS has correctly interpreted § 1396a(r)(1)(A). We may only uphold the SPA if the relevant statutory language unambiguously favors Maryland’s interpretation. Cetto, 518 F.3d at 274; see Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778. We conclude that it does not.

Prior to April 1988, CMS had interpreted the phrase “not covered under the State plan” to include medical services for which Medicaid does not pay, and had required states to deduct expenses for such services consistently in both the spenddown and post-eligibility processes. See 50 Fed.Reg. at 10993. Congress allowed that traditional interpretation to stand without intervention until CMS amended its regulations to permit states “maximum flexibility” to limit or eliminate those deductions in the post-eligibility process. Id. Congress effectively overturned that amendment by incorporating CMS’s prior rule verbatim into the text of § 1396a(r)(1)(A) and making that statute retroactive to the effective date of CMS’s new rule. By doing so, it foreclosed any possibility that states could limit or eliminate post-eligibility deductions for incurred medical expenses without CMS’s prior approval.

We reject Maryland’s argument that the legislative history of § 1396a(r)(1)(A) supports the conclusion that CMS’s regulatory 436*436 scheme is unreasonable. Nowhere does the House Conference Report state that by enacting § 1396a(r)(1)(A) Congress intended to prohibit a policy requiring consistent treatment of incurred medical expenses in the spenddown and post-eligibility processes. To the contrary, although Congress has twice amended § 1396a(r)(1)(A) since first enacting it in 1988, it has left intact CMS’s long-standing policy requiring consistent treatment of deductions. This comports with the comment in the House Conference Report that, by enacting § 1396a(r)(1)(A), Congress intended to “reinstate” CMS’s prior rule.

Nor does § 1396a(r)(1)(A) cede to the states the sole authority to determine reasonable limits on deductions for incurred medical expenses. Congress’ silence on that issue left the decision about how to treat such deductions to CMS. Chevron, 467 U.S. at 843-44, 104 S.Ct. 2778. We therefore agree with CMS that its interpretation of the phrase “not covered under the State plan” is reasonable.

The Court held that CMS’s interpretation of 1396a(r)(1)(A) was reasonable and, as such, under the Chevron standard, its interpretation must be upheld.