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HHS Amicus Brief Backs Plaintiff: A Fair Hearing Must Definitively Determine an Appellant's Medicaid Eligibility

On February 19, 2020, the U.S. Department of Health and Human Services (HHS) submitted an amicus brief to the Second Circuit Court of Appeals in Lisnitzer v Zucker, No. 19-470, declaring that

Medicaid regulations . . . require a State's fair hearing to render a final and definitive decision resolving a claimant's eligibility for Medicaid within 90 days of the claimant's fair hearing request. A fair hearing decision that remands an application for Medicaid eligibility to a local agency for further consideration does not satisfy the regulatory requirement of "final administrative action" within 90 days.

Id. at p. 1.

HHS submitted its amicus brief at the request of the Second Circuit, which is reviewing New York's appeal of the Judgment of the lower court, which granted declaratory and injunctive relief to a statewide class of Medicaid Fair Hearing appellants. See Open-Ended Remands in Medicaid-Related Fair Hearing Decisions Violate Federal Law.

In its October 23, 2019 requests to HHS and the Solicitor General of the United States, the Second Circuit wrote:

One of the two questions on appeal is whether current New York State Medicaid fair hearing decisions that remand to the local agency with instructions to conduct further analysis qualify as "final administrative actions[ s ]" for purposes of the Medicaid regulations. See 42 C.F.R. § 431.244(f)(l).

     We have previously considered the scope of the Section 431.244 "final administrative action" language in Shakhnes v. Berlin, 689 F.3d 244 (2d Cir. 2012), but that opinion does not resolve the precise question at hand. An administrative remand like the one at issue in the case exists in other jurisdictions, including Idaho and Virginia. See Idaho Admin. Code rs. 16.05.03.138, 16.05.03.152; 12 Va. Admin. Code § 30-110-370(A).

     Given the importance of the issue, the parties' diverging interpretations of the statutory and regulatory language, and the policy implications for the Medicaid program that would result from our resolution of this case, the Court hereby solicits any views the Department of Health and Human Services may have on the subject. While the Court would welcome any response, in the form of a letter brief or amicus brief, it is particularly interested in the Department's views regarding the following: (1) whether the applicable statutes and regulations, including 42 U.S.C. § 1396, 42 C.F.R. § 431.244 and § 431.246, require a state's fair hearing to decide the fate of the applicant's eligibility for Medicaid benefits conclusively and (2) the policy implications of resolving this case in favor of the plaintiff or defendants.

Id. at p. 1.

After noting that its "regulations governing State fair hearings do not define 'final administrative action,'" HHS reviewed the structure, text and drafting history of 42 C.F.R. § 431.244.

The term "definitive and final administrative action" first appeared in § 6310[4] of the January 4, 1954 edition of the Handbook of Public Assistance Administration, published by HHS's predecessor, the U.S. Department of Health, Education and Welfare (HEW). In 1966, HEW added "Supplement D" to its Handbook to address the newly enacted Medicaid program and imposed the same administrative "requirement for prompt, definitive, and final administrative action." Supplement D § D-6540.

In 1971, HEW promulgated a regulation, 45 C.F.R. § 205.10(a)(11), which adopted the requirement in the Handbook and its Medicaid Supplement that fair hearing decisions must result in "[p]rompt, definitive and final administrative action." 36 Fed. Reg. 3034, 3035 (February 13, 1971).

As HHS explained in its amicus brief (at pp. 15-16),

the years of sub-regulatory explanation of the meaning of "definitive and final administrative action" described above informs the interpretation of the regulation. The department and participating States would have been aware that the Handbook and supplement characterized a "final administrative decision" as a decision that is "conclusive" and that resolves "all issues that have been the subject of a hearing" within an "over-all time limit." JA 590 (§ D-6530(3)), JA 593 (§ D-654). There is no reason to conclude that "definitive and final agency action" meant anything less in the regulation that formalized the Handbook requirement.4

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4 In 1979, the Department of Health, Education and Welfare "redesignate(d) and clarif(ied)" various Medicaid regulations. 44 Fed. Reg. 17,926, 17,926 (Mar. 23, 1979). As revised (and in its current form), the Hearing Decisions Regulation requires State agencies to take "final administrative action" within 90 days of receiving a hearing request. Id. at 17,933; see 42 C.F.R. § 431.244(f). The Department made clear that in omitting the adjective "definitive," it intended no change in meaning. 44 Fed. Reg. at 17,926 (stating that redesignation and clarification was "without substantive change").

HHS also relied on the federal and state administrative law principles articulated in Shakhnes v Berlin, 689 F.3d 244, 260 (2d. Cir. 2012), which, in turn, relied on Bennett v Spear, 520 U.S. 154, 177-78 (1997), and in Ranco Sand & Stone Corp. v Vecchio, 27 N.Y.3d 92, 98-99, 49 N.E.3d 1165, 1169 (2016), concluding that

A remand order also does not determine a claimant's right to receive Medicaid benefits or the State's obligation to provide them. It therefore does not "impose an obligation, deny a right or fix some legal relationship as a consummation of the administrative process." Ranco Sand, 27 N.Y.3d at 98, 49 N.E.3d at 1169. See Bennett, 520 U.S. at 178-79.

Amicus brief, at p. 19.

Lastly, HHS rejected New York's contention that "requiring the State agency to make conclusive eligibility determinations would 'replace local district's role' in 'determining Medicaid eligibility." Opening Br. 33." Amicus brief, at p. 25. Citing New York's own policy contained in 89 ADM-21 § VI.A.3 (at p. 8), HHS concluded that

that argument is undercut by New York's representation that its "policy mandates that, '[i]f more than one reason exists [for denial], the local district must state as many reasons for the [denial] as are applicable.'" Reply Br. 18-19 (quoting JA 658). If local districts must identify all applicable grounds for denial, then they generally will make the factfinding necessary to support their decisions. In that case, the need for "additional investigation" to supplement the evidentiary record will be the exception rather than the rule, and a State agency can generally determine a claimant's eligibility in a single fair hearing. And in those cases in which further factfinding is needed, the State agency may remand the case to the fair hearing officer to take additional evidence, or to the local district that made the eligibility determination, if  necessary—provided that the State agency issues a conclusive determination of the claimant's eligibility within the applicable time limits. See 42 C.F.R. § 431.244(f); JA 55 ([HHS's State Medicaid] Manual, § 2903.2(a)).6

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6 The Manual cautions that remand to the "local unit" is not a substitute for "final administrative action" within the applicable time limit. JA 55. New York contends that "local unit" is "not a reference to the entity that makes the initial administrative determination," but a reference to the entity conducting a local evidentiary hearing as part of the fair hearing process. Reply Br. 12; see id. at 12-14; Opening Br. 35; see also 42 C.F.R. §§ 431.232, 431.233 (authorizing local evidentiary hearings). That is mistaken. The term "local unit" derives from the Handbook, which uses the term to denote the agency that makes the initial benefits determination and that implements the fair hearing decision. See, e.g., JA 593 (§ D-6540) (discussing a "report by the local unit to the state agency of action taken to carry out the hearing decision").

Amicus brief, at pp. 25-26.

To protect against the issuance of adverse fair hearing decisions based on incomplete records, the Lisnitzer Judgment at ¶ 3 permanently enjoined New York

"from conducting Medicaid fair hearings in a manner that results in decisions remanding the matters  back to the local social services districts without rendering final determinations of eligibility based upon the development of complete fair hearing records within 90 days of the hearing requests exclusive of adjournments requested by appellants" (emphasis supplied).

Pending the outcome of the appeal, the Lisnitzer Judgment has been stayed. See Order (E.D.N.Y. April 30, 2019).

The Second Circuit has offered the parties an opportunity to reply to HHS's amicus brief. Oral argument is expected to be heard by June of this year.

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Author: Gene Doyle, LMSW.