Place v. N.M. Human Servs. Dep't, Med. Assistance Div., 419 P.3d 194

Background

Princeton Place (nursing home) admitted resident J.F. in June 2011 after its staff completed a Level I PASARR (preadmission screening) form; staff checked “No” to questions screening for mental retardation/developmental disability and mental illness.
In July 2013 a UNMH Level I screen (revised) indicated Question 5 (developmental disability) should be “Yes” because of J.F.’s spina bifida; DOH conducted a Level II and determined nursing-home level care appropriate but no specialized services required.
DOH informed HSD/MAD that Princeton’s 2011 Level I should have been referred to DOH; HSD/MAD issued a notice seeking recoupment of Medicaid FFP paid for J.F.’s care (about $158,178) for the period of alleged noncompliance.
An ALJ upheld HSD/MAD’s recoupment determination; the Director affirmed; the district court affirmed on administrative appeal. Princeton appealed to the Court of Appeals, which stayed recoupment during appeal.
The Court of Appeals examined (1) whether the PASARR form and its appended instructions were legally enforceable rules, and (2) whether Princeton’s Level I screening violated PASARR requirements. The court reversed the recoupment.

Issues

Issue	Princeton's Argument	HSD/MAD's Argument	Held
Are the PASARR form and its instructions legally binding rules enforceable as law?	The form/instructions were not promulgated as rules and thus cannot create enforceable violations.	The form/instructions are interpretive guidance and may be enforced to interpret existing PASARR regulations.	The form/instructions were not promulgated and thus lack force of law; they cannot be the sole basis for recoupment.
Did Princeton violate PASARR by answering “No” to Question 5 (developmental disability) in 2011?	The Level I screen was properly conducted based on medical records; no indication of developmental disability as it relates to intellectual disability.	The diagnosis of spina bifida should have triggered referral for Level II; failure to refer was noncompliance.	Even if the form could be enforced, the instruction’s use of “may” allows discretion; Ms. Richer reasonably concluded no referral was required and did not violate PASARR.
Is Question 5 on the PASARR form consistent with federal PASARR law?	Question 5 is overbroad and omits the federal requirement that a "related condition" produce impairments similar to intellectual disability.	HSD/MAD relied on the form’s examples to guide referrals.	The Court agreed Question 5 omits the federal element (impairment of intellectual functioning/adaptive behavior) and thus conflicts with federal PASARR standards.
Was the ALJ required to recuse and/or did HSD/MAD actually perform an audit supporting recoupment?	ALJ should have recused for potential conflict; HSD/MAD did not actually conduct an audit as claimed.	ALJ’s prior role did not create disqualifying bias; DOH provided the relevant compliance data.	Court did not reach these issues in depth because the PASARR compliance ruling was dispositive; the ALJ’s nonrecusal was upheld as not being disqualifying in the administrative context.

Key Cases Cited

Shalala v. Guernsey Memorial Hospital, 514 U.S. 87 (1995) (interpretive guidance need not follow notice-and-comment but lacks force of law when not formally promulgated)
Bokum Resources Corp. v. N.M. Water Quality Control Comm’n, 93 N.M. 546 (1979) (rules not promulgated under state rulemaking acts lack efficacy, validity, and enforceability)
Thriftway Marketing Corp. v. State, 114 N.M. 578 (1992) ("shall" and "may" have distinct meanings; "may" conveys discretionary authority)