The New York State Department of Social Services (NYSDSS or “the Department”) seeks to obtain the right to appeal decisions of the United States Department of Health and Human Services (HHS) that deny Medicare benefits to nursing home patients whose health care, as a result of the denials, is paid for by NYSDSS with Medicaid funds. A Medicare beneficiary or the provider of health care can take an administrative appeal, with judicial review, from a denial of Medicare coverage. 42 U.S.C. §§ 1395ff(b), 405(b) and (g) (1982 & Supp. Ill 1985); 42 C.F.R. §§ 405.701-.750 (1986). HHS maintains that a state Medicaid agency, however, cannot appeal an adverse determination despite state law making the state agency a subrogee of the benefited patient and federal law that mandating states pursue recovery from third parties responsible for the care of Medicaid recipients. When NYSDSS challenged HHS’s position and practice, the United States District Court for the Southern District of New York, Robert J. Ward, Judge, upheld the federal agency’s position. New York State Dep’t of Social Servs. v. Bowen,
STATUTORY BACKGROUND
A. Medicare
Medicare is a federally funded system оf health insurance for the aged and disabled administered by HHS. 42 U.S.C. §§ 1395-1395xx (1982 & Supp. Ill 1985). Individuals eligible under Title II of the Social Security Act may receive benefits under two parts of the Medicare program, only the first of which, Part A, concerns us here. See 42 U.S.C. § 1395c. Part A covers the cost of inpatient hospital services for up to 150 days and post-hospital extended care, such as skilled nursing care, for up to 100 days during any “spell of illness,” 42 U.S.C. § 1395d(a), less coinsurance and deductibles under 42 U.S.C. § 1395e.
When HHS or its fiscal “intermediary,” 42 C.F.R. § 400.202 (1986) (usually a health insurance company), denies Medicare coverage, the individual or the health care provider may request reconsideration, 42 C.F. R. § 405.710-.717 (1986), and, in the event of denial, may appeal to the HHS Appeals Council, 20 C.F.R. § 404.967 (1987); 42 C.F. R. § 405.724 (1986), and ultimately to the courts. 42 U.S.C. §§ 1395ff(b), 405(b) and (g); 42 C.F.R. § 405.730. HHS, however, denies state agencies the right to appeal even when the state has paid the cost of the beneficiary’s care with Medicaid funds and Medicare reimbursement is denied.
B. Medicaid
Medicaid, of course, is a jointly funded federal-state program that pays for necessary medical care for indigеnt individuals. 42 U.S.C. § 1396 (1982 & Supp. Ill 1985). As in the case of Medicare, providers of medical services to Medicaid beneficiaries are reimbursed on a fixed schedule of rates. 42 U.S.C. § 1396a(a)(13). When HHS or its fiscal intermediary denies Medicare benefits for skilled nursing care administered to an individual who also qualifies for Medicaid benefits, the state agency responsible for administеring the Medicaid
C. New York Law
Not surprisingly, New York State law complements the federal scheme. New York Social Services Law § 363-a (McKinney 1983) designates NYSDSS as the state agency responsible for administering the Medicaid program. Section 367-a(2)(b) sub-rogates the Department to “any rights [an applicant or recipient of medical assistance] may have to medical support or third party reimbursement” and section 366(4)(h) (McKinney Supp. 1988) requires Mеdicaid recipients to assign their rights to benefits from third parties to NYSDSS. New York State Insurance Law § 3212(e)(3)(A) (McKinney 1985 & Supp. 1988) provides that the Department’s right of subrogation under any health insurance program shall be valid to the extent benefits are available to the individual.
FACTUAL BACKGROUND
This case arose as a result of HHS’s refusal to grant Medicare Part A benefits to 102 elderly nursing hоme residents, each of whom was a dual Medicare/Medicaid beneficiary. In each case, the patient’s nursing home submitted a timely request for Medicare payment for the skilled nursing care provided. HHS or its intermediary denied each request after determining that the patient did not require skilled nursing care and only received custodial care, whiсh is not covered by Medicare. The nursing home filed a timely request for reconsideration pursuant to 42 C.F.R. § 405.710-.711, which in each case resulted in HHS’s affirming its determination that none of the patients required or received care covered by Medicare. The obligation to reimburse the nursing homes thus fell upon NYSDSS, as payor of last resort under the Medicaid program. NYSDSS, after determining that in each instance the decision of HHS or its intermediary was wrong and that skilled nursing care had been both necessary and provided, notified HHS that it was the statutory subrogee of the recipients’ Medicare rights under state law and, as subrogee, filed hearing requests pursuant to 42 U.S.C. §§ 405(b), 1395ff(b). HHS dismissed the requests on the grounds that NYSDSS was neither a party nor a reprеsentative of a party to the reconsideration determination and therefore not a proper party to request a hearing. The Appeals Council affirmed the dismissals on the
While pursuing its rights as subrogee, NYSDSS also sought to obtain, and did obtain, forms signed by the nursing home residents or their next of kin, appointing the state Commissioner or his agent the beneficiary’s representative for purposes of appealing the Medicare denials. HHS also rejected these appointment forms, asserting that the Department was not a proper representative of the beneficiaries. This suit followed. NYSDSS did not seek judicial decisiоn on the merits of the denials, but only the right to pursue administrative and judicial review. Both the state and federal agencies moved for summary judgment, HHS asserting that subrogation of the Department to the recipients’ Medicare rights was barred by an HHS regulation precluding “assignment” of Medicare rights, 42 C.F.R. § 433.146(b) (1987).
Two years after the complaint was filed and pending disposition, HHS modifiеd its policy and agreed to permit NYSDSS to appeal Medicare denials where an authorization form was signed by the patient or the patient’s next of kin. The Department nevertheless is pursuing the action both because HHS is not bound by any official guideline or regulation to follow this policy modification and because it is often impracticаble, if not impossible, to obtain an appointment form from an institutionalized and sick elderly person, as Fox v. Bowen,
The district court, while ruling that it had subject matter jurisdiction over the challenge to HHS policy, held that neither the state subrogation law nor the Medicare statute permits the state Medicaid agency to appеal Medicare denials,
[sjubrogation of Medicaid rights effected automatically by state statute would result in an increase in administrative hearings and civil litigation against the feder-government, both of which would be financed in part by federal funds. As such, the primary purpose of such hearings and litigation would be to recoup state funds at federal expense, a purpose contrary to the intent of 42 U.S.C. 1396a(a)(25).
DISCUSSION
Preliminarily we recognize that the statute pertaining to administrative appeals does not explicitly authorize a state agency to appeal Medicare denials; the language refers to appeals only by individual beneficiaries, 42 U.S.C. § 1395ff(b), or, in the case of individuals who do not exercise their appeal rights, a provider of services, 42 U.S.C. § 1395pp(d). However, the statute has been given a regulatory gloss. HHS regulations, on the one hand, recognize that where it is impracticable for the individual beneficiary to execute a request for payment because of his physical or mental condition, the request may be executed by his legal guardian or next of kin, a representative оf an institution (other than the service provider), or “a representative of a governmental entity which had been providing him welfare assistance.” 42 C.F.R. § 405.1664. On the other hand, the regulation pertaining to appeals limits administrative and judicial review of a denial of benefits only to the individual beneficiary or, if he is deceased, a representative of his estate or the service provider. 42 C.F.R. § 405.710. Relying on this regulation, HHS contends that although a state agency such as NYSDSS may file a request for payment as “a governmental entity which had been providing ... welfare assistance” under section 405.1664, it may not seek administrative or judicial review of the denial of such a request. HHS’s argument that the language of the Medicarе statute together with HHS regulations preclude appeals by state agencies is betrayed by its present practice of permitting NYSDSS to pursue an appeal if it obtains an authorization form signed by the patient or the patient’s next of kin and by its past practice — concededly required by statute— of permitting the state to appeal if it is аppointed by the Surrogates’ Court as the legal representative of the beneficiary or, in the case of the beneficiary’s death, his estate. Moreover, HHS, in a letter written after its brief on appeal was filed, concedes that the interests of a state Medicaid agency pursuing a Medicare appeal by subrogation do not сonflict with those of the Medicare beneficiary.
To be sure, we owe considerable deference to an administrative agency charged with interpreting a statute, where its interpretation is a “permissible construction,” Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
It cannot be disputed, as the district court conceded, that Medicare is a “third party” for purposes of the third party liability provision, 42 U.S.C. § 1396a(a)(25). See
Although the district court found that Medicare was a third party resource, it concluded that state recoupment of Medicare funds would require federal expenditures which it considered inconsistent with the requirement that states pursue liable third parties “where the amount of reimbursement the State сan reasonably expect to recover exceeds the costs of such recovery.” 42 U.S.C. § 1396a(a)(25)(C). We disagree with this interpretation. First, there is no indication that the provision’s cost-benefit analysis should operate to spare the federal government the costs of defending against appeals. Rather, the provision seems designed as a defense for the state when the federal government complains that the state is not being sufficiently aggressive in recovering from third parties. The provision clearly addresses the costs of recovery, not the identity of the third parties from which recovery is sought. The Secretary concedes that the HHS regulations do not preclude Medicare appeals by a state when it has obtained a valid appointment as legal representative of a beneficiary, or has an appropriate form duly signed by such a beneficiary. Yet, insofar as the state is concerned, the costs of review and appeal involved with such appointments are at least as great if not grеater than when the state acts as the beneficiary’s subrogee. It seems hyper-technical and inconsistent to say that where the state has not been able to obtain the necessary authorization from a beneficiary or the beneficiary’s representative it may not appeal unless it goes to the expense and, we may take judicial notice, delay of state Surrogate Court proceedings. As for federal expenses, appeals of Medicare denials may result in the same administrative cost whether they are pursued by the beneficiary, the beneficiary’s next of kin, a provider, NYSDSS by appointment of the beneficiary or the beneficiary’s representative, or NYSDSS аs sub-rogee. HHS, by statute, regulation or policy, permits all but the last even though the last may be the least expensive. It is illogical to suggest, as HHS contends, that the statutory and regulatory scheme of Medicare abrogates the principle that “Medicaid is the payer of last resort” and renders unenforceable the Medicaid statutes requiring states to recover from all responsible third parties (including the Medicare program). The deference ordinarily due the federal agency charged with interpreting a statute is unnecessary and inappropriate here where HHS's interpretation is not only inconsistent with the language of the Medicaid statute and its purpose, see F.E.C. v. Democratic Senatorial Campaign Comm.,
Judgment reversed; cause remanded for further proceedings in accordance with opinion.