1 United States Court of Appeals,

Fifth Circuit.

No. 94-40265.

STATE of Texas, Petitioner,

v.

UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES,

Respondent.

Aug. 22, 1995.

On Petition for Review from the United States Department of Health

and Human Services.

Before REAVLEY, KING and WIENER, Circuit Judges.

KING, Circuit Judge:

The State of Texas appeals an administrative order of the

Department of Health and Human Serv ices denying a proposed

amendment to its state Medicaid plan. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In September of 1990, Texas submitted a proposed amendment to

its state Medicaid plan to the Health Care Financing Administration

("HCFA") of the United States Department of Health an d Human

Services ("HHS"). Under this proposed amendment, Texas sought to

expand the Medicaid program to cover inpatient residential chemical

dependency treatment for children under age twenty-one who qualify

for the Medicaid Early Periodic Screening, Diagnostic, and

Treatment program. By letter dated May 2, 1991, HCFA rejected the

proposed amendment.

The State requested reconsideration. After full briefing by

both parties and numerous meetings, the HCFA administrator upheld2

the initial decision to deny the proposed amendment. The State

then requested a formal hearing on the disapproval; after three

days of hearings, the hearing officer recommended that the decision

to deny the proposed amendment be uph eld. Texas appealed to the

Secretary of HHS, who, through the HCFA Administrator, accepted the

hearing officer's recommendation and issued an administrative order

upholding the denial of the proposed amendment. Texas filed a

timely appeal of this final administrative order and the matter is

now before this court.

II. STANDARD OF REVIEW

The case at hand centers around an issue of statutory

construction. While each side argues that the "plain meaning" of

a certain portion of the Medicaid statute unambiguously indicates

that Congress intended the statute to be interpreted in its favor,

we find no such "plain meaning" in the statute. HHS, as the

federal agency with expertise in overseeing the Medicaid program,

has proffered a construction of the implicit statutory gap. Our

task is to determine whether the statutory construction proffered

by HHS is valid. Under such circumstances, judicial review is

quite limited. S ee Pauly v. BethEnergy Mines, Inc., 501 U.S. 680,

696, 111 S.Ct. 2524, 2534, 115 L.Ed.2d 604 (1991) ("When Congress,

through express delegation or the introduction of an interpretive

gap in the statutory structure, has delegated policymaking

authority to an administrative agency, the extent of judicial

review of the agency's policy determinations is limited."). In the

seminal case of Chevron, U.S.A. v. Natural Resources Defense3

Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984),

the Supreme Court held that:

[t]he po wer of an administrative agency to administer a

congressionally created ... program necessarily requires the

formulation of policy and the making of rules to fill any gap

left, implicitly or explicitly, by Congress.... Sometimes the

legislative delegation to any agency on a particular question

is implicit rather than explicit. I n such a case, a court may not substitute its own construction of a statutory provision

for a reasonable interpretation made by the administrator of

an agency

....

Id. at 843-44, 104 S.Ct. at 2782 (internal quotations, citation and

footnotes omitted) (emphasis added). If Congress has not addressed

the precise question at issue, "the [c]ourt does not simply impose

its own construction on the statute ... [r]ather ... the question

for the court is whether the agency's answer is bas e d on a

permissible construction of the statute." I d. at 843, 104 S.Ct. at

2782. Thus, we proceed to analyze whether HHS's denial of the

proposed amendment to the Texas Medicaid plan was based upon a

permissible construction of the relevant Medicaid statute.

III. ANALYSIS

Medicaid is a health care program, primarily for the poor and

disabled, which is jointly financ ed by the federal and state

governments and which is administered at the state level, subject

to umbrella supervision by HCFA, a division of HHS. The State of

Texas asked HCFA for permission to amend its state Medicaid plan to

cover residential drug and alcohol treatment for children under age

twenty-one who are eligible to receive other health care services

under the Early Periodic Screenin g, Diagnostic and Treatment1 EPSDT services include, inter alia, screening, vision,

dental, and hearing services as well as:

"[s]uch other necessary health care, diagnostic services,

treatment, and other measures ... to correct or ameliorate

defects and physical and mental illnesses and conditions

discovered by the screening services...."

42 U.S.C. § 1396d(r)(5).

2 Initially, HCFA also denied the proposed amendment on the

grounds that the provision of chemical dependency services would

violate the statutory exclusion for coverage of services for

those under age 65 in an institution for mental disease (the

so-called "IMD exclusion"). See 42 U.S.C. § 1396d(a)(14); 42

C.F.R. § 435.1008(a)(2). As HCFA did not pursue this argument

after the initial hearing and the agency's final decision does

not rest upon it, we need not address its validity as a basis for

denying the proposed amendment.

4 ("EPSDT") program. 1 Without HCFA's permission to implement the

proposed amendment, the State of Texas cannot receive federal

matching funds if it elects to provide these services.

HCFA denied Texas's proposed amendment on the grounds that it

would impermissibly result in the flow of federal Medicaid funds to

reimburse room and board expenses. 2 Specifically, HCFA contends

that the portion of the Medicaid sta tute which provides federal

matching f unds for the provision of rehabilitative services, 42

U.S.C. § 1396d(a)(13), does not permit matching funds to pay for

room and board costs associated with the provision of

rehabilitative services in a residential treatment facility. The

federal statute at issue provides that federal matching funds may

be used, inter alia, for:

(13) other diagnostic, screening, preventive, and

rehabilitative services, including any medical or remedial

services (provided in a facility, a home, or other setting)

recommended by a physician or other licensed practitioner of

the healing arts within the scope of their practice under3 The statute also provides federal matching funds for "any

other medical care, and any other type of remedial care

recognized under State law, specified by the Secretary...." 42

U.S.C. § 1396d(a)(25). While Texas initially argued to HHS that

its proposed amendment should be approved under this section, the

Secretary opted not to exercise his discretion under §

1396d(a)(25) in the State's favor. The State concedes in its

brief that "[t]he [S]tate has not brought the (a)(25) issue to

this [c]ourt."

5 State law, for the maximum re duction of physical or mental

disabili ty and restoration of an individual to the best

possible functional level.

42 U.S.C. § 1396d(a)(13). 3

The State contends that because the language of § 1396d(a)(13)

does not explicitly exclude room and board services, the term

"rehabilitative services" should be construed in its broadest sense

to include necessary tangential room and board expenses when those

rehabilita tive services are provided in a residential treatment

setting. The State bolsters its argument by contending that

because the parenthetical "provided in a facility, a home, or other

setting" evinces an explicit intent to p rovide coverage for

services rendered in either an inpatient or an outpatient setting,

this necessarily evinces an implicit intent to provide coverage for

all necessary corollary expenses in either an inpatient or an

out patient setting—such as room and board in a residential

treatment facility.

The State's final argument is tha t Congress knew how to

ex plicitly exclude coverage for room and board expenses when it

wanted to do so, as evidenced by other sections in the Medicaid

statute. S ee 42 U.S.C. §§ 1396t(a)(9), 1396u(f)(1) (explicitly

excluding room and board coverage for frail elde rly and6

dev elopmentally disabled in the provision of home and community

care services). Thus, Congress's failure to explicitly exclude

room and board expenses in the section authorizing coverage of

rehabilitative services indicates that Congress did not wish to

exclude coverage for such expenses in this particular context.

HCFA concedes that § 1396d(a)(13) permits the payment of

federal matching funds for rehabilitative services, whether those

services a re provided in an inpatient or an outpatient setting.

However, HCFA argues that it historically has construed the federal

Medicaid statute as authorizing f ederal funding of i npatient

services—including inpatient substance abuse treatment—only if the

services are provided in one of four types of facilities for which

there are federal quality assurance standards: (1) hospitals; (2)

skilled nursing facilities (SNFs); (3) intermediate care

facilities for the mentally retarded (ICF-MRs); and (4) inpatient

psychiatr ic hospitals. Thus, HCFA contends, its historical

construction of the Medicaid statute indicates that Congress would

have explicitly included coverage for room and board if it had

i ntended such expenses to be covered. Congressional silence, in

other words, more likely evinces an agreement with HCFA's

antecedent interpretation excluding such expenses in unregulated

facilities rather than d isagreement: if Congress had d isagreed

with HCFA's longstanding interpretation, it would explicitly have

said so.

HCFA also contends that the language of § 1396d(a)(13) belies

t he State's argument that federal funding for both inpatient and7

outpatient rehabilitation services evinces a congressional intent

to pay for necessary corollary expenses such as room and board.

Specifically, HCFA notes that if the statute is const rued as

mandating federal matching funds for all necessary corollary

services regardless of setting, the result would be extreme. For

example, assuming arguendo that the statute mandates matching funds

for room and board expenses associated with a stay in a residential

substance abuse treatment facility, a fortiori it would necessitate

matching funds for room and board expense s associated with

rehabilitation treatment in one's own home or in a board and care

home. In any of these settings—at home, in a board and care home,

or in a residential treatmen t facility—the recipient of

rehabilitative services must eat and sleep. Yet it would be

unacceptable to suggest that Congress inten ded federal matching

funds to pay for room and board expenses for those living in their

own home or in a board and care home. The reason, HCFA contends,

is that the structure of the statutory scheme crafted by Congress

reveals an intent to use limited Medicaid dollars to pay for room

and board expenses only in those facilities for which Congress has

extracted the quid pro quo of federal quality assurance standards.

No federal standards, no federal Medicaid dollars.

We are also persuaded by HCFA's argument that the explicit

exclusions for room and board which appear elsewhere in the

Medicaid statute are not apposite to Congressional intent regarding

rehabilitative services because the explicit exclusions were passed

in 1990— subsequent to the passage of § 1396d(a)(13). Indeed, these8

explicit exclusions, which appear at 42 U.S.C. §§ 1396t(a)(9) and

1396u(f)(1), appear in sections that provide coverage for home and

community care services for the frail elderly and the

developmentally disabled—services which by their very nature could

have been interpreted as containing an implicit room and board

component if no explicit exclusion had been provided. If anything,

the fact that Congress felt compelled in 1990 to explicitly exclude

payment for room and board evinces a desire to ensure that Medicaid

dollars do not flow to unregulated facilities.

In short, § 1396d(a)(13) is ambiguous and the legis lative

history of the section sheds no l ight. Congress has provided no

guidance as to whether it intended to permit federal matching funds

to pay for room and board services provided in conjunction with

residential chemical dependency treatment. The construction given

to § 1396d(a)(13) by HHS and HCFA is consistent w ith the overall

framework of the Medicaid program and with the agency's permissible

historical construction of the statut e as restricting federal

ma tching funds to inpatient services provided in facilities for

which there exist federal quality assurance standards.

Accordingly, under the ed ict of C hevron, this permissible

construction is entitled to our deference.

IV. CONCLUSION

For the foregoing reasons, the administrative ord er of the

Department of Health and Human Services is hereby AFFIRMED.