Opinion ID: 789609
Heading Depth: 3
Heading Rank: 2

Heading: Direct reimbursement

Text: 11 Pursuant to the Medicaid Act, Michigan's program must provide medical assistance to categorically and medically needy individuals. 42 U.S.C. § 1396a(a)(10). The categorically needy are those who are eligible for cash assistance because their income falls below a specific amount, § 1396a(a)(10)(A), whereas the medically needy are those who have higher income levels but are still unable to pay for all of their medical needs, § 1396a(a)(10)(C). Under the Act, states must provide comparable medical assistance to all Medicaid recipients within each classification, so long as the medically needy do not receive greater benefits than the categorically needy (although the reverse is permitted). § 1396a(a)(10)(B). 12 The Act defines medical assistance as payment of part or all of the cost of the [covered] care and services ... for individuals. § 1396d(a). It requires states to make medical assistance available for covered services provided to Medicaid recipients within the three months prior to the month in which the recipient applied for Medicaid (known as the retroactive-coverage period), provided that the recipient would have been eligible for Medicaid at the time the services were rendered. § 1396a(a)(34). 13 Levy, who qualifies for Medicaid because she is medically needy, alleges that she paid more than $8,000 to her medical providers in the course of her efforts to obtain Medicaid coverage. She contends that the statutory regime requiring the states to cover services provided during the retroactive-coverage period obligates Michigan's Medicaid program to reimburse her for the amount she paid out-of-pocket. Michigan's failure to reimburse her, Levy argues, violates her right to medical assistance comparable to that received by medically needy individuals who do not pay their medical bills before Medicaid eligibility is established. See § 1396a(a)(10) ([T]he medical assistance made available to any individual [covered by Medicaid] ... shall not be less in amount, duration, or scope than the medical assistance made available to any other such individual [within the same classification].); 42 C.F.R. § 440.240(b) (The plan must provide that the services available to any individual in [a covered medically needy group] are equal in amount, duration, and scope for all recipients within the group.). 14 But Michigan argues that, as a vendor-payment system, Medicaid makes payments to providers, not to recipients. Vendors participating in the Medicaid program agree to accept reimbursement from state Medicaid agencies at a rate significantly lower than the market rate in consideration of the certainty of receiving payment. The states are permitted to make payments to individual beneficiaries only in limited circumstances. Specifically, the states have the option of making direct payments to medically needy recipients for services provided by physicians and dentists, § 1396d(a), but Michigan has not elected to exercise that option. (Individual beneficiaries who are categorically needy are not eligible for direct payments at all.) 15 Participating states are also allowed to directly reimburse individuals who make out-of-pocket payments for covered services if a state Medicaid agency improperly denies an individual's application for coverage. 42 C.F.R. § 431.246. Underlying this exception is the desire to correct the inequitable consequences of an erroneous denial of eligibility. At issue in this appeal is whether Levy is entitled to reimbursement for medical expenses incurred during the retroactive-coverage period before she applied for Medicaid. The district court granted summary judgment for Levy on the separate question of whether she was entitled to corrective payments under 42 C.F.R. § 431.246 for expenses incurred after her application was filed. That decision is not at issue in this appeal. 16 Courts that have considered whether medical bills incurred during the retroactive-coverage period are directly reimbursable to Medicaid recipients have found that payment is required. In Blanchard v. Forrest, 71 F.3d 1163 (5th Cir.1996), for example, the Fifth Circuit analyzed Louisiana's Medicaid program, which permitted direct reimbursement for expenses incurred during the retroactive-coverage period and initially paid out-of-pocket by the applicant, but only in instances in which the medical provider voluntarily refunded the applicant's payment and then submitted a claim evidencing the refund to the state Medicaid agency. The court noted that, because Medicaid rates are much lower than those charged to private patients, Medicaid providers in Louisiana have no incentive to initiate voluntary refunds to patients determined to be Medicaid-eligible after the services are rendered. Id. at 1167. 17 Under the Louisiana program, Medicaid applicants who failed to pay for services rendered during the retroactive-coverage period received a greater level of financial assistance than those who privately paid for the services. The Blanchard court therefore concluded that Louisiana's program violated the statutory requirement that Medicaid coverage during this period should be just as effective as if the applicant had already been certified for coverage. Id. Even though the state agency had informed applicants in advance that they could not obtain retroactive assistance unless any advance payments were refunded by their providers, the court held that the voluntary refund policy still fails to make available and effective medical assistance to all Medicaid applicants for supplies and services furnished during the retroactive-coverage period, as required by [§] 1396a(a)(34). Id. at 1168. 18 Moreover, in a recent case with similar facts, the California Court of Appeals noted that 19 [e]very case brought to our attention in which the court was presented with an application for relief by a Medicaid recipient who had not received voluntary reimbursement for covered services obtained during the retroactivity period has provided relief. In some cases, the court has ordered the state agency to make reimbursement directly to the recipient.... Other cases have indicated that a state may also satisfy the comparability requirement by making reimbursement by the provider obligatory rather than voluntary. 20 Conlan v. Bonta, 102 Cal.App.4th 745, 754, 125 Cal.Rptr.2d 788 (2002) (holding that California's Medicaid program had failed to establish a process to ensure that recipients who had made out-of-pocket payments during the retroactive-coverage period were properly reimbursed). See also Krieger v. Krauskopf, 121 A.D.2d 448, 503 N.Y.S.2d 418 (2d Dept.1986), aff'd without opinion, 70 N.Y.2d 637, 518 N.Y.S.2d 957, 512 N.E.2d 540 (1987) (holding that the petitioner was entitled to reimbursement for medical services covered by Medicaid that were received and paid for by the petitioner during the three-month period preceding the submission of her application). The decision of the district court below is therefore consistent with numerous federal and state court decisions that have previously addressed this issue. 21 In an attempt to distinguish the cases cited by Levy, the defendants point out that she tendered her payments not during the three-month time period in which she received medical treatment, but during the period between the initial rejection of her application and its eventual acceptance on appeal. They argue that, to the extent direct reimbursement to recipients is appropriate, the purpose of the reimbursements is to protect individuals who make out-of-pocket payments for their care when they are either unaware of the Medicaid requirements or unable to apply for coverage. But after an application has been submitted, that purpose is no longer relevant because applicants are informed in a publication titled Facts About Medicaid that payments made directly to providers cannot be reimbursed. Levy's case is therefore arguably different from the cited cases in which the individuals paid for the services they received before applying for Medicaid coverage. 22 The district court found this reasoning unpersuasive. It concluded that the governing statutes and regulations do not require that payments be made prior to application in order to be reimbursable. Instead, the court determined that direct reimbursement is required where the following three conditions are met: (1) medical services were furnished during the three months prior to the recipient's application; (2) the services provided were covered under Medicaid; and (3) the recipient was eligible for Medicaid at the time the services were furnished. The court declined to find that the time of payment was dispositive. This reasoning is consistent with that of the Fifth Circuit in Blanchard, which held that notification to recipients that they would not be directly reimbursed absent a voluntary refund from their provider did not negate the fact that the policy itself violated the comparability requirement of the Medicaid Act. 71 F.3d at 1167. Thus, even though Levy may have been informed at the time of her application that she would not be reimbursed directly, Michigan's refusal to reimburse her out-of-pocket expenses nevertheless violates her right to be treated in the same manner as all other medically needy Medicaid recipients in Michigan. 23 We agree with the reasoning of both the district court and the Fifth Circuit. Direct reimbursement to Medicaid recipients who have paid out-of-pocket for medical services provided during the three-month period prior to their application for Medicaid is appropriate where, as here, the recipients were rejected for Medicaid coverage in the first instance. In Levy's case, for example, the process of establishing her eligibility took over three years. She in effect had no choice but to pay her providers at least in part during this period of time in order to continue receiving medical care. To then deny her reimbursement for expenses that would have been timely paid by Medicaid if her application had been initially accepted strikes us as inequitable, to say nothing of the state agencies' obligation to comply with the Medicaid Act's comparability requirement. 24 Reimbursement to Levy is also consistent with CMS's policy of making direct reimbursement available to all individuals who pay for medical services between the date of an erroneous determination of ineligibility for Medicaid and the date that the determination is reversed. State Medicaid Manual § 6320. See also 42 C.F.R. § 431.246 (providing for corrective payments in the event of an incorrect denial of coverage, retroactive to the date the action was taken). The State Medicaid Manual provides that [s]tates may make direct reimbursement to individuals who paid for covered services after an erroneous determination of ineligibility that is reversed on appeal. The purpose of this exception to the vendor payment principle is to correct the inequitable situation that results from an erroneous determination made by the agency. § 6320.2. In Greenstein v. Bane, 833 F.Supp. 1054, 1069 (S.D.N.Y.1993), the court held that 42 C.F.R. § 431.246 created an exception to Medicaid's vendor-payment regime because [w]hen Medicaid needs to make corrective action, the provider has already been paid; it is only the recipient who requires reimbursement.... [I]f corrective payments were not made directly to the recipient, there would be no guarantee that he or she would actually be reimbursed for their [sic] payments. By grafting the logic underlying the corrective-payment principle onto Blanchard, Conlan , and Krieger, we are extending the holdings of these cases to cover reimbursement for payments made after the retroactive-coverage period, even though the services were provided during that period. 25 We wish to emphasize, however, the narrow scope of our holding. Levy's initial application for Medicaid was denied. Had she been accepted into the program from the outset, she would never have been in a position where she felt the need to make payments for the medical services she received, because all of her care would have been covered by Medicaid. Our holding is therefore limited to Medicaid recipients who, like Levy, had their applications rejected when they first applied for Medicaid coverage and then were successful in having that adverse ruling overturned on appeal. We are not deciding whether an individual whose application is initially accepted but who nevertheless makes payments for medical care provided during the retroactive-coverage period is entitled to direct reimbursement. 26 As a final point on this issue, we find persuasive Levy's argument that the law as interpreted by the defendants leads to an unjust result. If direct reimbursement were unavailable to Medicaid recipients who had paid out-of-pocket for services provided during the retroactive-coverage period, then individuals who make a good-faith effort to pay by spending their scarce resources, incurring debt, or forfeiting other basic necessities to pay for needed care would not receive coverage except in the unlikely event that their medical providers choose to give them a refund and then seek payment from the state Medicaid program. Those individuals, on the other hand, who are able to obtain medical care without paying for it would receive complete coverage for the services provided. Interpreting the statute as the defendants suggest would therefore reward those who make no effort to pay for their own care and penalize those who do.