D.C. Circuit Upholds Virginia/Kansas Medicaid IMD Disallowances

Virginia Department of Medical Assistance Services v. U.S. Department of Health and Human Services, et al., 2012 U.S.App. LEXIS 9293 (May 8, 2012)

The District of Columbia Court of Appeals has upheld the Centers for Medicare and Medicaid Services (“CMS”) disallowance of matching federal financial participation (“FFP”) funds for medical services the Virginia Department of Medical Assistance Services and the Kansas Health Policy Authority paid for individuals under age 21 in inpatient psychiatric facilities under the Institutions for Mental Disease (“IMD”) exclusion.

Since its enactment in 1965, the Medicaid program has excluded Medicaid payments for services provided to otherwise eligible individuals in IMDs who have not attained the age of 65 years or older. In 1972, Congress added an exception to the exclusion for “inpatient psychiatric hospital services for individuals under age 21.” 42 U.S.C. § 1396d(a)(16). In order to be eligible for FFP, the inpatient services provided to those under age 21 (1) must be provided in an institution, or distinct part thereof, which is a psychiatric hospital or other inpatient setting specified by the Secretary in regulation; 2) must involve active treatment provided by a team, consisting of a physician and other qualified mental health professionals, which has determined the inpatient services are necessary and can reasonably be expected to improve the patient’s condition to the extent that such services will no longer be necessary; and 3) are provided prior to the date the individual attains age 21 or, if the individual is receiving services immediately preceding attaining age 21, the date the individual no longer requires such services, or attains age 22. 42 U.S.C. § 1396d(h)(1)(A)-(C).

In 2001-2002, the Department of Health and Human Services Inspector General audited claims submitted for IMD residents under age 21 in several states, including Virginia and Kansas, and found that certain claims were not documented to be for “psychiatric hospital services provided in and by an IMD.” As a result, CMS disallowed $3,948,532 in claims for Virginia, and $3,883,143 for Kansas. Virginia’s disallowed claims included physician services, pharmacy, outpatient hospital clinical services, inpatient acute care and other services, such as laboratory, x-ray and community mental health and mental retardation services. Both Virginia and Kansas separately appealed the disallowances to HHS’ Departmental Appeals Board and then to the United States District Court for the District of Columbia, which both ruled in favor of CMS. Virginia’s and Kansas’ subsequent appeals to the District of Columbia Circuit were then consolidated. The law firm of Covington and Burling represented both states instead of their respective Attorneys’ General.

Virginia and Kansas argued, among other things, that the statute was ambiguous because it conflicted with the “comparability principle” that requires a state to provide medical assistance to individuals meeting eligibility requirements which are not less in amount, duration, or scope than the medical assistance made available to any other individuals. The States also argued that the interpretation was contrary to the legislative history that reflected Congress’ intent to improve and expand treatment for children with mental illness to permit them to rejoin and contribute to society. The States further argued that CMS’ narrow interpretation of the under-21 exception conflicts with the requirements for provisions of services under the early and periodic screening, diagnostic, and treatment (“EPSDT”) mandate and the requirement in the Home and Community Based waiver program that services provided in the community be “cost-neutral.” By failing to reimburse for expensive inpatient services, the argument went, the provision of necessary services in the community will necessarily be more expensive and thus fail the waiver test.

In upholding the CMS determination, the Appeals Court found that the legislation was clear on its face that the only exceptions to the IMD rule pertained to eligible recipients age 65 and older and individuals under age 21 receiving inpatient psychiatric hospital services. When a statute is clear on its face, no further interpretation or referral to legislation history is necessary. In rejecting all of the States’ arguments, the Court wrote that the under-21 exception to the IMD rule “may not reflect the most compassionate or even the most prudent approach to treating young patients in IMDs, but it marks the extent of assistance the Congress unambiguously authorized in 1972 when it first decided to fund such services.” The courts are therefore obligated to interpret the law as unambiguously written by Congress.

Found in DMHL Volume 31 Issue 4