Significant Medicaid Cases—2012 Year in Review Part 2

The following is a continued look at judicial decisions released in 2012, this time involving Medicaid, with a brief glimpse at 2013.  Join us again tomorrow for the third installment in our Year In Review case analyses series.


Mayhew v. Sebelius, 1st Cir., September 5, 2012. A motion by Maine’s Medicaid agency (MaineCare) to require the Secretary of HHS to expedite consideration of its application to amend its Medicaid eligibility requirements on or before October 1, 2012 was denied by the U.S. Court of Appeals for the First Circuit. Maine claimed it would suffer irreparable damage if expedited consideration of its application was not granted. Specifically, it would not be able to balance its budget as required by law and it would not be able to retroactively recoup from the federal government additional amounts it would pay out under the Medicaid Maintenance of Effort (MOE) requirements.


Lewis v. Alexander, 3rd Circuit, June 20, 2012. Several requirements for special needs trusts (SNT) added by a Pennsylvania statute were invalid because they were preempted by federal Medicaid law. Congress enacted a comprehensive scheme governing the treatment of trust property for purposes of Medicaid eligibility. It left no room for states to legislate with respect to SNTs. The following requirements were invalidated: (1) that beneficiaries be under age 65; (2) that the beneficiaries have specified needs that would not otherwise be met; (3) that expenditures be related to the treatment of the beneficiary’s disability; and (4) that at a beneficiary’s death, the trust repay the state for its expenditures–up to 50 percent of the beneficiary’s remaining balance.

Center for Special Needs Trust Administration, Inc. v. Olson, 8th Cir., April 16, 2012. The district court was not in error when it dismissed a special needs trust’s challenge to a state’s regulations regarding the administration of the Medicaid Act and pooled “C” trusts.

Hutcherson v. Arizona Health Care Cost Containment System, 9th Cir., January 27, 2012. The Arizona Medicaid agency properly claimed the remainder interest in an annuity owned by a community spouse who predeceased the institutionalized spouse, and applied the income from the annuity toward the ongoing expenses of the institutionalized spouse.

Morris v. Oklahoma Department of Human Services, 10th Cir., July 9, 2012. The Oklahoma Medicaid agency’s determination that the purchase of an annuity by the applicant’s husband rendered the applicant ineligible was erroneous. The seeming contradiction between the unlimited transfers between spouses in Soc. Sec. Act §1917(c), and the community spouse resource allowance limitation in Soc. Sec. Act §1924 is reconciled when viewed in the context of the eligibility determination process, and Congress is presumed to be aware of the potential for couples to convert countable assets to exempt income.

Family Planning Services

Planned Parenthood of Hidalgo County Texas v. Suehs, 5th Cir., August 21, 2012. The state of Texas can withhold funding to Planned Parenthood received under the Women’s Health Program (WHP) because Planned Parenthood communicates a message that is opposite to the goals of the state’s program. A state may limit what an organization communicates about a state program for which they receive state funds. The district court erred when it applied the constitutional conditions doctrine in this case. The temporary restraining order prohibiting the enforcement of the regulations was vacated and the case was remanded to the district court to consider the constitutionality of the restrictions on affiliating with entities that perform elective abortions, especially the elements defining affiliation based on franchise and common ownership, management, or control. The right to obtain an abortion and any accompanying right to perform an abortion were not issues in this case. This case is about the right to free speech and due process.

Planned Parenthood of Indiana, et al v. Commissioner of the Indiana State Department of Health, 7th Cir., October 23, 2012. An Indiana law prohibiting state contracts with, and any payment of state funds to, any entities that perform abortions could not be applied to Planned Parenthood’s participation in Medicaid. The statutory guarantee that all Medicaid beneficiaries have free choice of their Medicaid providers preempted the state law prohibiting the payment. However, the federal block grant statute supporting other activities did not limit the state’s authority to restrict the grant program to entities that did not perform abortions. The trial court’s injunction was affirmed as to the Medicaid funding but reversed as to the block grant funds.


Martes v. South Broward Hospital District, 11th Cir., June 15, 2012. Federal Medicaid law gave beneficiaries no standing to sue providers or the Florida Medicaid agency to stop unlawful “balance billing” because the statute did not provide such a remedy. The beneficiaries based their lawsuit on Soc. Sec. Act §1902(a)(25)(C), which provides that state Medicaid plans must require the agency to ascertain whether any third parties may be liable for the cost of a beneficiary’s care and, if so, pursue the third party. The language prohibiting providers from billing beneficiaries was used only in the context of the state’s responsibilities to pursue third parties for reimbursement.

Federal Financial Participation

Virginia Department of Medical Assistance Services v. HHS, D.D.C., May 8, 2012. A district court properly granted summary judgment in favor of the Department of Health and Human Services because the disputed Medicaid claims were not eligible for federal financial participation (FFP) under the plain language of the federal statutes.

AFDC Overpayments

Commonwealth of Pennsylvania Department of Public Welfare v. Sebelius, 3rd Cir., March 15, 2012. The district court’s decision to sustain an HHS directive requiring the Pennsylvania Department of Public Welfare (DPW) to remit more than $5.6 million in overpayments it received under the Aid to Families with Dependent Children (AFDC) program was proper. Following the close-out of the AFDC program, HHS instructed the states to remit the federal share of recovered AFDC overpayments. The HHS Office of Inspector General conducted a nationwide audit, and pursuant to the audit, sent the directive to DPW. DPW challenged the authority of HHS to conduct its own audit on the grounds that §116(b)(3)(A) of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) prescribed a single audit procedure under the Single Audit Act of 1984 for the close-out of the AFDC program. However, the language of §16(b)(3)(A) of PRWORA did not apply to federal claims for recovered AFDC payments; the section focused on state claims for federal reimbursement. The district court’s judgment was affirmed.

The Future

  • The June 2012 decision by the U.S. Supreme Court upheld most of the Affordable Care Act, but it did provide states the option to opt out of the expansion of Medicaid. As of December, 14 states had indicated they definitely would, or were likely to, opt out. Nineteen states had decided they definitely would or were likely to expand their Medicaid programs. Seventeen states were undecided.
  • Physicians and providers will continue reaping the benefit of incentive payments provided by states through Medicaid to adopt meaningful use of electronic health record systems.
  • Effective January 1, 2013, state Medicaid programs must pay at least 100 percent of the rate Medicare would have paid for specified primary care service furnished by or under the supervision of qualifying physicians. States will receive 100 percent reimbursement for the difference between the rate payable under the state plan as of July 1, 2009, and the rate required by the rule.
  • The first demonstration projects to test integration of Medicare and Medicaid services for dual eligibles will begin in 2013, with a capitated payment model in Massachusetts and a fee-for-service managed care model in Washington.