Hendrixson v. Div. of Soc. Servs. & the Div. of Health Benefits of the N.C. Dep't of Health & Human Servs.

866 S.E.2d 919 (Table)

John A. HENDRIXSON, Petitioner,

v.The DIVISION OF SOCIAL SERVICES and the Division of Health Benefits of the North Carolina Department of Health and Human Services, Respondents.

No. COA20-282

Court of Appeals of North Carolina.

Filed January 4, 2022

Ott, Cone & Redpath, P.A., by Matthew Jordan Cochran, for petitioner-appellee.

Attorney General Joshua H. Stein, by Special Deputy Attorney General Katherine M. McCraw, for respondents-appellants.

MURPHY, Judge.

¶ 1 When a state agency implements an unpromulgated rule not permitted by statutory or regulatory authority, the rule implemented may not be enforced. Here, because the rule implemented by the North Carolina Department of Health and Human Services regarding Medicaid coverage was unsupported by any statutory or regulatory authority and implemented as an unpromulgated rule, we affirm the Superior Court's conclusion that the rule was unenforceable.

BACKGROUND

¶ 2 In June 2018, Plaintiff John Hendrixson filed an application for Medicaid coverage with the Macon County Department of Social Services ("Macon County DSS") for his medical expenses, requesting retroactive coverage for outpatient hospital expenses incurred on 6 March 2018 in the amount of $8,208.43; on 3 April 2018 in the amount of $1,470.00; and on 26 April 2018 in the amount of $10,633.94. At the time of his application, Hendrixson was 65 or older. Although his application for Medicaid was approved, it was determined that he should have a deductible of $1,670.00¹ and was only approved for full Medicaid benefits for his medical expenses incurred from 26-30 April 2018 because Macon County DSS determined his deductible was not met until 3 April 2018.²

¶ 3 A Medicaid deductible is deemed to be met, and Medicaid coverage begins, once applicable medical bills add up to an amount that is greater than the amount of the Medicaid deductible. See 10A N.C. Admin. Code 23E.0209 (2020). However, in this case, only 20% of Hendrixson's earlier two medical bills—$1,641.69 from 6 March 2018 and $294.00 from 3 April 2018—were applied towards his deductible because Hendrixson was not enrolled in Medicare Part B, despite being qualified in terms of his age, which would have otherwise provided coverage for the 80% excluded. The basis for this decision was the North Carolina Department of Health and Human Services’ ("Department") Aged, Blind, and Disabled Medicaid Manual ("the Manual"), which states, in relevant part:

If a Medicare applicant is eligible for [Medicare] Part B benefits, he must apply for and except [sic] the coverage. If he refuses, the applicant is responsible for payment of claims that would have been paid by Medicare Part B if he had applied. If the applicant fails to enroll in Medicare Part B, charges which would have been paid by Medicare Part B cannot be applied to the deductible.

...

Medicaid applicant [sic] who are age 65 or older must apply for and be enrolled in Medicare Part B. If the applicant fails to enroll, Medicaid pays no portion of the costs for medical services that would have been covered by Medicare Part B. The provider may bill the recipient for the total cost of the services provided.

¶ 4 Using this 20% method, Macon County DSS determined that Hendrixson had $1,641.69 from his 6 March 2018 medical bill and $294.00 from his 3 April 2018 medical bill that were applicable to his Medicaid deductible of $1,670.00, satisfying his Medicaid deductible on 3 April 2018, and he had coverage for charges after 3 April until 30 April. The effect of this decision was that Hendrixson's $1,670.00 deductible was determined to be met on 3 April 2018, despite his 6 March 2018 medical bill in the amount of $8,208.43. As an extension of this, Hendrixson did not receive Medicaid coverage for his medical expenses incurred on 6 March 2018 and 3 April 2018, and he was financially responsible for these charges.

¶ 5 Hendrixson appealed the decision of Macon County DSS, contending that it improperly denied coverage or penalized Hendrixson for not enrolling in Medicare Part B, in contravention of Duke Univ. Med. Ctr. v. Bruton , 134 N.C. App. 39, 516 S.E.2d 633 (1999), by only applying 20% of his medical bills towards his deductible. Macon County DSS responded that the application was instead approved with a deductible that Hendrixson was required to meet prior to attaining full Medicaid coverage and that applying 20% of the medical bills to the deductible here was consistent with Medicaid policy due to Hendrixson's eligibility for, and failure to enroll in, Medicare Part B. Ultimately, an assistant chief hearing officer issued the Department's final decision for the purpose of N.C.G.S. § 108A-79(k), which affirmed the methodology used by Macon County DSS and concluded that Hendrixson was entitled to coverage for 3 April 2018 through 30 April 2018.³

¶ 6 Hendrixson subsequently petitioned the Macon County Superior Court for judicial review of the Department's final decision. On 9 January 2020, the Superior Court entered an order reversing the final agency decision, concluding the Department erred and prejudiced Hendrixson's substantial rights because its decision was affected by errors of law, was made upon unlawful procedure, was in excess of the statutory authority of the agency, and violated the Supremacy Clause. In coming to this ultimate conclusion, the Superior Court reached the following conclusions: (1) "Under the plain language of applicable federal statutes, federal regulations, the State Plan, and the North Carolina Administrative Code, [Hendrixson] satisfied his ... deductible of [$1,670.00] on [6 March 2018] when he incurred [$8,208.43] in unpaid medical expenses"; (2) federal laws, federal regulations, and the State Plan do not condition or limit Medicaid eligibility based on Medicare Part B enrollment; (3) applicable laws and regulations do not permit differential determination of Medicaid eligibility based on Medicare Part B enrollment; (4) federal reimbursement is available for retroactive Medicaid coverage like the coverage Hendrixson was requesting; (5) no law authorizes the Department to disregard 80% of incurred medical expenses in determining when a Medicaid deductible is met; (6) even if N.C.G.S. § 108A-55.1 did limit individuals’ Medicaid eligibility, it would be in conflict with federal statutes and regulations and violate the Supremacy Clause; and (7) the Manual's provisions utilized in this case are unpromulgated rules and are unenforceable against Hendrixson. The Division of Health Benefits and the Division of Social Services of the Department (collectively, "NCDHHS") timely appeal.

ANALYSIS

¶ 7 NCDHHS contends the Superior Court erred in reversing NCDHHS's actions because: (A) NCDHHS did not condition Medicaid coverage on Medicare coverage and instead approved Hendrixson's Medicaid application while requiring him to pay a deductible calculated according to N.C.G.S. § 108A-55.1, which prohibited NCDHHS from paying the medical expenses that Medicare would have covered; (B) NCDHHS properly applied N.C.G.S. § 108A-55.1, which NCDHHS contends constrains how retroactive coverage may be provided; and (C) N.C.G.S. § 108A-55.1 does not violate the Supremacy Clause because it is not in conflict with federal law. Hendrixson responds, respectively: (A) NCDHHS indirectly conditioned his March 2018 Medicaid benefits on his enrollment in Medicare by refusing to apply his incurred medical expenses to his deductible due to failure to enroll in Medicare Part B; (B) N.C.G.S. § 108A-55.1 does not impact retroactive Medicaid benefits and NCDHHS improperly interprets and applies N.C.G.S. § 108A-55.1 in light of its plain language and applicable federal law; and (C) N.C.G.S. § 108A-55.1, as interpreted by NCDHHS, is in conflict with federal law. The ultimate issue presented by this case is whether the applicable statutory and regulatory law supports NCDHHS's determination of when Hendrixson's Medicaid deductible was met as, if it does not, the Manual's 20% method was unenforceable as an unpromulgated rule.

¶ 8 In Bruton, we held:

Appellate review of a judgment of the [S]uperior [C]ourt entered upon review of an administrative agency decision requires that the appellate court determine whether the [S]uperior [C]ourt utilized the appropriate scope of review and, if so, whether the [S]uperior [C]ourt did so correctly. The nature of the error asserted by the party seeking review dictates the appropriate manner of review: if the appellant contends the agency's decision was affected by a legal error, [ N.C.G.S. § 150B-51(1), (2), (3) & (4) ], de novo review is required; if the appellant contends the agency decision was not supported by the evidence, [N.C.G.S.] § 150B-51(5), or was arbitrary or capricious, [N.C.G.S.] § 150B-51(6), the whole record test is utilized. [N.C.G.S.] § 150B-4(a) permits review of an agency's declaratory ruling in the same manner as that of an order in a contested case. Therefore, the standard of review for the agency's declaratory ruling is determined by [N.C.G.S.] § 150B-51. Under [N.C.G.S. §] 150B-51, a reviewing court is permitted to reverse or modify the agency's decision if the rights of the petitioners may have been prejudiced because the agency's findings, inferences, conclusions, or decisions are affected by error of law. Because [the] appellees alleged in their petition for judicial review that [the] appellants erroneously construed state and federal law regarding the relation between Medicare and Medicaid, our standard of review is de novo. In de novo review, an appellate court may substitute its judgment for that of the agency.

Id. at 41-42, 516 S.E.2d at 635 (citations and marks omitted). Here, like the appellee in Bruton , Hendrixson's petition for judicial review contended that the agency decision was made upon unlawful procedure and errors of law, entitling him to de novo review of these issues by the Superior Court.⁴ The Superior Court properly employed de novo...