CARRIER CLINIC-PATIENTS A.M. AND C.I. VS. DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES(DEPARTMENT OF HUMAN SERVICES, DIVISION OF MEDICALASSISTANCE AND HEALTH SERVICES)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4669-14T4

CARRIER CLINIC-PATIENTS
A.M. and C.I.,

Petitioner-Appellant,

v.

DIVISION OF MEDICAL
ASSISTANCE AND HEALTH
SERVICES,

Respondent-Respondent.

____________________________________________

Argued April 6, 2017 – Decided September 13, 2017

Before Judges O'Connor and Whipple.

On appeal from the Department of Human
Services, Division of Medical Assistance and
Health Services.

Walter J. Fleischer, Jr., argued the cause
for appellant (Drinker Biddle & Reath LLP,
attorneys; Mr. Fleischer, of counsel and on
the brief; George H. Kendall and Andrew C.
Egan, on the brief).

Mark D. McNally, Deputy Attorney General,
argued the cause for respondent (Christopher
S. Porrino, Attorney General, attorney;
 Melissa H. Raksa, Assistant Attorney
General, of counsel; Kay R. Ehrenkrantz,
Deputy Attorney General, on the brief).

PER CURIAM

Petitioner Carrier Clinic appeals from a April 29, 2015

final decision of respondent Division of Medical Assistance and

Health Services (Division), which denied Medicaid benefits for

services petitioner rendered to two of its patients, A.M. and

C.I. We remand for further proceedings.

I

The pertinent facts are as follows. Petitioner provided

inpatient psychiatric treatment to A.M. and C.I. Each patient's

health insurance carrier declined to provide coverage for

certain periods of each patient's hospitalization, claiming such

hospitalization was not medically necessary. Petitioner sought

an internal review of each decision by each patient's insurance

carrier, but to no avail. The coverage petitioner sought was

$6,327.75 for one patient and $40,851.40 for the other.

Petitioner did not seek a review of the insurance carriers'

determination by the Department of Banking and Insurance (DOBI).

See N.J.A.C. 11:24A-3.6. This regulation provides an insured or

the medical provider may appeal an internal adverse benefit

determination to DOBI; there are some exceptions to the right to

appeal, but none existed here. Rather, after the internal

2 A-4669-14T4
review within each patient's insurance carrier had ended,

petitioner filed a claim with the Division in 2009 for Medicaid

benefits for the subject uncovered medical bills.

In 2012, the Division sent petitioner a letter stating it

would provide Medicaid benefits for one of the patients for some

of the period of his hospitalization his insurance company

refused to cover, but the Division declined to provide any

benefits for the other patient. The Division declined full

benefits to both on the basis the provider failed to show

medical necessity for the treatment. The Division did not cite

the petitioner's failure to appeal the insurance carriers'

adverse determinations to DOBI as a basis to deny benefits, and

never mentioned such oversight during the period these matters

were under the Division's review.

In response to the Division's determination, petitioner

submitted a request to the Division for a Utilization Review

Fair Hearing on behalf of each patient. Each request was

transmitted to the Office of Administrative Law for a hearing as

a contested matter; subsequently, the matters were consolidated.

Both parties moved for summary disposition. In its moving

papers, the Division asserted for the first time that petitioner

was ineligible for Medicaid benefits because it had failed to

appeal the insurance carriers' adverse determinations to DOBI.

3 A-4669-14T4
 On January 30, 2015, the Administrative Law Judge (ALJ)

issued an initial decision granting the Division's and denying

petitioner's motion for summary decision. The judge found,

before seeking Medicaid benefits, petitioner should have but did

not exhaust available administrative challenges to the insurance

carriers' determination there was no medical necessity for the

subject treatment. Among other things, the judge stated:

N.J.A.C. 10:49-7.3(b) states that, "Medicaid
. . . benefits are last-payment benefits."
This presupposes that administrative appeals
as to the [insurance carriers'] liability
would be exhausted before Medicaid is
expected to make payment. . . .

That is not to suggest, as petitioner
claims, that petitioner would be expected or
required to sue or appeal the insurance
carrier all the way to the U.S. Supreme
Court ad infinitum, if need be. Rather, it
is to expect that all administratively
available appeals of the adverse
determination are exhausted before last-
payment benefits are implicated. . . .

The ALJ then noted the binding impact of a decision by an

independent utilization review organization [IURO], such as

DOBI:

To that end, N.J.A.C. 11:24A-3.6(j)(2)
provides that, "The IURO's determination
shall be binding on the carrier and the
covered person, except to the extent that
other remedies are available to either party
under State or Federal law. The carrier
shall provide benefits (including payment on
the claim) pursuant to the IURO's

4 A-4669-14T4
 determination without delay, regardless of
whether the carrier intends to seek judicial
review of the external review decision,
unless there is a judicial decision stating
otherwise."

In other words, this appeal constitutes the
final administrative action with regard to
the carrier's determination of medical
necessity, not the . . . internal review.

On April 29, 2015, the Division's director issued a

decision adopting the ALJ's recommendations, stating:

Medicaid is a payer of last resort.
N.J.A.C. 10:49-7.3(b). Each state
administering the Medicaid program is
required to take measures to find out when
third parties are legally obligated to pay
for services covered by the plan. 42 U.S.C.
§ 1396a(25)(A). Once the probability of
third party liability exists, "the agency
must reject the claim and return it to the
provider for a determination of the amount
of liability." 42 C.F.R. § 433.139(b)(1).
Accordingly the ALJ correctly found it
reasonable to expect that all
administratively available appeals of the
adverse determination are exhausted to
determine third party liability before last-
payment benefits are implicated.

This appeal ensued.

II

On appeal, petitioner's principal contention is the

Division erred by denying Medicaid benefits on the ground

petitioner failed to administratively appeal the insurance

carriers' decision to decline coverage. Petitioner argues it

5 A-4669-14T4
complied with the Division's regulations before seeking Medicaid

benefits, and maintains there is no law compelling a Medicaid

claimant to appeal an insurance carrier's adverse determination

following an internal review. Accordingly, petitioner argues,

the Division's decision was arbitrary, capricious, and

unreasonable.

Our scope of review of a final administrative decision is

limited. In re Stallworth, 208 N.J. 182, 194 (2011). "An

agency's determination on the merits 'will be sustained unless

there is a clear showing that it is arbitrary, capricious, or

unreasonable, or that it lacks fair support in the record.'"

Saccone v. Bd. of Trs. of Police & Firemen's Ret. Sys., 219 N.J.

369, 380 (2014) (quoting Russo v. Bd. of Trs., Police &

Firemen's Ret. Sys., 206 N.J. 14, 27 (2011)).

On the other hand, a court is not bound by an agency's

determination of a purely legal issue. Pinelands Pres. All. v.

State, Dept. of Envtl. Prot., 436 N.J. Super. 510, 524-25 (App.

Div. 2014). "Because an agency's determination on summary

decision is a legal determination, [such] review is de novo."

L.A. v. Bd. of Educ. of City of Trenton, Mercer Cty., 221 N.J.

192, 204 (2015) (citing Contini v. Bd. of Educ. of Newark, 286

N.J. Super. 106, 121-22 (App. Div. 1995)).

6 A-4669-14T4
 "Medicaid is a medical assistance program for eligible low-

income individuals, established by Subchapter XIX of the federal

Social Security Act." Waldman v. Candia, 317 N.J. Super. 464,

470 (App. Div. 1999). This "program is administered jointly by

the federal and state governments." Ibid. States are not

required to participate in the program but, once a State joins,

the State's program must comply with the federal criteria. Id.

at 470-71.

The Department of Human Services, through the Division, is

designated as the state agency to administer New Jersey's

Medicaid program. N.J.S.A. 30:4D-5; N.J.S.A. 30:4D-7k. The

statutory provisions implementing Medicaid are set forth in the

Medical Assistance and Health Services Act, N.J.S.A. 30:4D-1 to

-42. Pursuant to that statute, the Division is vested with the

authority to administer Medicaid. N.J.S.A. 30:4D-7; see also 42

U.S.C.A. § 1396a(a)(5) (requiring States participating in

Medicaid to establish or designate a single state agency to

administer or supervise the plan).

"Congress, in crafting the Medicaid legislation, intended

that Medicaid be a 'payer of last resort.'" Ark. Dept. of Health

& Human Servs. v. Ahlborn, 547 U.S. 268, 291, 126 S. Ct. 1752,

1767, 164 L. Ed. 2d 459 (2006). "This means that all other

available resources must be used before Medicaid pays for the

7 A-4669-14T4
medical care of an individual enrolled in a Medicaid program."

Caremark, Inc. v. Goetz, 480 F.3d 779, 783 (6th Cir. 2007).

Because Medicaid is a "payer of last resort," federal law

requires "states to implement 'third party liability (TPL)

programs' which 'ensure that Federal and State funds are not

misspent for covered services to eligible Medicaid recipients

when third parties exist that are legally liable to pay for

those services.'" Wesley Health Care Ctr., Inc., v. DeBuono,

244 F.3d 280, 281 (2d Cir. 2001). A third party is "any

individual, entity or program that is or may be liable to pay

all or part of the expenditures for medical assistance furnished

under a State [Medicaid] plan." 42 C.F.R. § 433.136(3).

Federal Medicaid statute 42 U.S.C. 1396a(a)(25)(A) requires

each State's Medicaid agency take specific measures to find out

when third parties, such as private insurers, are legally

obliged to pay for services covered by Medicaid. Wesley, supra,

244 F.3d at 281 (citing 42 U.S.C. § 1396a(a)(25)(A)). New

Jersey's counterpart to the latter statute is N.J.S.A. 30:4D-

7(k), which authorizes the Division to take reasonable measures

to ascertain a third party's liability to a Medicaid claimant.

Waldman, supra, 317 N.J. Super. 464, 473 (App. Div. 1999).

Here, the Division takes the position that, before the

Division is required to pay benefits, it is reasonable to compel

8 A-4669-14T4
claimants to pursue any available administrative appeal of the

insurance carriers' adverse determinations. Because federal and

State law requires the Division to implement reasonable measures

to ascertain any third party's liability for a claimant's

medical bills, in general, we cannot fault the Division for

compelling potential claimants to seek DOBI's review of an

insurance company decision to deny coverage, unless it is clear

such review would be futile. Medicaid benefits are payments of

last resort, and the Division is tasked with ensuring such

payments are not expended if a third party is liable for a

claimant's medical expenses.

However, what is of concern to the court is whether

petitioner was on notice it had to seek DOBI's review or

otherwise pursue an administrative appeal of the insurance

companies' determinations before filing a claim for Medicaid

benefits. The Division did not provide, and we were unable to

find, a citation to any regulation or other authority that

alerted potential claimants of the necessity of seeking an

external review of an adverse determination by an insurance

company or like entity.

Compounding the matter is that, here, while these two

patients' claims were pending before it, the Division never

suggested to petitioner the claims were deficient or might be

9 A-4669-14T4
rejected because of petitioner's failure to seek review of the

insurance companies' determinations. Petitioner is now time-

barred from seeking DOBI review. The failure to provide notice

of the Division's decision to implement the measure of

compelling claimants to exhaust administratively available

appeals was raised by petitioner when before the ALJ, but was

not addressed by either the ALJ or the Director in their

respective decisions.

Accordingly, we remand this matter to the Division to

address the issue of notice and, depending on the outcome,

devise the appropriate remedy.

Remanded for further proceedings consistent with this

opinion. We do not retain jurisdiction.

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