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From Health Law Daily, July 20, 2015

District court missed on Medicaid due process, appellate court ‘noticed’

By Bryant Storm, J.D.

The Court of Appeals for the D.C. Circuit determined that nine Medicaid beneficiaries adequately alleged that the notice they received regarding the denial of prescription drug coverage was a violation of due process. Although the appellate court agreed with the trial court regarding a the lack of a viable notice challenge under Title XIX of the Social Security Act (SSA) (42 U.S.C. §1396), the appellate court reversed the district court’s dismissal of Medicaid beneficiaries’ constitutional due process claims and remanded the case so that an inquiry could be made regarding the adequacy of the process the beneficiaries received (NB v D.C., July 17, 2015, Caldwell, K.).

Procedure. Title XIX of the SSA guarantees certain procedural protections for Medicaid beneficiaries. The statute requires that a state Medicaid plan provide “for granting an opportunity for a fair hearing before the State agency to any individual whose claim for medical assistance under the plan is denied or is not acted upon with reasonable promptness.” For purposes of that provision, “medical assistance” means payment of part or all of the cost of prescription drugs. As a result, denial of payment for prescribed drugs triggers an “opportunity for a fair hearing before the State agency.” Medicaid regulations, under 42 C.F.R. Sec. 431.220(a)(1)-(2), also guarantee a Medicaid beneficiary the right to a hearing upon request after a denial of coverage. Under certain circumstances, notice of that right must also be provided pursuant to 42 C.F.R. Sec. 431.206(b)(1)-(3).

Denial and notice. Nine Medicaid beneficiaries brought suit in federal district court against the District of Columbia, its Mayor, and the Director of D.C.’s Department of Health Care Finance (collectively, D.C.), alleging that they were not given “adequate and timely notice, the opportunity for a fair hearing, and the opportunity for reinstated coverage pending a hearing decision” related to denials of Medicaid prescription drug coverage. The beneficiaries alleged that the inaction constituted a violation of Title XIX, the due process clause of the Fifth Amendment to the U.S Constitution, and D.C. law. Each of the beneficiaries was denied coverage for prescriptions at D.C. pharmacies. The beneficiaries were given different reasons for the denials but none of the beneficiaries received written notice of the denial, the reason for the denial, or the right to appeal the decision.

District court. The lower court dismissed the Title XIX claims by examining coverage denials that were premised upon failures to demonstrate Medicaid enrollment or to comply with applicable prior authorization requirements. The court held that because any other denials were not attributable to government action, the beneficiaries were not entitled to hearings under Title XIX because those procedural protections were reserved “to those who were in fact enrolled in Medicaid and, as applicable, to those who had met required prior authorization and other applicable threshold criteria.” The district court also dismissed the due process claims on the grounds that the beneficiaries had no “legitimate claim of entitlement to the drugs” (see Beneficiaries are not entitled to all prescription drugs, April 2, 2014).

Title XIX. The appellate court agreed with the district court regarding the Title XIX claims, holding that “the regulations afford the plaintiffs no basis for relief.” The court explained that the Medicaid regulations do not require notice anytime coverage for prescription drugs is denied but, instead, required a hearing if one was requested. Additionally, the court acknowledged that although certain agency actions, including “termination, suspension, or reduction” might have triggered a notification obligation, the mere denial of coverage, could not trigger the notice requirement.

Legitimate claim. However, the appellate court disagreed with the district court’s handling of the due process claims. On appeal, the court explained that it rejected the district court’s determinations that, for most of the alleged denials, the beneficiaries lacked a protected property interest and that, for all of the alleged denials, the beneficiaries failed to allege a deprivation at the hands of the government. The appellate court held that the beneficiaries adequately alleged a protected property interest in their prescription drug benefits. The court reasoned that it was a misunderstanding of due process to hold that beneficiaries first needed to satisfy the preconditions to prescription drug coverage in order to have a “legitimate claim of entitlement” to coverage. The court reasoned that, instead, the beneficiaries had legitimate property interests in the coverage of any drug not completely excluded from coverage under Medicaid.

Government action. With regards to the next step in the due process analysis, the court concluded that the alleged deprivation of the beneficiaries’ property interests occurred at the hands of the government. The court determined that the government action was adequately demonstrated through the beneficiaries’ allegations that Xerox, a private company, determined their eligibility for benefits while acting as an agent of D.C.

Adequacy. The appellate court held that the beneficiaries also satisfied the third and final step in raising a due process challenge by alleging that the process they received was inadequate. The court reasoned that the beneficiaries got “some process,” in the form of an explanation from D.C. regarding the reason for the denial of coverage. However, due to the beneficiaries’ argument that the due process clause entitled them to more, “including written notice of the opportunity to request a hearing anytime prescription drug coverage is denied at the point-of-sale,” the court held that the due process challenge required further analysis. Because the district court did not reach the issue of the adequacy of the process, the appellate court remanded the case back down to the district court so that an appropriate inquiry could take place regarding what process was due.

The case is No. 14-7054.

Attorneys: Jane M. Liu (Terris, Pravlik & Millian, LLP) for NB by her parent and next friend, Michelle Peacock. Loren L. AliKhan, Deputy Solicitor General, Office of the Attorney General, District of Columbia, for District of Columbia.

Companies: Xerox Corporation; District of Columbia

MainStory: TopStory MedicaidNews CoverageNews DrugBiologicNews PrescriptionDrugNews CMSNews DistrictofColumbiaNews

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