Ecolono v. Division of Reimbursements of the Department of Health & Mental Hygiene

JAMES R. EYLER, Judge. The question presented by this case is whether the State Department of Health and Mental Hygiene violated State or federal law when it utilized Social Security benefits, payable to an individual committed to a State hospital, to pay current charges for that inpatient care. We find a violation of federal law and, as a result, shall reverse the decision of the Circuit Court for Howard County. ⁶⁴³ Factual Background On December 10, 1994, William Ecolono, Jr., appellant, was committed to institutional care at the Clifton T. Perkins Hospital Center (the Hospital), a mental health facility operated under the direction of the Mental Hygiene Administration, an agency of the Department of Health and Mental Hygiene, appellee. It was the fourth such admission for appellant.

Appellant was conditionally released from the Hospital on March 26,1996. On May 16, 1995, William Varley, a financial agent supervisor employed by appellee’s Division of Reimbursements, applied to the Social Security Administration (SSA) requesting that the Secretary of the Department of Health and Mental Hygiene (the Secretary), as head of the agency, be appointed representative payee for appellant. Federal law required that SSA appoint a representative payee for the purpose of receiving Social Security benefits owed appellant because appellant was incapable of handling his own finances. On or before February 2, 1996, the SSA appointed the Secretary representative payee.

On February 2, 1996, Mr. Varley learned that appellant had been awarded $17,155.40 by the SSA, representing back payment of Social Security disability benefits. 1 Under Maryland law, financial agents such as Mr. Varley were required to determine an individual patient’s assets and to calculate the cost of institutional care pursuant to a formula contained in the applicable regulations. Pursuant to those regulations, Mr. Varley calculated the amount due for care, subtracted $2,500 as an exempt amount plus $80 for personal needs expenses, and applied the net amount of $14,575.40 to pay the State’s bill for institutional care for the months of February and March. ⁶⁴⁴ On February 7, 1996, Mr. Varley advised appellant and his social worker that he had applied the funds as above. He also advised them that appellant had the right to seek both an informal and a formal review. The charge in the amount of $14,575.40 was for the period of February 1 through March 31, 1996.

Because appellant was actually released on March 26, Mr. Varley recomputed the charge and refunded $1,347.21 to appellant. Subsequent to the payment of disability benefits on February 2, 1996, appellant’s father requested that SSA appoint him representative payee. This request was eventually granted. Appellant’s conditional release on March 26 was conditioned on his residing apart from his parents in 90 days or less after his release.

The terms of the release also required him to attend Alcoholics Anonymous and Narcotics Anonymous meetings daily for the first 90 days of his release and weekly thereafter. Administrative Hearing Appellant challenged the application of his disability benefits to the payment of the bill for institutional care and pursued his challenge through the administrative process. On July 18, 1996, a hearing was conducted at the Office of Administrative Hearings. At that hearing, appellant asserted that (1) federal law required a representative payee to use disability benefits in the best interest of the beneficiary; (2) federal law prohibited a creditor, including the State, from seizing Social Security benefits; and (3) State law required appellee to investigate a patient’s expenses prior to assessing charges against him.

Appellant argued that these laws had been violated by appellee. At that hearing, a member of appellant’s treatment team at the Hospital testified that appellant, after release, would have living expenses and would incur costs in reviving his prior lawn care business. The witness testified that monies would have to be expended for those purposes in order for appellant to become self-supporting. The treatment team member tes ⁶⁴⁵ tified that she knew, at some point pre-release, that appellant would be receiving money from Social Security, but that he would probably not get it until February or March.

She explained that the 90-day provision was put in the release so that he would have ample time to get money. The treatment team member explained more specifically that appellant would incur post-release expenses for the following: (1) rent plus security deposit, (2) furnishings, (3) gas, electric, and phone service, (4) medication for bipolar disorder and substance abuse, (5) cost of urine screens, (6) fees charged by clinics not covered by medical assistance, and (7) costs to repair equipment for his landscaping business. The member of the team further testified that it had been her understanding that some money would be taken out of the Social Security benefits to pay the State’s bill, but she had assumed that he would have adequate funds remaining for his discharge plan. On direct examination, when asked whether, in her opinion, he in fact had adequate funds for his discharge plan, she stated that it would be very difficult for him to do what he had to do on the money available, and that it did compromise his discharge plan.

Our reading of the transcript indicates that the witness was under the impression that appellant had been paid $2,500. On cross-examination, when asked whether she thought $3,900 [the amount paid to appellant] was adequate, she stated that she was not “really qualified to determine a price of what it’s going to cost him to live.” At the time that Mr. Yarley paid the State’s bill, he was not aware that appellant was about to be released, and he had no communications with appellant’s treatment team. The treatment team was not aware that the benefits had been received and applied in the manner that they were applied until after the application of the funds on February 2, 1996. The treatment team made no request to Mr. Varley for the payment of expenses.

At the time of the hearing before the administrative law judge (ALJ), appellant resided with a friend, rent-free. He had applied for and qualified for medical assistance. He had placed a deposit on an apartment with a monthly rent of $624. ⁶⁴⁶ Appellant’s father testified that a portion of the Social Security disability benefits given to him by appellee had been used by him to repair his lawn equipment and that $450 to $500 remained. As previously stated, the charge calculated by Mr. Yarley covered the months of February and March, 1996.

The cost of hospitalization for February was $9,490, computed at $312 per day. The cost for the month of March was $5,085.40, computed at $167.19 per day. After calculation of the refund due, subtraction of $2,500 as exempt, and subtraction of $80 for living expenses, appellant was paid a total of $3,927.40. As of the time of the hearing before the ALJ, appellant was receiving $511 monthly in Social Security benefits, which terminated effective January 1,1997. 2 The ALJ concluded that, under Maryland law, appellant was primarily liable for the cost of his institutional care and that appellee violated neither State nor federal law in applying the benefits received to his bill for current care.

The Secretary adopted the ALJ’s decision, and the Secretary’s decision was affirmed by the Board of Review. Appellant filed a petition for judicial review in the Circuit Court for Howard County. The circuit court affirmed the agency’s decision. General Principles of Law Federal The Social Security Act provides for the payment of benefits to aged persons, blind persons, and mentally or physically disabled persons.

See 42 U.S.C. § 401 , et seq. If an individual is unable to manage his benefits, a person or entity can apply to be representative payee to receive the individual’s benefits. See 42 U.S.C. § 405 (j)- If the SSA certifies the representative payee, it pays the benefits to that ⁶⁴⁷ payee. 42 U.S.C. § 405 (j)(l)(a). The payments are paid to the payee as a fiduciary to be used for the use and benefit of the beneficiary.

Id. The statute provides that if the SSA or a court of competent jurisdiction determines that a representative payee misused funds, the SSA shall revoke the certification of the representative payee. Id. Federal regulations provide that the representative payee shall be an individual or agency who best serves the interests of the beneficiary.

See 20 C.F.R. § 404.2001 (a). Factors to be taken into account in certifying a representative payee are the relationship of the payee to the beneficiary, the amount of interest that the payee has shown in the beneficiary, and whether the payee is in a position to know of and look after the needs of the beneficiary. 20 C.F.R. § 404.2020 . Appellee points out that prior to the 1996 amendment to exclude persons whose disability was contributed to by alcohol and drug addiction from receiving disability benefits, the regulations provided that a governmental agency whose mission was to carry out income maintenance, social service, or health care-related activities was a preferred applicant to become representative payee for a person with an alcohol or drug addiction. See 42 U.S.C. § 405 (j)(2)(C)(V).

Subsequent to the amendment, such an agency with custody can qualify as representative payee but without the preference as before. 20 C.F.R. § 404.2021 (a)(3) (A public or nonprofit agency with custody is third in order of preference to (a) a legal guardian, spouse, or other relative with custody, and (b) a friend with custody.) As stated in the regulations, SSA’s primary concern is to select a payee who will best serve the beneficiary’s interest. 20 C.F.R. § 404.2021 . Appellant points out that the Social Security Act further provides, however, that payment of benefits shall not be certified to creditors of the recipient who supply the recipient with goods or services for consideration, except that an administrator, owner, or employee of a State licensed or certified health care facility having custody of the disabled person could be certified as representative payee after good faith efforts by ⁶⁴⁸ the SSA to locate an alternative representative payee to whom certification of payment would serve the best interest of the individual. See 42 U.S.C. § 405Cj)(2)(c)(iii)(IV). The following regulations are of particular significance in this case. 20 C.F.R. § 404.2035 (a) provides: A representative payee has a responsibility to— (a) Use the payments he or she receives only for the use and benefit of the beneficiary in a manner and for the purposes he or she determines, under the guidelines in this subpart, to be in the best interests of the beneficiary.... 20 C.F.R. § 404.2040 (a) and (b) provide: (a) Current maintenance.

(1) We will consider that payments we certify to a representative payee have been used for the use and benefit of the beneficiary if they are used for the beneficiary’s current maintenance. Current maintenance includes cost incurred in obtaining food, shelter, clothing, medical care, and personal comfort items. Example: An aged beneficiary is entitled to a monthly Social Security benefit of $400. Her son, who is her payee, disburses her benefits in the following manner: Rent and utilities.............................$200 Medical..................................... 25 Food ....................................... 60 Clothing (coat)............................... 55 Savings..................................... 30 Miscellaneous................................ 30 The above expenditures would represent proper disbursements on behalf of the beneficiary.

(2) Notwithstanding the provisions of paragraph (a)(1) of this section, if a beneficiary is a member of an Aid to Families With Dependent Children (AFDC) assistance unit, we do not consider it inappropriate for a representative payee to make the benefit payments available to the AFDC assistance unit. (b) Institutional care. If a beneficiary is receiving care in a Federal, State, or private institution because of mental or physical incapacity, current maintenance includes the ⁶⁴⁹ customary charges made by the institution, as well as expenditures for those items which will aid in the beneficiary’s recovery or release from the institution or expenses for personal needs which will improve the beneficiary’s conditions while in the institution. Example: An institutionalized beneficiary is entitled to a monthly Social Security benefit of $320.

The institution charges $700 a month for room and board. The beneficiary’s brother, who is the payee, learns the beneficiary needs new shoes and does not have any funds to purchase miscellaneous items at the institution’s canteen. The payee takes his brother to town and buys him a pair of shoes for $29. He also takes the beneficiary to see a movie which costs $3.

When they return to the institution, the payee gives his brother $3 to be used at the canteen. Although the payee normally withholds only $25 a month from Social Security benefit for the beneficiary’s personal needs, this month the payee deducted the above expenditures and paid the institution $10 less than he usually pays. The above expenditures represent what we would consider to be proper expenditures for current maintenance. A section of the Social Security Act of particular significance in this case is 42 U.S.C. § 407 (a), which provides: The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

State Under Maryland law, the recipient of inpatient services is primarily liable to pay for those services. See Md.Code (1994 RepLVol.), Health General (“HG”) Article § 16-203. The amount charged is determined after an investigation of the recipient’s ability to pay. HG § 16-202; COMAR ⁶⁵⁰ § 10.04.02.01.

This includes an investigation of the person’s income, assets, and expenses. COMAR § 10,04.02.03A. The regulations establish a rate schedule for each State mental health facility, including a maximum daily charge. COMAR § 10.02.01.03D.

The State’s financial agents then establish an appropriate daily rate for each patient, up to the maximum, based on the patient’s ability to pay. COMAR § 10.02.01.04A(2). Certain assets are exempted from the ability to pay analysis, including a primary residence, household furnishings, a motor vehicle, and liquid assets with a value of $2,500. COMAR § 10.04.02.03(G)(1).

For purposes of determining a recipient’s ability to pay, the regulations provide that appellee shall consider all of the recipient’s assets and income to be available for billing purposes. COMAR § 10.04.02.03(G). They further state that in recognition of an individual’s ongoing financial needs, appellee shall consider a reduction in billing by permitting the income allowances, asset exemptions, and allowable expenses provided by regulation. Id.

They further provide that a billing reduction may not be permitted unless and until the recipient of services submits appropriate written documentation demonstrating his or her entitlement to the billing reduction. Id. Expenses that must be deducted from gross income in determining ability to pay include: Reasonable allowances shall be made for necessary and appropriate purchases of clothing and other personal items which may be used by the recipient of services while in a residence or during the course of a clinically sponsored activity. Clinicians responsible for the recipient of services[,] care and treatment shall be consulted to determine the appropriateness of the requested item.

COMAR 10.04.02.04(G)(3)(d). Contentions of the Parties Appellant first contends that the circuit court erred in concluding that the Secretary did not have a fiduciary duty to use the Social Security disability benefits in the interest of ⁶⁵¹ appellant as beneficiary and in failing to find a breach of such duty in appellee’s failure to consider appellant’s discharge needs. Second, appellant contends that the circuit court erred in refusing to hold that appellee’s process of applying appellant’s benefits to the State’s charges for services violated 42 U.S.C. § 407 (a). Third, appellant contends that the circuit court erred in failing to hold that appellee did not violate State law based on a failure to investigate appellant’s financial condition and expenses.

Appellee, in response to the first contention, asserts that Federal and State law permitted the application of Social Security disability benefits to the payment of costs for current maintenance. With respect to the second contention, appellee asserts that the argument was not presented to the ALJ and, thus, is not properly before us. In the alternative, appellee asserts that § 407(a) does not apply because there was no legal process. With respect to the last contention, appellee contends that its financial agent did conduct an investigation in accordance with State law and that appellee’s decision in that regard was supported by substantial evidence.

Finally, appellee contends, even though not raised below, that the courts of this State lack subject matter jurisdiction. Subject Matter Jurisdiction Even though the question of subject matter jurisdiction was not raised below, we may consider it on appeal. See Md. Rule 2-324(b); Jones v. Jones, 259 Md. 336, 342 , 270 A.2d 126 (1970); Bogley v. Barber, 194 Md. 632, 641 , 72 A.2d 17 (1950). Appellee argues that the Social Security Act provides the opportunity for a hearing to contest appointment of a representative payee, 42 U.S.C. § 405 (j)(2)(E)(i), and a remedy for the payee’s breach of duty. 42 U.S.C. § 408 (a)(5) (provides criminal penalties for willfully converting payments to a use other than for recipient); 20 C.F.R. § 404.2041 (if the SSA makes payment to a representative payee, the representative payee may be liable for the payee’s misuse of funds but the SSA is not liable); 20 C.F.R. § 404.2050 (the SSA will replace ⁶⁵² a representative payee if it is advised that the payee has not carried out its responsibilities).

Appellee concludes that the existence of a federal remedy prevents State interference with a representative payee’s application of Social Security benefits. Appellee also cites certain cases, including Jarvis v. Bowen, 1986 WL 88379 , ( 1986 U.S. Dist. LEXIS 17092 , Unemployment Ins. Rep.

(CCH) P17968 (D.Minn.1986)). In Jarvis , a person claiming social security benefits sought judicial review of the SSA’s appointment of a representative payee. The claimant was in a State facility. The SSA appointed a county welfare department as representative payee.

A federal administrative law judge determined that the appointment was not in violation of the law but found that the policy of the welfare department, which allocated benefits without taking into account the claimant’s needs, did not serve the best interest of the claimant. The ALJ ordered the payee to set aside $85 per month from the claimant’s monthly benefits for personal use. The court upheld the ALJ’s conclusions. Significantly, for purposes of the present issue, the court did not address the question of jurisdiction of State courts.

Appellee also relies on In Re Estate of Merritt, 272 Ill.App.3d 1017 , 209 Ill.Dec. 502 , 651 N.E.2d 680 (1995). In that case, the question was whether the court could force the guardian of the disabled person to use Social Security disability benefits to pay a State institution. The court held that the federal regulations were permissive and, while such were payments proper, the regulations did not mandate them. Id. 209 Ill.Dec. 502 , 651 N.E.2d at 683 .

The court also opined that a representative payee may be held liable for misuse of funds under federal law and observed that it is the federal government’s responsibility to enforce the duties of representative payees. Id. The court did not discuss but apparently assumed it had jurisdiction. 3 ⁶⁵³ The third case relied on by appellee is C.G.A. v. State, 824 P.2d 1364, 1369 (Alaska 1992). In C.G.A., the recipient of social security benefits was a minor.

The recipient was adjudicated a delinquent, placed in foster care, and ultimately confined in a youth center. The recipient’s mother was representative payee for a period of time and subsequently a State agency was certified as representative payee. The State attempted to garnish benefits received by the recipient’s mother for the cost of detention, and the court held that such action was prohibited by § 407(a). Id. at 1367.

The court observed that, after the State agency became representative payee, it could voluntarily pay the State for maintenance, i.e., costs of the recipient’s foster care, but reserved jurisdiction on the question of whether it could pay the State for the cost of detention. Id. at 1369-70. The court concluded that the parties should be afforded the opportunity to obtain an initial determination of the question from SSA. Id.

The court opined that the SSA should be requested to determine whether 20 C.F.R. § 404.2040 (b) is limited to the costs of mental or physical care institutions, whether the State agency as representative payee should first conduct an individual assessment of the recipient’s needs before using the benefits for the cost of detention, and whether reimbursement violated § 407(a). Id. at 1370 n. 17. The court did not rule or even intimate that it did not have jurisdiction. In Jahnke v. Jahnke, 526 N.W.2d 159 (Iowa 1994), the court did consider the question of State court jurisdiction.

That court was faced with a dispute between a representative payee and the beneficiary with respect to the use of Social Security disability benefits. The court observed that a review by the SSA of a representative payee’s expenditures was only for the purpose of determining whether to remove the payee. Id. at 163 ; see 20 C.F.R. § 404.2065 (the SSA may, in certain situations, verify how a representative payee uses the funds). ⁶⁵⁴ The Jahnke court stated that the SSA did not resolve disputes between payees and beneficiaries relating to allocation of benefits. 526 N.W.2d at 163 . The court concluded that State courts can look into the expenditure of Social Security benefits when questioned by an interested party.

Id. (citing Shields v. Katz, 143 A.D.2d 743 , 533 N.Y.S.2d 451, 453 (1988)(dispute between payee and beneficiary on use of benefits to pay for institutional care); In re Kummer, 93 A.D.2d 135 , 461 N.Y.S.2d 845, 861 (1983)(dispute between payee and stepparent on use of benefits); Catlett v. Catlett, 55 Ohio App.3d 1 , 561 N.E.2d 948, 954 (1988)(dispute between divorced parents as to propriety of mother’s expenditure of child’s benefits)). Regardless of the extent of the duty of the SSA to monitor the expenditure of benefits by representative payees, we find nothing in federal law to indicate an intent by Congress to limit interested parties to the federal administrative and judicial review process and to prohibit State courts from exercising jurisdiction, in the case before us, when the relief requested is not the removal of the payee but a reallocation of the benefits. Consequently, we conclude that we have subject matter jurisdiction to decide a dispute between the beneficiary of social security benefits and his representative payee with respect to the allocation of those benefits.

We also note that appellant asserts a State law as well as a Federal law claim. We shall proceed to address appellant’s issues. Duty to Act in Best Interests of Beneficiary Appellant states that a member of his treatment team testified at the administrative hearing that it was in his best interest for at least a portion of his benefits to be used for his release and recovery. The essence of appellant’s first contention is that, under the best interests standard, the Secretary had a duty to exercise discretion, but without knowledge of the treatment team’s recommendation, and without acknowledging any duty to exercise discretion, the Secretary’s agent automatically applied the benefits to appellant’s bill for current maintenance. ⁶⁵⁵ Based on the federal statute and regulations set forth earlier in this opinion, we conclude that the application of social security benefits to current maintenance is regarded by the SSA as being in the best interest of the beneficiary.

We also conclude that the services rendered to appellant came within the definition of current maintenance contained in § 404.2040(b). Under that subsection, current maintenance includes the customary charges made by the institution. Current maintenance also includes, however, expenditures for those items that will aid in the beneficiary’s recovery or release from the institution or expenses for personal needs which will improve the beneficiary’s conditions while in the institution. In our view, it is questionable whether the expenses at issue in this case fall within the language of items “which will aid in the beneficiary’s recovery or release from the institution.” See 20 C.F.R. § 404.2040 (b).

That provision of the Code of Federal Regulations appears to relate to expenses incurred prior to release, as compared to the conservation of funds to be applied to expenses incurred after release. Nevertheless, the Secretary, as representative payee, had the right under federal law to apply security funds to post-discharge expenses if it was in the best interest of the beneficiary to do so. Appellant relies on Jarvis v. Bowen, 1986 WL 83379 , 1986 U.S. Dist. LEXIS 17092 , Unemployment Ins.

Rep. (CCH) P17968 (D.Minn.1986), a case previously discussed in connection with subject matter jurisdiction. In that case, a county welfare agency served as a representative payee and the beneficiary resided in a State institution. The patient’s treatment team recommended outside psychiatric treatment that would aid his recovery and release from the institution.

The representative payee took the position, in accordance with directions from the State, that it had to use the benefits solely to pay the cost of the hospital charges. Id. 1986 WL