Maryland Department of Health & Mental Hygiene v. Brown

BARBERA, J. We are asked in this appeal to identify the appropriate legal standard to be used when determining medical eligibility for services through the Maryland Medicaid Assistance Home and Community Waiver for Older Adults Program (“Older Adults Waiver Program”). The program permits Medicaid recipients who need health-related care to receive care at home or in a community-based assisted living facility, instead of a nursing home. The Maryland Department of Health and Mental Hygiene (“Department”), appellant, denied the application of Ida Brown, appellee, for health care services under the Older Adults Waiver Program. The Department concluded that Ms. Brown did not satisfy the level of medical care required for admission.

Ms. Brown requested a hearing at the Office of Administrative Hearings (“OAH”). The Administrative Law Judge (“ALJ”) affirmed the denial of Ms. Brown’s application, agreeing with the Department that she was medically ineligible for the Older Adults Waiver Program. Ms. Brown appealed to the Department’s Board of Review (“Board”). The Board held a hearing and thereafter issued an order affirming the ALJ’s decision and adopting the “Findings of Fact and Conclusion of the Law set forth therein.” Ms. Brown sought judicial review.

The Circuit Court for Baltimore City, following a hearing, reversed the Board’s decision. The circuit court ruled from the bench that the ALJ and the Board applied the incorrect standard for determining Ms. Brown’s medical eligibility to participate in the Older Adults Waiver Program. The court identified what it believed ⁴⁴⁴ to be the correct eligibility standard, applied that standard to the facts developed at the hearing before the ALJ, and concluded that Ms. Brown “is eligible for an adult waiver.” The court then issued a written order reversing the decision of the Board and finding Ms. Brown eligible for benefits under the Older Adults Waiver Program. The Department appeals the court’s decision and presents two questions, which we have reworded slightly: I. Did the ALJ, as affirmed by the Board of Review, apply the proper legal standard in determining that Ms. Brown was ineligible for the health care services under the Older Adults Waiver Program?

II

Was the ALJ’s decision supported by substantial evidence in the record? For the reasons that follow, we conclude, as did the circuit court, that the ALJ did not apply the proper legal standard in denying Ms. Brown’s application for health-related assistance through the Older Adults Waiver Program. We disagree, however, with the circuit court’s decision to apply what it believed to be the correct legal standard to the facts of Ms. Brown’s case as they were developed at the evidentiary hearing before the ALJ. The proper standard, as we shall define it in this opinion, should be applied to Ms. Brown’s case in the first instance at the agency level.

Accordingly, we shall vacate the judgment of the circuit court and direct that the case be remanded to the Board, which, in turn, is directed to remand the case to the OAH for further proceedings. I. The principal issue raised by this appeal requires consideration, as a preliminary matter, of the structure of Maryland’s Older Adults Waiver Program and how it fits within the overall Medicaid scheme. A. Medicaid and Maryland’s Plan Medicaid is a joint federal-state program established by Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. ⁴⁴⁵ (2000). The program provides health care to financially and medically needy individuals.

Ehrlich v. Perez, 394 Md. 691, 701 , 908 A.2d 1220 (2006); Reese v. Dep’t of Health and Mental Hygiene, No. 514, Sept. Term 2006, 2007 WL 3227549 , at ² (Md.App. Nov.2, 2007); see 42 U.S.C. §§ 1396 et seq. Beneficiaries include low-income adults and children, the elderly, and mentally and physically disabled individuals. Reese, 2007 WL 3227549 , at ². State participation in Medicaid is voluntary.

Id. Each participating state is given some flexibility in devising its Medicaid program, but the state’s plan must be approved by the federal Centers for Medicare and Medicaid Services (“CMS”). 1 42 U.S.C. § 1396a. If the state’s proposed plan is approved, the state is eligible for federal funding, and the plan becomes mandatory. 42 U.S.C. § 1396a(a)(l); Ehrlich, 394 Md. at 702 , 908 A.2d 1220 ; Reese, 2007 WL 3227549 , at ². Maryland has elected to participate in Medicaid.

The State’s Medicaid plan, known as the Medical Assistance Program (“MAP”), is administered by the Department. Md.Code (2005 Repl.Vol., 2007 Supp.), § 15-103 of the Health General Article; Reese, 2007 WL 3227549 , at ². By participating in Medicaid, Maryland has agreed to abide by federal statutory and regulatory requirements and to provide financial assistance to qualified recipients for seven broad areas of medical treatment. See 42 U.S.C. § 1396a(a)(10)(A); Alexander v. Choate, 469 U.S. 287 , 289 n. 1, 105 S.Ct. 712 , 83 L.Ed.2d 661 (1985); Jackson v. Millstone, 369 Md. 575, 595-96 , 801 A.2d 1034 (2002); see also Ehrlich, 394 Md. at 701 , 908 A.2d 1220 (stating that, “[i]f a state chooses to take part in the federal Medicaid program, it must comply with the requirements set forth in Title XIX and its implementing regulations in order to receive federal matching funds”).

The areas of treatment include nursing facility services for eligible persons age twenty-one and over. 42 U.S.C. § 1396d(a)(4)(A). ⁴⁴⁶ In 1981, Congress created as part of the Medicaid scheme the Home and Community Based Waiver Program (“HCBS”). The HCBS allows states to offer long-term care, not otherwise available through the states’ Medicaid programs, to serve eligible individuals in their own homes and communities, instead of nursing facilities. 42 U.S.C. § 1396n(c)(l); see 42 C.F.R. § 441.300 (stating that the federal act “permits States to offer, under a waiver of statutory requirements, an array of home and community-based services that an individual needs to avoid institutionalization”). The HCBS permits participating states to apply for a waiver from the Secretary of the Department of Health and Human Services (“HHS”) to fund community-based services, “pursuant to a written plan of care to individuals with respect to whom there has been a determination that but for the provision of such services the individuals would require the level of care provided in a hospital or nursing facility ... the cost of which could be reimbursed under the State plan.” 42 U.S.C. ,§ 1396n(c)(l); see 42 C.F.R. § 435.217 . The Older Adults Waiver Program, at the center of the present appeal, is one such program authorized by the HCBS.

B. The Older Adults Waiver Program We have said that, by participating in Medicaid, MAP must provide Medicaid recipients with, among other services, “nursing facility services.” 42 U.S.C. § 1396a(a)(10)(A); 42 U.S.C. § 1396d(a)(4)(A). The Older Adults Waiver Program allows participating states to seek approval from the Secretary of HHS for a plan to excuse the requirement that such services for an eligible Medicaid recipient be provided in a nursing home setting: The Secretary may by waiver provide that a State plan approved under this subchapter may include as “medical assistance” under such plan payment for part or all of the cost of home or community-based services (other than room and board) approved by the Secretary which are provided pursuant to a 'written plan of care to individuals with respect to whom there has been a determination that but for the ⁴⁴⁷ provision of such services the individuals would require the level of care provided in a hospital or a nursing facility or intermediate care facility for the mentally retarded the cost of which could be reimbursed under the State plan. 42 U.S.C. § 1396n(c)(l). Section 1396n(c)(l) makes plain that, to be eligible for the Older Adults Waiver Program, an individual must require the same level of care as is provided in a Medicaid nursing facility. Ascertaining that level of care is the central focus of this appeal.

Bearing in mind that no participating state’s Medicaid program may establish more restrictive eligibility requirements than those set by federal law, we look to the Medicaid statute and related regulations that establish the required level of care as the benchmark for eligibility under Maryland’s plan. The level of care required for receipt of Medicaid nursing facility care is found in the federal statutory and regulatory provisions that define the terms “nursing facility” and “nursing facility services.” Beginning in the 1970s, the Medicaid program provided benefits for nursing home services at both the “skilled” level of nursing care and at what was known as the “intermediate” level of nursing care. Congress eliminated the distinction between skilled level of nursing care and intermediate level of nursing care in 1987, when it enacted the Nursing Home Reform Law. 2 See 42 U.S.C. § 1396r(a). The House Committee report said that the new term, “nursing facility services,” would “not in any way alter the entitlement of current [or future] Medicaid beneficiaries or applicants ... to what is now an [intermediate care facility] level of care.” H.R. REP.

NO. 100-139(1), at 453 (1987), reprinted in 1987 U.S.C.C.A.N. 2313-273. The new, consolidated standard of care includes services “just above ‘room and board’ ” at one end, and “just ⁴⁴⁸ below hospitalization” at the other. Newman v. Kelly, 848 F.Supp. 228 , 239 n. 4 (D.D.C.1994). “Nursing facility” is now defined, in relevant part, as: [A]n institution (or a distinct part of an institution) which— (1) is primarily engaged in providing to residents— (A) skilled nursing care and related services for residents who require medical or nursing care, (B) rehabilitation services for the rehabilitation of injured, disabled, or sick persons, or (C) on a regular basis, health-related care and services to individuals who because of their mental or physical condition require care and services (above the level of room and board) which can be made available to them only through institutional facilities, and is not primarily for the care and treatment of mental diseases[.] 42 U.S.C. § 1396r(a). The phrase “nursing facility services” is defined as follows: For purposes of this subchapter, the term “nursing facility services” means services which are or were required to be given an individual who needs or needed on a daily basis nursing care (provided directly by or requiring the supervision of nursing personnel) or other rehabilitation services which as a practical matter can only be provided in a nursing facility on an inpatient basis. 42 U.S.C. § 1396d(f).

Notably, 42 U.S.C. § 1396d(f) does not require in all instances that the services be provided directly by nursing personnel. Rather, in some instances, the services need only require “the supervision of nursing personnel.” The Code of Federal Regulations contains two definitions of “nursing facility services.” One regulation evidently pertains to services that are provided at facilities addressed in 42 U.S.C. § 1396r(a)(l)(A), essentially “skilled level care,” and the other pertains to services that are provided at facilities addressed in 42 U.S.C. § 1396r(a)(l)(C), “intermediate level care.” ⁴⁴⁹ The regulation that addresses skilled level care, 42 C.F.R. § 440.40 (a)(i), describes skilled nursing services as those that are “[n]eeded on a daily basis and required to be provided on an inpatient basis under §§ 409.31 through 409.35 of this chapter.” 42 C.F.R. § 409.31 (a)(2)-(3) in turn defines “skilled services” as those that “[r]equire the skills of technical or professional personnel such as registered nurses [or] licensed practical (vocational) nurses ... furnished directly by, or under the supervision of, such personnel,” on a daily basis. The second regulation defining “nursing facility services,” 42 C.F.R. § 440.155 , addresses the “intermediate” level of care described in 42 U.S.C. § 1396r(a)(l)(C). 42 C.F.R. § 440.155 provides, in part: (a) “Nursing facility services, other than in an institution for mental diseases means services provided in a facility that— (1) Fully meets the requirements for a State license to provide, on a regular basis, health-related services to individuals who do not require hospital care, but whose mental or physical condition requires services that— (i) Are above the level of room and board; and (ii) Can be made available only through institutional facilities^] Plainly, 42 C.F.R. § 440.155 does not require involvement of, or service provided by, skilled or trained medical personnel. The parties are in apparent agreement that the nursing facility level of care that Ms. Brown claims to require for admission into Maryland’s Older Adults Waiver Program (which we shall discuss next) is the level of care addressed by 42 U.S.C. § 1396r(a)(l)(C) and 42 C.F.R. § 440.155 .

That level of nursing care is not “skilled nursing care,” but, rather, what used to be described in the federal law as “intermediate” nursing facility level of care. That is, Ms. Brown seeks to qualify under Maryland’s Older Adults Waiver Program as needing, “on a regular basis, health-related care and services to individuals who because of their mental or physical condi ⁴⁵⁰ tion require care and services (above the level of room and board) which can be made available to them only through institutional facilities----”42 U.S.C. § 1396r(a)(1)(C); see 42 C.F.R. § 440.155 . C. Maryland’s Regulations on the Subject Since Maryland began participating in Medicaid, it has been required to provide nursing facility services. The definition of “nursing facility” set forth in Maryland regulations is, not surprisingly, virtually identical to the federal definition provided in 42 U.S.C. § 1396r(a)(l)(A)-(C).

Set forth in COMAR 10.09.10.01B(30)(a), “nursing facility” is defined, in pertinent part, as an institution which is primarily engaged in providing to residents: (i) Skilled nursing care and related services for residents who require medical or nursing care; (ii) Rehabilitation sendees for the rehabilitation of injured, disabled, or sick persons; or (iii) On a regular basis, health-related care and services to individuals who, because of their mental or physical condition, require care and services (above the level of room and board) which can be made available to them only through institutional facilities. Maryland’s definition of “nursing' facility services” is found at COMAR 10.09.10.01B(31). Like the Maryland regulation defining “nursing facility,” and indeed, like the definition of “nursing facility services” in 42 U.S.C. § 1396d(f), the Maryland regulation defining nursing facility services incorporates all three forms of services provided at nursing facilities: skilled nursing care, rehabilitation services, and, relevant to this case, intermediate level of care. COMAR 10.09.10.01B(31) describes those services as services provided to individuals who do not require hospital care, but who, because of their mental or physical condition, require skilled nursing care and related services, rehabilitation services, or, on a regular basis, health-related care and ⁴⁵¹ services (above the level of room and board) which can be made available to them only through institutional facilities under the supervision of licensed health care professionals.

(Emphasis supplied). The portion of COMAR 10.09.10.01B(31) that we have emphasized, unlike 42 U.S.C. § 1396r(a)(l)(C) and 42 C.F.R. § 440.155 , requires that the health-related care and services at the intermediate level of care be provided under the supervision of licensed health care professionals. Furthermore, to the extent that the Maryland regulation governing nursing facility services seeks to parrot 42 U.S.C. § 1396d(f) (defining “nursing facility services”), we see that it does not. Whereas the Maryland regulation requires that the intermediate level of care be provided under the supervision of licensed health care professionals, the federal statute provides that the health-related care need only require “the supervision of nursing personnel.” And certainly, the federal regulation governing nursing facility services at the intermediate level of care does not require that the care be provided under the supervision of a licensed health care provider on a daily basis.

D. Maryland’s Older Adults Waiver Program Before 1999, Maryland had a Medicaid waiver program for older adults, which was limited to providing nursing facility services in nursing homes. Then, in 1999, the General Assembly enacted SB 593, requiring the Department to submit an application, under the Older Adults Waiver Program provided by the HCBS, to permit Maryland to allow eligible applicants to obtain nursing facility services at home or in a community-based assisted living facility. The testimony of the bill’s sponsor, Senator Paula Hollinger, before the House Environmental Matters Committee, sets the stage for understanding the purpose of that legislation. We quote part of that testimony: The bill that I am submitting to you today directs the Department of Health and Mental Hygiene to apply to the Federal Health Care Financing Administration for an amendment to Maryland’s Home and Community Based ⁴⁵² Waiver that will expand eligible services in the community for our Medicaid eligible population.

The bill will allow citizens who have spent down their financial resources and who are in need of nursing facility services to qualify not only for skilled care in the community, but for an intermediate level of care as well. Many people prefer to remain in their home or in assisted living facilities in their communities and should not be forced to enter nursing homes in order to be eligible for Medicaid. This bill ... clarifies the definition of intermediate level of care for those whose need for assistance falls short of the skilled level of nursing care. Intermediate level of care includes health related care and services to individuals who do not require hospital or skilled level of nursing facility care, but whose mental, physical, functional, or cognitive condition requires health services that are above the level of room and board, are provided on a regular basis, and can be made available through institutional facilities.

SB 593 was enacted into law. Codified at Maryland Code (1994 Repl.Vol., 1999 Supp.), § 15-132 of the Health General Article (“HG”), the statute authorized the Department to seek approval from the Health Care Finance Administration (HCFA), now CMS, for the State’s Older Adults Waiver Program. The statute had, at the time, three principal subsections. Subsection (a) established the standard for level of care for the waiver program.

Subsection (b) required the Department to submit a new waiver application by August 1, 1999. What was then subsection (c) (now subsection(d)), directed the Department to include five specific items in the subsection (b) waiver application. Those items are now listed in (d)(1) through (5). 3 Subsequent amendments to HG § 15- ⁴⁵³ 132 have caused the renumbering of the subsections that are pertinent to this opinion. For convenience, we shall hereinafter refer to the subsections as they are numbered in the most recent version of HG § 15-132, found in the 2005 Replacement Volume of the Code.

Subsection (b) of HG § 15-132 requires the Department to submit an application for a home and community-based services waiver for individuals who are “medically and functionally impaired.” The phrase “medically and functionally impaired” is defined in subsection (a)(10) as meaning “an individual who is assessed by the Department to require services provided by a nursing facility as defined in this section, and who, but for the receipt of these services, would require admission to a nursing facility within 30 days.” Subsection (a)(ll) of HG § 15-132 defines “nursing facility.” Despite the elimination in federal law of the distinction between “skilled nursing care” and “intermediate level of care,” the statute defines “nursing facility” to include facilities that provide services to individuals requiring an “intermediate level of care.” Subsection (a)(ll) provides: (i) “Nursing facility” means a facility that provides skilled nursing care and related services, rehabilitation services, and health related care and services above the level of room and board needed on a regular basis in accordance with § 1919 of the federal Social Security Act. (ii) “Nursing facility” includes a facility that provides services to individuals certified as requiring an intermediate level of care. “Intermediate level of care” is defined in HG § 15-132(a)(9) as follows: “Intermediate level of care,” for purposes of paragraph (ll)(ii) of this subsection, includes health related care and services provided to individuals who do not require hospital or a skilled level of nursing facility care but whose ⁴⁵⁴ mental, physical, functional, or cognitive condition requires health services that: (i) Are above the level of room and board; (ii) Are provided on a regular basis at least 5 days in a 7- day period; and (iii) Can be made available to the individuals through institutional facilities. Although the definitions in subsection (a) were not explicitly conditioned on CMS approval, they were tied to the waiver program sought under then subsection (c) (now an subsection (d)) to extend to eligible older adults home care or community-based assisted living services in lieu of nursing home placement. We have said that the controversy in the present case centers on whether Ms. Brown satisfies the medical eligibility requirements, under Maryland’s Older Adults Waiver Program, for the intermediate level of care.

The dispute more particularly concerns whether the Department has set the standard for intermediate-level-of-care eligibility higher than federal law, and, for that matter, state law, permits. Ms. Brown argues that the Department has set the bar higher than the law permits. The Department insists that it has not. Before addressing that dispute, we turn to the facts concerning Ms. Brown that were developed at the administrative proceedings.

We also trace in greater detail the procedural history of the case that brings us to this juncture.

II

This Case Ms. Brown was born on September 13, 1922. She suffers from multiple medical conditions, including Alzheimer’s Dementia, osteoarthritis, osteoporosis, elevated cholesterol levels, hypertension, bilateral cataracts, and a benign brain tumor. On April 13, 2005, Ms. Brown, with the help of her daughter, Diane Byus, applied for home and community-based services under Maryland’s Older Adults Waiver Program. At the time of her application, Ms. Brown was alert and oriented to person but was only partially oriented to time and ⁴⁵⁵ place.

Ms. Brown was prescribed to take up to seven oral medications and various supplements, almost all of which were prescribed to be taken on a daily basis. She required assistance in taking her medications as well as using the telephone, managing money, and housekeeping. By letter dated May 4, 2005, the Department informed Ms. Brown that her application for the Older Adults Waiver Program was denied because she did not satisfy the standard for medical eligibility (it is undisputed that she satisfies the standard of financial eligibility). Ms. Brown appealed the Department’s decision to the OAH.

On August 23, 2005, an evidentiary hearing was conducted before an ALJ to determine Ms. Brown’s eligibility for the Older Adults Waiver Program. 4 Ms. Byus, a registered nurse, testified at the hearing on her mother’s behalf. Ms. Byus testified that she brought her mother to her home in April 2003 because Ms. Brown was unable to live alone. Ms. Byus explained that she could not leave her mother unsupervised while she worked because her mother “wouldn’t drink, she wouldn’t take meds, she wouldn’t eat right.” Ms. Byus testified that Ms. Brown also has problems with wandering, no short term memory, difficulty making decisions, and poor processing and judgment skills. Ms. Byus stated that she had ⁴⁵⁶ difficulty finding reliable in-home care for Ms. Brown, and, in April 2004, she placed Ms. Brown in an assisted living facility.

Ms. Byus testified that Ms. Brown sees her primary care physician, Dr. Donna Chambers, every three months unless she requires more frequent attention. Ms. Byus stated that Ms. Brown most recently met with Dr. Chambers on June 27, 2005, who supported the notion that Ms. Brown should be in a nursing facility. During Ms. Byus’s testimony, counsel for Ms. Brown offered into evidence medical records from Dr. Chambers. The records included a comprehensive history, a physical exam, a health care practitioner physical assessment, prescribed medication treatment orders, and physician orders.

Counsel for the Department stipulated to the admissibility and authenticity of the medical records. The ALJ also admitted into evidence, without objection by counsel for the Department, Ms. Brown’s medical records from a physical examination with Dr. Chambers that took place on March 15, 2005. Counsel for Ms. Brown then offered into evidence a medical report from a physical examination with Dr. Chambers on June 27, 2005, over two months after the Department reviewed Ms. Brown’s application to the waiver program. Counsel for the Department objected to the admission of the report on the ground that the examination took place after the Department’s consideration of Ms. Brown’s application.

The ALJ sustained the objection, stating: If you [Ms. Brown] wish to provide [the medical record] to Dr. Friedman or the Department of Health after this hearing, then obviously you’re free to do so. But my understanding of my task is that it is to determine whether the decision that has already been made based on the information that the Department was provided at the time of the decision was correct. Counsel for Ms. Brown also sought to have admitted into evidence a letter from Dr. Chambers, dated June 28, 2005, which provided that Ms. Brown needed assistance with “all activities of daily living” and that she “would be a danger to ⁴⁵⁷ herself if left unsupervised.” Counsel for the Department objected to the admission of the letter, again on the ground that it was dated two months after Ms. Brown’s application was considered. The ALJ admitted the letter, stating that it was unclear to her whether the statements contained in the letter referred to Ms. Brown’s condition at the time her application was reviewed or her current condition.

Counsel for Ms. Brown then sought to have admitted a second letter from Dr. Chambers, dated August 18, 2005. The letter stated that Ms. Brown, in Dr. Chambers’s opinion, required placement in a “skilled nursing facility.” Counsel for the Department objected on the grounds that the letter was dated after Ms. Brown’s application was considered, and Dr. Chambers was not available for cross-examination, rendering it unreliable hearsay. The ALJ overruled the objection, reasoning that counsel for the Department waived the objection by not making it with regard to any previously admitted documents. Barbara Best, a registered nurse for the Delmarva Foundation for Medical Care (“Delmarva”), also testified at the hearing before the ALJ.

She explained that Delmarva reviews applications from individuals seeking Medicaid services through the State, and that she has reviewed applications for long-term care for Delmarva for seventeen years. Ms. Best described the process of applying for the Older Adults Waiver Program. She explained that an applicant first fills out the required paperwork, which is then reviewed by a nurse. If the nurse denies the application, the application is sent to a physician advisor for review.

Dr. Barry Friedman, medical director of the long-term care and waiver services section of the Department, testified at the hearing. The ALJ received him as an expert in the area of general medicine. Dr. Friedman testified that an applicant is eligible for the Older Adults Waiver Program in one of three ways: if the applicant: (1) has a “skilled nursing need,” which requires, on a daily basis, the hands-on activity of a nurse or a physician; (2) requires physical therapy or rehabilitative ther ⁴⁵⁸ apy, ordered by a physician and performed by a licensed therapist, five days per week; or (3) requires “health-related services above the level of room and board that could only be provided in an institutional setting under licensed health care professionals.” Dr. Friedman testified that applicants must require the “health-related services” on a “regular” basis, which he testified “has a long-standing interpretation of daily basis.” Dr. Friedman testified that applicants for the Older Adults Waiver Program are initially put on a waiting list. Once an applicant reaches the top of the list, the Department conducts an assessment to determine the applicant’s eligibility for a waiver.

He testified that, when he conducts an assessment, he “must consider the medical conditions at the time of the application.” He stated that Department policy prevents him from considering