Q & A: Deference Owed to State Medicaid Manual and Federal Letters

Question:  Our office is involved in a dispute with the state over its implementation of the Medicaid program.  We have found support for our position in documents prepared by the Centers for Medicare and Medicaid Services (CMS) or its predecessor agency, the Health Care Financing Administration.  This support is contained in the CMS State Medicaid Manual and in a letter to all state Medicaid directors.  Neither of these guidance documents was published as a formal regulation through the Administrative Procedures Act.  If we decide to file a lawsuit to compel the state to comply with the federal Medicaid Act, will the court give the agency interpretations any deference?
 
Answer:  The court should give these guidance documents some deference, depending on their circumstances, but it will not treat them as having the force of law.
 
Discussion: The Supreme Court has struggled to clarify the standards for according deference to federal agency interpretations of federal statutes.  In Chevron U.S.A.. v. Natural Resources Defense Council,[1] the Court articulated a two-step inquiry for judicial review of administrative interpretations.  First, the court must determine whether Congress has spoken to the specific issue.  If so, the congressional statement will displace administrative interpretation.  However, if Congress has not spoken to the point or if its statements are ambiguous, the court must defer to the administrative interpretation as long as it is ?reasonable.?[2]
 
In recent years, the Court has taken steps to narrow Chevron?s application.  In Christensen v. Harris County,[3] the Court refused to apply Chevron to an agency opinion letter, finding that ?[i]nterpretations such as those in opinion letters ? like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law ? do not warrant Chevron-style deference.?[4] Christensen held these types of agency interpretations are ?entitled to respect,? but only to the extent they have the power to persuade.[5] This type of deference is called ?Skidmore deference? based on the 1944 decision in Skidmore v. Swift & Co.,[6] which said the weight to be accorded to an administrative interpretation in a particular case ?will depend upon the thoroughness evident in its consideration, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.?[7]
 
In U.S. v. Mead Corporation,[8] the Court discussed the circumstances for applying Chevron or Skidmore deference.  At issue in Mead was a ?tariff ruling letter? authorized by regulation but not subjected to formal rulemaking.  Tariff ruling letters also are formally binding only upon the particular entity to whom they are issued.  The United States Customs Service argued that the letter at issue was entitled to Chevron deference.  Rejecting this position, the eight-member majority attempted to clarify the circumstances for applying Chevron deference:
 
We hold that administrative implementation of a particular statutory provision qualifies for Chevron deference when it appears that Congress delegated authority to the agency to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.  Delegation of such authority may be shown in a variety of ways, as by an agency?s power to engage in adjudication or notice-and-comment rulemaking, or by some other indication of a comparable congressional intent.[9]
 
In other words, Chevron deference is limited to agency interpretations where ?it appears that Congress delegated authority to the agency to make rules carrying the force of law, and that the agency interpretation was promulgated in the exercise of that authority.?[10] Applying this standard, the Court found no evidence of congressional intent for the agency?s tariff ruling letter to carry Chevron?s ?force of law.?[11]
 
The Court then looked to see whether the tariff ruling was entitled to ?some deference? under the ?practical criteria? of Skidmore.[12] In so doing, the majority rejected the position articulated by Justice Scalia in dissent that would have broadened the occasions for Chevron deference while eliminating other lesser forms of deference.[13] According to the majority:
 
Chevron did nothing to eliminate Skidmore?s holding that an agency?s interpretation may merit some deference whatever its form, given the specialized experience and broader investigations and information available to the agency, and given the value of uniformity at and in its administrative and judicial understandings of what a natural law requires.[14]
 
Not surprisingly, courts already are applying the Chevron-Mead deference standard to administrative interpretations of Medicaid provisions.[15] The Supreme Court itself cited Mead, but offered little other discussion, to give ?respectful consideration? to consistent agency interpretation contained in a Regional State Medicaid Letter and proposed regulation.[16] Meanwhile, in Indiana Family and Social Services Admin. v. Thompson,[17] the Seventh Circuit accorded Skidmore level deference to provisions of the State Medicaid Manual.  Specifically, that court decided that ?less formal? interpretations in agency manuals should receive ?more flexible respect? depending on the agency?s care, consistency, formality, relative expertness and the position?s overall persuasiveness.
 
The Tenth Circuit recently has stated that the court must give deference to the State Medicaid Manual but only to the extent that it does not conflict with the purpose of the Medicaid Act.[18] In Strand v. Rasmussen,[19] the Iowa Supreme Court decided that ?substantial deference? is due to the agency interpretations contained in the State Medicaid Manual. Meanwhile, in Johnson v. Guhl,[20] a New Jersey district court held that HCFA transmittal letters are entitled to ?some deference? as long as they are consistent with the plain language and purpose of the statute and with prior administrative views.  Similarly, the North Dakota Supreme Court has said that a letter to state Medicaid directors will normally receive deference, especially where that interpretation does not contradict statutory language.[21]
 
 
[1] 467 U.S. 837 (1984).
 
[2] 467 U.S. at 844-45.
 
[3] 529 U.S. 576, 587 (2000).
 
[4] Id. at 587.
 
[5] Id. (quoting Skidmore v. Swift, 323 U.S. 134, 140 (1944)).
 
[6] 323 U.S. 134 (1944).
 
[7] Id. at 140.
 
[8] 121 S.Ct. 2164 (2001).
 
[9] Id. at 2171.
 
[10] Id.
 
[11] Id. at 2173-2176.
 
[12] Id. at 2175.
 
[13] Id. at 2177-89.
 
[14] Id. at 2175-76.  For an interesting post-Mead case, see Barnhart v. Walton, 122 S.Ct.1265 (2002), which accorded Chevron deference to a Social Security regulation promulgated in response to the very case that was before the Court:  ?In this case, the interstitial nature of the legal question, the related expertise of the Agency, the importance of the question to administration of the statute, the complexity of that administration, and the careful consideration the agency has given the question over a long period of time all indicate that Chevron provides the appropriate legal lens through which to review the legality of the Agency interpretation here at issue.?  Id. at 1272.
 
[15] Numerous cases, pre-dating Mead, accord deference to the federal Medicaid agency?s interpretive statements.  While some of these cases cite Chevron and Skidmore, others simply describe the level of deference without citation to the Supreme Court.  And, the level of deference varies from case to case.  See, e.g., K&A Radiologic Tech. Servs. Inc. v. Comm?r of the Dep?t of Health of State of New York, 189 F.3d 273, 282-83 (2d Cir. 1999) (State Medicaid Manual); Perry v. Dowling, 95 F.3d 231 (2d Cir. 1996); Bray v. Dowling, 25 F.3d 135, 143 (2d Cir. 1994) (?[c]onsistent interpretations by the agencies entrusted with the administration of the Social Security Act are due deferential treatment in the courts.?) (citations omitted); Wisconsin Dep?t of Health and Social Services v. Bowen, 797 F.2d 391, 398 (7th Cir. 1986), cert. dismissed, 485 U.S. 1017 (1988) (Medicaid Action Transmittal); Liegl v. Webb, 802 F.2d 623, 625-26 (2d Cir. 1986) (discussing the Medical Assistance Manual, which pre-dated the State Medicaid Manual); Smith v. Miller, 665 F.2d 172, 179 (7th Cir. 1981) (Medical Assistance Manual); Philadelphia Welfare Rights Org. v. Shapp, 602 F.2d 1114, 1122 (3d Cir. 1979), cert. denied, 444 U.S. 1026 (1980) (Medical Assistance Manual); Stanton v. Bond, 504 F.2d 1246, 1249 (7th Cir. 1974), cert. denied, 420 U.S. 984 (1975). See Salazar v. District of Columbia, 954 F. Supp. 278, 328-34 (D.D.C. 1996) (State Medicaid Manual); State of New York Dep?t of Social Servs. v. Sullivan, 811 F. Supp. 964, 975 (S.D.N.Y. 1993) (?[L]aw mandates that we treat with substantial deference the Secretary?s [plausible] interpretation of his own regulation.?); Sundberg v. Mansour, 627 F. Supp. 616, 619-20 (W.D. Mich. 1986) (regional office memorandum); Olson v. Reagen, 631 F. Supp. 154, 157-58 (S.D. Iowa 1986), aff?d in part, rev?d in part sub nom., Olsen v. Norman, 830 F.2d 811 (8th Cir. 1987) (same); Malloy v. Eichler, 628 F.Supp. 582, 593 (D. Del. 1986), aff?d, 860 F.2d 179 (3d Cir. 1988) (interpretations have long been considered ?a body of experience and informed judgment to which courts and litigants may properly resort for guidance?) (citations omitted); Smith v. Vowell, 379 F. Supp. 139 (W.D. Tex. 1974), aff?d mem., 504 F.2d 759 (5th Cir. 1974) (Medical Assistance Manual), see also Ahern v. Thomas, 733 A.2d 756 (1999) (State Medicaid Manual).  Compare AMISUB, Inc. v. Colorado Dep?t of Social Servs., 879 F.2d 789, 798 (10th Cir. 1989) (?state agency?s determination of procedural and substantive compliance with federal law is not entitled to the deference afforded a federal agency?).
 
[16] Brumer v. Wisconsin Dep?t of Health and Social Services, 122 U.S. 962 (2001).
 
[17] 286 F.3d 476 (7th Cir. 2002).
 
[18] See Ramey v. Reinertson, 268 F.3d 955 (10th Cir. 2001).
 
[19] 648 N.W.2d 95 (Iowa 2002).
 
[20] 166 F. Supp. 2d 42 (D.N.J. 2001) (citations omitted).
 
[21] Grey Bear v. N.D. Dep?t of Human Services, 2002 N.D. 139, _ N.W.2d _, 2002 WL 1941356 (N.D. Aug. 23, 2002).

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