Health Law Daily CMS’ rule banning benefit deductions from home health workers’ paychecks vacated
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Thursday, November 19, 2020

CMS’ rule banning benefit deductions from home health workers’ paychecks vacated

By Jeffrey H. Brochin, J.D.

CMS’s Anti-Reassignment Provision that was intended to combat factoring of Medicaid claims did not apply to payroll systems that processed Medicaid home health care workers’ voluntary deductions for health insurance and union dues before sending the workers their paychecks.

A federal district court in California has denied the motion to dismiss filed by CMS, and granted the motion for summary judgment filed by the State of California in a lawsuit that challenged CMS’s 2018 ban on certain payroll practices. This ban related to voluntary deductions such as union dues and health insurance premiums from the paychecks of Medicaid home health care workers. Although CMS argued that it was legally required to take this action because the 2014 amendment authorizing the payroll practices was in clear violation of the anti-reassignment provision in Soc. Sec. Act §1396a(a)(32), the court found that CMS’s action violated the Administrative Procedures Act (APA) and was not mandated by the statute, and therefore vacated it (State of California v. Azar, November 17, 2020, Chhabria, V.).

Compensation of home care workers. Many Medicaid patients need care at home, and they receive that care from home care workers who assist patients with things like bathing, eating, dressing, taking medicine, and general housekeeping. Because the work is physically demanding and the wages are low, the states have found it difficult to recruit and retain home care workers despite increasingly high demand for the services that they offer. Therefore, many states have adopted a system whereby a Medicaid patient can choose to hire a home care worker from a registry of workers maintained by the state, but the Medicaid patient is responsible for scheduling, supervising, and, if necessary, firing the worker. The state in turn facilitates the employment process and serves some of the employer functions by performing administrative payroll functions including sending paychecks to the home care workers.

Deductions from paychecks. Local government entities serve as the home care workers’ "employers of record" for purposes of negotiating with unions, and for the providing of various employment benefits. Home care workers can elect to make with holdings from their paycheck for options provided in the collective bargaining agreements such as for health insurance or union dues. Before California sends the paychecks (technically, reimbursement for the provision of services to Medicaid patients), it deducts the amounts that the workers elected to withhold. These payroll practices continued in existence since the early 1990s and until recently were not viewed as posing a legal problem.

Anti-reassignment provision. At some point, the question arose as to whether those payroll practices violated the anti-reassignment provision which was intended to ban "factoring" (whereby providers would assign their Medicaid claims to a 3rd party at a discounted amount in exchange for receiving immediate payment) because the payroll deductions in fact constituted a "payment under the plan" for the "care or service provided" to the Medicaid patient to someone other than the Medicaid worker. CMS addressed this question in 2014 by amending the anti-reassignment provision in order to clarify that the payroll practices for home care workers did not violate the anti-reassignment provision.

2018 CMS regulation. However, in 2018, CMS re-examined the 2014 amendment and determined that it was legally required to repeal that part of the regulation because the 2014 amendment authorizing the payroll practices was in clear violation of the anti-reassignment provision in §1396a(a)(32). The issue before the court therefore was whether the anti-reassignment provision in fact barred the states’ payroll practice of making deductions from Medicaid home health care workers’ paycheck for disbursement to outside third parties.

CMS argued that §1396a(a)(32) contained several exceptions to the prohibition against "payment under the plan" to someone other than the worker, and that the states’ payroll practices for home care workers was not among those exceptions. They further argued that states may not process deductions for home care workers, rather, the workers themselves must make the payments for health insurance, union dues, and similar benefits on their own, after receiving full payment from the state.

Ambiguous—at best. Under the APA, a court must "hold unlawful and set aside agency action" if it was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. If an agency makes a decision without exercising any policymaking discretion because it ‘erroneously believes it is bound to that specific decision,’ that decision must be vacated and remanded so that the agency can properly exercise its discretion.

Although CMS contended that it had no discretion to authorize the states’ payroll practices because the statute unequivocally barred them, the court viewed the anti-reassignment provision as at best ambiguous as related to the payroll practices at issue. The key phrase to be interpretation was "under an assignment or power of attorney or otherwise," and the court found that even viewing that language in isolation did not support CMS’s argument that the statute unambiguously barred the states’ payroll practices. The court also considered the phrase in its historic context: when Congress adopted the original version in 1972, it was focused on barring the practice of factoring via 3rd party claims collectors.

A legally incorrect premise. The court ruled that CMS’s error was quite serious because it struck down a decades-long practice for paying home care workers—a matter of great importance for the home care workers themselves, the Medicaid patients receiving their care, and the states administering elaborate Medicaid and home care worker plans—based on the legally incorrect premise that the statute’s text unequivocally barred the agency from authorizing those payments. Based on the foregoing, the court denied CMS’s motion to dismiss, and vacated the 2018 rule and remanded the matter to the agency for further consideration.

The case is No.: 19-cv-02552-VC.

Attorneys: Kathleen Boergers, Office of the Attorney General, for State of California by and through Attorney General Xavier Becerra. Sophie Kaiser, U.S. Department of Justice, for Alex M. Azar, II and U.S. Department of Health and Human Services.

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