NMSC Interprets Medicaid Regulation


In Princeton Place v. N.M. Human Services Department, the New Mexico Supreme Court concluded that the New Mexico Health Services Department had reasonably interpreted “related condition,” as used in the Medicaid regulations, to include the condition of spina bifida. Reversing an opinion by then-Judge Michael Vigil, it reinstated an agency determination requiring Princeton Place to pay back Medicaid funds.


In this case Princeton Place, a nursing home, had received medicaid reimbursements from the state for that treatment of a patient with spina bifida. Nursing homes are required to conduct preadmission screenings when admitting patients to identify patients suspected of having mental illness and intellectual disability. The purpose of the screening is to prevent such patients from being admitted unless their medical needs clearly indicate that they require the level of care provided by a nursing facility.

The screening is a two-level process. The facility conducts a “Level 1” screening, meant to identify all individuals suspected of having mental illness or intellectual disability. Those patients are subjected to a more detailed “Level 2” screening which must be conducted by the state. Where the Level II evaluation determines that nursing home services are appropriate, the nursing home may admit the applicant.

In June 2011, a young man with spina bifida (“Applicant”) underwent a a Level 1 screening for admission to Princeton. In New Mexico, the screening process includes a filling out a Department of Health form. The form seeks information such as the applicant’s medical history, physical examination, and past admission orders. The admission coordinator noted that Applicant had spina bifida.

Question 5 of Section D of the form asks: “Is there any indication of developmental disability (a severe, chronic disability that manifested before age 22)?” The instructions on the form addressing Question 5 state that “[a]ny severe, chronic disability (except mental illness) that occurred before age 22 may indicate a developmental disability. Examples include: cerebral palsy, spina bifida, quadriplegia before age 22, a seizure disorder that started before age 22 or a severe head injury that occurred before age 22.” The admission coordinator answered “no” to this question and, as a result, the Applicant was not sent for a Level 2 screening.

In July 2013, another Level 1 screening was performed on Applicant by the University of New Mexico Hospital. A staff member filled out the same form. But UNMH, unlike Princeton Place, answered “yes” to Question 5 and referred the Applicant to the state Department of Health for a Level 2 screening.

DOH conducted the screening and concluded that nursing home services were appropriate for the Applicant, but that no specialized services were warranted. At the same time, it informed Princeton Place that its 2011 screening had been incomplete and did not comply with regulations. It referred that matter to the New Mexico Human Services Department, Medical Assistance Division (HSD/MAD) with a note that Princeton should be required to forfeit any reimbursements it had received for the two years it had been out of compliance with the regulations.

HSD/MAD then sought to recover $158,178.25 in payments it had made to Princeton Place. After an administrative hearing, HSD ruled against Princeton. Princeton appealed to the district court, which affirmed.

The court of appeals granted certiorari and reversed. Then-judge Michael Vigil, writing for the court, reasoned that because the form lacked the “force of law,” Princeton’s failure to follow its instructions could not serve as the basis for a recoupment action. Even if it could however, the specific language of Question 5 was optional–it did not mandate a referral for Level II screening of all individuals with a diagnosis of spina bifida. The court of appeals did not analyze the regulations on which the form was based.

HSD appealed, and the Supreme Court granted certiorari.

The Court’s Analysis

The court of appeals decided this case based mainly on the language of the form. On appeal, the Supreme Court reframed the analysis, concluding that the form lacked legal authority and analyzing the regulations that the form was meant to implement.

The Form Cannot Be the Basis for a Recoupment Action

The Court began its analysis with the question of whether the language of the form could be the basis for the recoupment action. This argument had been raised for the first time by an amicus at the court of appeals. It had not been raised in the administrative hearing or the district court appeal. Accordingly, it was not “preserved.” Ordinarily, that would have meant that the appellate courts would not consider the argument. The court of appeals, of course, had considered it, though its reasoning did not ultimately depend on it. Nevertheless, the Supreme Court, invoking the “general public interest” exception to the preservation requirement, chose to discuss the issue.

A key question was whether the form had to go through the rulemaking process, a formal publication procedure designed to provide notice and an opportunity to be heard before new regulations become effective. Princeton had argued that the form was not valid or enforceable because it had not gone through that process. If the form merely interpreted regulations, it did not need to go through the rulemaking process, but it also would not have the force of law. Rules issued through the notice and comment process, on the other hand, do have the force of law.

The Court concluded that the form and instructions did not contain new requirements of law but rather represented the DOH’s interpretation of the applicable regulations. As explained by HSD, the purpose of these materials is to assist a screener, who is not required to be a medical professional, to comply with those regulations. In particular, the purpose of the instructions was to advise the public and screeners regarding the agency’s interpretation of the meaning of “related condition” pursuant to 42 C.F.R. § 435.1010.

Because the form and instructions were interpretive, they lacked the force of law and could not serve as the basis for a recoupment action. But that did not spell victory for Princeton. As the Court’s reasoning suggests, the correct result depended on the meaning of “related condition” in the federal regulations.

Recoupment Is Appropriate Because Princeton Violated the Regulations

Having decided that the form was not determinative, the Court moved on to the regulations the form was meant to implement. Question 5 was aimed at determining whether the applicant had a “related condition.” The regulation stated that “Persons with related conditions means individuals who have a severe, chronic disability that meets [four required] conditions.” The first of those conditions was that the condition be “attributable to . . . any other condition, other than mental illness, found to be closely related to intellectual disability because the condition results in impairment of general intellectual functioning or adaptive behavior similar to that of intellectually disabled persons, and requires treatment or services similar to those required for these persons.” The second and third required conditions call for the severe, chronic disability to have “manifested before the person reaches age 22” and to be “likely to continue indefinitely,” and the fourth required condition calls for “substantial functional limitations in three or more of the following areas of major life activity: (1) Self-care. (2) Understanding and use of language. (3) Learning. (4) Mobility. (5) Self-direction. (6) Capacity for independent living.” 

The court quickly concluded that spina bifida meets all four conditions, and that it was reasonable for HSD to interpret “related conditions” as including spina bifida. As a result, the Court concluded that the court of appeals erred in holding that Princeton did not violate the law by determining Applicant did not have an intellectual disability and by declining to initiate a Level II screening.  It therefore reversed the court of appeals and held that the state could proceed with its recoupment action against Princeton.

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