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ALBANY – A federal judge has placed significant restrictions on New York’s ability to recoup hundreds of millions of dollars from the federal government for improperly classified beneficiaries of programs for the poor and the disabled. Northern District Judge Gary L. Sharpe ruled that the state could not seek the “wholesale reimbursement” of money from the Medicare program, nor any damages through erroneous Medicaid payments that exceed $10,000 under the federal statute dubbed the “Little” Tucker Act. Judge Sharpe wrote in New York v. Sebelius, 1:07-cv-1003, that “the potential relief available to the State will be more limited than that it seeks.” The Northern District decision appears on page 25 of the print edition of today’s law Journal. Still, the judge kept alive several of the state’s claims against the U.S. government, including preservation of the state’s due process action on parens patriae grounds. While acknowledging conflicting rulings about whether states can file parens patriae claims against the federal government on behalf of state citizens, Judge Sharpe declined to dismiss New York’s attempt to “vindicate its citizens’ due process rights” as to the allocation of federal social services benefits. The state brought the complex claim in 2007, arguing that its repeated attempts to get the U.S. Department of Health and Human Services and the U.S. Social Services Administration to readjust eligibility determinations for various federal programs had failed. The state argued that it became aware of inaccurate federal eligibility determinations as far back as 1990 and that some date from as early as 1973. The programs included Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI) and optional New York State supplemental payments (SSP). The programs are funded through Medicare, Medicaid or directly by the state. In 2001, the Social Security Administration established a national database known as the Special Disability Workload, which was designed to review eligibility for the SSI and SSDI programs and reassign beneficiaries to the correct program, if necessary. The state’s suit stems largely from alleged problems with the reassessment and reassignment process. The state is arguing that the U.S. government erroneously assigned recipients to programs funded by Medicaid, for which the state is responsible for a portion of the costs, rather than to those paid for by Medicare, which is totally funded by the federal government. The state argued in its complaint that the potential financial stakes in the case are considerable. A 2005 audit from the state Office of Temporary Disability Assistance estimated that New York had been overbilled $1.7 billion under Medicaid due to errors in the Social Security Administration’s assessment process since the early to middle 1990s. The audit detected another $81 million in alleged SSP errors borne by state taxpayers, as well as $9 million in misdirected public assistance payments and $13 million in other expenses. According to that report, the Social Security Administration estimated that the cases of 32,664 New Yorkers were affected by errors in the eligibility readjustment system introduced by the federal government in 2001. The Office of Temporary Disability Assistance found, however, that about 66,590 New Yorkers were actually affected. Judge Sharpe held that the state’s contention that it can seek to recover costs directly from the Medicare program is not supported by the law and is barred by principles of sovereign immunity. While 42 U.S.C. §1396a(a)(25)(A) requires the states to “take all reasonable measures to ascertain the legal liability of third parties” to pay for improper care and services funded by Medicaid, the judge noted that the state can cite no statutory authority for gaining “wholesale” reimbursement from Medicare. “The State does not seek a mere extension of existing administrative channels of recovery,” the judge wrote. “Instead it completely disavows reliance on such channels, and seemingly demands wholesale relief directly from Medicare in the absence of any specific statutory or regulatory authority. …The court would be required to entirely scrap the administrative and statutory framework for reimbursement, and permit a free floating right to aggregate compensation from Medicare in the form of ‘account adjustments.’” The Little Tucker Act, 28 U.S.C. §1346(a)(2), provides district courts with jurisdiction over contractual and fiduciary claims against the federal government up to $10,000, but defers jurisdiction for larger claims to the U.S. Court of Claims. Judge Sharpe wrote that the federal statute defeats the state’s breach of fiduciary duty claim against the Department of Health and Human Services and its quest for reimbursement for state Medicaid payments which should have been covered by Medicare. Surviving Claims The judge declined to dismiss some other claims, including the state’s challenge to the method the U.S. government started using in 2001 to reappraise eligibility for social services programs. Judge Sharpe held that it is possible that certain aspects of the project, known as the Special Disability Workload database, could be expanded or improved to get the Social Services Administration to make more adequate assignment decisions, as the state argued. The judge also kept alive the state’s claim of breach of fiduciary duty by the Social Security Administration because, unlike the claim against Health and Human Services, such an action is authorized by statute. Finally, Judge Sharpe held that New York may assert a due process claim parens patriae on behalf of citizens for various eligibility decisions by the Social Security Administration concerning SSDI benefits. He noted that federal circuit courts have generally recognized the right of states to bring suits parens patriae against the federal government where enforcement of a federal right is sought, such as New York is seeking to assert against citizens allegedly disadvantaged by the SSA’s program eligibility assignments. Assistant Attorneys General Jeffrey M. Dvorin and Shoshanah V. Bewlay argued for the state. John Milgrim, a spokesman for Attorney General Andrew M. Cuomo, said the state is reviewing Judge Sharpe’s ruling. Joel McElvain, an attorney in the civil division of the U.S. Department of Justice in Washington, defended the Social Security Administration and the Department of Health and Human Services. Neither agency returned calls seeking comment. @

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