46 soc.sec.rep.ser. 267, Medicare & Medicaid Guide P 42,942 Rehabilitation Association of Virginia, Incorporated v. Bruce U. Kozlowski, Director of Virginia Department of Medical Assistance Services, and Donna E. Shalala, Secretary of Health and Human Services, Rehabilitation Association of Virginia, Incorporated v. Donna E. Shalala, Secretary of Health and Human Services, and Bruce U. Kozlowski, Director of Virginia Department of Medical Assistance Services

Rehabilitation Association of Virginia, Inc. (the Association) brought this suit against Bruce Kozlowski, director of Virginia's Department of Medical Assistance Services (Virginia), and Donna Shalala, Secretary of the United States Department of Health and Human Services (DHHS or the Secretary) challenging the legality of certain aspects of Virginia's Medicaid plan and seeking prospective injunctive relief. On cross-motions for summary judgment, the district court entered judgment in favor of the Association, and Virginia and DHHS now appeal. 838 F.Supp. 243. For the reasons set forth below, we affirm.

Briefly stated, Medicare, Title XVIII of the Social Security Act, 42 U.S.C. Secs. 1395-1395ccc, is a federally-run program, enacted in 1965, to provide financing for medical procedures for certain disabled individuals and people 65 years of age. 42 U.S.C. Secs. 426(a), 1395c. Medicare has two parts, Part A and Part B. Part A, 42 U.S.C. Secs. 1395c to 1395i-4, provides reimbursement for inpatient hospital care and related post-hospital, home health and hospice care. 42 U.S.C. Sec. 1395d. Enrollment in Part A is essentially automatic. Part A includes limited cost-sharing provisions in the form of annual deductibles for inpatient hospital service and payments by enrolled individuals of an amount of "coinsurance" that depends on the length of hospital stay. 42 U.S.C. Sec. 1395e. In addition, some individuals who do not directly meet the basic criteria for enrollment may enroll and are required to pay premiums. 42 U.S.C. Secs. 1395i-2, 1395i-2a.

Medicare Part B, 42 U.S.C. Secs. 1395j to 1395w-4, is a supplemental voluntary insurance program. Under Part B, individuals entitled to Part A benefits and certain others, see 42 U.S.C. Sec. 1395o, may purchase supplementary insurance for hospital out-patient services, physician services, and other medical services not covered under Part A. 42 U.S.C. Sec. 1395k. Part B also includes a series of cost-sharing provisions. Enrollees must pay a monthly premium and an annual deductible, currently $100. 42 U.S.C. Secs. 1395l (b), 1395r. (There is an exemption from the application of the annual deductible for certain services, see 42 U.S.C. Sec. 1395l (b)). As to payments of charges after the deductible is exhausted (or where it does not apply), the federal government will pay 80% of the "reasonable charge" for the services. 42 U.S.C. Sec. 1395l (a). The amount that constitutes a reasonable charge is set annually by the Secretary. 42 U.S.C. Sec. 1395w-4. The service provider can charge the beneficiary for the remaining 20% of the reasonable charge. Id. This charge is usually referred to as a copayment or coinsurance. If the physician is a participating physician, he "takes assignment" in Medicare parlance, and cannot charge an amount greater than the reasonable charge. If the physician does not take assignment, the physician's fee may exceed the "reasonable charge" for the service provided, and the doctor may bill the patient for not only the difference between the reasonable charge and the federal payment, but also the difference between the actual charge and the reasonable charge as well. This is commonly referred to as "balance billing."

Also enacted in 1965, Medicaid, Title XIX of the Social Security Act, 42 U.S.C. Secs. 1396-1396v, established a federal-state cooperative cost-sharing program to provide necessary medical assistance to families and individuals with insufficient income and resources. While a state's participation in Medicaid is not mandatory, once a state does enter into an agreement with the United States it receives federal funds for its Medicaid program. Participating states are required to comply with the Medicaid Act and its implementing regulations issued by the DHHS. 42 U.S.C. Secs. 1396a, 1396c.

Under Medicaid, each state develops a schedule or methodology that establishes the fee that the state will pay a service provider for every item or service covered under the state's Medicaid plan. Where Medicare and Medicaid cover the same services, the state Medicaid fee amount is almost always less than the reasonable charge for services that the federal government sets for Medicare reimbursement; it is also generally even less than the 80% of the reasonable charge figure that the government pays under Medicare's Part B insurance plan. Service providers who participate in the Medicaid program are required to accept payment of the state-denoted Medicaid fee as payment in full for their services, i.e., they are required to take assignment, and may not attempt to recover any additional amounts elsewhere. Medicaid is essentially a payer of last resort, and one of the requirements of a state Medicaid plan is that it attempt to identify and collect other insurance or source of health care funding available to a Medicaid participant (i.e., a form of subrogation). 42 U.S.C. Sec. 1396a(a)(25).

The Medicaid and Medicare statutes intersect for coverage of the population of the disabled or people 65 or over (eligible for Medicare) who are also poor (eligible for Medicaid). These people are called dual eligibles or crossovers. In addition, there is another group of whom we must take notice, called the "qualified medicare beneficiaries" or QMBs. As originally defined, QMBs included persons eligible for Medicare and who met certain statutory requirements of poverty, but who did not meet a state's eligibility requirement for Medicaid; they are referred to as "pure QMBs." Subsequently, the definition of QMB was changed so that ineligibility for Medicaid was removed; as such, the current definition of QMBs embraces two subsets of individuals: Medicare eligibles who are also eligible for Medicaid benefits (i.e., dual eligibles), and Medicare eligibles who are not eligible for Medicaid benefits but who meet certain criteria of poverty (i.e., pure QMBs).1 For the sake of clarity, we use the term QMBs to refer to both subgroups, and refer to one or the other subgroup only by its identified name.

While QMBs are, by definition, eligible for Medicare Part A enrollment and Part B insurance coverage, because they are impoverished there exists the very real danger that they will be unable to afford to buy themselves the Part B supplementary health coverage or pay Part A or Part B's deductibles or coinsurance amounts. Thus, the people for whom the safety net is most needed are also those who, left to their own, could not place themselves within its embrace. Since the outset, at least as to dual eligibles, the Medicare and Medicaid statutes have addressed this problem. The response was to create a "buy-in" program, under which states participating under Medicaid use Medicaid funds (i.e., state funds for which federal matching funds under Medicaid are available) to pay the premiums to enroll the QMB2 in the Medicare Part B insurance program (or the premium to enroll in Part A coverage for those people for whom the statute so required), and pay the deductibles and coinsurance payments that beneficiaries subsequently incurred under Part A or Part B. For dual eligibles, the state gets a real deal, because, given that Medicaid is treated as a payor of last resort, by enrolling dual eligibles for Part B coverage, the primary financial payment for services received comes from the federal government for any services that are covered under both Medicare and Medicaid. In other words, states use their Medicaid dollars, some of which are themselves federal in origin, to buy their QMBs into the federal program, thus shifting the primary payment for costs from the state Medicaid program to the federal Medicare program.

Thus, for a QMB, the state buys the individual into Medicare Part B insurance by paying the premiums for Part B insurance as well as the annual deductible. When the beneficiary incurs costs for services covered by Medicare ("Medicare services") above the deductible, the federal government pays 80% of the reasonable costs of the Medicare services received. The central question in this lawsuit involves the remaining 20%, i.e., the copayment representing the difference between the federal government's payment and the total amount of the "reasonable charge" that usually would be paid by the beneficiary but for the fact that the beneficiary is too poor to pay this amount herself. The difficulty arises from the fact that, as noted above, the Medicaid fee for a service is almost always lower than the Medicare reasonable charge. When that is the case, is the state required to reimburse the service provider for the entire 20% of the Medicare reasonable charge not covered by the federal payment, or is it only required to reimburse any difference between the federal 80% and the Medicaid reimbursement fee for that service?3 In other words, is the formula for the state's contribution:

Medicare reasonable charge - federal Medicare contribution

or is it:

state Medicaid fee - federal Medicare contribution?

The selection of one formula over the other involves the characterization of the program as either primarily a Medicare program or primarily a Medicaid program. To say that the state is required to contribute the 20% difference is to see the program as being a Medicare program that is being partially financed with Medicaid dollars. To say that the state only has to contribute funds to bring the payment to the Medicaid amount, which means in some instances that the state need pay nothing, because the Medicaid cap is below the amount of the federal Medicare contribution, is to see the program either as a Medicaid program using primarily federal funds or, using the payor of last resort approach, to see it as a Medicaid program4 where the 80% federal Medicare amount is viewed simply as a third party "primary" insurance program (that is not paying the amount that it is statutorily supposed to pay), essentially ignoring the 20% beneficiary/state contribution, and viewing the state contribution as a "pure" Medicaid contribution rather than Medicaid funds going for reimbursement of Medicare services.

The position taken by the Secretary is that the state contribution requirement ends at the level of the state's Medicaid fee cap. As a result, some states have altered their Medicaid plans relating to buy-ins accordingly. As of January 1, 1991, Virginia pays all of a QMB's Medicare Part B premium and deductible, but pays a QMB's coinsurance only to the extent that the Medicaid rate for the service provided exceeds the amount the federal government pays under Part B. Thus, providers of Medicare services to QMBs do not receive the same payment for their QMB patients as for all other Medicare patients, but instead are eligible under the Virginia plan only to receive the greater of 80% of the Medicare fee or the full Medicaid fee, provided that the Medicaid fee is no greater than 100% of the Medicare fee.5

In addition to computing fees for Medicare services received by QMBs based on the Medicaid rate, the current Virginia plan does not directly reimburse physical therapy providers of the type who are the plaintiffs in this suit. The plan prohibits rehabilitation agencies from billing the Virginia Department of Medical Assistance Services (the state Medicaid administrator) directly for the amount owed for Medicare Part B deductibles and coinsurance on behalf of QMBs. Instead, the rehabilitation agencies must seek reimbursement for such amounts from the nursing facilities in which the beneficiaries are located, which are expected to submit those amounts to the state agency in their cost reports. The state agency then bundles these costs into a per diem rate paid to the nursing facility. Unfortunately, there is a per diem cap on nursing facility fees, and there is little prospect in reality that the bundling contemplated in fact occurs.

The Association, which is an association of rehabilitation service providers in Virginia, brought this suit seeking only injunctive relief against Kozlowski, head of the Virginia Medicaid program, and Shalala, head of the federal Medicare and Medicaid programs, under both the Medicare and Medicaid statutes directly as well as under 42 U.S.C. Sec. 1983, alleging violations of the Medicare and Medicaid provisions in both the adoption of the Medicaid cap on QMB Part B reimbursement as well as in Virginia's payment program to nursing facilities rather than directly to the actual providers. The state offered several affirmative defenses including lack of standing and Eleventh Amendment immunity. On cross motions for summary judgment, the district court found for the Association on both the cap amount as well as the payment system, and ordered Virginia to utilize the 20% Medicare figure as the reimbursement amount and to pay such reimbursement directly. Virginia and DHHS appealed, and this court stayed the mandate of the district court's order pending resolution on appeal.

We begin with Virginia's two defenses to this suit, both of which may be handled with dispatch. First, Virginia claims that the suit must fail because it is barred by the Eleventh Amendment. The suit seeks prospective, injunctive relief only, rather than any form of retroactive compensatory damages, and is brought against Kozlowski, not the State. Such a suit is allowed under Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974), and their progeny, and this defense is completely meritless.

Second, Virginia again asserts that the Medicaid and Medicare Acts do not provide standing to the rehabilitation providers to bring this suit under Sec. 1983. We need not tarry over this argument, for it already has been decided, both by this circuit and by the Supreme Court. In Virginia Hosp. Ass'n v. Baliles, 868 F.2d 653 (4th Cir.1989), aff'd sub nom. Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990), Virginia asserted that the Virginia Hospital Association lacked standing to challenge Virginia's rates under the Boren Amendment, 42 U.S.C. Sec. 1396a(a)(13)(A). Both this court and the Supreme Court rejected that contention, finding that the provision in question created enforceable rights on behalf of the service providers. The analysis set out in those opinions as to the Boren Amendment is equally applicable in this instance to the related QMB provisions of 42 U.S.C. Secs. 1396a(a)(10)(E), 1396d(a), 1396d(p). Where the state refuses to pay what the providers insist is the proper amount of the copayment for QMBs required under the Medicaid Act, the providers have standing to challenge the state's interpretation of the relevant provisions.

There can be no doubt but that the statutes and provisions in question, involving the financing of Medicare and Medicaid, are among the most completely impenetrable texts within human experience. Indeed, one approaches them at the level of specificity herein demanded with dread, for not only are they dense reading of the most tortuous kind, but Congress also revisits the area frequently, generously cutting and pruning in the process and making any solid grasp of the matters addressed merely a passing phase.

It is thus with some sympathy that we read the Secretary's brief, which calls the court to defer to her expert judgment under the aegis of Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Nevertheless, while Chevron is regularly cited by administrative agencies as a backstop to support their positions, it must be clear that that case did not replace Article III of the Constitution. As the opinion in Chevron makes clear:

When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress had directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.9 If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.

Id. at 842-43, 104 S.Ct. at 2781-82 (citations and footnotes omitted). The task in the first instance for this court therefore is to examine the statute to determine whether the statute clearly speaks to the question of the amount of the Medicare copayment for which a state is responsible under the Medicare buy-in provisions. It is only if the statute is silent or ambiguous that we must look to the Secretary's interpretation to provide guidance.

The particular provisions involved in this case have been the subject of repeated tinkering by Congress, and on each occasion the legislative history has provided some information that contradicts other information as to Congressional intent. As noted below, there is a particular element of "Congressional dicta" in the form of post-enactment legislative history involved in these cases that requires an accounting. Both the Secretary and the Association are to be commended on their briefs, and each offers a reasonably good explanation of the development of the statutes over time, but they are contradictory stories in important respects. Given the extensive changes that have occurred to these statutes over time, the only way to explain the present posture is to begin at the creation and work forward through those changes.

The Social Security Amendments of 1965 included in a single massive bill the initial Medicaid and Medicare provisions. The buy-in provision appeared in Sec. 121(a). It stated:

A State plan for medical assistance must--

* * * * * *(15) in the case of eligible individuals 65 years of age or older who are covered by either or both of the insurance programs established by [Medicare], provide--

(A) for meeting the full cost of any deductible imposed with respect to any such individual under the insurance program established by part A of such title; and

(B) where, under the plan, all of any deductible, cost sharing, or similar charge imposed with respect to any such individual under the insurance program established by part B of such title is not met, the portion thereof which is met shall be determined on a basis reasonably related (as determined in accordance with standards approved by the Secretary and included in the plan) to such individual's income or his income and resources.

Social Security Amendments of 1965, Pub.L. No. 89-97, Sec. 121(a), 70 Stat. 286, 1965 U.S.C.C.A.N. 305, 370-73 (codified prior to repeal at 42 U.S.C. Sec. 1396a(a)(15)). As to Medicare Part A, this provision is straightforward: the state must pay the full deductible. As to Part B, the parties read it differently. The Association reads it to mean that a state can pay the full amount of the deductible and cost-sharing under Part B; however, the state can also pay less than the full amount, but if it does so, it must still pay something of the amount due, and the amount it must pay is to be based on a figure reasonably related to the beneficiary's income. In no event, anyway, can it not pay at all. The Secretary, on the other hand, interprets this provision to mean that state contribution towards Part B was completely optional.6

We believe it clear, based on the plain language of the statute and the commentary in the legislative history that the Association's interpretation is the correct one. The language of the statute seems clearly to indicate that if the state pays less than all of the deductible or cost sharing under the buy-in provision, "the portion thereof which is met shall be determined on a basis reasonably related ... to such individual's income or his income and resources." Two points confirm this reading. First, we believe that the legislative history eliminates any ambiguity that the statute contains. The general discussion of the bill includes the following commentary:

A State medical assistance plan may provide for the payment in full of any deductibles or cost sharing under the insurance program established by part B of title XVIII. In the event, however, the State plan provides for the individual to assume a portion of such costs, such portion shall be determined on a basis reasonably related to the individual's income, or income and resources and in conformity with standards issued by the Secretary. The Secretary is authorized to issue standards--under this provision which, it is expected, will protect the income and resources of the individual needed for his maintenance--to guide the States. Such standards shall protect the income and resources of the individual needed for his maintenance and provide assurance that the responsibility placed on individuals to share in the cost shall not be an undue burden on them.

S.Rep. No. 404, 89th Cong., 1st Sess., 1965 U.S.C.C.A.N. 1943, 2020 (emphasis supplied). The emphasized elements clearly disclose a Congressional intent that the language of the statute did not allow the states to opt out of the buy-in. Second, both the statute and the commentary provide for the Secretary to establish rules as to how much less the State can pay if it pays less than everything. If the statute allowed a state to pay nothing, it would be quite odd for the statute to then require the Secretary to establish strict regulations as to how much the state has to pay once it gets into the game. The whole point of the Secretary's regulations keying the portion of State contribution to the beneficiary's income and resources aims to protect the poor, elderly individual from financial devastation as a result of illness; a reading of the statute allowing the state to opt out entirely vitiates the whole purpose of that provision by allowing the full burden of the copayment to fall on her shoulders.

Thus, from the beginning, the statute required state coverage of Part A coinsurance costs to be mandatory and total, while Part B coverage was also mandatory, but not necessarily total. If Part B coverage was less than total, it had to be keyed to the beneficiary's income and resources in accordance with DHHS rules.

In 1967, Congress tinkered with the statute. Section 235(a)(3) of the Social Security Amendments of 1967, Pub.L. No. 90-248, 81 Stat. 821, 1967 U.S.C.C.A.N. 923, 1031, amended 42 U.S.C. Sec. 1396a(a)(15) to remove the differences between state requirements for the treatment of costs under Part A and Part B. It did so by rewriting the statute as follows:

A State plan for medical assistance must--

* * * * * *

(15) in the case of eligible individuals 65 years of age or older who are covered by either or both of the insurance programs established by [Medicare], provide--

(A) for meeting the full cost of any deductible imposed with respect to any such individual under the insurance program established by part A of such title; and

(B) where, under the plan, all of any deductible, cost sharing, or similar charge imposed with respect to any such individual under the insurance program established by part B of such title is not met, the portion thereof which is met shall be determined on a basis reasonably related (as determined in accordance with standards approved by the Secretary and included in the plan) to such individual's income or his income and resources.

Under this provision, Part A and Part B are treated uniformly, and the State may impose a deductible, but, as the accompanying Senate report notes,

the effect of the change would be to no longer require that a State plan meet the cost of the deductibles imposed under Part A of [Medicare] and to require that the plan relate any deductibles imposed under the hospital insurance program, as well as the supplementary medical insurance program, of [Medicare] to the income of the individuals covered under the plan.

S.Rep. No. 744, 90th Cong., 2d Sess. (1967), reprinted in 1967 U.S.C.C.A.N. 2834, 3142.7 Congress also broadened the coverage of the program to include all dual eligibles as opposed to simply those receiving cash assistance, see 1967 Amendments Sec. 222(a), (b) (reprinted in 1967 U.S.C.C.A.N. at 1022-23), codified at 42 U.S.C. Sec. 1395v. In addition, Congress made such buy-in agreements essentially mandatory for the states participating in the Medicaid program by providing that the federal government would not provide Medicaid matching funds to cover any costs incurred under the Medicaid program where the individual could have been enrolled in Medicare Part B but was not. Id. Sec. 222(c), 1967 U.S.C.C.A.N. at 1023, now codified at 42 U.S.C. Sec. 1396b(b).

Thus, after the 1967 amendments took effect, all dual eligibles could participate in the buy-in program; the States would not receive funds if they did not buy-in their dual eligibles; and the States' required contribution under the buy-in included premiums, and deductibles and cost-sharing on either a full basis or a less than full basis complying with strict rules relating the amount of State contribution to the beneficiary's income and resources. Thus it stood for almost 20 years.

In 1986, Congress revisited this area, and it is here that the strongest disagreements between the parties arise. An extensive series of amendments to the Social Security provisions was included in the Omnibus Budget Reconciliation Act of 1986, Pub.L. No. 99-509, 1986 U.S.C.C.A.N. (100 Stat.) 1874 (1986) (OBRA). One series of amendments was designed to allow and encourage the states to expand the coverage of their Medicaid programs to additional needy individuals whose income fell between the SSI limit and the federal poverty line. Because this expansion was entirely voluntary, however, the bill also included a backup provision, which was the initial introduction of QMBs (both the population and the term) into the Medicaid buy-in provision of Medicare. Again at the option of the states, the amendments authorized them to use their Medicaid funds "for medicare cost-sharing ... for qualified medicare beneficiaries...." OBRA Sec. 9403(a), 1986 U.S.C.C.A.N. (100 Stat.) at 2053 (codified as amended at 42 U.S.C. Sec. 1396a(a)(10)(E)(i)). Qualified medicare beneficiaries were defined as individuals eligible for Medicare Part A insurance but not eligible for Medicaid, and who had incomes no greater than a state-determined limit (but that limit could not exceed the federal poverty line) and resources no greater than the maximum for benefits under the supplemental security income program. Id. Sec. 9403(b), 1986 U.S.C.C.A.N. (100 Stat.) 2053-54 (codified as amended at 42 U.S.C. Sec. 1396d(p)(1)).

Medicare cost-sharing was explicitly defined in the statute.

The term "medicare cost-sharing" means the following costs incurred with respect to a qualified medicare beneficiary:

(A) Premiums under part B ...;

(B) Deductibles and coinsurance [under Part A];

(C) The annual deductible [under Part B];

(D) The difference between the amount that is paid under [the relevant payment section of Part B] and the amount that would be paid under such section if any reference to "80 percent" therein were deemed a reference to "100 percent."

Id. Sec. 9403(d), 1986 U.S.C.C.A.N. (100 Stat.) at 2054 (codified at 42 U.S.C. Sec. 1396d(p)(3)). Part (D) of the definition seems quite strongly to indicate that the cost-sharing requirement included all of the copayments, i.e., the difference between the federal 80% payment and 100% of the reasonable charge.

This is not the end of the matter, however. Another amendment provision stated that "the medical assistance made available to a qualified medicare beneficiary ... shall be limited to medical assistance for medicare cost-sharing ..., subject to the provisions of subsection (n) and [42 U.S.C. Sec. 1396o ]." Id. Sec. 9403(c), 1986 U.S.C.C.A.N. (100 Stat.) 2054 (codified at numeral VIII after 42 U.S.C. Sec. 1396a(a)(10)(E)). The first half of this sentence makes perfect sense: it merely says that QMBs get state support for Medicare cost-sharing, and don't get to "piggy-back" that into full Medicaid support they are not otherwise eligible to receive under the state Medicaid program. This is placed among a series of provisions set down in text form following 42 U.S.C. Sec. 1396a(a)(10), which is the subsection that lists various groups that a state's Medicaid plan must cover. All of these items, set off by roman numerals in the subsequent text, are intended to clarify that the fact that some groups are required to receive certain benefits under the state Medicaid plan doesn't mean that other groups must be afforded identical benefits. The justification for all of these clarifiers arises from Congress' initial concern that the states not provide better Medicaid benefits to the more well off than to the abject poor, and its response through the inclusion in the statute of a requirement that no group get a better set of benefits than any other group. Of course, with some groups, however, Congress itself wanted better or different benefits provided, and once it recognized this tension was causing consternation among the states, it began in the 1967 amendments to insert these provisions to overcome the equality of benefits provision. See note 7, supra. Thus, this provision simply indicates, among the other clarifiers, that QMBs, who definitionally were not qualified for state Medicaid benefits, could obtain Medicaid assistance to get them into Medicare Part B and nothing more.

The second half of the sentence, "subject to the provisions of [42 U.S.C. Sec. 1396a(n) ] and [42 U.S.C. Sec. 1396o ]," is somewhat more difficult to understand. As passed in 1986 under OBRA, 42 U.S.C. Sec. 1396a(n) provides:

In the case of medical assistance furnished under this title for medicare cost-sharing respecting the furnishing of a service or item to a qualified medicare beneficiary, the State plan may provide payment in an amount with respect to the service or item that results in the sum of such payment amount and any amount of payment made under [Medicare] with respect to the service or item exceeding the amount that is otherwise payable under the State plan for the item or service for eligible individuals who are not qualified medicare beneficiaries.

COBRA Sec. 9403(e), 100 Stat. 2054-55 (emphasis supplied). The Secretary and Virginia lean very heavily on the word "may." In their view, the fact that the statute says that the "State plan may provide payment" means that it may, but it doesn't have to, pay an amount that exceeds the Medicaid fee schedule amount for the particular item or service in question. The Association, on the other hand, sees the "may" as being simply a lifting of a barrier; while states under Medicaid are not allowed to pay more than the plan amount, the statute here, to clarify any confusion about whether the state may pay the full 20% included as an item in the Medicare cost sharing definition, tells the state that it may in this instance go ahead and break the barrier. Although we believe that the Association's explanation is highly plausible, given the connection between this provision and those allowance provisions set out in text form after Sec. 1396a(a)(10), we believe that a better understanding appears for this provision.

Neither the Secretary's nor the Association's explanation grasps one of the central problems with this provision: at the time it was enacted, it only applied to pure QMBs and not to dual eligibles. Dual eligibles, definitionally distinct from the QMBs, were governed by 42 U.S.C. Sec. 1396a(a)(15), which did not have any qualifier or reference to Sec. 1396a(n). Thus, under the Secretary's explanation of Sec. 1396a(n), the pure QMBs would be subject to this discretionary cap, while the dual eligibles would not be. There is no logical reason for such a distinction, and we find no explanation in the legislative history to support such a differentiation. Under the Association's approach, on the other hand, it is hard to explain why the states needed permission to break the Medicaid fee cap for QMBs when Congress didn't apparently think before this time that such permission was needed for dual eligibles. Neither interpretation is particularly satisfying.

What both have in common, however, is what appears to be an erroneous assumption about the difference to which the statute actually refers. Both parties assume that the Sec. 1396a(n)'s language, "eligible individuals who are not qualified medicare beneficiaries," means that the statute is saying that the State may pay more for QMB payments under Part B than it pays for regular Medicaid payments for the same service. Thus, the comparison is Medicare Part B versus Medicaid. But "eligible individuals who are not qualified medicare beneficiaries" refers more logically to dual eligibles. This understanding of the statute suggests simply that the State may pay more for QMB payments under Plan B than it pays for dual eligibles under Plan B. While somewhat incongruous on first impression, the complicated statutory provisions of Medicaid explain this rule. While it appears that the state must pay all of the copayment and deductible under the Medicare cost-sharing definition for QMBs (with a small caveat, discussed below), under the dual eligible provision the state is allowed to impose a small charge to the beneficiary if it chooses not to pay the whole amount, as discussed in part II.A, supra. If a state exercised that option, it would be paying more for the QMB than for the dual eligible, and this provision appears to be merely stating that that is an allowable situation.

This approach is further confirmed by referring to the other provision to which the QMBs were "subject." Without getting into much detail, 42 U.S.C. Sec. 1396o relates to a state's ability to impose certain charges on certain plan participants for certain services. It allows for "nominal" charges, in the form of "deductions, cost sharing, or similar charge" to be made to QMBs for their Medicare Part B coverage through the Medicaid plan. This section provides greater harmony between the dual eligibles, who were covered totally or at a lower amount where the lower amount was keyed to income and resources, and QMBs, who could, under Sec. 1396o, be charged some nominal amount. Because the amounts of nominal charges in either category were not necessarily set at the same levels, Sec. 1396a(n) simply allowed for the situation where the QMB was charged less than the dual eligible, so that the state paid more for QMBs.

The legislative history of these 1986 provisions indicates in strong terms that Congress did not view the QMB provision to allow the state to pay only some portion of the copayment amount. In outlining the scope of the QMB program, the House report indicated that "States would be permitted to pay just for the Medicare Part B premium and the other Parts A and B cost-sharing requirements for Medicare beneficiaries." H.R.Rep. No. 727, 99th Cong., 2d Sess., reprinted in 1986 U.S.C.C.A.N. 3607, 3695. While the surrounding paragraphs were designed to explain how limited the states' responsibility was for this program (which was being billed as a cheaper alternative than expanding Medicaid), and explained other ways the program was modest in character ("States would determine whether they wished to offer this assistance and, if so, where to set the income eligibility standards," id.), it did not note that the State contribution could be discretionarily limited as well, certainly a strong selling point when attempting to emphasize the limited nature of the new option.

Perhaps more tellingly, the House report contains an extended discussion of the payment mechanics under this provision that contemplates a number of hypothetical situations, none of which include the state paying less than the whole 20%:

For elderly and disabled individuals whom the State chose to cover, the Medicaid program would pay for the Part B deductible and the beneficiary's 20 percent coinsurance on Part B services. If the beneficiary uses a physician who takes assignment, Medicaid would pay the physician directly for the 20 percent coinsurance and the patient could not be billed for any amounts above the Medicare reasonable charge. However, if the physician elects not to take assignment, the beneficiary would submit the claim for the 20 percent coinsurance requirement to the State Medicaid program and would be liable for an additional amount charged by the physician. The Committee therefore encourages the States to make available to the elderly and disabled assisted under this provision a list of physicians in their communities who will agree to accept assignment.

Id., 1986 U.S.C.C.A.N. at 3696 (emphasis supplied). The language clearly evinces a desire by the Committee to protect the eligible individuals; its discussion certainly would have noted their possible liability for part or all of the 20% if such liability existed. Thus, neither the discussion of the bill explaining the limited additional burden QMB buy-ins would pose, nor the dis