1. Administrative Law--standard of review--legal error
The appropriate standard of review for whether DHNR erred in
requiring that petitioner rebut by clear and convincing written
evidence the presumption of Medicaid ineligibility arising from a
transfer of assets was de novo because petitioner asserted that
the final agency decision was affected by legal error. The whole
record test is utilized when appellant contends the agency
decision was not supported by the evidence or was arbitrary or
capricious.
2. Public Assistance--Medicaid--ineligibility--transfer of
assets--form of evidence
Respondent agency's final decision was affected by an error
of law where the agency concluded that a transfer of assets was
not exclusively devoid of Medicaid considerations, which would
result in denial of benefits and sanctions, in that the decision
was based upon petitioner's failure to present sufficient written
evidence to support his claim that the asset transfers occurred
for another purpose. The State Adult Medicaid Manual required
that the presumption of ineligibility arising from a transfer of
assets for less than their fair market value be rebutted by
written evidence; however, federal law provides that an applicant
may rebut the presumption upon a “satisfactory showing” and
neither federal statutes nor regulations establish the form of
evidence for a satisfactory showing. The requirement in the
State manual for written evidence is an administrative rule which
is not valid unless adopted in accordance with the provisions of
the Administrative Procedure Act.
3. Public Assistance--Medicaid--ineligibility--transfer of
assets--standard of evidence
Respondent agency's requirement that petitioner satisfy an
unpromulgated standard of clear and convincing evidence for
rebutting the presumption of ineligibility for Medicaid benefits
raised by a transfer of assets for less than fair market value
amounted to an error of law. The agency's requirement of clear
and convincing evidence was an administrative rule which must be
promulgated in accordance with Article 2A of Chapter 150B.
Because it was not defined by statute or regulation, the
applicable standard of proof was preponderance of the evidence. Appeal by petitioner from order entered 29 April 1998 by
Judge Claude S. Sitton in Buncombe County Superior Court. Heard
in the Court of Appeals 24 February 1999.
Pisgah Legal Services, by Curtis B. Venable, for petitioner-
appellant.
Attorney General Michael F. Easley, by Assistant Attorney
General Kathryn J. Thomas, for respondent-appellee.
MARTIN, Judge.
In August of 1996, Charles Dillingham was discharged from a
hospital to a nursing care facility after suffering a stroke.
Mr. Dillingham was 86 years of age. In September 1996, Mr.
Dillingham transferred assets worth $126,735.76 to his son, David
Dillingham, the petitioner. In November 1996, petitioner applied
to the Buncombe County Department of Social Services for Medicaid
coverage for his father's long term nursing care. The Department
of Social Services denied benefits and imposed sanctions based
upon the uncompensated asset transfer. Contending the transfer
of assets took place exclusively for a purpose other than to
qualify for Medicaid assistance, petitioner appealed to the
Division of Social Services of the North Carolina Department of
Human Resources (now North Carolina Department of Health and
Human Resources) (hereinafter “DHR”).
The Division of Social Services hearing officer issued a
tentative decision in which he concluded “the greater weight of
the written documentation [offered by petitioner] is not clear
and convincing that the transfer was exclusively devoid of all
Medicaid considerations” (emphasis original) and affirmed the
decision of the Buncombe County Department of Social Services. The hearing officer cited the provisions of the North Carolina
“Aged, Blind and Disabled Medicaid Manual”, otherwise known as
the “State Adult Medicaid Manual,” § 2240, VIII.B (MA-2240 VIII
B), which provides in pertinent part:
1. When a non-allowable transfer is verified,
presume the transfer was made to establish
Medicaid eligibility for cost of care.
Determine the sanction penalty. . . .
2. Advise the a/r [applicant/recipient] he may
rebut the presumption that the asset was
transferred to establish or retain Medicaid
eligibility. The a/r must present clear and
convincing written evidence to show the asset
was transferred exclusively for a reason
other than qualifying for Medicaid. The
evidence presented must be more persuasive
than all evidence to the contrary (emphasis
original).
At petitioner's request pursuant to G.S. § 108A-79, the
hearing officer's tentative decision was reviewed by the Chief
Hearing Officer for the Division of Social Services. Petitioner
argued the requirement for “written evidence” contained in the
Adult Medicaid Manual and applied by the hearing officer had not
been enacted in accordance with the requirements of the
Administrative Procedures Act and, thus, was of no consequence.
The Chief Hearing Officer entered a Final Decision in which she
concluded:
It is conceded that the Medicaid manual
reference requiring “written” evidence was
not duly promulgated by the State in
accordance with the requirements of the
Administrative Procedures Act. However, the
undersigned disagrees with the contention
that the Tentative Decision turns upon this
requirement of the Medicaid manual. Rather,
this manual requirement citation must be
construed as nothing more than incidental
support for the decision to uphold the
imposition of sanction. Irrespective of any
reference to “written” documentation, andbased solely on the cited Federal
regulations, the totality of the evidence and
testimony presented supports the essential
conclusion that it is not clearly and
convincingly documented that the transfer was
exclusively void of Medicaid considerations
(emphasis original).
Petitioner petitioned for judicial review of the final
agency decision pursuant to G.S. § 108A-79(k) and G.S. § 150B-
51(b). The superior court affirmed DHR's final agency decision,
concluding that “the final agency decision was supported upon the
whole record by substantial competent evidence, was within the
statutory authority and jurisdiction of the agency, was made upon
lawful procedure, was not arbitrary or capricious, was not in
violation of constitutional provisions, and was not affected by
error of law . . . .” Petitioner appeals.
c. Nonbinding interpretive statements within
the delegated authority of an agency that
merely define, interpret, or explain the
meaning of a statute or rule.
We believe the requirement of the manual that an applicant for
Medicaid, who is seeking to show that a transfer of his assets
was made exclusively for a purpose other than Medicaid
eligibility, provide written evidence is an administrative “rule”
within the foregoing definition; the requirement creates a
binding standard which interprets the eligibility provisions of
the Medicaid law and, in addition, describes the procedure and
evidentiary requirements utilized by respondent agency in
determining such eligibility. Comr. of Insurance v. Rate Bureau,
300 N.C. 381, 411, 269 S.E.2d 547, 568, reh'g denied, 301 N.C.
107, 273 S.E.2d 300 (1980) (Rules operate to "'fill the
interstices of the statutes,'", and "'go beyond mere
interpretation of statutory language or application of such
language and within statutory limits set down additional
substantive requirements.'”); Beneficial North Carolina, Inc. v.
State ex rel. North Carolina State Banking Com'n, 126 N.C. App.117, 484 S.E.2d 808 (1997).
An administrative rule is not valid unless adopted in
accordance with the provisions of Article 2A of the
Administrative Procedure Act. N.C. Gen. Stat. § 150B-18.
Respondent agency argues, however, that the provisions of 10 N.C.
Admin. Code 50B .0202 & .0203 authorize the requirement of
documentary evidence to verify the transfer of assets. However,
these regulations do not address the nature of the evidence
required to rebut the presumptions arising from such transfers;
rather they merely require “verification” of the transfer of
assets. N.C.A.C. 50B .0211(66) defines “verification” as “the
confirmation of facts and information used in determining
eligibility,” nowhere stating that documentary evidence is
required for verification. Thus, we hold there is neither
statutory nor regulatory authority for the requirement that a
Medicaid applicant present written evidence to rebut the
presumption that a transfer of assets for less than fair market
value was for the purpose of establishing Medicaid eligibility.
To the extent respondent agency's final decision was based upon
petitioner's failure to present sufficient written evidence to
support his claim that the asset transfers occurred for a purpose
exclusive of eligibility for Medicaid benefits, the decision was
affected by an error of law.
B.
[3]Petitioner also contends respondent agency's final
decision requiring proof as to the underlying purpose of theassets transfer by “clear and convincing” evidence was legal
error. As noted above, a “satisfactory showing” is required by
federal law to rebut the presumption of ineligibility raised by a
transfer of assets for less than fair market value, but neither
federal statutes nor regulations establish the standard of proof
required for a “satisfactory showing.” See 42 U.S.C. §
1396p(c)(2).
For the same reasons as stated with respect to the form of
evidence required for a “satisfactory showing,” we also hold that
respondent agency's requirement as to the standard of evidence
required for a satisfactory showing is an administrative rule
which, to have legal effect, must be promulgated in accordance
with Article 2A of Chapter 150B. Respondent agency concedes it
has not promulgated a rule as to the standard of proof required
but, citing the law of resulting trusts, argues that common law
rules of evidence require the presumption of a gift between
parent and child to be rebutted by “clear, cogent and convincing”
evidence. Thus, it argues, the hearing officer correctly
required “clear and convincing” evidence to rebut the presumption
of ineligibility created by the transfer in the present case. We
reject the argument.
In the absence of a valid statute or regulation establishing
the standard of proof, G.S. § 150B-29 requires that “the rules of
evidence as applied in the trial division of the General Court of
Justice shall be followed.” Our Supreme Court has stated that
the standard of proof in administrative matters is by the greater
weight of the evidence, and it is error to require a showing byclear, cogent and convincing evidence. In re Thomas, 281 N.C.
598, 189 S.E.2d 245 (1972).
The Commission's requirement, therefore,
placed too great a burden on her. . . . G.S.
s 143--318(1) [now G.S. § 150B-29(a)]
requires the State agencies and boards
charged with the duty of finding facts to
observe the rules of evidence “as applied in
the superior and district courts.” In the
superior court, except in extraordinary
cases, the burden of proof is by the greater
weight of the evidence. Proof beyond a
reasonable doubt is confined to criminal
offenses. Proof by clear, cogent, and
convincing evidence is required to establish
parole trusts, contents of lost documents,
and such matters.
Id. at 603, 189 S.E.2d at 248. This is not one of those
“extraordinary cases,” or “cases of an equitable nature,”
Williams v. Blue Ridge Bldg. & Loan Ass'n, 207 N.C. 362, 364, 177
S.E. 176, 177 (1934), requiring clear and convincing proof. The
statutory presumption of 42 U.S.C. § 1396p(c)(2) differs from the
equitable presumption of resulting trusts in both purpose and
effect.
Because the standard of proof required to make the
“satisfactory showing” called for by 42 U.S.C. § 1396p(c)(2) is
not defined by statute or regulation, the applicable standard was
proof by a preponderance of the evidence. Respondent agency's
requirement that petitioner satisfy the unpromulgated standard of
clear and convincing evidence contained in the referenced manuals
amounted to an error of law, requiring that we reverse the
judgment of the superior court and remand this matter for further
remand to the North Carolina Department of Health and Human
Services for reconsideration in light of the appropriateevidentiary standards. See Surgeon v. Division of Social
Services, 86 N.C. App. 252, 357 S.E.2d 388, disc. review denied,
320 N.C. 797, 361 S.E.2d 88 (1987).
Reversed and remanded.
Judges TIMMONS-GOODSON and HUNTER concur.
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