TN 1 (07-18)

A. PS 18-043 State Agency Refusal to Honor an Administrative Wage Garnishment Order

Date: January 23, 2018

1. Syllabus

Question: Can the State of Washington’s Department of Social and Health Services (DSHS) refuse to honor an administrative wage garnishment order that seeks to garnish money from payments to a healthcare provider for furnishing services to Medicaid beneficiaries?

Opinion:

Yes. DSHS can refuse to honor the administrative wage garnishment order. Consistent with federal requirements for States’ use of federal Medicaid funds, the State of Washington’s Medicaid plan and state law require that payment for Medicaid services be made only to the provider (or recipient) of those services, except in specified circumstances not present here. In addition, federal agencies are authorized to issue administrative wage garnishment orders only to a debtor’s employer, and DSHS may have a valid basis to argue that it is not the healthcare provider’s employer.

2. Opinion

QUESTION PRESENTED

Can the State of Washington’s Department of Social and Health Services (DSHS) refuse to honor an administrative wage garnishment order that seeks to garnish money from payments to a healthcare provider for furnishing services to Medicaid beneficiaries?

BRIEF ANSWER

Yes. DSHS can refuse to honor the administrative wage garnishment order. Consistent with federal requirements for States’ use of federal Medicaid funds, the State of Washington’s Medicaid plan and state law require that payment for Medicaid services be made only to the provider (or recipient) of those services, except in specified circumstances not present here. In addition, federal agencies are authorized to issue administrative wage garnishment orders only to a debtor’s employer, and DSHS may have a valid basis to argue that it is not the healthcare provider’s employer.

BACKGROUND

Medicaid Framework

The State of Washington participates in Medicaid, a joint federal-state program through which the federal government subsidizes the States’ provision of health care to needy individuals. 42 U.S.C. §§ 1396-1396w-5. The federal government pays States a specified percentage of program expenditures, and, in return, States pay their portion of costs and comply with the requirements of the Medicaid Act, 42 U.S.C. §§ 1396-1396w-5, and its implementing regulations, 42 C.F.R. §§ 430.0-430.104. Arkansas Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275 (2006).

In order to participate in Medicaid, a State must submit to the federal government, and have approved, a “State plan” for medical assistance that describes the nature and scope of the State’s Medicaid program. 42 U.S.C. § 1396a(a), (b). The State of Washington adopted, and the federal government approved, a State plan under 42 U.S.C. § 1396a(a) and (b), which Washington administers through DSHS.

The Medicaid Act sets out a “laundry list” of provisions that must be contained within a State plan. Alaska Dep’t of Health & Soc. Servs. v. Ctrs for Medicare & Medicaid Servs., 424 F.3d 931, 935 (9th Cir. 2005) (citing 42 U.S.C. § 1396a(a)). One such provision is an anti-assignment provision:

A State plan for medical assistance must–

. . . .

provide that no payment under the plan for any care or service provided to an individual shall be made to anyone other than such individual or the person or institution providing such care or service, under an assignment or power of attorney or otherwise . . . .

42 U.S.C. § 1396a(a)(32). Except in limited circumstances, which are discussed below, the Medicaid Act thus prohibits payment under a State plan to anyone other than a provider or recipient of Medicaid services.

Administrative Wage Garnishment Order

The debtor, W~ (Debtor), is an individual provider of in-home personal care services to Medicaid beneficiaries in the State of Washington. Wash. Rev. Code § 74.39A.240(3) (definition of individual provider of long-term care services). DSHS pays individual providers, such as the Debtor, for the services they furnish to Medicaid beneficiaries. See Wash. Rev. Code §§ 74.04.015, 74.04.050, 74.39A.270, 74.39A.300. Individual providers of long-term care services, however, are not considered employees of DSHS. Wash. Rev. Code §§ 41.04.810 (individual providers are not employees of Washington State or any of its subdivisions), 41.56.113 (State is payor, not employer), 74.39A.270 (individual providers considered public employees solely for collective bargaining purposes). Instead, individual providers are considered employees of the Medicaid beneficiaries who receive their services. Wash. Admin. Code §§ 388-71-0505 (stating that the beneficiary “[e]stablishes an employer-employee relationship with the individual provider”), 388-71-0515(1) (beneficiary is individual provider’s employer).

Under the authority of the Debt Collection Improvement Act of 1996 (DCIA), Pub. L. 104-134, codified in part at 31 U.S.C. § 3720D, SSA issued an administrative wage garnishment order to DSHS to recover an overpayment of Social Security benefits paid to the Debtor. Administrative wage garnishment is a debt collection process that allows a federal agency, without obtaining a court order, to order an employer to garnish an employee’s wages. See 31 U.S.C. § 3720D; 31 C.F.R. § 285.11. DSHS refused to honor the garnishment order, however. According to DSHS, it pays the Debtor for furnishing Medicaid services using Medicaid funds, and Medicaid’s anti-assignment provisions (42 U.S.C. § 1396a(a)(32) and 42 C.F.R. § 447.10) as well as Washington State law (Wash. Rev. Code § 74.08.210) prohibit it from complying with an administrative wage garnishment order that would capture Medicaid funds. SSA’s Philadelphia Processing Service Center (PSC) contends that those laws do not apply to SSA because the federal law authorizing the agency’s use of administrative wage garnishment, 31 U.S.C. § 3720D, should be construed to apply notwithstanding Medicaid’s anti-assignment provisions. In support, the PSC quoted the provision in section 3720D stating that agencies may use administrative wage garnishment “[n]otwithstanding any provision of State law.” 31 U.S.C. § 3720D(a).

DISCUSSION

DSHS Can Refuse to Honor the Administrative Wage Garnishment Order Because Federal Law Requires that Medicaid Funds Be Paid to the Provider, Except in Specified Circumstances Not Present Here

The Medicaid Act provides that payments under a State plan may generally be made only to the provider or beneficiary of Medicaid services. 42 U.S.C. § 1396a(a)(32); see also 42 C.F.R. § 447.10 (implementing the anti-assignment provision). Consistent with the Medicaid law, section 4.21 of the Washington State Medicaid Plan provides: “Payment for Medicaid services furnished by any provider under this plan is made only in accordance with the requirements of 42 CFR 447.10.” Wash. State Health Care Authority, Medicaid State Plan, 68 (2017), available at: https://www.hca.wa.gov/assets/program/SP-Numbered-Pages-General-Program-Administration.pdf.

Section 447.10 of Title 42 of the Code of Federal Regulations, in turn, “prohibits State payments for Medicaid services to anyone other than a provider or beneficiary, except in specified circumstances.” 42 C.F.R. § 447.10(a).

None of the “specified circumstances” in which payment for Medicaid services may be made to someone other than the provider (or beneficiary) would permit DSHS to comply with SSA’s administrative wage garnishment order. Those exceptions allow payment to be made to an employer, the facility where the care or service was provided, a healthcare organization, a business agent (such as a billing service), or a third party, for benefits such as health insurance. 42 U.S.C. § 1396a(a)(32)(A)-(D); 42 C.F.R. § 447.10(f)-(g). In addition, payment may be made in accordance with a reassignment from the provider to a government agency or pursuant to a court order. 42 U.S.C. § 1396a(a)(32)(B); 42 C.F.R. § 447.10(e).

Among the “specified circumstances,” only reassignment by the provider to a government agency or by court order potentially pertain to this situation. 42 U.S.C. § 1396a(a)(32)(B); 42 C.F.R. § 447.10(e); see also Digitech Computer, Inc., v. Trans-Care, Inc., 759 F. Supp. 2d 1030, 1032 (S.D. Ind. 2010) (holding that the Medicaid Act did not bar court-ordered garnishment of Medicaid payments). We assume that SSA complied with the notice provisions before initiating administrative wage garnishment proceedings. See 31 U.S.C. § 3720D(b)(2)-(5); 20 C.F.R. §§ 422.403–422.410 (outlining SSA’s notice requirements and procedures to initiate wage garnishment). If so, the Debtor was provided the opportunity, but did not agree, to enter into a repayment plan. Thus, a court order would be necessary to require DSHS to garnish the Debtor’s wages.

As noted above, the PSC contends that the federal law authorizing the agency’s use of administrative wage garnishment, 31 U.S.C. § 3720D, should be construed to apply notwithstanding Medicaid’s anti-assignment provisions. In support of this view, the PSC quoted the provision in section 3720D stating that agencies may use administrative wage garnishment “[n]otwithstanding any provision of State law.” 31 U.S.C. § 3720D(a); see also 31 C.F.R. § 285.11(b)(1) (“This section shall apply notwithstanding any provision of State law.”). However, Medicaid’s anti-assignment provisions are contained in federal law (42 U.S.C. § 1396a(a)(32) and 42 C.F.R. § 447.10), as well as in Washington’s State Plan, and nothing in section 3270D states or suggests that agencies may use administrative wage garnishment when doing so would conflict with other federal laws. See 31 U.S.C. § 3720D. The State-law preemption clause in section 3720D, therefore, does not provide a basis for concluding that DSHS must honor SSA’s administrative wage garnishment order. As explained above, if SSA wishes to garnish the Debtor’s wages, it appears that the agency must obtain a court order authorizing the garnishment.

DSHS may argue that Washington State law would prohibit it from complying with a court order directing garnishment of the Debtor’s wages. DSHS pays individual providers, such as the Debtor, for Medicaid services under Title 74 of the Revised Code of Washington. Wash. Rev. Code § 74.39A.300. Title 74 provides, in pertinent part: “. . . none of the money paid or payable under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of bankruptcy or insolvency law.” Wash. Rev. Code § 74.08.210. That would not be a strong argument by DSHS, however, because conflicting portions of Washington State law are preempted. See also Wash. Rev. Code § 74.08.260 (federal Social Security Act to control in event of conflict).

In sum, DSHS may properly refuse to comply with SSA’s administrative wage garnishment order. Garnishing from payments that DSHS makes to the Debtor without a court order (or voluntary reassignment from the Debtor) would conflict with federal requirements for Washington State’s use of federal Medicaid funds.

DSHS May Refuse to Honor the Administrative Wage Garnishment Order Because SSA Is Authorized to Issue such Orders Only to Employers, and DSHS May Not Be the Debtor’s Employer

DSHS also may decline to comply with the agency’s garnishment by arguing that DSHS is not the Debtor’s employer and, as a result, the agency lacks authority to order DSHS to garnish payments to the Debtor. The administrative wage garnishment statute, 31 U.S.C. § 3720D, and its implementing regulation authorize agencies to issue administrative wage garnishment orders only to a debtor’s “employer.” See 31 U.S.C. § 3720D(d), (f); 31 C.F.R. § 285.11(g)-(i), (o). The regulation defines “employer” as “a person or entity that employs the services of others and that pays their wages or salaries.” 31 C.F.R. § 285.11(c) (emphasis added). While DSHS may pay the Debtor for services she furnishes to Medicaid beneficiaries, under Washington State law individual providers are not considered employees of DSHS, and DSHS is not considered their employer. See Wash. Rev. Code §§ 41.04.810 (individual providers are not employees of Washington State or any of its subdivisions), 41.56.113 (State is payor, not employer), 74.39A.270 (individual providers considered public employees solely for collective bargaining purposes). Instead, Washington State law provides that an employee-employer relationship exists between the individual provider and the Medicaid beneficiary who receives the provider’s services. See Wash. Admin. Code §§ 388-71-0505 (stating that the beneficiary “[e]stablishes an employer-employee relationship with the individual provider”), 388-71-0515(1) (beneficiary is individual provider’s employer). Consequently, DSHS may have a valid basis for arguing that it is not the Debtor’s employer, and that for this reason, too, it may properly refuse to comply with SSA’s garnishment order.

CONCLUSION

DSHS can properly refuse to honor the administrative wage garnishment order because garnishing from payments that it makes to the Debtor would conflict with federal requirements for Washington State’s use of federal Medicaid funds. Further, DSHS might also be considered to not be the Debtor’s employer, meaning that SSA would not be authorized under 31 U.S.C. § 3720D to order DSHS to garnish payments to the Debtor. If SSA wishes to garnish the Debtor’s wages, the agency must obtain a court order.