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Electronically Filed Supreme Court SCWC-XX-XXXXXXX 29-JUL-2025 09:29 AM Dkt. 23 OP
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---o0o---
In re FT, by and through ALOHA NURSING REHAB CENTRE, Petitioner/Appellant-Appellant,
vs.
DEPARTMENT OF HUMAN SERVICES, STATE OF HAWAIʻI, Respondent/Appellee-Appellee.
SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-XX-XXXXXXX; CASE NO. 1CC171002012)
JULY 29, 2025
RECKTENWALD, C.J., McKENNA, EDDINS, GINOZA, AND DEVENS, JJ.,
OPINION OF THE COURT BY EDDINS, J.
This case involves whether a skilled nursing facility may
initiate an administrative hearing contesting the Department of
Human Services’ termination of its Medicaid-recipient resident’s
eligibility.
A skilled nursing facility accepted a new resident
receiving Medicaid benefits. Upon admission, the resident’s *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
husband was designated as her authorized representative. Thus,
he was authorized to communicate with the Department of Human
Services (DHS) (the agency that administers Hawaiʻi’s Medicaid
program) on her behalf.
Nearly two years after her admission to the facility, DHS
realized the resident had too many assets to qualify for
Medicaid. It ended her benefits. When her benefits were
terminated, the resident and her husband (her authorized
representative) had been deemed incapacitated. Husband had a
public guardian, and the State was in the process of appointing
the resident a guardian.
The nursing facility found out the resident was no longer
eligible for Medicaid because its bills stopped getting paid.
It is unclear whether notice of ineligibility was issued at the
time, and to whom.
After the State appointed the resident a public guardian,
the guardian submitted a new Medicaid application on her behalf.
DHS denied the application. DHS said it sent out a denial
notice, but no one knows who the notice was sent to. DHS said
it made a mistake – the resident was never eligible for Medicaid
because she still had a home in trust. (The family refused to
work with the facility to satisfy the medical debt with trust
assets or to place a lien on the home.)
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The nursing home cared for the resident without
compensation for almost another two years, until she passed
away.
DHS refused to compensate the facility. Nearly two years
after the resident’s death, the nursing home sought an
administrative hearing to challenge DHS’ 2013 eligibility
decision. The appeals office denied the request because the
nursing home was not an authorized representative, and the
appeal came too late. (The authorized representative, her
husband, was also deceased.)
The circuit court and Intermediate Court of Appeals (ICA)
affirmed the denial and held that the nursing home lacked
standing to challenge DHS’ eligibility determination because it
was not the applicant (the resident) or an authorized
representative per Hawaiʻi Revised Statutes (HRS) § 346-12
(2015).
We disagree with the lower courts regarding standing. We
hold that skilled nursing facilities have constitutionally-
protected property interests in compensation for medical
services performed for residents in reliance on Department of
Human Services eligibility determinations. Based on this
property interest, these facilities have due process rights
under article I, section 5 of the Hawaiʻi Constitution.
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Skilled nursing facilities are entitled to notice and the
opportunity to appeal Medicaid eligibility determinations when
(1) the facility has provided care for an individual approved
for Medicaid benefits, (2) the beneficiary is unable to appeal a
later determination of Medicaid ineligibility due to incapacity,
and (3) no authorized representative is available or willing to
appeal the eligibility denial on behalf of the beneficiary.
I.
Aloha Nursing Rehab Centre (Aloha), a nursing home
specializing in skilled nursing and hospice care, accepted FT as
a permanent resident in March 2011. It accepted her based on
the Department of Human Services determination that she was
Medicaid eligible. FT’s authorized representative, her husband,
signed a facility services agreement authorizing the release of
information to Aloha and assigning payment of FT’s Medicaid
benefits to Aloha.
In July 2012, FT’s husband’s healthcare provider filed an
emergency petition asking the court to find him incapacitated
and appoint the Office of the Public Guardian (OPG) as his
guardian. In November 2012, the court did so. From then on,
FT’s authorized representative lacked capacity to act on her
behalf.
In September 2012, Aloha filed a petition asking the court
to find FT incapacitated and appoint OPG. In January 2013, the
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court found FT incapacitated and appointed OPG as her guardian.
Because of the guardianship proceedings, the State knew that
both FT and her husband lacked capacity.
In November 2012, before OPG was appointed as FT’s
guardian, DHS terminated FT’s Medicaid benefits. Although it
did not receive a formal notice, Aloha found out about the
situation because its bills stopped getting paid. FT had a
house in trust, so she was over the Medicaid income limit.
Aloha tried to work with FT’s family to get the house out
of trust and make her eligible again, but was unsuccessful.
In June 2013, OPG submitted a new application for Medicaid
benefits on FT’s behalf. In July 2013, DHS sent a denial notice
explaining that FT’s home made her ineligible. To whom DHS sent
this notice is unknown.
In June 2014, FT died. In June 2015, Aloha wrote to FT’s
adult children, in their capacities as co-conservators of FT’s
trust containing the house. Aloha claimed that its debt was
enforceable against trust assets, namely, the house. It asked
the children to cooperate by placing a lien on the house;
otherwise it would sue.
In September 2015, Aloha sued the trust, demanding that
trust assets satisfy Aloha’s debt. In June 2016, Aloha withdrew
its suit after repeatedly being unable to serve the only child
who served as the trustee.
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Unable to get assets from the trust, Aloha met with DHS in
February 2016, seeking reimbursement for its care from 2012,
when FT was declared ineligible for Medicaid, until her death in
2014. DHS refused, explaining “that they had made a mistake and
that FT should never have been Medicaid eligible” because her
home was in a revocable trust the entire time.
In April 2016, Aloha sent a letter asking DHS for
$121,831.99 in reimbursement. DHS responded in June 2016,
denying Aloha’s request. In July 2016, Aloha asked DHS to
reconsider its denial. DHS rejected that request in August
2016.
In September 2016, Aloha requested a hearing with the DHS
Administrative Appeals Office (AAO). Aloha argued that the
hardship and lack of notice justified waiving the denial of
eligibility. The AAO dismissed the hearing request for two
reasons: Aloha was not authorized to represent FT, and the
hearing request was submitted over ninety days from the
termination of benefits notice.
Aloha appealed. In March 2017, the circuit court reversed
the AAO’s decision to dismiss Aloha’s request for a hearing. It
remanded to the AAO to determine whether Aloha had standing to
litigate on FT’s behalf.
On remand, the AAO sided with DHS. Because Aloha had not
produced evidence to establish that it was FT’s authorized
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representative, it had no right to contest DHS’ denial of its
request for payment. That FT and her authorized representative
were both incapacitated didn’t matter - FT had a legal guardian
(OPG) from January 29, 2013 until her death. Thus, the hearings
officer said, Aloha did not have standing, third-party or
otherwise, to request a hearing.
In July 2018, the circuit court affirmed the AAO’s
decision. The court concluded that Aloha lacked standing to
initiate a contested case hearing. The relevant statute, HRS
§ 346-12, limits parties who can request such a hearing solely
to the applicant or recipient themselves. The statute does not
extend to third parties, the circuit court said. It also
concluded that Aloha’s relationship to FT was not a “close
relationship” for third-party standing purposes, but rather
“that of a creditor and debtor under a contract.”
Aloha appealed. The ICA affirmed the circuit court. It
ruled that Aloha lacked standing under HRS § 346-12. HRS § 346-
12 only entitles an “applicant or recipient” of services or
public assistance to appeal DHS decisions. Aloha was neither,
the ICA said, so the circuit court correctly affirmed the AAO’s
denial of Aloha’s third-party standing. Aloha “did not show FT
was unable to protect her own interests.” Instead, the record
showed that FT had a legal guardian from January 2013 – one
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month after DHS terminated her Medicaid benefits – until her
death in June 2014.
Aloha applied for cert, and we accepted. Aloha maintains
that it may challenge the lack of notice and seek an
administrative hearing on DHS’ eligibility determination.
We hold that Aloha has a constitutionally-protected
property interest in its reimbursement for Medicaid services
provided to FT. Due process thus requires notice to Aloha, and
the opportunity to be heard at a DHS contested case hearing
regarding FT’s eligibility. Given Aloha’s reliance on DHS’
initial Medicaid eligibility decision, the likely loss of
$100,000+ in reimbursements and the minimal burden on DHS to
hold a hearing on FT’s eligibility, a contested case is required
to satisfy due process. Because Aloha has a protected property
interest in reimbursement, we also hold that it has standing to
challenge DHS eligibility decisions that may adversely affect
those interests. It may request a contested case hearing
covering its resident’s eligibility. We remand to the AAO for a
hearing on the merits.
II.
Lucky we live Hawaiʻi. Hawaiʻi leads the nation in life
expectancy. Andrew Mason & Michael Abrigo, Aging and Hawaiʻi’s
Generational Economy 1 (UHERO 2024). That positive statistic
correlates to a growth in the numbers and percentage of our
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elderly population. Studies suggest that in ten years, one in
four Hawaiʻi residents will be 65 or older. Id. And as our
kūpuna age, health care costs increase. Id. at 21.
Hawaiʻi faces a long-term care facility shortage. Madeleine
List, Why Many Patients Are Stuck In Hospitals Waiting For Long-
Term Care Beds, Honolulu Civ. Beat (Aug. 25, 2023),
https://www.civilbeat.org/2023/08/why-many-patients-are-stuck-
in-hospitals-waiting-for-long-term-care-beds/
[https://perma.cc/C8JJ-STX2]. Patients hospitalized for acute
conditions and requiring higher levels of care are sometimes
waitlisted for months before finding a long-term care placement.
Id.; State Health Planning and Development Agency, Health Care
Utilization Report 85-87 (2022). In 2022, for example, in some
facilities up to thirty percent of beds per facility were
unusable due to staffing shortages. See Health Care Utilization
Report, supra, at 80-82. So even kūpuna with resources struggle
to find placements for long-term care. See id. These long wait
times strain acute care hospital capacities and negatively
impact patients and their families. List, supra.
The care shortage is worse for patients receiving Medicaid.
Reportedly, “[p]atients on Medicaid have more difficulty finding
placements because some facilities are reluctant to take them
in.” List, supra; see United States General Accounting Office,
Admission Problems for Medicaid Recipients and Attempts to Solve
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Them 14 (1990) (“[I]t is generally conceded that Medicaid
recipients have more trouble getting into nursing homes than
private payers, there are little data available, either at the
national or state level, on the extent and severity of access
problems.”). Medicaid reimbursement rates are lower than what
private pay residents pay per day. David C. Grabowski & Joseph
J. Angelelli, The Relationship of Medicaid Payment Rates, Bed
Constraint Policies, and Risk-Adjusted Pressure Ulcers, 39
Health Servs. Rsch. 793, 795 (2004) (“The Medicaid rate is, on
average, about 70 percent of the private-pay price.”). Though
federal law prohibits nursing facilities from asking residents
to waive their rights to Medicaid and Medicare benefits upon
admission, nursing homes may still elect to deny admission to
people receiving Medicaid benefits in favor of those able to pay
the higher private rate. See 42 U.S.C § 1396r(c)(5)(A)(i).
Nursing facilities are essential to Hawaiʻi’s long-term care
infrastructure and kūpuna population. See Scott Suzuki, Long-
Term Care in Hawaii, 19 Haw. B.J. 59, (2015) (other long-term
care options include in-home care, senior housing, adult
residential care homes, assisted living, and community care
foster homes). These facilities “provide[] skilled nursing and
related services to residents who require twenty-four hour a day
medical or nursing care, or rehabilitation services, including
but not limited to physical therapy, occupational therapy, and
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speech therapy services.” Hawaiʻi Administrative Rules (HAR)
§ 11-94.2-2. And for some who require skilled nursing care,
nursing homes are where they live out their final years.
The hardship nursing facilities face when our state’s
Medicaid program revokes eligibility after a facility has cared
for a resident is troubling. When the Medicaid beneficiary and
their authorized representative lack capacity, and when the
Office of the Public Guardian (if appointed) chooses not to
appeal, private facilities don’t get paid. Based on the
government’s representation that the person was initially
Medicaid eligible, the facility admitted a new patient. Now
they’re left holding the bag, trying to recover from family
members or the government. Or even, as a last resort,
discharging a vulnerable resident. Long-term and end-of-life
care facilities are valued, necessary fixtures in Hawaiʻi’s
support system for kūpuna.
It is also unsettling that when Medicaid cuts a nursing
facility resident’s benefits, and no one is willing or able to
appeal, those actions go unreviewed. See Alakaʻi Na Keiki, Inc.
v. Matayoshi, 127 Hawaiʻi 263, 275, 277 P.3d 988, 1000 (2012)
(statutory delegation of judicial power that precludes judicial
review of the agency’s decision may raise separation of powers
issues); AlohaCare v. Dep’t of Hum. Servs., 127 Hawaiʻi 76, 86,
276 P.3d 645, 655 (2012) (“[S]eparation of powers concerns may
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arise when the legislature vests administrative agencies with
judicial power but precludes judicial review of the agency’s
decisions. . . . Absent judicial review, the agency is left to
decide the legality of its own actions, meaning that there is no
‘check’ on the propriety of the agency’s actions under the
law.”).
We hold that nursing facilities like Aloha have a
constitutionally-protected property interest in reimbursement
for Medicaid-related services. Where an individual receiving
Medicaid benefits does not have an authorized representative
willing or able to appeal an adverse agency decision, a skilled
nursing facility providing care to the person must receive
notice, and the opportunity to appeal a DHS Medicaid eligibility
determination.
We begin with the general framework for DHS Medicaid
appeals.
A. The Medicaid appeals process
First, HRS Chapter 346.
HRS § 346-12 provides for administrative appeals of adverse
Medicaid decisions. “An applicant or recipient, deeming oneself
aggrieved, shall be entitled to appeal to the [DHS] director in
the manner prescribed by department rules.” HRS § 346-12. The
statute provides that an applicant or recipient “shall be
afforded reasonable notice and opportunity for a hearing at
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which all of the evidence presented by the parties, to the
extent allowed by chapter 91, shall be considered in a fair and
impartial manner.” Id.
Per HRS § 346-1 (2015), “applicant” means “the person for
whose use and benefit application for services or public
assistance is made.” “Recipient” means “the person for whose
use and benefit services are rendered or a grant of public
assistance is made.” Id. “Applicant” and “recipient” thus mean
the person receiving Medicaid benefits. See id.
HRS § 346-12 incorporates DHS rules by reference. Those
rules allow an “authorized representative” to advocate for a
beneficiary in an administrative proceeding. HAR § 17-1703.1-
3(d)(3). The representative must be authorized to act on behalf
of the individual. HAR § 17-1703.1-3(c) (“[An individual’s]
written authorization shall be received by the department before
the department acknowledges any action taken by the authorized
representative on the individual’s behalf.”).
This regulation is consistent with federal Medicaid
requirements. Per 42 CFR § 435.923, state agencies tasked with
administering Medicaid must allow beneficiaries to designate
authorized representatives:
(a)(1) The agency must permit applicants and beneficiaries to designate an individual or organization to act responsibly on their behalf in assisting with the individual’s application and renewal of eligibility and other ongoing communications with the agency. Such a designation must be in accordance with paragraph (f) of
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this section, including the applicant’s signature, and must be permitted at the time of application and at other times.
(2) Authority for an individual or entity to act on behalf of an applicant or beneficiary accorded under state law, including but not limited to, a court order establishing legal guardianship or a power of attorney, must be treated as a written designation by the applicant or beneficiary of authorized representation.
42 CFR § 435.923.
Individuals or entities who are not the applicant or
beneficiary, or who are not the authorized representative,
according to the rule, may not challenge eligibility
determinations. HAR § 17-1703.1-3(d)(3).
This rule still applies to most Medicaid appeals. We hold,
however, that under certain circumstances, skilled nursing
facilities have standing to appeal adverse DHS Medicaid
eligibility determinations affecting facility residents admitted
with Medicaid benefits.
B. Skilled nursing facilities have constitutionally-protected property interests in reimbursement for Medicaid services
Skilled nursing facilities have constitutionally-protected
due process rights to notice when a facility resident’s Medicaid
benefits are adversely impacted by an ineligibility
determination. They also have the right to an administrative
hearing challenging the ineligibility determination.
Article I, section 5 of the Hawaiʻi Constitution provides
that “[n]o person shall be deprived of life, liberty or property
without due process of law.” Haw. Const. art. I, § 5. “We have
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long recognized that ‘[c]onstitutional due process protections
mandate a hearing whenever the claimant seeks to protect a
“property interest,” in other words, a benefit to which the
claimant is legitimately entitled.’” In re Application of Maui
Elec. Co., Ltd. (MECO), 141 Hawaiʻi 249, 260, 408 P.3d 1, 12
(2017).
Procedural due process requires notice and an opportunity
to be heard at a meaningful time and in a meaningful manner
before governmental deprivation of a significant property
interest. Sandy Beach Def. Fund v. City Council of City & Cnty.
of Honolulu, 70 Haw. 361, 378, 773 P.2d 250, 261 (1989) (citing
Mathews v. Eldridge, 424 U.S. 319, 333 (1976)).
Protected property interests implicate the Hawaiʻi
Constitution’s due process clause, but are not themselves a
product of that clause. See MECO, 141 Hawaiʻi at 260, 408 P.3d
at 12. “The legitimate claims of entitlement that constitute
property interests are not created by the due process clause
itself.” Id. Instead, “they are created and their dimensions
are defined by existing rules or understanding that stem from an
independent source such as state law — rules or understanding
that secure certain benefits and that support claims of
entitlement to those benefits.” Id. (quoting In re ʻĪao Ground
Water Mgmt. Area High-Level Source Water Use Permit Applications
(ʻĪao), 128 Hawaiʻi 228, 241, 287 P.3d 129, 142 (2012)).
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A party must demonstrate a true entitlement to establish a
property interest. This court explained that “a party has a
property interest in the subject of litigation for purposes of
due process analysis if the party has ‘more than an abstract
need or desire for it. [They] must have more than a unilateral
expectation of it. [They] must, instead, have a claim of
entitlement to it.’” ʻIao, 128 Hawaiʻi at 241, 287 P.3d at 142
(quoting Sandy Beach Def. Fund, 70 Haw. at 376, 773 P.2d at 260;
Pele Def. Fund v. Puna Geothermal Venture, 77 Hawaiʻi 64, 68, 881
P.2d 1210, 1214 (1994) (“Constitutional due process protections
‘property interest,’ in other words, a benefit to which the
claimant is legitimately entitled.”).
Nursing facilities’ protected property interest in payment
for services performed for facility residents arises from DHS
rules. See ʻĪao, 128 Hawaiʻi at 241, 287 P.3d at 142. According
to DHS administrative rules, nursing facilities are entitled to
reimbursement for services provided to Medicaid residents.
Nursing facilities accredited for short-term rehabilitation and
long-term nursing care are reimbursed by the Medicaid long term
care prospective payment system via facility-specific
prospective per diem rates:
(b) Except as noted herein, the Medicaid program shall pay for institutional long-term care services through the use of a facility-specific prospective per diem rate.
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HAR § 17-1739.2-3(b); see 42 CFR § 447.252(b) (“The [state] plan
must specify comprehensively the methods and standards used by
the agency to set payment rates in a manner consistent with [42
CFR § 430.10 state plan written requirements].”). Federal law
also requires state plans to provide for provider reimbursement
according to rates that the state “finds, and makes assurances
satisfactory to the [federal Department of Human Services]
Secretary,” are “reasonable and adequate to meet the costs which
must be incurred by efficiently and economically operated
facilities . . . .” 42 CFR § 447.250.
Medicaid payments for services performed are rule-based
entitlements based on agreements with DHS. To establish
Medicaid reimbursement eligibility, providers such as nursing
facilities must complete Enrollment Form 1139. According to the
Provider Enrollment Form Nursing Facility Attachment, DHS must
reimburse nursing facilities for authorized Medicaid services:
DHS shall reimburse the FACILITY for authorized [Nursing Facility (NF)] services provided to residents. Reimbursements shall be limited to services rendered in the areas of the FACILITY, which are licensed by the State Department of Health as a NF under 42 C.F.R. Part 483.
Med-Quest Division, Provider Enrollment Form (Rev. 2022), at 52
(available at:
https://medquest.hawaii.gov/content/dam/formsanddocuments/resour
ces/Provider-Resources/hoku/DHS_1139_Form_Rev_11_2022.pdf)
[https://perma.cc/P7TF-V7E4].
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Keahole Defense Coalition held that certain government
“benefits” do not constitute “statutory entitlement” conferring
a legitimate property interest. Keahole Def. Coal., Inc. v. Bd.
of Land & Nat. Res., 110 Hawaiʻi 419, 433, 134 P.3d 585, 599
(2006). A telecommunications provider did not have a “statutory
entitlement” to an exclusive license issued by the Department of
Hawaiian Home Lands because the agency has discretion to grant
licenses and determine the terms of any leases granted. Id. at
433-34, 134 P.3d at 599-600. Where the government has
discretion – such as deciding whether to grant or deny state
operating licenses – the lack of entitlement bars property
interest-based claims. See id. (citing Thornton v. City of St.
Helens, 425 F.3d 1158, 1164 (9th Cir. 2005).
DHS does not have discretion as to whether it may reimburse
facilities for services performed. If a resident is eligible
for Medicaid, then DHS must reimburse the facility when it
provides care for a nursing home resident. See HAR § 17-1739.2-
3(b); 42 CFR § 47.252. That is not to say that Medicaid is
required to pay for unauthorized services. See HAR § 17-1739.2-
3(b). Because the requirement that Medicaid “pay for
institutional long-term care services through the use of a
facility-specific prospective per diem rate” is not
discretionary, it constitutes an entitlement giving rise to a
protected property interest. See id.
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Thus, by rule – and by DHS’ agreement with licensed nursing
facilities - skilled nursing facilities are entitled to payment
for Medicaid services performed for eligible beneficiaries. See
ʻĪao, 128 Hawaiʻi at 241, 287 P.3d at 142; HAR § 17-1739.2-3(b).
Other jurisdictions support our conclusion. In Oberlander
v. Perales, the Second Circuit Court of Appeals held that a
skilled nursing facility licensed as a Medicaid provider, under
New York law, had a “property interest in money paid for
services already performed in reliance on a duly promulgated
reimbursement rate.” 740 F.2d 116, 120 (2d Cir. 1984). Thus,
the provider had federal due process rights. Id. Pressley
Ridge Schools, Inc. v. Stottlemyer also held that a behavioral
health care provider’s “interest in receiving reimbursement for
services to Medicaid recipients is a protectable property
interest under the Fourteenth Amendment.” 947 F.Supp. 929, 940
(S.D. W. Va. 1996).
Federal courts have also held that a provider’s property
interest begins when the notice of eligibility is issued. In
Anchorage SNF, LLC v. Padilla, the U.S. District Court for the
District of Maryland held that the nursing facilities’ property
interest in payment for services provided began when an
applicant or nursing home resident “receives a Notice of
Eligibility”:
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[Other federal cases] determined the medical providers had a property interest in payments for services previously rendered. For the purposes of the Motion, the court is satisfied that once an applicant/resident receives a Notice of Eligibility, Plaintiffs’ property interest in payment for services rendered is born. The Notice of Eligibility signals to the applicant and Plaintiffs that the applicant is eligible for the services offered by Plaintiffs, and Plaintiffs will be paid for those services once rendered. Accordingly, the court finds, that Plaintiffs have a property interest in payments for services rendered to eligible residents.
Anchorage SNF, No. 1:22-cv-00166-JRR, 2023 WL 1107994, at
*8 (D. Md. Jan. 30, 2023) (mem. op.) (emphases added).
We reach a similar conclusion. By law, Medicaid recipients
have no money to pay for humane care. 20 CFR § 416.1205 (the
resource limit for Medicaid recipients is $2,000). A notice of
eligibility signals the government’s endorsement that residents
are covered by Medicaid upon admission. While eligibility may
change, facilities rely on these initial determinations.
In Hawaiʻi, a long-term care provider’s reimbursement rate
is set by Med-Quest. See HAR § 17-1739.2-3. Providers are
reimbursed “based on the number of days of care that the
provider delivers to the resident, the acuity level that is
medically necessary for each day of care, and the provider’s
[prospective payment system] rate.” See HAR § 17-1739.2-3(a);
HAR § 17-1700.1-2 (“‘Acuity level or level of medical care’
means one of the following types of inpatient services: [nursing
facility] or [intermediate care facility for individuals with
intellectual disabilities].”). The prospective payment system
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rate (the amount the facility is paid daily for caring for a
Medicaid beneficiary) is facility-specific and based in part on
historic cost. See HAR § 17-1739.2-3; HAR § 17-1700.1-2 (“‘PPS
rate’ means the prospective payment system annual rate assigned
each Medicaid institutional provider.”). Aloha’s daily rate as
of January 2025, for example, was $528.49. See Letter from Judy
Mohr Peterson, PhD to QUEST Integration Health Plans, Medicaid
Fee-for-Service Rates for All Nursing and Hospice Facilities
Effective January 1, 2025 Thru June 30, 2025 (Dec. 12, 2024)
https://medquest.hawaii.gov/content/dam/formsanddocuments/provid
er-memos/qi-memos/qi-memos-2024/QI_2427.PDF)
[https://perma.cc/D8XT-JESZ].
When residents with Medicaid coverage are admitted,
facilities like Aloha rely on the accuracy of DHS’ Medicaid
eligibility determination. They anticipate payments for those
services according to state-established daily rates. HAR § 17-
1739.2-3(b).
We hold that skilled nursing services provided in reliance
on the Medicaid rate for Medicaid residents constitute a
protected property interest.
A facility resident losing eligibility mid-stay does not
sever this entitlement. See Aguiar v. Hawaii Housing Auth., 55
Haw. 478, 493-94, 496, 522 P.2d 1255, 1265-67 (1974) (plaintiffs
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whose leases were terminated for allegedly exceeding income
limits had property interests in low-income housing benefits
sufficient to require a pre-termination hearing). For sure,
Medicaid will only reimburse providers for services provided to
an eligible beneficiary. But continued services – based on a
resident’s Medicaid eligibility upon admission – does not change
the status of a protected property interest in reimbursement.
See id.
Here, the Medicaid compensation framework supports a
nursing facility’s property interest in reimbursement for
provided services under Hawaiʻi law. See id.; HAR § 17-1739.2-
3(b).
First, DHS regulations detail the daily rate providers are
paid for providing Medicaid services to residents. HAR § 17-
Second, Medicaid is a “vendor only” plan, where “payment
ordinarily cannot be made to the recipient of medical assistance
but can only be made to the vendor or provider of the services.”
81 C.J.S. Social Security and Public Welfare § 267 (2024); 42
CFR § 447.10(d) (“Payment may be made only . . . [t]o the
provider; or . . . [t]o [certain beneficiaries receiving the
payment for physicians’ or dentists’ services per 42 CFR
§ 447.25.]”); see HAR § 17-1739.2-3 (requiring DHS to reimburse
long-term care providers for services delivered). In other
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words, beneficiaries living at nursing facilities never see
these payments – DHS directly pays the medical provider. Thus,
this regulatory framework supports our holding that nursing
facilities who have accepted Medicaid-eligible residents hold a
property interest in Medicaid reimbursement for their services.
Nursing facilities are unique medical providers. They care
for individuals requiring high levels of care, where community
or home care is not possible. See HAR § 11-94.2-2 (nursing
facilities provide twenty-four-hour care for residents who
require medical and nursing care, or rehabilitation). And they
often care for elderly patients during their final years.
Because skilled nursing facilities offer twenty-four hour
services, they are involved in nearly all aspects of a
resident’s care – housing, medical and behavioral care, activity
programming, family visitation and relations, and more. While
the constitutionally-protected property interest in Medicaid
reimbursement belongs solely to the nursing facility, its role
in the client’s care uniquely positions facilities to appeal an
adverse decision where family, authorized representatives, or
public guardians are unable or unwilling to assist.
Here, for example, while FT’s authorized representative
(her husband) lacked capacity to appeal on her behalf, the
record does not explain why FT’s public guardian did not step in
to appeal the eligibility denial. But under these
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circumstances, to conclude that no other party has a right to
appeal, blocks meaningful judicial review of DHS decisions. See
AlohaCare, 127 Hawaiʻi at 86, 276 P.3d at 655 (“Absent judicial
review, the agency is left to decide the legality of its own
actions, meaning that there is no ‘check’ on the propriety of
the agency’s actions under the law.”).
We hold that skilled nursing facilities have a protected
property interest in Medicaid payment for services performed in
reliance on Department of Human Services eligibility
determinations, and thus, have due process rights under article
I, section 5 of the Hawaiʻi Constitution. See Haw. Const. art.
I, § 5; MECO, 141 Hawaiʻi at 260, 408 P.3d at 12.
Aloha had a protected property interest in payment for
services provided to FT in reliance on DHS’ initial eligibility
determination. Thus, it was entitled to procedural due process:
notice and the opportunity to be heard.
C. Nursing facilities have due process rights to notice and the opportunity to be heard
1. Notice
First, we hold that skilled nursing facilities are entitled
to notice of adverse actions related to their residents’
Medicaid eligibility.
Per the Department of Human Services Med-Quest Division’s
Administrative rules, it must provide notice of benefits
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eligibility decisions to “individuals”:
Notice of eligibility, or level of benefits and services. (a) The department shall provide an individual with a written notice of any decision by the department or designee affecting the individual’s eligibility for benefits and services approval, denial, termination, or suspension of benefits or services.
HAR § 17-1713.1-2(a) (emphasis added).
This administrative rule is consistent with federal law
governing Medicaid. 42 CFR § 435.917 (“Consistent with
§§ 431.206 through 431.214 of this chapter, the agency must
provide all applicants and beneficiaries with timely and
adequate written notice of any decision affecting their
eligibility, including an approval, denial, termination or
suspension of eligibility, or a denial or change in benefits and
services.”).
But now that skilled nursing facilities have constitutional
protection, what notice is DHS required to provide?
Under Hawaiʻi law, the government’s due process obligations
are case specific. Mauna Kea Anaina Hou v. Bd. of Land & Nat.
Res., 136 Hawaiʻi 376, 389, 363 P.3d 224, 237 (2015). Due
process “calls for such procedural protections as the particular
situation demands.” Id. (quoting Sandy Beach Def. Fund, 70 Haw.
at 378, 773 P.2d at 261). “[B]ut its basic elements are notice
and an opportunity to be heard at a meaningful time and in a
meaningful manner.” Davis v. Bissen, 154 Hawaiʻi 68, 82, 545
P.3d 557, 571 (2024).
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First, we discuss the notice requirement. Adequate notice
informs parties of the adverse action and informs them of the
“procedures available for challenging that action.” Id. Under
these circumstances, due process requires notice to skilled
nursing facilities of any adverse eligibility determination, and
information regarding the facility’s appeal rights. See HAR
§ 17-1713.1-2; § 17-1703.1-4 (appeals of eligibility related
decisions must be received by DHS within ninety calendar days of
the date of the notice). We hold that DHS must issue notice to
skilled nursing facilities caring for residents when it issues
adverse decisions related to a resident’s Medicaid eligibility,
including termination and suspension of benefits.
DHS is authorized to disclose otherwise confidential
information to “Medicaid providers who require eligibility, cost
share or [third-party liability] information for billing or
recovery purposes.” HAR § 17-1702-5(b)(3)(C); see HRS § 346-
10(c) (2015) (“The department shall promulgate and enforce such
rules as may be necessary to prevent improper acquisition or use
of confidential information.”); 42 CFR § 431.306(a) (“The agency
must have criteria specifying the conditions for release and use
of information about applicants and beneficiaries.”).
Confidential information includes, among other things, a
patient’s social and economic circumstances, DHS’ “evaluation of
recorded or unrecorded information about a particular
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individual, whether or not an applicant or recipient,” and
“[c]orrespondence concerning a particular individual.” HAR
§ 17-1702-4(a). Thus, DHS may disclose eligibility
determinations to nursing facility providers. See HAR § 17-
1702-5(b)(3)(C). While the rule may not have previously
required eligibility disclosure, due process requires disclosure
to skilled nursing facilities to provide notice of benefits
termination.
Providing notice of resident Medicaid ineligibility is
hardly an administrative burden for DHS. Medicaid payments are
already assigned to the facility providing nursing care services
to the beneficiary. The State also begins paying the daily rate
for Medicaid residents upon their admission. See HAR § 17-
1739.2-3(b). Thus, the information DHS needs to notify a
resident’s nursing facility of suspension or termination of
Medicaid eligibility is easily accessible. And because this
holding only impacts applicants and beneficiaries already
receiving skilled nursing facility level care, it only affects a
narrow category of Medicaid beneficiaries.
Here, neither party disputes that DHS did not provide
notice to Aloha when DHS terminated FT’s Medicaid benefits.
Failure to provide notice thus violated Aloha’s due process
right to notice.
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We note that Aloha appealed FT’s eligibility determination
nearly two years after DHS cut FT’s benefits. Because DHS did
not notify Aloha of its adverse decision, though, we hold that
the appeal was not untimely. This does not alter the
requirement that facilities that receive notice of an adverse
decision based on this case’s holding timely appeal the
decision.
2. Opportunity to be heard
Skilled nursing facilities have due process rights to be
heard regarding the applicant’s eligibility. That is, if the
applicant or beneficiary, or an authorized representative is
otherwise unwilling or unable to appeal an adverse decision.
This due process right to be heard also means that DHS must hold
a contested case hearing – a hearing “required by law.” See
MECO, 141 Hawaiʻi at 258, 408 P.3d at 10. The due process right
to a contested case hearing also establishes Aloha’s standing to
request a contested case regarding FT’s eligibility.
Procedural due process requires that parties with property
interests have an “opportunity to be heard at a meaningful time
and in a meaningful manner.” See id. at 269, 408 P.3d at 21
(cleaned up). This includes “the right to submit evidence and
argument on the issues” involving the asserted property
interest. Id.
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Because nursing facilities have due process rights based on
constitutionally-protected property interests, AAO
administrative hearings are “required by law.” Id. at 258, 408
P.3d at 10 (“In order for an administrative agency hearing to be
‘required by law, it may be required by (1) agency rule, (2)
statute, or (3) constitutional due process.’”) (quoting
Kaleikini v. Thielen, 124 Hawaiʻi 1, 16–17, 237 P.3d 1067, 1082–
83 (2010)). Therefore, those administrative hearings are
considered contested case hearings. The Hawaiʻi Administrative
Procedures Act (HAPA) governs these proceedings. See HRS
chapter 91; Bush v. Hawaiian Homes Comm’n, 76 Hawaiʻi 128, 135,
870 P.2d 1272, 1279 (1994) (“The adjudicatory procedures of the
Hawaii Administrative Procedure Act apply to hearings which an
agency is constitutionally required to provide.”) (quoting
Aguiar, 55 Haw. at 478, 522 P.2d at 1256) (cleaned up).
When determining the specific procedures required to comply
with constitutional due process, we consider and balance three
factors: “(1) the private interest which will be affected; (2)
the risk of an erroneous deprivation of such interest through
the procedures actually used, and the probable value, if any, of
additional or alternative procedural safeguards; and (3) the
governmental interest, including the burden that additional
procedural safeguards would entail.” Flores v. Bd. of Land &
Nat. Res., 143 Hawaiʻi 114, 126-27, 424 P.3d 469, 481-82 (2018)
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(quoting Sandy Beach Def. Fund, 70 Haw. at 378, 773 P.2d at
261).
Regarding the first factor, the private interest affected
is Aloha’s $121,831.99 in unpaid Medicaid reimbursements for
FT’s end-of-life care. Because payment for past Medicaid
services is a constitutionally-protected property interest, we
consider that interest significant. For the second factor, the
risk of erroneous deprivation absent a contested case hearing is
high for Aloha because no other party is willing or able to
appeal the adverse determination on FT’s behalf. Because DHS is
required to provide administrative appeals of adverse Medicaid
decisions by statute for the “applicant” or “recipient,” DHS is
not unduly burdened by affording Aloha a contested case hearing.
See MECO, 141 Hawaiʻi at 266, 408 P.3d at 18. As DHS pointed
out, it also would have granted a contested case hearing to FT’s
authorized representative or public guardian. Thus, when no one
else is willing or able to appeal, DHS’ burden to hold a
contested case hearing is slight. See id.
We hold that under the circumstances of this case, the
protected interest in reimbursement for Medicaid services
performed mandates a DHS hearing to consider FT’s Medicaid
eligibility. See id. at 269, 408 P.3d at 21. Requiring a
contested case hearing directed at FT’s eligibility is
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reasonable due to the high probability that Medicaid will not
reimburse Aloha for its services. See id.
We hold that Aloha has a due process right to a contested
case hearing covering FT’s eligibility determination.
Because Aloha has a right to a contested case hearing, we
also hold that Aloha has standing to request a contested case
hearing regarding beneficiary eligibility. See ʻĪao, 128 Hawaiʻi
at 241, 287 P.3d at 142.
This court has held that “standing is a prudential concern
and not an issue of subject matter jurisdiction[.]” Tax Found.
of Hawaiʻi v. State, 144 Hawaiʻi 175, 190, 439 P.3d 127, 142
(2019). Standing is thus “solely an issue of justiciability,
arising out of prudential concerns of judicial self-governance.”
Id. This court’s “basic position has been that standing
requirements should not be barriers to justice.” Life of the
Land v. Land Use Comm’n, 63 Haw. 166, 174, 623 P.2d 431, 439
(1981).
When a “person” is entitled to a contested case hearing,
they have standing to request a contested case hearing. See
Mauna Kea Anaina Hou, 136 Hawaiʻi at 390, 363 P.3d at 238; HRS
§ 91-1 (Supp. 2017) (“‘Persons’ includes individuals,
partnerships, corporations, associations, agencies, or public or
private organizations.”). Our holding that Aloha has the due
process right to a contested case hearing based on a property
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interest inherently recognizes that Aloha suffered an actual
injury to its constitutional due process rights traceable to
DHS’ actions, and that DHS holding a hearing on FT’s eligibility
would provide relief for that injury. See MECO, 141 Hawaiʻi at
270, 408 P.3d at 22. Because DHS is required to hold a
contested case hearing regarding FT’s eligibility, Aloha has
standing to appeal the DHS’ eligibility determination. See id.
Thus, Aloha has standing to request a contested case
hearing concerning FT’s Medicaid eligibility termination.
D. Pipeline retroactive application
When this court announces a new rule, it may consider
prospective versus retrospective application. See League of
Women Voters of Honolulu v. State, 150 Hawaiʻi 182, 207, 499 P.3d
382, 407 (2021). This court has identified four degrees of
retroactive effect: (1) purely prospective effect (“applied
neither to the parties in the law-making decision nor to those
others against or by whom it might be applied to conduct or
events occurring before that decision”); (2) limited or
“pipeline” retroactive effect (“the rule applies to the parties
in the decision and all cases that are on direct review or not
yet final as of the date of the decision”); (3) full retroactive
effect (“the rule applies both to the parties before the court
and to all others by and against whom claims may be pressed”);
and (4) selective retroactive effect (“the court applies the new
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rule ‘in the case in which it is pronounced, then return[s] to
the old [rule] with respect to all [other cases] arising on
facts predating the pronouncement’”). Id. at 207 n.39, 499 P.3d
at 407 n.39. When deciding whether to give a new rule
retroactive effect, this court “weigh[s] the merits and demerits
of retroactive application of the particular rule, in light of
(a) the purpose of the newly announced rule, (b) the extent of
reliance . . . on the old standards, and (c) the effect on the
administration of justice of a retroactive application of the
new standards[.]” Id. at 207, 499 P.3d at 407.
We hold that limited or “pipeline” retroactive effect is
most appropriate under the circumstances. Our holding
establishes important constitutional due process rights for
nursing facilities seeking to challenge a resident’s Medicaid
eligibility. Despite the agency’s procedural reliance on HRS
§ 346-12, HAR § 17-1703.1-3(d)(3), and HAR § 17-1713.1-2, we do
not consider it a significant burden for DHS to hold a hearing
for similarly situated skilled nursing facilities with cases on
direct review. The eligibility determination is fairly narrow,
and may not require significant fact finding by the agency in
instances where no other party aside from the nursing home is
willing or able to appeal an adverse DHS decision. Further,
because our holding involves situations where no other party is
available to appeal DHS’ eligibility decision, we are concerned
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that for nursing facilities’ cases in the “pipeline,” agency
decisions will go unreviewed should our holding not apply.
Thus, our new rule is prospective in effect, but applies to the
parties in the decision and all cases that are on direct review
or not yet final on the date of the judgment.
III.
We vacate both the ICA’s judgment, and the Circuit Court of
the First Circuit’s August 1, 2018 “Order Affirming
Administrative Hearing Decision Dated November 20, 2017” and
August 1, 2018 Judgment. We remand for a new administrative
hearing on the merits of FT’s Medicaid eligibility between
November 2012 and FT’s death.
Thomas E. Bush /s/ Mark E. Recktenwald for petitioner /s/ Sabrina S. McKenna Lili A. Young /s/ Todd W. Eddins (James W. Walther on the briefs) /s/ Lisa M. Ginoza for respondent /s/ Vladimir P. Devens