                    COURT OF APPEALS OF VIRGINIA

Present:  Chief Judge Moon, Judge Annunziata and
          Senior Judge Hodges
Argued at Richmond, Virginia


CAROLINA E. LEACH, an Infant,
 Who Sues By and Through Barbara
 Leach, her Mother and Next Friend

v.   Record No. 1925-94-2              MEMORANDUM OPINION * BY
                                     CHIEF JUDGE NORMAN K. MOON
COMMONWEALTH OF VIRGINIA,                 AUGUST 22, 1995
 Ex Rel. Department of Medical
 Assistance Services

           FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
                      Randall G. Johnson, Judge

           John W. Jansak (Joseph Ryland Winston; Harriman,
           Jansak, Levy & Wylie, on brief), for appellant.

           Craig M. Burshem, Assistant Attorney General
           (James S. Gilmore, III, Attorney General; William
           H. Hurd, Deputy Attorney General; Siran S.
           Faulders, Senior Assistant Attorney General &
           Section Chief, on brief), for appellee.



     Carolina Leach, an infant, by and through Barbara Leach, her

mother and next friend ("Appellant"), appeals a decision by the

Department of Medical Assistance Services (DMAS) finding that she

was no longer eligible for participation in the Technology

Assisted Waiver Program ("Waiver Program") which provides payment

for home-based services for disabled individuals and is

administered under Virginia's Medicaid State Plan in cooperation

with the federal government.   42 U.S.C.S. § 1396.   Appellant

contends that the DMAS wrongfully terminated her benefits because

     *
      Pursuant to Code § 17-116.010 this opinion is not
designated for publication.
the DMAS incorrectly applied an individual cost-effectiveness

test to determine her eligibility for participation in the Waiver

Program.   Appellant also argues that in reviewing the DMAS's

decision, the circuit court did not base its decision to affirm

solely on the agency record as required by the Administrative

Process Act.   Code § 9-6.14:16 (B).   We disagree and affirm the

DMAS decision.

     "Code § 9-6.14:17 requires that reviewing courts `take due

account of the presumption of official regularity, the experience

and specialized competence of the agency, and purposes of the

basic law under which the agency has acted.'"    Virginia Real

Estate Bd. v. Clay, 9 Va. App. 152, 160-61, 384 S.E.2d 622, 627

(1989) (emphasis added); see also Johnston-Willis, Ltd. v.

Kenley, 6 Va. App. 231, 243, 369 S.E.2d 1, 13 (1988).    "[W]here

the question involves an interpretation which is within the

specialized competence of the agency and the agency has been

entrusted with wide discretion by the General Assembly, the

agency's decision is entitled to special weight in the courts."
Kenley, 6 Va. App. at 244, 369 S.E.2d at 8.

     Furthermore, notwithstanding the provisions of § 9-16.14:17,

this Court's review, as well as that of the circuit court, shall

be based solely upon the agency record, and . . . shall be

limited to ascertaining whether there was evidence in the agency

record to support the case decision of the agency acting as the

trier of fact.



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Code § 9-6.14:16 (B).

     The DMAS is the Virginia agency charged with administering

the state's Medicaid program.    See Code §§ 32.1-323 et seq.   The

DMAS possesses the requisite experience and competence necessary

to determine who is eligible for the programs it administers

under the Virginia Medicaid State Plan.   As such, its

interpretations of the statutes and regulations governing who

qualifies for the Waiver Program "are entitled to deference by a

reviewing court and should only be overturned when found to be

arbitrary and capricious."   Fralin v. Kozlowski, 18 Va. App. 697,

701, 447 S.E.2d 238, 241 (1994).

     We hold that the DMAS decision to apply an individual cost-

effectiveness test to determine appellant's eligibility for

participation in the Waiver Program was correct under the DMAS's

interpretation of applicable law and its own procedures, pursuant

to the state plan.   Appellant contends that Virginia elected not

to apply such a test.   The sole basis of appellant's argument is

a pre-printed waiver form, filled out by the DMAS as part of

Virginia's request for renewal of its Waiver Program.    This pre-

printed form indicates that an individual cost-effectiveness test

would not apply.   However, as the DMAS points out, an internal

conflict exists: attached to the waiver form and incorporated

into the request was the DMAS manual which states that it would

apply such a test.

     In addressing this conflict, the DMAS was entitled to

consider the primary intent of the authors of the state plan and
                                - 3 -
to construe the DMAS procedures to effectuate that intent.      See

VEPCO v. Board of County Supvrs., 226 Va. 382, 388, 309 S.E.2d

308, 311 (1983); Norfolk So. Ry. Co. v. Lassiter, 193 Va. 360,

364, 68 S.E.2d 641, 643 (1952).   In doing so, the DMAS looked to

the regulations governing the waiver to determine what test

Virginia intended to apply when it requested the waiver.    Based

on its construction of the state plan, DMAS determined that in

cases like the appellant's Virginia intended to apply the

individual cost-effectiveness test.
     We also find that the circuit court's decision to affirm the

DMAS ruling was based solely on the agency record as required by

the Administrative Process Act.   Code § 9-6.14:16 (B).   The

agency record supports the circuit court's affirmance of the

DMAS's ruling.   Based on her receipt of private insurance to

cover the cost of her medical expenses, the appellant was not

entitled to continue in the Waiver Program.

     Appellant argues that her entitlement to private insurance

coverage was not an issue before the circuit court.   She argues

that, because her private insurance was not the basis for DMAS's

denial of her participation in the Waiver Program, it is not to

be considered as part of the agency record.   However, the agency

record belies appellant's argument.    An individual's entitlement

to private insurance coverage is inextricably bound to a

determination of one's eligibility to receive Medicaid benefits.

Pursuant to 42 U.S.C. § 1396n(c)(4), the DMAS was authorized to

include appellant's private health insurance coverage in
                               - 4 -
determining the cost-effectiveness for her participation in the

Waiver Program.   Moreover, § 1396n(c)(1) permits the states to

pay home and community-based services for:
     individuals with respect to whom there has been a
     determination that but for the provision of such
     services the individual would require the level of care
     provided in a hospital or nursing facility or
     intermediary care facility for the mentally retarded,
     the cost of which would be reimbursed under the state
     plan.


     Additionally, § 1396b(o) states that "no payment shall be

made to a State . . . for expenditures for medical assistance

provided for an individual under its State Plan . . . to the

extent that a private insurer . . . would have been obligated to

provide such assistance. . . ."
     Thus, the agency record, including the above-cited statutes,

shows that the circuit court was correct in affirming the DMAS

decision based on appellant's receipt of private insurance

benefits.   Appellant's hospital expenses would not have been

reimbursed under Virginia's state plan because her entitlement to

private insurance coverage made her ineligible for Medicaid

benefits.   Hence, as someone who would not be otherwise

reimbursed under the state plan, she was not eligible to

participate in the Waiver Program.     42 U.S.C. 1396n(c)(1).

Similarly, appellant's private insurance coverage disqualified

her by way of a cost-effectiveness analysis, since § 1396n(c)(4)

directs states to compare the expected "amount of medical

assistance provided" with the application of waiver to the amount

provided without the waiver.   When the waiver was not applied, no

                               - 5 -
medical assistance would have been provided to the appellant

because her private insurance would pay for her hospital

expenses.




     Accordingly, the decision of the DMAS to terminate

appellant's participation in the Waiver Program is affirmed.

                                                  Affirmed.




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