                                NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.




                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-3067-16T3

G.F.,

           Petitioner-Appellant,

v.


DIVISION OF MEDICAL ASSISTANCE
AND HEALTH SERVICES and BERGEN
COUNTY BOARD OF SOCIAL SERVICES,

     Respondents-Respondents.
______________________________________

                    Submitted September 12, 2018 – Decided September 17, 2018

                    Before Judges Haas and Mitterhoff.

                    On appeal from the New Jersey Division of Medical
                    Assistance and Health Services, Department of Human
                    Services.

                    Amy S. MacIsaac, attorney for appellant.

                    Gurbir S. Grewal, Attorney General, attorney for
                    respondent Division of Medical Assistance and Health
                    Services (Melissa H. Raksa, Assistant Attorney
                    General, of counsel; Mark D. McNally, Deputy
                    Attorney General, on the brief).
PER CURIAM

      Appellant G.F. appeals from the February 3, 2017 final decision of the

Director of the Division of Medical Assistance and Health Services (DMAHS)

denying her request for a deduction from her post-Medicaid eligibility income

for the cost of 24-hour per day companion care services. Because there was

confusion as to the proper scope of the proceedings to be conducted at the Office

of Administrative Law (OAL) between the parties and the Administrative Law

Judge (ALJ) on the one hand, and the Director on the other, we vacate the

Director's decision and remand for a contested case hearing on all the issues

presented in this matter.

      By way of background, Medicaid recipients who are receiving care in an

institution, such as a medical institution or nursing facility, are generally

required to contribute all of their income to the cost of their care. See 42 U.S.C.

§ 1396a(q). Thus, the recipient must turn over their income on a monthly basis

as a cost share to the facility where the recipient resides. Ibid.

      In appropriate circumstances, however, State Medicaid agencies like

DMAHS must allow a recipient to deduct certain expenses designated in the

agency's regulations from their income before that income is turned over to the

care provider. 42 C.F.R. § 435.725(a). Pertinent to the present case, 42 C.F.R.

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                                         2
§ 435.725(c)(4)(ii) provides that "the agency must deduct . . . from the

individual's total income . . . [n]ecessary medical or remedial care recognized

under State law but not covered under the State's Medicaid plan, subject to

reasonable limits the agency may establish on amounts of these expenses."

Consistent with this federal regulation, DMAHS adopted N.J.A.C. 10:71-

5.7(k)(1) which, in relevant part, states that a Medicaid recipient may deduct

"necessary medical expenses as recognized by [DMAHS] and incurred during .

. . a period of eligibility" from their income before the application of that income

to the cost of his or her care.

        Turning to the present case, G.F. is a Medicaid recipient, who receives

care in an assisted living facility. Through her family, G.F. asserted she suffered

from dementia, which made her susceptible to falling. As a result, she was

paying $160 per day to have a companion care provider stay with her in the

facility to assist with her physical needs. G.F. argued that these expenses were

medically necessary under N.J.A.C. 10:71-5.7(k)(1) and, therefore, should be

deducted from her income 1 that would otherwise have to be turned over to the

facility.




1
    G.F. received her income from an Irrevocable Income Trust.
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                                         3
      G.F. submitted her request for this deduction to the Bergen County Board

of Social Services, which was her county welfare agency (CWA). The CWA

denied the request, and G.F., through her attorney, asked for a hearing before

the OAL to contest this determination.

      In preparation for the hearing, the ALJ proactively asked G.F. and the

CWA to provide him with their respective positions on the factual and legal

issues involved in the case. In response, the CWA submitted a letter in which it

expressed the following rationale for its denial of G.F.'s request for a deduction

of the cost of her companion care services:

                  Medicaid provides the necessary services
            depend[ing] on [G.F.'s] level of care. [If G.F.] needs
            extra health care aide services while he/she [sic] is
            residing at an Assisted Living facility then [G.F.] needs
            to be moved to a nursing home facility. For this reason,
            we completely disagree with [G.F.] because it is a
            duplication of benefits.

      Notably, the CWA did not assert that the companion care services G.F.

was paying for were medically unnecessary. Instead, it argued that if G.F.

needed those services, her assisted living facility should be providing them and,

if the facility was not doing so, G.F. should be transferred to a nursing home

where she could receive a higher level of care.




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                                         4
      The ALJ scheduled a hearing for July 28, 2016. Prior to the start of the

hearing, the ALJ held a conference with the CWA representative and G.F.'s

attorney. Unfortunately, that conference was not conducted on the record and,

therefore, we are not certain as to the full nature of the matters discussed and

agreed upon by the parties. At the conclusion of the conference, however, the

ALJ stated on the record that the sole issue before him appeared to be legal in

nature, and he framed that issue in the following terms:

            When a patient is in an assisted living facility and due
            to her specific needs (here, a history of falls), she hires
            a 24-hour per day companion to assist her with her
            physical needs (over and above the services provided
            by the assisted living facility), is the cost of the
            companion (whose necessity has been verified by the
            patient's medical doctor) deductible from the patient's
            income?

      The ALJ directed the parties to file briefs addressing this issue and submit

any other "relevant documents such as letters from doctors regarding medical

necessity or lack of medical necessity of a companion for G.F." The ALJ further

stated that if there was no dispute between the parties as to the facts, a hearing

would not be necessary and he would simply render his decision on the legal

issue on the papers.

      Thereafter, G.F.'s attorney submitted an undated letter from G.F.'s

physician who had "been in charge of [her] medical care" since her admission

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                                        5
to the assisted living facility. The doctor stated that G.F. had fallen on several

occasions at the facility, and the facility's director "agreed that the facility

cannot offer . . . the necessary aide coverage to support [G.F.] safely."

Therefore, the doctor opined that "the addition of home health aide companion

services on a 24/7 basis [w]as a medical necessity."

      In its written response, the CWA again did not directly challenge G.F.'s

contention that, as a factual matter, the companion services were medically

necessary. Instead, the CWA stated its position as follows:

            As her attorney presented at the hearing, [G.F.] may
            need to have private health care, 24 hours a day, then
            she is not eligible for Assisted Living assistance. She
            really needs . . . nursing home care so that she is able
            to receive appropriate care from a nursing home care
            facility.

The CWA also argued that deductions for necessary medical expenses were only

available under N.J.A.C. 10:71-5.7(k)(1) if the recipient was a patient in a

nursing home, rather than an assisted living facility.

      Because neither party had identified any factual dispute in the record, the

ALJ rendered an Initial Decision without conducting an evidentiary hearing.

The ALJ noted that G.F. had produced a letter from her doctor "substantiat[ing]"

her claim "that the companion services are medically necessary." The ALJ went

on to reject the CWA's position that deductions for such medically necessary

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                                        6
services are only available under N.J.A.C. 10:71-5.7(k)(1) for Medicaid

recipients residing in nursing homes. Therefore, the ALJ reversed the CWA's

decision denying G.F. this deduction from her income.

      On February 3, 2017, the DMAHS Director rendered her final written

decision, rejected the ALJ's Initial Decision, and denied G.F.'s request for a

deduction from her income for the money she paid each month for companion

care services. The Director noted that the residuum rule, N.J.A.C. 1:1-15.5(b),

requires a litigant to provide "some legally competent evidence" to support their

contentions. Here, the Director found that the only evidence G.F. presented to

support her argument that the services were medically necessary was an undated

letter from her doctor. This letter also contained hearsay statements concerning

a conversation the doctor had with the facility director concerning the facility's

inability to provide the aide coverage needed to protect G.F. from falling.

Because G.F. did not call the doctor or the facility director to testify at the

hearing, the Director determined that she failed to establish through any

competent evidence that the services were medically necessary under N.J.A.C.

10:71-5.7(k)(1).

      For these same reasons, the Director concluded that G.F. did not

demonstrate that her assisted living facility was unable to provide sufficient


                                                                           A-3067-16T3
                                        7
services to protect her from falling. Even if the facility director's hearsay

statement to this effect was accepted, the DMAHS Director held that the facility

was required to address this issue and provide the needed services or arrange for

G.F.'s transfer to a more appropriate institution.

      Thus, the Director reversed the ALJ's Initial Decision because his "finding

of medical necessity [was] based on . . . unsupported hearsay testimony[,]" and

denied G.F.'s application for a deduction from her income under N.J.A.C. 10:71-

5.7(k)(1). This appeal followed.

      On appeal, G.F. asserts that neither party disputed that the companion

services were medically necessary and were not being provided at her assisted

care facility. As a result, she did not provide, and the ALJ did not require, live

testimony or other competent evidence to support her claim. Under these unique

circumstances, G.F. argues that the Director should have remanded the matter

for a new hearing to give her the opportunity to do so. We agree.

      Our role in reviewing the decision of an administrative agency is limited.

In re Stallworth, 208 N.J. 182, 194 (2011).          "[A] 'strong presumption of

reasonableness attaches'" to the agency's decision. In re Carroll, 339 N.J. Super.

429, 437 (App. Div. 2001) (quoting In re Vey, 272 N.J. Super. 199, 205 (App.

Div. 1993), aff’d, 135 N.J. 306 (1994)).        We will not upset the agency's


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                                         8
determination absent a showing that it was arbitrary, capricious, or

unreasonable; that it lacked fair support in the evidence; or that it violate d

legislative policies. See Lavezzi v. State, 219 N.J. 163, 171 (2014).

      Applying these principles to the idiosyncratic facts of this case, we are

constrained to vacate the Director's decision and remand for a new hearing on

all issues. In doing so, we agree that the Director properly applied the residuum

rule in rendering her decision.               The residuum rule provides that

"[n]otwithstanding the admissibility of hearsay evidence [in an administrative

proceeding], some legally competent evidence must exist to support each

ultimate finding of fact to an extent sufficient to provide assurances of reliability

and to avoid the fact or appearance of arbitrariness." N.J.A.C. 1:1-15.5(b); see

also Weston v. State, 60 N.J. 36, 51 (1972) (holding that "a fact finding or a

legal determination cannot be based on hearsay alone").

      Here, there was no legally competent evidence to support the ALJ's

finding that the companion services were medically necessary because G.F. only

submitted an undated letter from her doctor instead of having the doctor testify

in support of her claim. In addition, G.F. did not call the director of the assisted

living facility to testify, subject to cross-examination by the CWA, concerning

that facility's inability to provide G.F. with these services.


                                                                              A-3067-16T3
                                          9
       In rejecting the ALJ's fact findings, however, the Director failed to

consider the fact that the parties agreed, either expressly or implicitly, to permit

the ALJ to decide the matter on the basis of their written submissions rather than

through a contested case hearing. As noted above, the ALJ determined after the

parties' conference that the case presented only a legal issue. In framing the

issue, the ALJ implied that the parties had already agreed that the "necessity" of

the companion services had "been verified by the patient's medical doctor[.]"

Even if that was not the case, however, he gave each side the chance to identify

and address any factual issues in their written submissions. In response, the

CWA never disputed that 24-hour per day companion care services were

warranted, and never objected to G.F.'s doctor's letter on hearsay or any other

grounds.

       In the absence of any objection or contrary evidence, the ALJ determined

that the letter was sufficient to establish that the services were medically

necessary under N.J.A.C. 10:71-5.7(k)(1), and proceeded to address the legal

issue of whether a Medicaid recipient in an assisted living facility could claim

an income deduction for these services. In short, the parties tried the case

exactly as contemplated following their unrecorded pretrial conference with the

ALJ.


                                                                             A-3067-16T3
                                        10
      It is well established that the final decision-maker in a case is not bound

by a stipulation entered by the parties, and may reject it if not supported by the

record or applicable evidence rules. Negrotti v. Negrotti, 98 N.J. 428, 433

(1985). However, it is equally clear that the party "who is being prejudiced by

the [tribunal's] non-adherence to the stipulation [should] be given the same

opportunity to present his [or her] proofs as he [or she] would have received had

the stipulation not been entered on the record." Ibid.

      Here, G.F. did not present live testimony to support her claim because the

parties agreed there was no need to do so, and the ALJ determined the matter

could be decided on the papers. In keeping with the Supreme Court's decision

in Negrotti, when the Director thereafter decided that G.F. could not properly

rely on her doctor's letter, even though the CWA did not object, she should have

remanded the case to the ALJ to permit G.F. to present her proofs at a contested

case hearing.

      Thus, we vacate the Director's decision and remand the matter for a new

hearing on all issues. If the Director determines not to conduct t he hearing

herself, she should promptly transmit the case to the OAL as a contested case.

In doing so, we suggest that the Director specify the factual and legal issues the




                                                                           A-3067-16T3
                                       11
parties must address at the hearing in order to avoid the confusion that resulted

when the parties and the ALJ determined the matter involved only a legal issue.

      Vacated and remanded. We do not retain jurisdiction.




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                                      12
