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Cooperative federalism is not license to re-write clear federal rules (Co. App.)
Ruth Koehler sued the Department after it terminated her benefits under its Medicaid Home and Community Based Services for the Elderly, Blind and Disabled (HCBS) program. Ruth, an elderly disabled woman, received HCBS as an alternative to nursing home care. Her husband resided in a nursing home and his income was diverted to Ruth as a community spouse monthly income allowance (CSMIA). Based on its own definitions of “Institutionalized Spouse” and “Community Spouse,” the Department determined that Ruth’s husband was not an institutionalized spouse (and therefore she could not be a community spouse) while she was receiving HCBS. Accordingly, the Department told Ruth to chose either HCBS or the CSMIA; she could not have both. The Department also sought repayment of approximately $800 in alleged overpayments; the Department’s demand for reimbursement prevented the case from becoming moot when Ruth’s husband died since his death terminated her CSMIA and resulted in reinstatement of the HCBS benefit. In reviewing the decisions below, the Court found the Department’s and ALJ’s determination that Ruth’s husband was not a community spouse to be at odds with federal law. Although Blumer and Houghton give States broad authority to administer the Medicaid program where Congress is silent and action is required, there was no mandate to rewrite the definitions of “institutionalized spouse” and “Community Spouse;” therefore the Department’s definition was in conflict with the principle of cooperative federalism. Because Ruth met the federal definition of community spouse, she was entitled to the CSMIA. Receipt of a CSMIA is not determinative of her eligibility for HCBS. HCBS provide care specific to the recipient’s disability and does not pay for basic necessities. Thus, receipt of a CSMIA is not determinative of Ruth’s need for HCBS; further, HCBS recipients must contribute income toward those services. The court concluded that Ruth had no obligation to reimburse the Department for an alleged overpayment and that her benefits must be restored.
Koehler v. Colorado Department of Health Care Policy and Financing, 2010 Colo. App. LEXIS 1921 (12/23/2010)

Applicant’s death renders Medicaid appeal moot (6th Cir.)
The Sixth Circuit dismissed as moot an appeal filed by Mary Immel regarding her Medicaid eligibility. The district court granted the State’s motion for summary judgment after finding that the Rooker-Feldman doctrine applied. Immel appealed and, while the case was on appeal, died. The Sixth Circuit held that the appeal was moot because she sought injunctive and declaratory relief. Although the case might conceivably have been one capable of repetition, if so then it should have been pled as a class action. The court declined to change the posture of the case on appeal.
Immel v. Lumpkin, 2010 U.S. App. LEXIS 24565 (11/30/2010)

Funds in lawyer trust account were countable (Ore. App.)
Dorothy Phillips, a 75 year old, resided in an adult foster home. An attorney, Robert Dorszynski, was appointed as her conservator. On August 12, 2005, the court ordered the transfer of $5,000 from Phillips assets to Dorszynski’s trust account. Dorszynski successfully got Phillips approved for Oregon’s supplemental income program and QMB Medicaid. Then, in December 2006, Phillips received a lump sum from the VA paying her $11,188, plus successive monthly payments of $700. Dorszynski disclosed the VA payments to Medicaid in September 2007 during a redetermination. On October 25, 2007, he sent the Department $8,000 as reimbursement for past expenses. The remaining resource balance after that payment was $6,800.78. On October 31, 2007, Dorszynski notified the Department that he had transferred $5,000 of the remaining resources to his trust account for payment of future administrative expenses and attorneys fees (apparently the previous amount was exhausted). The Department then notified Dorszynski that it was closing the case because Phillips was over resourced – the amount set aside in Dorszynski’s trust account was deemed available and, therefore, countable. Dorszynski argued that the funds were not available because they were a prepayment and, essentially, “spent” dollars. Both the ALJ and the Court of Appeals found it significant that no court order had been entered approving the set aside of this second $5,000 for fees. Although Oregon law permits prepayment for a ward’s “support, education, care or benefit,” a fiduciary’s fees must be approved. Since they had not been approved, Phillips could still regain possession of the funds.
Dorszynski v. Department of Human Services, 2010 Ore. App. LEXIS 1268 (10/27/2010)

IME not allowed during penalty period (D. Mass.)
Lucius Makepeace applied for nursing home Medicaid on April 18, 2008. His application was ultimately approved on September 22, 2008, with a retroactive effective date of July 1st. He was denied earlier eligibility due to an $11,005 gift that was penalized. Makepeace later sought an income deduction permitting him to pay $12,281.19 in medical debt. When the income deduction was not approved in State court, he filed a federal suit seeking a declaration that the Massachusetts income deduction regulation was contrary to federal law. In a tightly worded decision, the District Court rejected Makepeace’s claim. Makepeace “made a federally prohibited disqualifying transfer and therefore was ineligible for MassHealth benefits during the period” when the medical debt was incurred. Thus, the penalty prevents the State from permitted the income deduction.
Makepeace v. Dougherty, 2010 U.S. Dist. LEXIS 111606 (10/20/2010)

Annuity purchase results in ineligibility (W.D. Okla.)
When Mrs. Morris applied for Medicaid in March, 2008, the Department determined that she must spend her $53,906 share of the spousal assets down to $2,000. She then purchased two burial contracts, paid legal fees and her husband purchased an irrevocable annuity for $41,000. The Department found that the annuity exceeded the CSRA, that its purchase resulted in a transfer penalty and that the income stream could be sold on the secondary market. Suit was filed after the Department denied Mrs. Morris’ application for Medicaid. On summary judgment, the determinative issue was whether § 1396r-5 prohibits the community spouse from purchasing, after an initial determination of eligibility, an annuity above that spouse’s share, and whether § 1396p(c)(1) penalties apply to that transfer. The Court denied Plaintiff’s motion for summary judgment and granted the Department’s motion. In doing so, the Court distinguished James v. Richman and other cases because the annuities in those cases were purchased before a Medicaid application was filed. The court found that allowing a community spouse to purchase an annuity as part of the spend down after applying for Medicaid, “transmogrifying” the spousal resource share into income, renders the spousal resource limitations superfluous.
Morris v. Oklahoma Department of Human Services, 2010 U.S. Dist. LEXIS 101012 (9/24/2010)

Court not authorized to make Ward’s income unavailable (N.Y. App.)
Deanna W. was found to be incapacitated. The Court in the guardianship proceeding directed the guardian to set aside certain sums for payment of legal and other fees associated with the proceeding. The Court then ordered the Department to disregard that income when determining Medicaid eligibility. The Department appealed. On appeal, no exception was found in the Medicaid regulations for these expenses and an agency’s interpretation of its own regulations is entitled to deference unless it is unreasonable, irrational or capricious. Here, the interpretation was found to be reasonable. The court acted improvidently in directing the Department to disregard the guardianship expenses.
In re matter of Deanna W., 2010 N.Y. Slip Op. 6805 (9/28/2010)

Annuitant’s intent significant in annuity penalty case (Mass. App.)
The court considered three consolidated cases where annuities purchased by Medicaid applicants or for a community spouse were valued by the State at less than the purchase price, resulting in a transfer penalty. The payments were annuitized using the company’s life table instead of the Social Security life expectancy table. The result was that the annuities were deemed actuarially unsound since the payouts continued beyond the applicant’s life expectancy on the SSA tables. On appeal, the decisions below were vacated and remanded for a finding regarding intent. The appellant court found it significant that a transfer for value was what each annuitant intended. They went into the commercial market. There was no evidence that they intended to benefit anyone else. All three annuities had guaranteed payments equal to or exceeding the premiums paid. Finally, two of the three annuities named the State as the remainder beneficiary. With this evidence, the court found that a determination was required regarding whether the annuitants intended a transfer for less than fair market value.
Normand v. Director of the Office of Medicaid, 2010 Mass. App. LEXIS 1204 (9/10/2010)

Medicaid lien reduced based on liability assessment (E.D. Pa.)
Ebony Gage, Ronald Gage and Angelique Gage resided in a housing authority home were mold caused a respiratory incident that lead to Ebony Gage suffering brain damage. The Pennsylvania Department of Public Welfare spent $1.2 million in medical assistance prior to the time a lawsuit against the housing authority was settled. The proposed settlement was disclosed to the Department and correspondence passed between Plaintiff’s counsel and the Department in which Plaintiff attempted to negotiate resolution of the Department’s lien. On June 15, 2010, the court approved a settlement among the parties, not including the Department, in the amount of $11,913,000, without specifying an amount paid for medical expenses or any other type of damages. Anticipating that the Department would demand repayment of medical assistance in full, the parties placed $1.267,611.41 in escrow. On June 18, 2010, the Department moved to set aside the settlement and to intervene. The Department’s motion to set the settlement aside was denied; its motion to intervene was granted. The Court then proceeded to analyze how much the Department was entitled to recover under Ahlborn. Plaintiff’s argued that the court must determine the true value of the claim and then apply a ratio, spread across all damage categories, to determine how much the Department is allowed to recover. The Department, on the other hand, argued that State law, which stated a presumption regarding the allocation to past medical expenses, must be followed. The Court found both approaches problematic. Plaintiff’s approach, which the court found was not required under Ahlborn, would require “mini-trials” for the purpose of finding the platonic true value of a claim. It also presumes that all damage categories are equally discounted based on that true value even though some damage categories are more easily liquidated than others. The Department’s approach, on the other hand, would allow it to dictate an allocation inconsistent with the realities of the settlement. The court determined that, in this case, the proper way to determine whether Plaintiff’s settled for less than a true value of the case was by evaluating any discount based on liability. The court also discounted the Department’s claim to account for attorney’s fees and litigation costs. The Court then determined that the Department was entitled to recover $537,448.43. The remainder of the contested funds was ordered paid to special needs trusts established for each of the plaintiffs.
McKinney v. Ebony Gage, 2010 U.S. Dist. 86773 (8/24/2010)

State cause of action against gift recipient preempted (Minn. 7th Dist.)
Dale and Marlys Lindgren conveyed to their children a one-half interest in their home on December 31, 2003. They conveyed the remaining one-half interest in their home on March 18, 2004. Marlys was admitted to a nursing home on November 19, 2004 and applied for Medicaid beginning in January, 2006. A penalty was imposed but, after a hardship application was granted due to an impending eviction from the nursing home, Medicaid began paying and the matter was referred to the county attorney. Medicaid paid $53,893.30 through the date of Marylys’ death on October 13, 2009. The county then brought an action against Maryls’s children to recover the medical assistance paid. The action was authorized by State law against the recipient of transferred assets where a hardship waiver is granted. The issue before the court was whether 42 U.S.C. § 1396p preempted State law. The court found that Section 1396p prohibits any recovery of medical assistance correctly paid other than recoveries permitted under subsection (b)(1). Since it was impossible to comply with 1396p(b) and permit the County to recover under the State statute, the State cause of action was preempted. The court then considered the State’s policy argument that Congress did not intend to permit individuals to become eligible for Medicaid after transferring accumulated wealth. However, Congress addressed this concern through imposition of a penalty period. Congress did not leave open the possibility for states to create separate claims against third parties for medical assistance correctly paid. Summary judgment was granted in favor of the defendants.
Douglas County v. Lindgren, Civ. Action No. 21-CV-090477, Minnesota Seventh Judicial District (7/28/2010)

State improperly treated annuity as a resource (D. Conn.)
Amelia Lopes, the Community Spouse of John Lopes, purchased a DRA compliant annuity as part of her spend-down. The annuity was an immediate single premium annuity purchased from the Hartford. It listed the State as the remainder beneficiary following her death, up to the amount spent in medical assistance for John. The Hartford issued a letter stating that neither the annuity contract nor any periodic payments due under it could be cashed-in, sold, assigned, or otherwise transferred, pledged or hypothecated. The State contacted Peachtree Financial Services to determine whether it would purchase the contract. Peachtree indicated that it would purchase the contract if the Hartford would agree to a change in the payee designation. Armed with Peachtree’s offer, the State demanded that Amelia take steps to sell the annuity. When she refused, Medicaid eligibility was denied. Amelia then filed suit seeking injunctive relief, arguing that the State violated the Medicaid Act. The District court found, initially, that Medicaid eligibility can be no more restrictive than SSI eligibility. The SSI eligibility rules indicate that an asset is not a resource unless the applicant has the “legal right” to liquidate it; the SSI program, therefore, would not require Amelia to breach her legal obligation to the Hartford. The court also found the Third Circuit’s analysis regarding annuities compelling, as well as MCCA’s provisions which indicate that no income of the Community Spouse shall be deemed available to the Institutionalized Spouse. The Court rejected the State’s argument that CMS interpretive letters compelled the conclusion that the annuity is an asset because those letters dealt with assignable annuities.
Lopes v. Starkowski, 2010 U.S. Dist. LEXIS 81829 (8/12/2010)

District court erred in treating promissory notes as trust-like devices (3rd Cir.)
Around the time that Mary Sable and Michael Lanza applied for Medicaid, their spouses purchased promissory notes from their children. The New Jersey Department counted the promissory notes as resources, causing Sable and Lanza to exceed the resource limit. The Department reached this conclusion after treating the promissory notes as trust-like devices. Sable and Lanza sued the Department in the U.S. District Court for the District of New Jersey, seeking an injunction prohibiting the Department from treating the promissory notes as trust-like devices. When the District Court denied their motion, Sable and Lanza appealed. The Third Circuit began its analysis by finding that the Department’s methodology in examining resources must be no more restrictive than the SSI methodology. “A methodology is considered to be no more restrictive if, using the methodology, additional individuals may be eligible for medical assistance and no individuals who are otherwise eligible are made ineligible for such assistance.” With this as the starting point, the Third Circuit examined the SSI regulations, finding that SSI employs a two-track analysis for calculating resources: the regular rules and the trust rules. Critical to the appeal, the Court found the trust-like device analysis is secondary to the regular analysis and is not used if an arrangement would be counted as a resource under the regular SSI rules. For this reason, the Third Circuit found that the District Court erred by failing to apply the regular rules first before analyzing the Promissory notes as trust-like devices. The Third Circuit’s dicta includes two points worth mentioning. First, in footnote four, the Court rejected Appellant’s claim that a promissory note can never be treated as a trust-like device under 42 U.S.C. § 1396p(d) because it would render 42 U.S.C. § 1396p(c) meaningless. The Court found the subsections do not affect each other since one addresses eligibility and the other addresses the penalty imposed on sham transactions. Second, in footnote five, the Court rejected the Department’s position that the transaction must include a “loan purpose.” That requirement is not contained in the statute, regulations or POMS.
Sable v. Valez, 2010 U.S. App. LEXIS 15665 (7/28/2010)

Actual impoverishment insufficient cause to increase income allowance (R.I. Super.)
Robert Murphy, age 68, suffered from Multiple System Atrophy. His wife cared for him at home for 5 years until his condition declined to the point where professional full-time care was needed. Mr. Murphy was then admitted to a nursing home and applied for Medicaid. Mrs. Murphy earned $1,432.52 per month. Her monthly expenses which included homeowner’s insurance, a home equity loan, property tax, sewer tax, utilities, a car loan, cable television, internet service, medications and home maintenance, totaled $2,935. The default Medicaid rules gave her virtually no spousal income diversion, leaving her with a monthly shortfall of $1,502.48. Mrs. Murphy appealed, alleging that her situation constituted extreme rare circumstances. On appeal, the agency decision was affirmed after the court found that extreme rare circumstances are those defined in Section 3710.1 of the State Medicaid Manual, which must be something experienced outside the day-to-day expenses.
Murphy v. Department of Human Services, 2010 R.I. Super. LEXIS 99 (7/1/2010)

Limitations period does not apply to Estate Recovery (N.C. App.)
Medicaid paid the nursing home bill for Sallie Anthony to the tune of $52,575.14. After Ms. Anthony died, Anna Thompkins, who would become Anthony’s Executrix, contacted the State to inquire about its claim. She then probated the estate, selling property, paid bills and closed the Estate. Later, the State filed suit against Thompkins, who responded by alleging that the statute of limitations had run. The Court found in favor of the State because the statute of limitations did not expressly apply to the state and, in the absence of express inclusion, the doctrine of nullum tempus occurritt regi survives in north Carolina.
North Carolina Department of Health and Human Services v. Thompkins, 2010 N.C. App. LEXIS 1153 (7/6/2010)

Documentation under Personal Care Agreement Gets a “D-” (N.Y. App.)
Warren Kerner applied for nursing home Medicaid and was denied benefits due to an alleged transfer for less than fair market value. A 13 month Medicaid penalty was assessed. The Department determined that a personal care agreement between Warren and his son, Jonathan, was in improper transfer. That agreement provided that Jonathan would provide room and board, care and supervision, food and food preparation, daily assistance with showering, dressing, etc. In exchange for services, Jonathan was paid $9,283 per month. The Department denied eligibility because the contract stated that services would be provided on an “as needed” basis and because no credible documentation was provided showing that services were actually delivered. A fair hearing was requested and the ALJ upheld the Department’s denial of eligibility. On appeal, the Court agreed that a generalized, after-the-fact summary of a typical day is insufficient evidence that services were provided. However, because it was undisputed that services were, in fact, provided, the Department’s determination that the transfers were uncompensated was not supported by evidence. The case was remanded with direction to afford Jonathon with an opportunity to identify the services rendered, the number of hours spent rendering services, and the fair market value of those services.
In re Kerner, 2010 N.Y. Slip Op 5904 (7/2/2010)

368 days is an unreasonable time to delay requesting a fair hearing (Mich. App.)
Amanda Schreur applied for Medicaid on April 29, 2005, following spine surgery. On June 10, 2005, the Department denied her application stating her disability was not expected to last more than 12 months. The notice cited the wrong sections of the eligibility manual in denying her claim, but stated that she had 90 days to request a fair hearing. Schreur mailed her request for a fair hearing on June 13, 2006, which was received by the Department on June 15th, some 368 days after the notice of denial and 278 days after expiration of the 90 day hearing request period. Schreur argued her appeal was timely because the notice was defective for including incorrect citations to the eligibility manual. The hearing office rejected Schreur’s argument, but the Circuit Court reversed on appeal finding that the 90 day appeal period begins on the date when adequate notice is provided. The Court of Appeals then parsed the issues finding that an applicant’s notice rights are not identical to the rights a Medicaid recipient has when the State takes adverse action against a recipient; a recipient is entitled to specific citation of the manual sections. Accordingly, the Department’s failure to cite the correct manual sections did not affect the validity of her denial letter.
Schreur v. Department of Human Services, 2010 Mich. App. LEXIS 1139 (6/22/2010)

Trial court erred in reducing Medicaid lien without clear and convincing evidence (10th Cir.)
Stacy Price gave birth to a daughter, K.J., in 2004. K.J. was born with severe brain damage and other disabilities. Stacy applied for and received Medicaid benefits for K.J. In 2007, Stacy and K.J.’s father sued the doctor who delivered K.J., alleging that his malpractice caused K.J.’s injuries. That case, filed in federal court, ultimately settled for $1.1 million. The Oklahoma Health Care Authority, whose attorney attended the settlement conference, paid $544,282.26 in medical assistance through the date of settlement. The Department, however, did not agree to reduce the amount of its lien. After Plaintiffs and the defendant filed a joint motion to approve the settlement which allocated only $37,666.67 toward satisfaction of the Medicaid lien, the Department moved to intervene; Plaintiffs’ allocation was based on expert testimony that the lifetime cost of care for K.J. would exceed $12 million and that a proportionate reduction of the lien was required since K.J. did not recover the full value of her claim. The court granted the Department motion, but found that the allocation was appropriate; after re-directing a $30,000 payment intended for K.J.’s father, the trial court found the Department was entitled to $67,666.67. The Department then argued the trial court lacked jurisdiction over the case because its intervention destroyed diversity. The jurisdiction argument was rejected, both in the trail court and on appeal because the court’s supplemental jurisdiction permitted joinder pursuant to 28 U.S.C. § 1367(a). The trial court and the court of appeals also found that the Department was not entitled to an evidentiary hearing because it failed to timely request one. The court of appeals found, however, that the trial court misapplied Oklahoma law in making the allocation. After Ahlborn was decided, Oklahoma law changed, making its Medicaid lien applicable to the entire settlement unless a more limited allocation of damages to medical expenses was shown by clear and convincing evidence. The record was devoid of any evidence showing which component of damages Plaintiffs $12 million number represented and how various elements of damages were reduced in accounting for the uncertainties of trial. In the absence of clear and convincing evidence, the trial court erred in reducing the lien.
Price v. Wolford, 2010 U.S. App. LEXIS 12411 (June 17, 2010)

Ex parte Young exception applied to State’s denial of Medicaid benefits (4th Cir.)
The North Carolina Medicaid agency appealed the denial of its motion to dismiss a suit alleging services were reduced or terminated in violation of the due process clause and the Medicaid act. The Department argued it was entitled to Eleventh Amendment immunity. The plaintiffs were children who were denied the level of assistance requested. They alleged the Department arbitrarily and capriciously terminated or reduced benefits without adequate written notice and a fair hearing, and failed to continue benefits while their appeals were pending. The court affirmed finding that the Ex parte Young exception to Eleventh Amendment immunity applied. The court rejected the Department’s arguments that (1) the relief sought, reinstatement, was not prospective, (2) that the complaint did not allege an on-going violation of federal law, and (3) that the Secretary’s status as the official administering the Medicaid program was an insufficient connection to justify applying the Ex parte Young exception.
D.T.M. v. Cansler, 2010 U.S. App. LEXIS 11981 (6/11/2010)

Disabled child failed to exhaust administrative remedies (Ohio App.)
Betty M. Fhiaras, a nursing home resident, still owned her home when she was admitted to a nursing home. Ohio’s Medicaid rules provide that a home is a countable asset when the resident has been in the facility for thirteen or more months. Therefore, her guardian filed a complaint for the sale of land in guardianship court. Betty’s son, George, filed a “Complaint to Transfer Real Estate” in a different court, alleging that he was a disabled child and that the home is a non-countable asset for that reason. George failed to appear at the hearing; the magistrate recommended dismissal of George’s complaint due to an absence of standing and because the court lacked jurisdiction. The trial court approved the magistrate’s decision and dismissed the case. On appeal, the court affirmed because George must first make a request for an administrative hearing with the Department before seeking any exemption relating to his disability. Because he failed to exhaust administrative remedies, the court had no jurisdiction to hear his complaint.
Fhiaras v. Boyko, 2010 Ohio 2353 (5/27/2010)

Imperfect compliance with administrative procedure act not always fatal (Ind.)
In 2001, Alice Meyer formed a trust after her husband died, placing the remainder interest in her family farm in the trust. She applied for Medicaid in 2005 and was denied benefits based on the transfer. In reviewing that decision, the ALJ held that the family farm was valued at $210,000 and valued the remainder interest at that amount. The trust appealed, arguing that the remainder interest was only valued at $104,073.90 and that the Department used the wrong divisor. In Indiana, the petitioner is responsible for filing the administrative record on appeal. Initially, the trust sought an extension of time to file the record. That extension was granted, but expired before the record was filed. Later, after the Department moved to dismiss the appeal, an additional extension was requested and was granted. The trial court denied the Department’s motion to dismiss and remanded the case with instructions to calculate the penalty using $104,073.90 as the value for the remainder interest. This decision was affirmed in the court of appeals. On appeal to the state supreme court, the court held that Indiana’s administrative procedure act does not excuse untimely filing or allow nun pro tunc filing of an administrative record. Accordingly, the trial court erred in granting the second extension request for filing the record. Nonetheless, imperfect compliance with the filing requirement is not fatal where the materials submitted provide the court with all that is necessary to accurately assess the challenged agency action. Here, the agency’s answered, filed prior to its motion to dismiss, admitted that the remainder interest was valued at $104,073.90. In light of that admission, the record was sufficient to resolve that issue in the trust’s favor. The record was incomplete, however, as to whether the correct divisor was applied. Although the court was unanimous in finding that the record court not be late-filed, it was equally divided regarding whether the case could go forward. Accordingly, the court of appeals decision affirming the trial court decision was affirmed.
Indiana Family and Social Services Admin. v. Meyer, 2010 Ind. LEXIS 373 (5/25/2010)

State allowed to “keep the meter running” regarding its entitlement to annuity proceeds after Community Spouse’s death (D. Ariz.)
In 2007, after Betty Hutcherson was admitted to the nursing home, her husband, John, purchased an annuity. The annuity named the Department as beneficiary, followed by John and Betty’s daughter, Rebecca. Initially, John paid $100,000 for the annuity, which was structured to pay him a fixed monthly payment of $2,781.63 for 36 months. John died when $75,000 remained to be paid. The Department and Rebecca filed cross-motions for summary judgment regarding who owned the remaining $75,000. Initially, Rebecca argued that 42 U.S.C. § 1396p(c)(1)(F) was unenforceable; that argument was rejected. Next, she argued that the Department was only entitled to reimbursement of amounts paid for John’s care (which was none); that argument was likewise rejected. Next, she argued that the Department could only recover what it had paid toward Betty’s care through the time of John’s death – about $23,800. That argument, while more troublesome, was ultimately rejected after the court examined DRA’s legislative history. Congress, according to the court, set out to prevent people from sheltering assets and then going on state aid. Accordingly, an interpretation of (c)(1)(F) allowing the State to recover any amounts paid as medical assistance for Betty “during her lifetime” was more in keeping with Congress’ intent. The Department’s motion was granted and Rebecca’s was denied.
Hutcherson v. Arizona Health Care Cost Containment System Administration, 2010 U.S. Dist. LEXIS 47593 (5/14/2010)

Transfer penalty was not tolled (D. N.J.)
Beatrice Marino, a sixty-five year old nursing home resident, made gifts from November 2006 and January 2008 in $12,000 increments. The gifts totaled $192,000. Then, in February 2009 she applied for Medicaid. On March 9, 2009, the Department informed Marino that she would be penalized for 26 months and 21 days due to the transfers. Subsequently her family returned $89,000. In January, 2010, the penalty was modified to 14 months and 6 days; however, the Department found she was not eligible until April 1, 2010 when her resources were below the $4,000 resource limit. Beginning on that date, the Department planned to implement the penalty period. Marino filed suit alleging that the Department had “tolled” her Medicaid penalty. On review the court found that the Department correctly applied the penalty and that it had not tolled anything. The court found that Plaintiff had excess resources when she applied and then had excess resources when the assets were returned. The record does not clearly indicate whether there was a point prior to the return of assets when she was eligible and when the transfer penalty should have started running.
Marino v. Velez, 2010 U.S. Dist. LEXIS 43950 (5/4/2010)

District court abstains where applicant complained her procedural rights were violated (W.D. Mo.)
Greta Hudson filed an application for Medicaid benefits which was denied, allegedly based on a transfer penalty. Hudson requested a fair hearing in August, 2009. In September, the caseworker requested bank statements and Hudson failed to respond. Her application for Medicaid was again denied and Hudson again requested a fair hearing. The hearing was scheduled for November, 2009, but was continued over Hudson’s protest when the caseworker requested time to secure legal counsel. The day prior to the rescheduled hearing, the caseworker withdrew the original denial, replacing it with a new notice of case action and changing the reason for denying benefits. Hudson was informed that her request for hearing was being withdrawn based on the new case action; the hearing officer informed Hudson he no longer had jurisdiction over the case and that a new hearing must be requested based on the new reason for denial. At this point, Hudson filed a Section 1983 action in federal court demanding injunctive relief. She alleged that the Department violated her rights relating to hearing procedure, demanding Medicaid eligibility and attorney’s fees. After examining the claims, the district court found there was a pending state court proceeding and abstained from taking jurisdiction over her claims under the Medicaid act. Hudson’s claims for damages, including attorney’s fees, were dismissed based on Eleventh Amendment immunity.
Hudson v. Campbell, 2010 Dist. LEXIS 40481 (4/26/2010)

Promissory note designed to get Medicaid was a “sham transaction” (D. N.J.)
Santina Wesnes was a resident in a New Jersey nursing home. In December, 2008, she gave $80,000 to her attorney-in-fact, Anne Aamland. This gift resulted in an 11 month Medicaid penalty. On December 10, 2008, Wesner purchased a $60,000 promissory note designed to private pay the cost of care during the penalty period. She then applied for Medicaid in December, 2009 and was denied eligibility. The note was not disclosed to Medicaid at the time of application; it was finally disclosed in December 2009. On January 20, 2010, Wesner filed a Section 1983 action seeking to enjoin the Department from treating the promissory note as a trust-like device; apparently the Department sought to treat the note as a resource which would prevent the penalty from running while the note was being paid. The court sided with the Department after finding that Aamland made late payments, there was no investigation into Aamland’s financial condition prior to execution of the note and the note was not disclosed as the time of the original application; in fact, when Aamland filed the Medicaid application for Wesner, Aamland represented that Wesner did not owe anyone money. These facts caused the court to question the bona fides of the note. Ultimately, the court found that the note was a sham transaction designed to avoid application of the rules governing Medicaid eligibility and denied the motion for injunctive relief.
Wesner v. Velez, 2010 U.S. Dist. LEXIS 38692 (4/19/2010)

Annuity payable to community spouse is not an available resource (Mo. App.)
Several couples sought declaratory and injunctive relief after the Department sought to treat annuities payable to a community spouse as available resources. Apparently the Department interpreted Missouri and federal law as requiring that an exempt annuity be payable to the institutionalized spouse rather than the community spouse. In ruling against the Department, the court of appeals found that the Department’s position conflicted with federal Medicaid law. Reviewing cases from the Third Circuit and from New Jersey, the court found that DRA did not alter the long-standing rule that preserves a community spouse’s income from the eligibility requirements. Further, DRA provides that a purchased annuity does not result in a transfer of resources penalty if it meets criteria in DRA. Finding that statutes relating to the same matter must be read in pari materia, the court rejected the Department’s interpretation of a recent Missouri statute; instead, it was read as requiring that an exempt annuity must name the institutionalized spouse as remainder beneficiary, followed by the Department.
J.P. v. Missouri State Fam. Supp. Div., 2010 Mo. App. LEXIS 500 (4/20/2010)

Transfer penalty affirmed where evidence didn’t line up (N.J. App.)
A 23 month Medicaid penalty was imposed against V.S. after she transferred her interest in her home to her only child. V.S. argued the penalty was payment for years of financial support and care provided by her son, as well as for recent renovations to the house. Her son, Frank, had supported V.S. for years after her husband abandoned her. He did this both before and after he moved out of the home, with V.S. promising to leave the home to him. After V.S. fell in 2004, Frank allegedly paid for “senior friendly” renovations costing approximately $26,548, although Frank’s first check paying for those renovations was dated 2 years after V.S.’s fall. Subsequent to these transactions, V.S. executed 3 undated promissory notes to Frank in the amounts of $250,000, $350,000 and $400,000. Then, in 2007, V.S. deeded the home to Frank. In 2008, V.S. fell again and broke her hip. She never returned home and Frank applied for Medicaid on her behalf. In denying eligibility, the “Director found that the amount of equity purportedly held by Frank S. in his mother’s house was not supported by any tangible evidence that he made those expenditures in the amount or frequency alleged.” On appeal, the court found that V.S. failed to overcome the presumptions that Frank supported V.S. with no expectation of compensation and that the home was conveyed with the expectation of going on medical assistance. Further, the time-lines on the payments and notes did not match up, causing the court to agree that the alleged senior friendly renovations could just as easily have been for the purpose of making the home ready for sale.
V.S. v. Div. of Med. Assist & Health Serv., 2010 N.J. Super. Unpub. 868 (4/22/2010)

Transfer penalty affirmed (N.Y., Sup. App. Div.)
Margie Loiaconi transferred assets to her son within the look-back period prior to entering a nursing home. Apparently, she argued that the transfer was for a purpose other than gaining Medicaid eligibility. The Department rejected that position, denied eligibility and imposed a penalty. A fair hearing followed where the Department was affirmed. On appeal, the court found that given the evidence Loiacono’s age and medical condition at the time the transfers were made, she failed to carry her burden to rebut the presumption that the transfers were motivated by anticipation of seeking medical assistance.
Loiacono v. Demarzo, 2010 NY Slip Op 3334 (4/20/2010)

Life estate subject to estate recovery claim (Iowa App.)
Mary Louise Fletcher retained a life estate, selling an interest in her home to her sister-in-law, Mary Jo Escher. Mary Jo made payments under the contract until Mary Louise died. After Mary Louise died, Mary Jo stopped making payments under the theory that as the beneficiary under Mary Louise’s Will, her interest as remainder beneficiary merged with her interest as buyer under the real estate contract. The State, meanwhile, filed a claim to recover $10,459.29 in medical assistance. When Mary Jo’s husband, as executor, suggested that the estate should abandon the property to Mary Jo, a special executor was appointed to review the claim. After a hearing, the court found that Mary Louise’s estate was liable for the State’s claim, that Mary Jo’s interests as beneficiary and as buyer did not merge and that the life estate was subject to the State’s claim.
Escher v. Estate of Mary Louise Escher, 2010 Iowa App. LEXIS 255 (4/8/2010)

Medicaid beneficiary liable for overpayment where previously unknown asset caused her to be over-resourced (N.C. App.)
Ella Mae Cloninger entered a nursing home on May 28, 2000 and her children applied for Medicaid on her behalf. When the Medicaid application was filed, the children (allegedly) did not know their mother owned two endowment life insurance policies; the existence of the policies was not disclosed. Later, as a result of class action litigation, they became aware of the policies and, in June, 2005, disclosed them to Medicaid. The policies were cashed in ($330,685) and placed in an account in Ella Mae’s name. After receiving notice of the policies, the Medicaid agency terminated Ella Mae’s benefits because she was over-resourced. The Department then determined that an over-payment was made in the amount of $142,366.44. This decision regarding over-payment was appealed. The hearing officer found that the insurance policies were available resources and affirmed the over-payment, finding “[Petitioner] liable for the repayment of all Medicaid benefits paid on [their] behalf.” On appeal, the court found that an unknown asset is not necessarily unavailable. There was no legal impediment prohibiting Ella Mae from accessing the life insurance funds; because she was over-resourced when benefits were paid, the trial court correctly determined she was liable for the overpaid amount.
Cloninger v. North Carolina Department of Health and Human Services, 2010 N.C. App. LEXIS 564 (4/6/2010)

Estate recovery case remanded where State presented no evidence on traceability (ND)
Raymond Fisk was on Medicaid prior to his death. He was survived by his wife, Mary Ann. After Mary Ann’s death, the State filed a claim in her estate to recover medical assistance paid on behalf of Raymond, plus interest. The claim lingered from 2002 until 2008 when the State moved to compel payment. The personal representative responded, with a motion for discharge after deducting expenses of administration, funeral expenses and taxes; the personal representative alleged that the estate was insolvent. The State objected to the expenses of administration, which were allowed, and to the amount of funeral expenses. On appeal, the court found that the expenses of administration are left to the sound discretion of the court and refused to overturn the trial court’s decision allowing them. The court then raised an issue not raised by the parties, finding that doing so contributed to the orderly development of the law. The State is only allowed to pursue a claim in May Ann’s estate for Raymond’s medical assistance if it traced assets. There was no evidence of tracing in the record. Accordingly, the court believed it was “appropriate under the circumstances to remand to the district court to allow the Department the opportunity to present evidence concerning asset traceability.”
Estate of Fisk, 2010 ND 64 (4/6/2010)

Courts have no jurisdiction to increase Medicaid defaults until administrative remedies are exhausted (Miss.)
Prior to filing an application for Medicaid, Jo Carol Alford filed a petition in Chancery Court to increase the CSRA and the MMMNA pursuant to 42 U.S.C. § 1396r-5. Her husband, Arthur, suffered from multiple sclerosis. She alleged that the spousal allowances were inadequate. The Department answered arguing that the petition should be denied since Alford had failed to exhaust her administrative remedies. The Chancery court found that it had authority to grant separate maintenance via a QDRO (conveying $400,000 in retirement assets), but that it did not have authority to grant relief under Section 1396r-5. Mrs. Alford appealed. Mr. Alford died during the pendency of the appeal. Initially, on appeal, the court found that Mr. Alford’s death did not render the appeal moot because the issue involved a matter affecting the public interest. After examining other cases from Tennessee, New Jersey, D.C., Arkansas and Missouri, as well as Mississippi law, the court concluded that under Mississippi law, where an administrative remedy exists “relief must be sought by exhausting this remedy before the courts will act.” Accordingly, the trial court had no jurisdiction to increase the Medicaid default allowances.
Alford v. Mississippi Division of Medicaid, 2010 Miss. LEXIS 164 (3/25/2010)

Family Agreement to split home sale proceeds enforceable (Mass. App.)
Guiseppe and Donata wanted to protect their home from a Medicaid lien should they ever need nursing home care so they conveyed their home to their daughter, Bianca. On the same date, Bianca, her siblings and her parents entered into an agreement providing that after Guiseppe and Donata died, Bianca would sell the house and split the proceeds equally with her three siblings; the agreement provided that it could only be modified in writing by all of the parties. The parents then executed Wills leaving their remaining estate in equal shares to their four children. After Donata died, Guiseppe, Bianca and one of the daughters executed an amendment to the agreement purporting to change the agreement so that Bianca received 60% of the sale proceeds and one daughter received 40% of the proceeds. Following Guiseppe’s death, the other daughters sought to enforce the original agreement. Bianca argued the original agreement was unenforceable because there was no consideration. The trial court and the court of appeals disagreed. Bianca’s promise to take title and distribute the proceeds after her parents death benefitted her parents sufficiently to constitute adequate consideration.
Cascio v. D’Arcangelo, 2010 Mass App. Unpub. LEXIS 346 (/3/30/2010)

Transfer Penalty Imposed on Lump-Sum Care Agreement (N.J. App.)
A 97 year old entered into a lump-sum “life care contract” with her daughter in 2007. The consideration paid was $56,550. The contract was non-transferrable, provided for payment of 15 “assumed” hours per week regardless of whether they were worked and provided for full payment even if the elder died on the day of receipt. The contract also allowed the caregiver to attend to other professional and family responsibilities, essentially making this a “best efforts” contract rather than one linked to the elder’s needs. When Medicaid was sought within the look-back period, the Department found that the contract had no market value and imposed a transfer penalty. On appeal, that decision was sustained. “The [contract] is worthless on the open market; it is specious to suggest otherwise.”
E.S. v. Division of Medical Assistance and Health Services, 2010 N.J. Super. LEXIS 47 (3/26/2010)

Appeal of attribution of asset to Medicaid applicant was pre-mature (N.Y. App.)
Henry Simmons and his wife applied for Medicaid in July 2007. Prior to that time, their son, James, had deposited $47200 into their account and then, over 6 months, withdrew $50,000. A transfer penalty was imposed. James, on behalf of petitioner, argued the penalty was improperly imposed because (1) the money was not Henry’s and (2) some of it was used to pay Henry’s bills; James testified that he had placed his money into the account because lawsuits had been filed against his corporation and he was concerned about the funds being attached. The fair hearing officer remanded the case to the Department to determine whether withdrawn funds were used to pay Henry’s expenses (and his wife’s) and to recalculate the penalty; James appealed, arguing that the $47,200 was wrongly attributed to Henry. The appeal was dismissed because, until the penalty was recalculated, James could not show an actual, concrete injury. Thus, the appeal was premature.
In re Simmons, 2010 NY Slip Op 2053 (3/18/2010)

Allegedly known resource was countable, preventing Medicaid eligibility (N.J.Super. App.)
In an unpublished decision, W.B., a nursing home resident, applied for Medicaid in November 2006. She owned a mobile home that was ultimately determined to be inaccessible, but not within the standard of promptness. The application lingered. Meanwhile, in April 2007, W.B.’s son discovered that W.B. owned $6,289.25 in MetLife stock; the stock was immediately sold and applied toward nursing home bills after it was discovered; however, when this was reported, W.B. was found to be ineligible for Medicaid until May 1, 2007. On appeal, it was argued that W.B. would have been eligible earlier if the application was acted on in a timely fashion and that the stock should not have been countable for periods prior to its discovery. The court, however, found that there was insufficient proof to indicate that W.B. was oblivious to her own acquisition of the Metlife stock, finding that the POMS were not binding (and, for good measure, distinguishing the POMS examples regarding newly discovered assets). The discovery of the stock provided a “reasoned basis” for the ultimate decision reached regarding the date of eligibility.
W.B. v. Division of Medical Assistance and Health Services, 2010 N.J. Super. Unpub. LEXIS 354 (2/24/2010)

Estate Recovery Claim Barred by Limitations Period (Ohio App.)
Joesphine Centorbi died on February 12, 2007. Her sister filed an application to relieve administration on December 21, 2007, which was granted. Almost one year later, and more than a year after Centorbi’s death, the State sought to vacate the original order and reopen the estate. The State failed to appear at the first hearing and its petition was denied. A second petition was filed which was also denied, after which the State appealed. On appeal, the court rejected the State’s argument that the statutory one-year limitations period did not apply, in part, because the administrator did not properly complete the estate recovery form. The court found that the purpose of the statute was to impose a maximum period of one year from the decedent’s date of death to file a claim.
In re Estate of Centorbi, 2010 Ohio 442 (2/11/2010)

Claim against Community Spouse’s Estate Limited (N.Y. App.)
Zeena Schneider was admitted to a nursing home in 1996. She became eligible for Medicaid after her husband, Leon, refused to pay for her care and executed an assignment of support rights on behalf of Zeena. Leon died on October 3, 2002, leaving his estate in a special needs trust for Zeena with contingent legatees including a disabled child. Zeena’s guardian ad litem was directed to file an election against the Will on behalf of Zeena and the State presented a claim for $386,382.77. The court found that the limitation on recoveries against the estate of a Medicaid applicant did not apply since this was a claim against the community spouse. Further, because Leon was a responsible relative, an implied contract existed to reimburse the State for Zeena’s care. However, that contract existed only to the extent that Leon had available resources in excess of the spousal allowance. Accordingly, the State’s claim was reduced to $279,883.
Matter of Schneider, 2010 N.Y. Slip Op 971 (2/9/2010)

Hawaii Medicaid Waiver Challenge Under ADA Claim Survives First Round (D. HI)
In a must follow case for elder law attorneys, Medicaid beneficiaries and Medicaid providers filed suit against the Hawaii Department of Human Services (“State DHS”). Their principal allegation was that the State Defendants have violated certain provisions of the Medicaid Act, 42 U.S.C. § 1396 et seq., by requiring ABD beneficiaries to enroll with one of two healthcare entities as a condition of receiving Medicaid benefits under the agency’s managed care program for ABD beneficiaries – the QUEST Expanded Access (“QExA”) Program. Those two entities were the only ones awarded contracts to provide the care for ABD beneficiaries under the QExA Program (“QExA Contracts”). The District Court recognized the validity of ADA claims of certain plaintiffs thus allowing the case to proceed.
G., v. U. S. Dept. of Health and Human Svs., 2009 U.S. Dist. LEXIS 120529 (December 24, 2009)

Ahlborn Holding Circumvented Using the State Fraud and Abuse Control Act (PA)
The issue here was whether the Pennsylvania Department of Public Welfare (“DPW”) can obtain reimbursement from a tortfeasor for Medicaid expenditures for a disabled minor when a claim therefor by the minor’s parents is barred by the statute of limitations. The Court of Appeals reversing the lower court found in favor of DPW. E.D.B. (“Emily”) was born on October 11, 1985, suffering from severe physical and mental disabilities. Nearly eighteen years later, in August 2003, Emily’s guardians (“the Bowmasters”) filed suit against Centre Community Hospital and an attending physician, alleging that their negligence was the proximate cause of Emily’s disabilities. After the parties reached a negotiated settlement, the Bowmasters filed a petition for leave to settle an incapacitated person’s case. On August 31, 2006, the court of common pleas approved the settlement, which included the establishment of a special needs trust for Emily. The Bowmasters informed DPW of the suit and DPW asserted a lien on any recovery. The lower court found in favor of the plaintiff only to be overturned. The court specifically rejected the issue of Ahlborn limiting the recovery finding that “ . . . nothing in Ahlborn affects, negates, weakens, or calls into question the reasoning outlined above as to the General Assembly’s intent with regard to the filing of claims by beneficiaries for Medicaid expenditures incurred during their minority.”
E.D.B., an Incapacitated person v. Clair, No. 78 MAP 2008, 2009 Pa. LEXIS 2790, (December 29, 2009)

Ahlborn Interpreted: State’s right to Collect Upheld (FL App.)
Plaintiff in a medical malpractice action challenged the trial court’s order to fully satisfy a Medicaid lien from the proceeds of a settlement of a malpractice action. Appellant argued that “the formula [in section 409.910] for determining the amount the Department can recover on its lien from a plaintiff’s tort judgment or settlement . . . has been tempered by Ahlborn, 547 U.S. 268(2006). She argued that the value of the medical malpractice case, as supported by expert testimony, was $ 30 million; since her $3 million settlement constituted a recovery of only one-tenth of the actual damages suffered by the Medicaid recipient, the Department was entitled to recover only one-tenth of its Medicaid lien. The court rejected this contention finding that “[c]entral to the Ahlborn court’s reasoning was the state’s stipulation concerning the portion of the settlement attributable to medical expenses. On the basis of that stipulation, the court reached its conclusion that the state’s lien claim exceeded “that portion of a settlement that represent[ed] payments for medical care.” Id. at 282.” The Florida court then found that “[i]n the instant case, there is no such stipulation and no similar basis for determining an allocation of the settlement proceeds. Contrary to appellant’s suggestion, the Ahlborn decision does not establish as a rule of law the formula utilized by the state of Arkansas to determine the portion of the settlement attributable to medical expenses. That formula simply was part of the facts presented to the court.”
Russell v. Agency for Health Care Admin., 2010 Fla. App. LEXIS 38 (January 6, 2010)

Court rejects argument that CSRA should be increased (M.D. Tenn)
In a Section 1983 action to force an increase in the CSRA on behalf of Johnson and Crips, each a community spouse where combined marital income was less than the MMMNA. Each party filed a motion for judgment on the pleadings. Johnson and Crips argued that the State was required to increase the CSRA by an amount sufficient to generate the income necessary to bring their income up to the MMMNA. They argued that an interest income approach was the method which should be used. The State countered, arguing that the CSRA was large enough to purchase an annuity that would generate the necessary income and, therefore, no CSRA adjustment was required. The District Court focused on the language of 42 U.S.C. § 1396r-5(e)(2)(C), which indicates that if a community spouse establishes that the CSRA (in relation to the amount of income generated by such an allowance) is inadequate to raise the community spouse’s income to the MMMNA, then a larger CSRA shall be substituted for that purpose. The court found that a plain reading of the statute permits the State to use the annuity method in determining whether a CSRA adjustment is required. The court appears to have misread the statute, however, because the annuity method that was ultimately approved deprives the Community Spouse of her principal, effectively requiring her to convert her CSRA into an income stream. Thus, instead of generating income from additional assets, she is simply spending her CSRA as she receives a monthly annuity payment comprised of principal and income. In effect, this result gives the Community Spouse the required MMMNA, but deprives her of her CSRA. In arriving at this conclusion, the court relied on Harris v. Department of Human Services (a 2004 case from the Illinois Court of Appeals), where the court rejected an argument that the Institutionalized Spouse’s assets must be used to purchase an annuity increasing the CSRA. Because the CSRA was large enough to purchase an annuity increasing the MMMNA to the required threshold, the Plaintiff’s motion was denied.
Johnson v. Lodge, 2009 U.S. Dist. LEXIS 115836, Case No. 3:09-cv-0235 (12/10/2009)

State is not final arbiter of medical necessity (N.D. Ga)
Anna Moore, a twelve year old Medicaid beneficiary, was severely disabled. She suffered a stroke in utero, which left her with a host of infirmities. She was blind, non-verbal and suffered from uncontrolled seizures. Anna participated in the early and periodic screening, diagnostic, and treatment services (“EPSDT”) program. Although her doctor testified that she required 96 hours per week of care, the State sought to reduce care to 84 hours per week. Anna’s mother appealed, but later terminated her participation in the administrative process in favor of a Section 1983 action in federal court. Initially the court ruled in Plaintiff’s favor, finding that Section 1396d(r)(5) took away a State’s ability to deny necessary care. The Eleventh Circuit reversed, apparently because the district court found that the doctor’s determination alone was determinative of the State’s obligations under the EPSDT program. On remand, the District Court ordered both parties to file supplemental briefs where the State argued that it was the final arbiter of medical necessity. That, however, is not what the Eleventh Circuit said. Its opinion indicated that both the State and a doctor have a role to play in determining what medical measures are necessary to correct or ameliorate the beneficiary’s condition. The district court found that the State is entitled to review a plan of care for fraud, abuse of the Medicaid system, and whether the service is within the reasonable standards of medical care. It does not, however, have discretion under Section 1396d(r)(5) to deny necessary care. There was no genuine issue of material fact as to whether the opinion of Anna’s doctor was based in fact. He explained her diagnosis, symptoms and the required level of care to ameliorate those symptoms. He accounted for his recommendations regarding the number of hours required to deliver that level of care. His assessment was supported by twelve years of treating Anna and by the medical records. Accordingly, the Plaintiff was entitled to declaratory and injunctive relief.
Moore v. Medows, 2009 U.S. Dist. LEXIS 115231, Civ. Action No. 1:07-CV-631-TWT (12/9/2009)

Another Post-Tanner Estate Recovery Case (Tenn. App.)
Mary Dillard died without issue on November 15, 2004. Her Will was filed with the Court on January 24, 2005, but no letters testamentary were issues and no personal representative was appointed; the action was limited to muniment of title in a parcel of real property. No notice to creditors was published. On May 10, 2006, the Bureau of TennCare filed a petition for the appointment of an administrator. TennCare claimed it was owed $108,985.67. TennCare sought to file a claim in the muniment of title proceeding. The trial court found that TennCare’s claim was barred because it was filed more than a year after Dillard’s death. The Court of Appeals reversed, citing Estate of Tanner (previously reported in the E-Bulletin) which imposes an obligation on the administrator to secure a waiver or release of TennCare’s claim before the estate can be closed. What the court failed to explain, though, is how Tanner impacts this case since no administrator had been appointed.
Estate of Dillard v. Tennessee Bureau of TennCare, 2009 Tenn. App. LEXIS 804, Appeal No. M2008-01002-COA-R3-CV (11/30/2009)

Circuit level victory for Medicaid annuities (3rd Cir.)
In a short, non-precedential decision, the Third Circuit affirmed the district court’s decision ruling in favor of a Medicaid applicant. See 595 F.Supp. 2d 607. The Circuit Court agreed that a DRA compliant annuity cannot be treated as a resource. Consistent with its prior holding in James v. Richman, the State’s argument that a secondary market for annuities makes them available is “fundamentally flawed” where there are impediments to transfer of the annuity. Perhaps more significantly, the court agreed that DRA creates an annuity exemption that cannot be narrowed by state law. “The eligibility requirements established by the states may be more liberal than those of the Federal government, but they may not be more restrictive.” Apparently the Third Circuit is more inclined than the Tenth Circuit (e.g., Hobbs v. Zenderman) to require State compliance with federal law.
Weatherbee v. Vechhio, 2009 U.S. App. LEXIS 24939, Appeal No. 09-1399 (11/12/2009)

Ahlborn revisited: reducing the lien in the trial court (Cal. App. 3rd)
This unpublished case provides a possible roadmap for reducing Medicaid liens. Ruben Lopez was involved in a collision in 2003, suffering brain injury. Ultimately, his product liability suit was settled for $2,000,000. Prior to settlement, Medi-Cal paid medical expenses of $547,680. Medi-Cal agreed to reduce its claim to pay its share of attorney’s fees and litigation expenses. However, when Lopez argued the claim should be further reduced consistent with Ahlborn, Medi-Cal dug in its heels. The parties failed to agree on the medical expense allocation, so there was none. Lopez argued that Ahlborn, as well as Section 14124.76 of California’s Welfare and Institutions Code, required application of a formula reducing the Medicaid lien because Lopez did not recover the full value of his loss. The Department countered, arguing that Ahlborn does not impose any such formula and that the only reduction permitted was for fees and expenses. Ultimately, the issue was decided by the trial court, where Lopez put up medical and accounting experts to prove that Lopez’s total economic damages were $11,635,132.82. The Department did not put up any rebuttal evidence; it offered to reduce its lien to $350,000, but failed to file supplemental briefs explaining the reasoning behind its claim. Using the evidence presented, the trial court found that the Department was entitled to 17% of its lien amount, reduced by its share of attorney’s fees and expenses, for a total claim of $63,216.69. In affirming the trial court, the Court of Appeals found it relevant that the Department neither rebutted Lopez’s evidence nor explained its position. In light of the Department’s failure to do either, the trial court acted within the statutory scheme and determined the lien based on the evidence before it. There was no abuse of discretion.
Lopez v. Daimler Chrysler Corp., 2009 Cal. App. Unpub. LEXIS 8836, Appeal No. C058592 (11/5/2009)

Purchase agreement not a countable resource (N.C. App.)
Kenneth Wilson was hospitalized from January 7, 2007 through the date of his death on February 22, 2007. While he was hospitalized, his community spouse, Doris, sold her 100% stock ownership in Brothers Deliver Service to her son pursuant to a purchase agreement. The agreement provided for a total payment of $62,531, to be paid in 60 installments of $1041.82. Doris then applied for Medicaid on April 5, 2007. Benefits were denied after the Department determined that the purchase agreement was a countable promissory note. A fair hearing followed affirming that decision. The trial court reviewing the administrative appeal determined that the agreement was not a promissory note, but determined that it was countable as “chattel” since it involved the sale of stock. On appeal, the Court of Appeals reversed, finding that the agreement was not a countable resource. In analyzing the administrative code, the Court found three forms of property defined: real, personal and liquid. The agreement did not fall within the Medicaid Manual’s definitions of real or personal property. Therefore, to be considered countable, it must fall within the manual’s definition of “liquid assets.” Initially, the court of appeals agreed with the trial court that the agreement was not a negotiable promissory note. Its payment terms were too uncertain to constitute an unconditional promise to pay. The court then found that the agreement was not chattel paper; to be classified as such it must be a monetary obligation and thus be capable of being monetarily valued. In this case, the payment terms were too uncertain to determine what value should be given and when payments would begin. Although the court held the agreement was not countable because it did not squarely fit within the terms of a poorly worded manual, the decision appeared to be influenced by its finding that the stock would have been exempt if Doris had simply left it in her name; under North Carolina’s rules, the asset would have been exempt as property actively used in a trade or business.
Estate of Wilson, 2009 N.C. App. LEXIS 1737, Appeal No. COA09-216 (11/3/2009)

Medicaid penalty started after nursing home deposit was exhausted (Mass. App.)
Mary Shelales entered a nursing home in December, 2006. On January 11, 2007, she transferred $41,993 to her children. On the same day, she transferred $50,000 to the nursing home to prepay her nursing home expenses until July, 2007. On April 30, 2007, Mary applied for Medicaid. No one disputed imposition of a 164 day penalty. The dispute centered on when the penalty started. Mary argued it began on January 11, 2007 and MassHealth argued it began on June 28, 2007, the first day after her prepayment was exhausted. Mary went to a fair hearing, where eligibility was denied. That decision was affirmed by the Superior Court. She then appealed. On appeal, the Court found that MassHealth had the better argument. MassHealth contended that under its regulation, the penalty does not start until the applicant is otherwise eligible. MassHealth further argued that an applicant must be otherwise eligible “for payment” by Masshealth before the penalty begins running. Because Mary had prepaid her nursing home bill, MassHealth argued she was self-insured until the prepayment was exhausted, so there could be no payment by MassHealth. The court found that in the ambiguous world of Medicaid, the agency must be affored considerable leeway to interpret its own regulations and the statutes it is charged with enforcing. Since its argument was not patently wrong, the department’s argument was accepted. The penalty start date was June 28, 2007.
Shelales v. Director of the Office of Medicaid, 2009 Mass. App. LEXIS 1335, Appeal No. 08-P-2052 (10/30/2009)

ALJ failed to properly consider evidence rebutting transfer penalty (Oregon App.)
Beverly Vermealen was living near her grandson, his wife and their three children. She was 85 years old, but was still physically active, walking 25 blocks per day. She regularly ate meals with her grandson’s family and provided child care. In 2004, discussions began over whether the grandson, Donald, and his wife should move in with Beverly so they could care for her. They decided extensive remodeling would be necessary to make the move; to facilitate their plans, Beverly conveyed her home valued at $176,000 to Donald and his wife without consideration. Donald and his wife began planning for the remodeling, but because they were unable to sell their own home, the remodeling never began. In 2006, Beverly suffered a stroke and was admitted to a nursing home. Eligibility was denied after the 2004 conveyance was disclosed. Although there is a rebuttable presumption that the conveyance was for the purpose of gaining eligibility, Oregon’s regulations outlined four ways of rebutting that presumption. They presented evidence on two of those methods. First, they argued that Beverly had never used public benefits and did not even know about Medicaid, so she could not possibly have anticipated needed Medicaid. That argument was rejected due to Beverly’s age and health condition; she should have known. However, on appeal the court found that the ALJ’s failure to seperately consider the family’s plan to combine the two households essentially collapsed two ways of rebutting the presumption into one. This rendered the other rebuttal criteria meaningless and was an erroneous interpretation of the administrative rule.
Vermeulen v. Dep’t of Human Services, 2009 Ore. App. LEXIS 1679, Appeal No. A135953 (10/28/2009)

Tennessee Estate Recovery Case followed (Tenn. App.)
This case, involving the Estate of Flora Etta Leadbetter, follows Estate of Tanner, 2009 Tenn. LEXIS 653. Like Tanner, the Leadbetter estate was not opened until more than one year passed following her death. The personal representative filed an exception to the estate recovery claim as being untimely. The trial court denied the claim and TennCare appealed. Unfortunately, and also like Tanner, Leadbetter died prior to a January 1, 2007; an amendment effective on that date arguably changes the statute to place TennCare on equal footing with other creditors. Without that amendment, though, the personal representative has a continuing obligation to either secure a TennCare release or see that the estate recovery claim is paid. Thus, the trial court decision was inconsistent with Tanner and the case was remanded for further proceedings.
Estate of Leadbetter, 2009 Tenn. App. LEXIS 719, Appeal No. E2008-00681-COA-R3-CV (10/29/2009)

Direct transfer to disabled child cannot be penalized (D. NJ)
Two plaintiffs made direct transfers to disabled children. The state penalized those transfers, arguing they must be to an irrevocable trust for the benefit of those children. The plaintiffs then filed an action under Section 1983, arguing that the State’s position violated 42 U.S.C. § 1396p(c)(1). The district court, noting that it is “syntactically implausible” to apply sole benefit language to a direct transfer, as opposed to a transfer to trust, found that asset transfers to a disabled child are exempt from the transfer penalty rules. The court found that plaintiffs would suffer irreparable harm if relief was not granted and entered a preliminary injunction.
Sorber v. Velez, 2009 U.S. Dist. LEXIS 98799, Case No. 09-cv-3799 (10/23/2009)

Medicaid lien fully recoverable; no Ahlborn reduction required (Fla. App.)
Maurice Thomas’s guardian, Martha Smith, settled a personal injury case for $2.225 million. Relying on Ahlborn, Smith then sought to reduce the State’s Medicaid lien from $122,783.87 to $40,927.96, arguing that Thomas recovered only one-third of his total damages. Affirming the trial court, the Court of Appeals held that Smith misread Ahlborn. In Ahlborn, the Supreme Court simply held that a State’s Medicaid lien recovery is limited to the portion of a verdict or settlement representing amounts recovered for medical expenses. In this case, no evidence was presented which would allow the trial court to determine how much of the recovery represented medical expenses. Although a plaintiff should be afforded an opportunity to seek a reduction of the lien amount, since no evidence was presented for that purpose, the trial court properly allowed the entire lien. A strongly worded dissent took the position that the State, rather than the plaintiff, has the burden of proof on the lien amount and that the trial court should have applied comparative negligence and other defenses to reduce the medical expense recovery when asked to do so.
Smith v. Agency for Health Care Administration, 2009 Fla. App. LEXIS 15929, Appeal No. 5D08-1142 (10/23/2009)

Court remands Medicaid penalty determination for additional findings on value of alleged transfer (N.J. App.)
Although this is an unpublished opinion, it remains noteworthy. M.P., one of three siblings along with A.P. and A.B., one was born developmentally disabled. A.P. became M.P.’s primary caregiver after their parents died in 1973. Because of how their parent’s Will was structured, M.P. and A.P. allegedly held life estates, remainder to A.B. (the Will actually appears to give A.P. a contingent remainder; the Will was structured to reward the daughter serving as M.P.’s caregiver). In 1984, A.P.’s declining health prevented her from serving as sole guardian so A.B. was added as co-guardian. As A.B.’s role increased, the family home was encumbered, requiring payment of $75,000 plus ten percent interest per annum to A.B. upon its sale; A.B. was to construct a dwelling on the property and move in, paying her proportionate share of taxes, utilities and insurance. After execution of the mortgage, A.B. sold her own house and used $75,000 to build an addition to the family home; she moved in, residing there from 1985 through the present date. In 2006, M.P. was admitted to a convalescent center and in 2007, A.P. was admitted to a convalescent center. Thereafter, A.B., as agent for A.P. and as co-guardian for M.P., transferred the family home from her siblings to herself. After the Medicaid agency discovered the transfer, a penalty was applied. The State argued that A.B. resided (1) in a separate dwelling and (2) that a mortgage interest is not an equity interest; therefore, according to the State, the sibling exception to the transfer penalty did not apply. The court found the record was deficient regarding the living arrangements and that the deficiency resulted from narrowing of the hearing inquiry to legal issues, e.g., whether A.B. held an equity interest in the home. The court then found that a fundamental initial issue was overlooked which must be resolved prior to any inquiry regarding a penalty. That issue is value. The mortgage, executed in 1985 appeared to have subsumed the value of the life estates and any contingent remainder held by A.P. If the mortgage debt exceeded the fair market value of the home, then the uncompensated value of any transfer would be zero, precluding imposition of a transfer penalty.
A.P. v. Division of Medical Assist. & Health Services, 2009 N.J. Super. Unpub. LEXIS 2632, Appeal No. A-6116-07T1 (10/19/2009)

Medicaid estate recovery claim allowed (Tenn.)
Martha Tanner died intestate while she was in a nursing facility. Her son received notice that the State would pursue estate recovery, but ignored the notice and did not open an estate. Nineteen months after Martha’s death, the State filed a complaint seeking the appointment of an administrator. The case was transferred to probate court where Martha’s son was appointed as administrator. Martha’s assets consisted of $2000 plus residential property. The State filed its claim against Martha’s estate seeking recovery of medical assistance correctly paid. The administrator filed an objection, arguing that the State’s claim was time-barred; Tennessee law bars any creditor claim filed more than 12 months after the decedent’s death. The trial court and Court of Appeals agreed, barring the claim. The Supreme Court accepted the appeal after noting disagreement among various panels of the Court of Appeals over facts that were virtually identical. In reviewing both the estate recovery statute and the probate statute, the Supreme Court found that the plain language of the probate statute establishes a one year limitations period. Beginning on the date of death regardless of whether a representative has been appointed for the estate. Further, the Bureau of TennCare’s claim is a creditor’s claim ordinarily subject to the same procedural requirements that limit other creditors. However, when the legislature changed the estate recovery statute in 2002, it imposed an ongoing responsibility on the administrator to either pay the estate recovery claim or to secure a waiver from the Bureau. The Supreme Court found that this “belt and suspenders” approach permits recovery from the estate until a waiver or release is granted regardless of any limitations period. What remains to be seen is whether a 2006 amendment, not applicable here because it was effective after Martha’s death, will put TennCare on equal footing with other creditors.
Estate of Tanner, 2009 Tenn. LEXIS 653, Appeal No. M2006-02640-SC-R11-CV (10/7/09)

Only one bite at the apple: Get your Ahlborn allocation right the first time (CA)
A minor was injured in a collision that resulted in a $3.6 million settlement. As part of the court proceeding to approve the settlement, a compromise was reached with Medi-Cal concerning satisfaction of its lien; consistent with the statute, its lien was reduced to account for attorney’s fees and litigation expenses. Thus, the State accepted $239,474.40 in satisfaction of its $341,885 claim. Six months later, Plaintiff’s filed a motion to extinguish or strike the Department’s lien to the extent that it exceeded $32,809. Relying on Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268 (2006), plaintiff submitted evidence that the true value of the case was approximately $26 million and, therefore, the $3.6 million received represented 13.72% of the loss. The Court of Appeals rejected plaintiff’s argument that Ahlborn required a reallocation. Unlike Ahlborn, court approval was required to approve a minor’s compromise. In seeking approval of the settlement, the petitioner had verified the compromise as fair, reasonable and in the best interest of the claimant. Ahlborn has the practical effect of requiring a record that distinguishes the different categories of damages, but that record was created as part of the trial court’s decision approving the minor’s compromise. Nothing in Ahlborn requires reevaluation of a prior judicial allocation of the medical expenses portion of the settlement.
Espericuenta v. Shewry, B200479, CTA California, 2nd Dist. (July July 1, 2008)

Annuity: James v. Richman, 465 F. Supp. 2d 395 (D. Pa. 2006). A community spouse purchased an actuarially sound single-premium irrevocable annuity for $250,000 for the purpose of spending down excess assets so her husband, a nursing home resident, would qualify for Medicaid. Pennsylvania denied eligibility, contending that the annuity was an available asset and that Medicaid eligibility could not be established until that asset was spent down. Plaintiff requested a temporary restraining order, which was granted, and later filed a motion for summary judgment. A prior case, Mertz v. Houstoun, 155 F. Supp 2d 416 (E.D. Pa. 2001), indicated that available assets become unavailable when a community spouse uses assets to purchase an irrevocable actuarially sound commercially sound for her sole benefit. The State countered that notwithstanding a non-assignment clause, the annuity has market value and therefore is liquid. Alternatively, the State argued that the stream of income derived from the annuity has market value. The Court rejected the State’s first argument because HCFA 64, § 3258.9B, “clearly states that annuities purchased as part of a valid retirement plan — regardless of their putative marketability in the view of a third party and the generally prevailing rules of contract law — are not to be penalized. As such, if such an irrevocable actuarially sound commercial annuity were purchased as part of a retirement plan for the sole benefit of the community spouse, there can be no penalty imposed upon the Medicaid applicant.” It rejected the second argument because 42 U.S.C. § 1396r-5(b)(1) provides that “no income of the community spouse shall be deemed available to the institutionalized spouse.” The Plaintiff’s motion for summary judgment was granted. Prior decision: James v. Richman, 2006 U.S. Dist. LEXIS 28384 (D. Pa. 2006).

Note: Other States such as New Jersey and Georgia are taking the position that even non-assignable, irrevocable annuities have market value and, therefore, are countable assets. This issue may be litigated around the country with varying results. This case is included to show that Medicaid eligibility issues is not automatic, that the issues are complex and that an Elder Law Attorney familiar with the Medicaid rules should be involved when continuing eligibility is sought.

Estate Recovery: Hines v. Dep’t of Pub. Aid, 221 Ill. 2d 222 (Ill. 2006). Beverly Tutinas’s husband, Julian, was on Medicaid, but she was not. When Beverly died owning a home valued at $69,641.89 and a car worth $2,000, the State of Illinois filed a claim against Beverly’s estate, seeking to recover what Medicaid had invested in Julian’s care. The court found that, although the State clearly had a right to proceed against Julian’s estate under 42 U.S.C. § 1396p(b) and under State law, that is not what happened. The court found that the Medicaid statute does not authorize a claim against Beverly’s estate to recoup what was spent on Julian. However, that did not end the inquiry because if State law adopted the “expanded estate recovery” permitted under federal law, then assets transferred from Julian to Beverly might be subject to the claim. The court found that Illinois had not adopted an expanded view of estate recovery, except in situations where a long-term care insurance policy was involved. “Under Illinois probate law, property held in joint tenancy is never part of the estate of the joint owner who dies first. Upon the death of one joint tenant, title to the property automatically vests in the surviving joint tenant. [citation omitted]. Accordingly, the house and automobile at issue in this case cannot be deemed part of Julius’ estate for purposes of the Department’s action for reimbursement of the Medicaid payments made on his behalf. The proceeds from the sale of that property are therefore not subject to the Department’s claim under section 5-13 of the Public Aid Code.”

Note: the law on estate recovery continues to develop as States become more aggressive in recovery litigation. The law is different in each State, depending whether recovery is limited to the probate estate or an expanded estate. Other estate recovery cases with varied results include In re Estate of Smith, 2006 Tenn. App. LEXIS 715 (Tenn. Ct. App. 2006); In re Estate of Barg, 722 N.W.2d 492 (Minn. Ct. App. 2006); In re Estate of Nistler, 2006 Minn. App. Unpub. LEXIS 1053 (Minn. Ct. App. Unpub. 2006); Dep’t of Human Servs. v. Laughead (In re Estate of Laughead), 696 N.W.2d 312 (Iowa 2005); Estate of DeMartino v. Div. of Med. Assistance & Health Servs., 373 N.J. Super. 210 (App. Div. 2004); State Dep’t of Human Res. v. Estate of Ullmer, 87 P.3d 1045 (Nev. 2004); In re Estate of Jobe, 590 N.W.2d 162 (Minn. Ct. App. 1999); Idaho Dep’t of Health & Welfare v. Jackman (in Re Estate of Knudson), 132 Idaho 213 (Idaho 1998).

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