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STATUTE CUTTING OFF COUNTIES’ ABILITY TO SEEK MEDICAID OVERBURDEN EXPENSES IS CONSTITUTIONAL.

The Court of Appeals, in a full-fledged opinion by Judge Rivera, determined Section 61 of the Executive Budget Law, which cut-off counties’ ability to seek Medicaid “overburden expenses” as of January 1, 2006, is constitutional. The State Executive Budget Memorandum explained that the purpose of Section 61 was to “to clarify that local governments cannot claim for overburden expenses incurred prior to January 1, 2006 when the ‘local cap’ statute that limited local contributions to Medicaid expenditures took effect. This is necessary to address adverse court decisions that have resulted in State costs paid to local districts for pre-cap periods, which conflict with the original intent of the local cap statute:”

Once the State complied with its statutory obligation under Social Services Law § 368-a (1) (h) (i) to pay the counties for overburden reimbursements, it was fully consistent with the prior mandatory reimbursement scheme for the Legislature to impose a deadline on claims for unpaid funds. That deadline was neither in conflict with a fundamental law nor our constitutional principles. Just as the Counties cannot be heard to complain that the Legislature replaced one Medicaid allocation scheme with another, thus redefining the counties’ expense burden, so too are the counties without recourse when the Legislature imposes a deadline on the counties’ submission of claims for overburden reimbursements, thereby closing the door on pre-2006 claims. Matter of County of Chemung v Shah, 2016 NY Slip Op 07043, CtApp 10-27-16

 

MEDICAID (STATUTE CUTTING OFF COUNTIES’ ABILITY TO SEEK MEDICAID OVERBURDEN EXPENSES IS CONSTITUTIONAL)/MUNICIPAL LAW (COUNTIES, MEDICAID REIMBURSEMENT, STATUTE CUTTING OFF COUNTIES’ ABILITY TO SEEK MEDICAID OVERBURDEN EXPENSES IS CONSTITUTIONAL)/COUNTIES (MEDICAID REIMBURSEMENT, STATUTE CUTTING OFF COUNTIES’ ABILITY TO SEEK MEDICAID OVERBURDEN EXPENSES IS CONSTITUTIONAL)

OFFICE OF MEDICAID INSPECTOR GENERAL COULD NOT SEEK REIMBURSEMENT OF OVERPAYMENTS IN AN AMOUNT HIGHER THAN SPECIFICALLY INDICATED IN ITS WRITTEN NOTICE.

The First Department, over a two-justice dissent, determined the language of the written notice to petitioner from the Office of the Medicaid Inspector General (OMIG) did not allow the OMIG to seek the higher of two estimated overpayment reimbursement amounts. The terms of the final audit report (FAR) required a lower payment if the findings were not challenged, and a higher payment if the findings were challenged at a hearing. Petitioner did not request a hearing to challenge the findings, but did not make payment arrangements within the time allowed. The OMIG then notified petitioner it would withhold future reimbursement to pay off what was owed. Although the written notice of the withholding stated the lower amount would be withheld, petitioner was informed orally by OMIG the higher amount would be withheld:

Petitioner seeks to limit its Medicaid reimbursement overpayment liability, in connection with a final audit report [FAR] issued by respondent (OMIG), to the “lower confidence limit” amount of $1,460,914 set forth in the FAR. The FAR states that, although OMIG did not waive any available remedies, if petitioner did not remit payment or arrange a payment plan within 20 days, OMIG would withhold a percentage of Medicaid billings to “liquidate the lower confidence limit amount.” In the alternative, if petitioner challenged OMIG’s findings at a hearing, OMIG would seek to recover at the hearing the FAR’s higher point estimate of overpayments, which was $1,857,401. * * *

The actual FAR language states that, in the event a settlement is not reached within 20 days, OMIG will begin withholding “to recover payment and liquidate the lower confidence amount, interest, and/or penalty, not barring any other remedy at law” (emphasis added). FAR expressly states that if a settlement is not reached, OMIG will begin withholding to collect “the lower confidence amount” of $1,460,914. Thus, contrary to the dissent’s interpretation, the FAR expressly states that in the event there is no settlement, OMIG will withhold the lower confidence limit. West Midtown Mgt. Group, Inc. v State of New York, 2016 NY Slip Op 06111, 1st Dept 9-21-16

 

MEDICAID (OVERPAYMENT REIMBURSEMENT, OFFICE OF MEDICAID INSPECTOR GENERAL COULD NOT SEEK REIMBURSEMENT OF OVERPAYMENTS IN AN AMOUNT HIGHER THAN SPECIFICALLY INDICATED IN ITS WRITTEN NOTICE)

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MORTGAGE HAD PRIORITY OVER COUNTY’S CLAIM FOR REIMBURSEMENT OF MEDICAID BENEFITS.

The Third Department determined a mortgage held by Wells Fargo had priority to a claim by the county seeking reimbursement of Medicaid benefits received by the decedent:

 

Petitioner [Saratoga County Department of Social Services] asserts priority pursuant to Social Services Law § 104 (1), which provides, in relevant part, that “[i]n all claims of the public welfare official made under [such] section[,] the public welfare official shall be deemed a preferred creditor” (emphasis added). “Preferred creditor” has been construed to give a social services department priority over a “general creditor, that is, a creditor that, upon giving credit, takes no rights against specific property of a debtor” … . Here, Wells Fargo holds a mortgage lien against the Rotterdam property that was recorded prior to the May 2014 decree of Surrogate's Court validating petitioner's claim. Although Medicaid assistance was provided to decedent before the mortgage was given, petitioner did not have a prior lien against the property (see Social Services Law § 369 [2] [a]). As such, we conclude that Wells Fargo's prior specific lien gives it priority over petitioner's claim with respect to the … property … . Matter of Shambo, 2016 NY Slip Op 02699, 3rd Dept 4-7-16


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TRUST WHICH ALLOWED PETITIONER’S CHILDREN TO DISTRIBUTE PRINCIPAL TO PETITIONER RENDERED PETITIONER INELIGIBLE FOR MEDICAID, DESPITE CHILDREN’S REFUSAL TO MAKE A DISTRIBUTION.

The Fourth Department confirmed the Department of Health’s finding that a trust which allowed petitioner’s children to distribute the principal to her rendered petitioner ineligible for Medicaid benefits, despite the children’s refusal to make a distribution:

 

… [W]e conclude that the agency’s determination, which is based on its conclusion that the principal of a trust of which petitioner is a beneficiary is an “available resource,” is supported by substantial evidence and is not affected by an error of law. The trust at issue grants petitioner’s children, as cotrustees, “the authority to distribute so much of the principal to [petitioner that they,] in their sole discretion, deem advisable to provide for [petitioner’s] health, maintenance and welfare.” Because the principal of the trust may, in the discretion of petitioner’s children, be paid for petitioner’s benefit, the agency did not err in concluding that the principal of the trust is an available resource for purposes of petitioner’s Medicaid eligibility determination (see 18 NYCRR 360-4.5 [b] [1] [ii]…), despite the fact that her children refuse to exercise their discretion to make such payments of principal. Matter of Flannery v Zucker, 2016 NY Slip Op 01075, 4th Dept 2-11-16

 

MEDICAID (TRUST WHICH ALLOWED CHILDREN TO MAKE DISTRIBUTIONS TO PETITIONER RENDERED HER INELIGIBLE FOR MEDICAID, DESPITE CHILDREN’S REFUSAL TO MAKE SUCH A DISTRIBUTION)/TRUSTS AND ESTATES (MEDICAID, TRUST WHICH ALLOWED CHILDREN TO MAKE DISTRIBUTIONS TO PETITIONER RENDERED HER INELIGIBLE FOR MEDICAID, DESPITE CHILDREN’S REFUSAL TO MAKE SUCH A DISTRIBUTION)

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Transfer of Assets to Qualify for Medicaid Constituted a Breach of the Defendants’ Contract with Plaintiff Continuing Care Retirement Community

The Third Department, in a full-fledged opinion by Justice Lynch, determined the defendants’ (the Yezzis’) transfer of funds in order to qualify for Medicaid constituted a breach of the contract with the plaintiff (GSV), a continuing care retirement community (CCRC), as well as a fraudulent transfer under the Debtor-Creditor Law:

… [T]he essence of the CCRC financial model requires a tradeoff between the resident and the facility, in which the resident must disclose and spend his or her assets for the services provided, while the facility must continue to provide those services for the duration of the resident’s lifetime even after private funds are exhausted and Medicaid becomes the only source of payment. With this long-term commitment, the facility necessarily must evaluate the financial feasibility of accepting a resident in the first instance.

Pertinent here, the contract provided that the Yezzis could “not transfer assets represented as available in [their] application to be a [r]esident of [GSV] for less than fair market value, unless the transfer [would] not impair [their] ability to pay [their] financial obligations to [GSV].” The contract further required the Yezzis to “make every reasonable effort to meet [their] financial obligations” to GSV and prohibited them from making “any transfers or gifts after actual occupancy, which would substantially impair [their] ability or the ability of [their] estate to satisfy [their] financial obligations to [GSV].” Further, the contract specifies that the financial information disclosed with their application was “a material part of this [contract], . . . [that was] incorporated as a part of this [contract].” Although, as defendants correctly contend, the contract does not affirmatively state that the Yezzis must expend the private resources identified with their application, it does expressly preclude the transfer of such resources without fair consideration.

Given the long-term nature of the contract, which expressly embraced the prospect of nursing facility care, we agree with Supreme Court that the admission agreement is supplemental to, and does not supercede, the contract. We recognize that, under the admission agreement, the Yezzis were required to “pay for, or arrange to have paid for by Medicaid, . . . all services provided by [GSV]” (emphasis added). We are not, however, persuaded by defendants’ interpretation that this disjunctive provision required plaintiff to accept Medicaid as an alternative payment source. Construed together, the contract and admission agreement are actually compatible in that the CCRC financial model anticipates that, upon depletion of a resident’s personal resources, Medicaid will be the ultimate source of payment — and plaintiff is contractually obligated to accept Medicaid while continuing to provide the same services. Consistently, addendum X to the admission agreement specifies that, “[i]t is the responsibility of residents, and those who assist them, to use the residents’ assets and income to pay the costs associated with their residency and health care.” Good Shepherd Vil. at Endwell, Inc. v Yezzi, 2015 NY Slip Op 08031, 3rd Dept 11-5-15

 

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Substantial Evidence Did Not Support Department of Health’s Finding that Property Transfers Rendered Petitioner Ineligible for Medicaid Benefits

The Second Department annulled the Department of Health’s (DOH’s) finding that petitioner was ineligible for Medicaid benefits based on transfers of property made well before she exhibited signs of dementia. The court explained the analytical criteria:

In reviewing a Medicaid eligibility determination made after a fair hearing, the court must review the record as a whole to determine if the agency’s decisions are supported by substantial evidence and are not affected by an error of law … . Substantial evidence has been defined as “such relevant proof as a reasonable mind may accept as adequate to support a conclusion or ultimate fact” … . While the level of proof is less than a preponderance of the evidence, substantial evidence does not arise from bare surmise, conjecture, speculation, or rumor (see id. at 180), or from the absence of evidence supporting a contrary conclusion … . When determining Medicaid eligibility, an agency is required to “look back” for a period of 60 months immediately preceding the first date the applicant was both “institutionalized” and had applied for Medicaid benefits to determine if any asset transfers were uncompensated or made for less than fair market value (42 USC § 1396p[c][1][A], [B]; Social Services Law § 366[5][e][1][vi]). If such a transfer was made during that period, the applicant may become ineligible for Medicaid benefits for a specified period of time (see 42 USC § 1396p[c][1][A], [E]; Social Services Law § 366[5][e][3]), unless there is a “satisfactory showing” that, inter alia, the assets were transferred exclusively for a purpose other than to qualify for medical assistance (42 USC § 1396p[c][2][C][i], [iii]; Social Services Law § 366[5][e][4][iii]). It is the petitioner’s burden to rebut the presumption that the transfer of funds was motivated, in part if not in whole, by anticipation of a future need to qualify for medical assistance … .

Here, the evidence at the fair hearing showed that the latest of the subject transfers was made approximately two years before the petitioner started to exhibit signs of dementia. At the time of the transfers and in the years preceding her need for nursing home care, the petitioner was in good health and living independently. She was driving, cooking, exercising, and paying her own bills. The transfers themselves constituted gifts to her relatives, and the petitioner still had more than $250,000, not including Social Security benefits, following the transfers. Under these circumstances, the petitioner met her burden of rebutting the presumption that the subject transfers were motivated by the anticipation of a future need to qualify for medical assistance … . Matter of Sandoval v Shah, 2015 NY Slip Op 07034, 2nd Dept 9-30-15

 

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Prior Owner of a Nursing Home Did Not Have Standing to Seek Payments from Medicaid for the Period During His Ownership—Only the Current Owner/Operator of the Nursing Home Had Standing

The Third Department determined petitioner, the former owner of a nursing home, did not have standing to seek payments from Medicaid for the period before petitioner sold the nursing home.  Only the current operator of the nursing home has standing to seek Medicaid payments. The court noted that petitioner had protected his interest in the payments by contract with the new owner of the nursing home:

Standing requires a party to demonstrate both an injury-in-fact and an injury falling “within the zone of interests or concerns sought to be promoted or protected by the statutory provision under which the agency has acted” … . Petitioner has clearly demonstrated an injury-in-fact particularly since it initiated the rate appeal while it was still the owner/operator … . The more difficult question is whether petitioner meets the zone of interests component as a former owner/operator. Our review shows that the governing statute and regulations contemplate the payment of Medicaid reimbursement to the current provider of medical services or the current operator of a nursing home facility. Specifically, Social Services Law § 367-a (1) (a) mandates that all payments “shall be made to the person, institution, state department or agency or municipality supplying such medical assistance” and expressly prohibits the assignment of a reimbursement claim to a third party. This legislation was designed to “relieve DOH from the potential liability and increased administrative burdens involved in such assignments” (Legislative Mem, 1971 McKinney’s Session Laws of NY at 2419-2420…). Correspondingly, nursing home facilities qualify for Medicaid payments provided that they possess a valid operating certificate issued by the Commissioner (see Public Health Law § 2801 [2], [3], [4] [b]; 10 NYCRR 86-2.1 [a]). An operating certificate “shall only be used by the established operator for the designated site or operation” (10 NYCRR 401.2 [b]). When, as here, the owner/operator sells a facility to a party who intends to continue operating the facility, it may transfer the operating certificate to the new operator only upon approval of the Public Health Council (see 10 NYCRR 401.3 [c]). Read together, these provisions establish that it is the current operator of a nursing home facility — i.e., the holder of a valid operating certificate — that is entitled to receive Medicaid payments and, thus, is the protected party within the statutory zone of interest. Matter of Park Manor Rehabilitation & Health Care Ctr., LLC v Shah, 2015 NY Slip Op 04909, 3rd Dept 6-11-15

 

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Exclusion from Coverage of Claims Brought By or On Behalf of a Governmental Entity Applied to a Qui Tam Case Brought by a Private Party Pursuant to the Federal and State False Claims Acts Re: Medicare and Medicaid Over-Billing—the Private Party (“Relator”) Is Bringing the Action On Behalf of the Government, Which Is the Real Party In Interest

The First Department determined that the insurer’s motion for a declaration it was not obligated to pay for defendant’s defense in a lawsuit under the Federal False Claim Act alleging excessive Medicare and Medicaid billing.  As allowed under the Act, the suit was brought by a private party, called a “relator.”  The policy excluded coverage for any and claim “Brought by or on behalf of the Federal Trade Commission, the Federal Communications Commission, or any federal, state, local or foreign governmental entity, in such entity’s regulatory or official capacity.”  Supreme Court determined the exclusion did not apply because the suit was brought by a private party.  However, pursuant to the terms of the False Claim Act, the action brought on behalf of the government by the relator and the government is the real party in interest:

An action brought under the False Claims Act may be commenced in one of two ways. First, the federal government itself may bring a civil action against a defendant (31 USC § 3730[a]). Second, as is the case here, a private person, or “relator” may bring a qui tam action “for the person and for the United States Government,” against the defendant, “in the name of the Government” (id. at [b][1]). Under such circumstances, the government may elect to intervene, and if it recovers a judgment, the relator receives a percentage of the award (id. at [d][1]). If the government declines to intervene, as in the case here, the relator may pursue the action and may receive as much as 30 percent of any judgment rendered (see id. at [d][2]).

While relators indisputably have a stake in the outcome of False Claims Act qui tam cases that they initiate, “the Government remains the real party in interest in any such action” … . As the Second Circuit has explained:

“All of the acts that make a person liable under [the False Claims Act] focus on the use of fraud to secure payment from the government. It is the government that has been injured by the presentation of such claims; it is in the government’s name that the action must be brought; it is the government’s injury that provides the measure for the damages that are to be trebled; and it is the government that must receive the lion’s share-at least 70%-of any recovery.” Certain Underwriters at Lloyd’s London Subscribing to Policy No. QK0903325 v Huron Consulting Group, Inc., 2015 NY Slip Op 03608, 1st Dept 4-30-15

 

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Loan to Grandson Was Not Made In Anticipation of the Need to Qualify for Medical Assistance

The Second Department determined the Department of Health’s (DOH’s) finding that the petitioner’s husband did not intend to transfer assets for valuable consideration was not supported by substantial evidence. Petitioner’s husband had loaned $200,000 to his grandson, and the grandson was making regular payments on the loan. The court explained the relevant law:

“In reviewing a Medicaid eligibility determination made after a fair hearing, the court must review the record, as a whole, to determine if the agency’s decisions are supported by substantial evidence and are not affected by an error of law” … . Substantial evidence has been defined as “such relevant proof as a reasonable mind may accept as adequate to support a conclusion or ultimate fact” … . While the level of proof is less than a preponderance of the evidence, substantial evidence does not arise from bare surmise, conjecture, speculation, or rumor …, or from the absence of evidence supporting a contrary conclusion … .

When determining Medicaid eligibility, an agency is required to “look back” for a period of 60 months immediately preceding the first date the applicant was both “institutionalized” and had applied for Medicaid benefits, to determine if any asset transfers were uncompensated or made for less than fair market value (42 USC § 1396p[c][1][A], [B]; Social Services Law § 366[5][e][1][vi]). If such a transfer was made during that period, the applicant may become ineligible for Medicaid benefits for a specified period of time (see 42 USC § 1396p[c][1][A], [E]; Social Services Law § 366[5][e][3]), unless there is a “satisfactory showing” that the applicant or the applicant’s spouse intended to dispose of the assets at fair market value or for valuable consideration, the assets were transferred exclusively for a purpose other than to qualify for medical assistance, or all assets transferred for less than fair market value have been returned to the applicant (42 USC § 1396p[c][2][C][i], [iii]; Social Services Law § 366[5][e][4][iii]). It is the petitioner’s burden to rebut the presumption that the transfer of funds was motivated, in part if not in whole, by anticipation of a future need to qualify for medical assistance … .

Applying these rules here, the DOH’s determination that the petitioner failed to make a satisfactory showing that her husband intended to transfer the assets for valuable consideration is not supported by substantial evidence. The petitioner correctly concedes that the loan was not made for fair market value since the payments due under the original note and the amended note are not actuarially sound in light of the note’s 15-year repayment term and the age of the petitioner and her husband (see 42 USC § 1396p[c][1][I]). However, the evidence adduced at the fair hearing rebutted the presumption that the transfer was motivated by anticipation of a future need to qualify for medical assistance … . In this regard, the petitioner’s husband stated that he entered into the loan agreement in order to create a source of income. The petitioner demonstrated that the loan was documented by the note and the amended note, that the petitioner’s husband received a stream of income from the loan by way of the monthly payments, and that the note provided a significantly greater rate of return than the one or two percent interest rate that the petitioner’s husband could have obtained from a bank at the time. In addition, there was evidence at the fair hearing that some of the petitioner’s assets had previously been loaned to her family members and that those loans were fully repaid. Morever, the letter from the petitioner’s physician supported her claim that she was in good health at the time of the loan, and that she only required Medicaid after she fell and broke her hip. Furthermore, the petitioner’s grandson and his wife averred that they were unable to immediately repay the entire loan because they used the loaned sum to renovate their home. Matter of Rivera v Blass, 2015 NY Slip Op 02768, 2nd Dept 4-1-15

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Municipalities (Counties) Are Not “Persons” and Therefore Cannot Challenge a Statute on Due Process Grounds

The Fourth Department determined municipalities are not “persons” and cannot sue under the due process clause of the US or New York Constitutions to declare a statute unconstitutional.  Here the counties sought to have a law prohibiting reimbursement for certain Medicaid expenses (section 61) overturned:

Here, petitioners contend that respondents’ enactment of section 61 impermissibly deprived them of vested rights to repayment under Social Services Law § 368-a, in violation of their rights under the due process clauses of the federal and state constitutions. The Fourteenth Amendment of the United States Constitution provides in relevant part that “[n]o State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law.” Similarly, article I, § 6 of the New York State Constitution provides in relevant part that “[n]o person shall be deprived of life, liberty or property without due process of law.” Thus, the constitutional provisions share a common link, i.e., they protect a “person” (id.; see US Const, 14th Amend, § 1).

Contrary to petitioners’ contentions, we conclude that they are not persons within the meaning of the constitutional due process provisions. This principle was stated clearly by the United States Court of Appeals for the Seventh Circuit, which concluded that “[m]unicipalities cannot challenge state action on federal constitutional grounds because they are not persons’ within the meaning of the Due Process Clause” (City of East St. Louis v Circuit Court for Twentieth Judicial Circuit, St. Clair County, Ill., 986 F2d 1142, 1144). Other decisions, without using the term “person,” also support the conclusion that a municipal body may not use the due process clause to challenge legislation of the municipality’s creating state. Thus, “[i]t has long been the case that a municipality may not invoke the protections of the Fourteenth Amendment against its own state . . . A municipality is thus prevented from attacking state legislation on the grounds that the law violates the municipality’s own rights . . . Moreover, while municipalities or other state political subdivisions may challenge the constitutionality of state legislation on certain grounds and in certain circumstances, these do not include challenges brought under the Due Process . . . Clause[] of the Fourteenth Amendment . . . This is because a municipal corporation, in its own right, receives no protection from the . . . Due Process Clause[] vis-a-vis its creating state’ ” … . Matter of County of Chautauqua v Shah, 2015 NY Slip Op 02245, 4th Dept 3-20-15

 

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