Health Law Brief: Gauthier v. Director of the Office of Medicaid, 80 Mass. App. Ct. 777 (2011)

By Matthew S. Buehler

The Massachusetts Medicaid plan, MassHealth, pays for nurs­ing home care received by individ­uals who have less than $2,000 in assets and meet certain other criteria.1 This creates an incen­tive, however, for individuals to give away their assets to friends and families in order to qualify for nursing home benefits. To mini­mize this incentive, MassHealth reviews asset transfers made by an applicant. 2 The Appeals Court in Gauthier v. Director of the Of­fice of Medicaid, 80 Mass. App. Ct. 777 (2011), reviewed such an asset transfer in the form of a care agreement.

Specifically, the plaintiff in Gauth­ier entered into a care agree­ment with her son whereby she transferred all of her assets to him. The plaintiff applied to MassHealth roughly two years later for nursing home benefits. MassHealth, however, found that the care agreement was a dis­qualifying asset transfer.

MassHealth reviews all asset transfers made an applicant for nursing home benefits within the five years preceding the applica­tion. If MassHealth determines that an applicant has made a “disqualifying transfer” of assets during that period, it imposes a period of ineligibility before the applicant can receive benefits.3

A contract for future care (such as the agreement between the plain­tiff and her son) is “a disqualify­ing transfer of assets to the ex­tent that the transaction does not have an ascertainable fair-market value or if the transaction is not embodied in a valid contract that is legally and reasonably enforce­able by the applicant.”4 However, even if a disqualifying transfer has occurred, no ineligibility peri­od will be imposed if the applicant “demonstrates to the MassHealth agency’s satisfaction that (1) the resources were transferred exclu­sively for a purpose other than to qualify for MassHealth; or (2) the [applicant] intended to dispose of the resource at either fair-market value or for other valuable con­sideration. Valuable consider­ation is a tangible benefit equal to at least the fair-market value of the transferred resource.”5

The ineligibility period (in months) imposed for a disqualifying trans­fer of assets is “equal to the to­tal, cumulative, uncompensated value … of all resources trans­ferred … divided by the average monthly cost to a private patient receiving nursing-facility services in … Massachusetts at the time of application, as determined by the MassHealth agency.”6 The “uncompensated value” of a re­source is defined as “the differ­ence between the fair-market value of the resource ,,, at the time of transfer … and the actual amount the individual received.”7 Fair market value is “an esti­mate of the value of a resource if sold at the prevailing price.” 8

The plaintiff suffered from Al­zheimer’s disease. By Septem­ber 2004, when the plaintiff was 79 years old, her condition had reached the point where she could no longer live alone and she moved in with her son and his wife (the plaintiff’s daughter-in-law). The son and daughter-in-law subsequently renovated their home and built a living area for the plaintiff. In March 2006, the plaintiff entered into a Care Agreement (“the Agreement”) with her son. Under the Agree­ment, the son agreed to provide the plaintiff with lodging, 3 meals a day and weekly houseclean­ing and laundry services. In re­turn, the plaintiff agreed to pay $225,000 up-front to her son.

After 90 days, the son had the right to terminate the Agreement for “good and sufficient cause” and keep any payments. “Good and sufficient cause” was de­fined to include if the plaintiff could no longer care for her per­sonal needs, including bathing or dressing herself. The Agreement remained in effect over 2 years until the son terminated it in May 2008 after he had back surgery and could no longer lift the plain­tiff. At that time, the plaintiff had paid $182,000 to her son and did not have any further assets.

Upon termination of the Agree­ment, the plaintiff moved into a nursing home and applied for MassHealth benefits. MassHealth though denied her application on the ground that the Agreement was a disqualifying transfer. The plaintiff appealed the denial of MassHealth benefits with the Of­fice of Medicaid Board of Hear­ings. After a hearing, the agency Hearing Officer upheld the denial of benefits.

In particular, the Hearing Officer found that the plaintiff’s payment of $182,000 to her son was a dis­qualifying transfer as the Agree­ment had no fair-market value. The Hearing Officer further found the payment was made at least in part to qualify for MassHealth. As a result, the plaintiff was in­eligible for nursing home benefits for 682 days ($182,000 divided by a $267 average daily cost of a private nursing home in Massa­chusetts).

In reviewing the Hearing Officer’s decision, the Appeals Court first upheld the finding that the Agree­ment was a disqualifying trans­fer.9 Fair-market value is deter­mined by reviewing the value of what the applicant received at the time of transfer.10 At the time of its execution, however, the Agreement was ambiguous as to how long the son would care for the plaintiff and what care she would receive. The Agreement did not have a set duration and lacked benchmarks for care pro­vided. The Agreement instead only required the son to care for the plaintiff as much he could for as long as he could.11

Moreover, the plaintiff was al­ready in failing health in March 2006 due to Alzheimer’s and needed one-on-one supervision. As a result, the son literally could have terminated the Agreement at any time. The son did provide a newly built living area to the plaintiff but he retained title to it. The son further controlled how long the plaintiff could live there as he could cancel the Agreement without having to make a refund. These factors provided sub­stantial evidence to support the Hearing Officer’s finding that the Agreement did not, at the time of its execution, have an ascertain­able fair market and hence was a disqualifying transfer.12

The Appeals Court next reviewed the Hearing Officer’s finding that the plaintiff entered into the Agreement at least in part in or­der to qualify for MassHealth. MassHealth provides an excep­tion for transfers made solely for another purpose than qualifying for benefits. 13 To qualify for this exception, an applicant must provide more than verbal assur­ances as to his or her intent. An applicant must instead prove his or her intent through convincing evidence.14 The Appeals Court found that substantial evidence supported the finding that the plaintiff did not meet this burden.

The plaintiff was already in fail­ing health when she executed the Agreement. The Agreement thus contemplated a possible future where the plaintiff would need more care than the son and his wife could provide. At that time, the plaintiff would have no al­ternative but to go to a nursing home, and would have to apply for MassHealth. This supported the conclusion that one purpose of the Agreement was to enable the plaintiff to qualify for MassHealth if and when her son could no lon­ger care for her.15

The Appeals Court found, how­ever, that these facts were in­sufficient to end the inquiry into the intent of the Agreement. MassHealth regulations also pro­vide an exception for transfers where the applicant intended to receive valuable consideration.16 The Appeals Court noted that it was possible that the son intend­ed to give the plaintiff fair consid­eration, even if he believed that she would ultimately have to re­ceive nursing home care. In fact, the son did build a living area for the plaintiff and cared for her un­der the Agreement for nearly two years. The Appeals Court stated that these facts could support a finding that the plaintiff did in­tend to receive fair consideration, although the Hearing Officer did not make any separate findings on this issue. The Appeals Court thus remanded the case for fur­ther findings.17

In addition, the Appeals Court addressed the calculation of the plaintiff’s ineligibility period. The Hearing Officer based the ineligibility period on the entire $182,000 transfer by the plain­tiff. This period is supposed to be based on uncompensated value, i.e., the difference between what the plaintiff paid under the Agree­ment and what it was worth.18 The plaintiff paid $182,000 un­der the Agreement, although, as discussed above, it is difficult to determine the fair market value for what the plaintiff received. The Hearing Officer appears to have treated the Agreement as worthless based on its lack of val­ue when executed. The Hearing Officer also noted, though, that the plaintiff received 22 months of care under the Agreement – and that the average monthly cost of nursing home care was $8,010. The plaintiff thus likely would have paid nearly $182,000 if she spent those 22 months in a nursing home instead.

The Appeals Court noted that MassHealth regulations are un­clear whether uncompensated value is measured at the time of execution or by the services sub­sequently provided under a con­tract. The Court indicated that it preferred calculating the value of the contract based on the value of services actually provided but it declined to make a definitive ruling without more guidance from the agency. Instead, the case was remanded for further findings as to the intent and un­compensated value of the Agree­ment.19 Until then, the value of future care contracts will remain uncertain.

Matthew S. Buehler is a contract Staff Attorney at DentaQuest, LLC. Mr. Buehler’s practice focusses on regulatory compliance and filings and representing the company in administrative proceedings. Mr. Buehler graduated from Suffolk Uni­versity Law School in 1995. Prior to joining DentaQuest, Mr. Buehler worked primarily in the public sector, including the Office of Medicaid and the Office of the Attorney General, Insurance Division. While at the Of­fice of Medicaid, Mr. Buehler brought enforcement actions under the ‘pay­er-of-last-resort’ of the state and fed­eral Medicaid acts and represented the MassHealth program in court proceeding. Mr. Buehler further de­fended administrative appeals of MassHealth audits. While at the At­torney General’s Insurance Division, Mr. Buehler brought enforcement ac­tions under the consumer protection, healthcare and insurance statutes. In addition, Mr. Buehler has worked as an attorney for the Attorney Gen­eral’s Civil Rights Division and the Massachusetts Commission Against Discrimination.

(Endnotes)

1 130 C.M.R. § 519.006.

2 130 C.M.R. §§ 520.018 & 520.019.

3 130 C.M.R. § 520.019.

4 130 C.M.R. § 520.007(J)(4).

5 130 C.M.R. § 520.019(F).

6 130 C.M.R. § 520.019(G)(1).

7 130 C.M.R. § 515.001.

8 130 C.M.R. § 515.001.

9 The plaintiff initially sought judicial review under G.L. c. 30A, § 14(7) of MassHealth’s decision. The Superior Court (Donovan, J.) upheld the denial of benefits and the plaintiff appealed this decision to the state Appeals Court.

10 Forman v. Director of Office of Medicaid, 79 Mass. App. Ct. 218, 224-25.

11 Gauthier, 80 Mass. App. Ct. at 784-85.

12 Gauthier, 80 Mass. App. Ct. at 784-85.

13 130 C.M.R. § 520.019(F)(1).

14 Gauthier, 80 Mass. App. Ct. at 785 (citing State Medicaid Manual).

15 Gauthier, 80 Mass. App. Ct. at 785-86.

16 130 C.M.R. § 520.019(F)(2).

17 Gauthier, 80 Mass. App. Ct. at 786-87.

18 130 C.M.R. § 520.019(G)(1).

19 Gauthier, 80 Mass. App. Ct. at 787-90.

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