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Court of Appeals Upends Medicaid Caregiver Policy

I started out calling this post, “Court of Appeals Confuses Medicaid Caregiver Policy” – but having reread the case, “Upends” seems to be a more accurate description. The case is Jensen v Department of Human ServicesClick here to read the opinion.  The only good thing about the case is that it is unpublished (not that this will stop the Department from asserting it as settled law).

The history of the case is that caregiving services were provided to an impaired adult by unrelated person under an informal oral agreement.  The caregiver was paid $19,000 for the period before the impaired adult required nursing home placement.  When the Medicaid application was filed, the payment to the non-family caregiver was deemed divestment.  The applicant appealed, and lost at the administrative level, and then appealed to Circuit Court where the divestment penalty was set aside.  The State sought leave to appeal to the Court of Appeals, which leave was granted, resulting in this decision.

The history of the issue is that several years ago DHS initiated a policy to address when payments to caregivers could be treated as divestment.   The department obviously thought some of the strategies being used at that time were abusive.  The reaction from DHS was two-fold.  One policy was implemented to preclude the advance lump sum payment contracts being made to maintain homes after someone qualified for nursing home care.  The second, and more draconian, was implemented to address caregiving provided by family members, and to treat those payments as divestment unless certain very restrictive requirements were met prior to the start of such services.  These policies are recited in the case, and can be found in the BEMs.

In Jensen, the Court of Appeals confuses and combines these two separate policies, and the result is that contracts with non-family caregivers are subject to the same treatment as contracts with family caregivers.  The result appears to be that all payments for caregiving services provided to persons who subsequently apply for long term care Medicaid benefits will be subject to divestment penalties unless the contracts comply with the lengthy and cumbersome requirements of the DHS policy which were initially intended only to impact family caregivers.  And yes, that would include professional homecare companies.

Where we go from here is anyone’s guess.  The Department could simply choose not to impose penalties on persons who hired professional care agencies to provide services.  To me that seems likely. I don’t believe the State wants to undermine its victory by engaging in a losing battle with the homecare industry.  Another possibility is that another case will be brought with the hope of having the Court of Appeals revisit this opinion.  The Elder Law Section, State NAELA section or another interested party, may want to pursue relief at the Federal or State level.  In any event, for the moment, Houston, we have a problem.  I am not aware whether the parties involved have sought leave to the Michigan Supreme Court,  if the Supreme Court would consider hearing such a matter, or if the record is adequate so that if such leave were granted, success would be likely.

I do note, and this is very unusual in the many Court of Appeals cases I’ve read, the Court of Appeals panel prefaces their opinion as follows:  “Were we permitted to review the facts de novo, we likely would have reached a different decision than the Department of Human Services (DHS) regarding the petitioner’s Medicaid eligibility.”  Perhaps some hope of reprieve lies in this statement.

What we learned about hogs and pigs from the SBO experience

On the topic of Medicaid planning, John Bos used to famously comment at ICLE programs that “pigs get fat and hogs get slaughtered.”  The idea was that in engaging Medicaid planning strategies, those who pushed the envelope too far, were going to get hammered.  The Department, in those yesteryears, the phrase implied, would only be pushed so far and those who pushed beyond that point did so that their own risk and the risk of their clients.  To some extent this concept is similar to the old legal adage:  bad facts make bad law.

I have heard two stories about how the attack on SBO trusts came about.  I heard one story that the topic came up at a cocktail party and someone with knowledge described to someone of authority at the State a particular case in which and SBO trust was used to shelter millions of dollars.  Another story I heard is that a State formed panel which did a comprehensive review of the SBO issue and calculated the total amount of assets placed in SBO trusts during a single year, and came up with an astounding figure.  I don’t know which, either or if both are true.

Both stories suggest the same thing, either an individual practitioner or the body of planners as a group, pushed the state too far and they reacted.

In discussing the evolution of the SBO situation with a friend and colleague of many years, he said: These days it’s more like “pigs get fat and hogs slaughter all of us.”  His comment gave me pause.

The truth is that there are so many more attorneys planning today, and the Department, and its representatives in the Attorney General’s Office, is/are so much more aware of what we are doing than was the case in years past.  John’s familiar phrase lingers on, and reminds us of the risks we take when we push the envelope.  But it is also true that things we do as a group can no longer slip through the cracks in the process.  In years past, many fewer attorneys were offering advice on this topic, and only a small percentage of Medicaid applicants were taking advantage of planning strategies.   The playing field has changed. Today, when a “good idea” emerges, it is almost immediately implemented by practitioners in hundreds or thousands of cases, and the combined impact of those efforts will sooner or later become an issue in the minds of those who see their role as protecting the public resources.  Without arguing which side wears the white hat, it is interesting that this evolution has occurred.

Atul Gawande and Estate Planning

My friend and colleague, Fred Rolf, recently sent several of the lawyers in our firm a copy of Atul Gawande’s book: Being Mortal. Although Dr. Gawande writes about the medical community, the book was stunningly relevant to me as an estate planning attorney. If you work in the aging industry and you haven’t read the book, I highly encourage you to do so.

Some years ago, I was invited to speak to the Heckerling Institute about what I called a “King Lear Trust” – a Trust Agreement that directed that assets be used primarily for quality of care, and that asset protection concerns of the next generation not be weighed into decisions about care choices. It was, I now realize, a rough first step at incorporating concepts that Dr. Gawande articulates, into an estate plan. Dr. Gawande’s book has given me renewed insight and enthusiasm about these kinds of trust provisions, and renewed impetus to expand on what I started, call it King Lear 2.0.

So now I’m working on two new provisions to be offered to estate planning clients. They will be called: “My Care” and “My Death”. Both sections will address the extent to which the client wants to be cared for in an institution. “My Care” will be about receiving institutional care during periods of impairment. If the client wants to dissipate their resources on care in the community, they will have a place to make that expression. Likewise, in “My Death,” the client will have the ability to express their preference to die at home, notwithstanding medical advice or financial costs.

These expressions will, of course, need to be coordinated with language and nominations in other documents; including, most critically, the client’s patient advocate designation. But having the language in their Trust will give it teeth, committing the client’s assets to these expenses, and clarifying that their resources should be used first to achieve their quality of care (and quality of death) directives. The Trust can also include provisions that financially reward those family members who facilitate these objectives, and penalize those who interfere with them.

So thanks to Fred and thanks to Dr. Gawande!

Good Guys Win Financial Exploitation Case

Frances and Elizabeth Stafford were sisters in the Bay City area. When Elizabeth died, her trust continued for the benefit of Frances. Frances was a vulnerable adult, physically and cognitively impaired. Her trusted financial advisor of many years was Trustee over Elizabeth’s Trust.

We were hired by the beneficiaries when, after Frances died, evidence of misappropriation came to light. We first acted to remove the Trustee and appoint a CPA as successor Trustee, who conducted a forensic review of the accounts and came to the conclusion that the prior Trustee had misappropriated over $500,000 for his personal benefit.

The case was assigned to Judge Sheeran in Bay County Circuit Court (although originally a probate file, due to various procedural issues and the retirement of Judge Tighe, Judge Sheeran took the case).

The case was interesting in several respects, including the assertion by the defendant Trustee of his 5th amendment right not to make self-incriminating statements.

On February 4, 2015, the Court conducted a hearing on our motion for summary disposition. In addition to seeking recovery of the misappropriated $500,000, we requested treble damages pursuant to MCL 600.2919a. This was granted and the final verdict was for $1,539,634.71, plus interest.

Thanks to Judge Sheeran for his handling of this matter. Thanks to the successor Trustee, Michael Zimmerman, C.P.A. of Yeo and Yeo. Thanks to our fantastic litigation team, including, but not limited to: Nancy Theis, Joe Weiler, Drummond Black, Dan Hilker, Phil Harter, Julianne MacDonald, Rita Athanasion and Romani Schrems.