Successful Litigation Impacting Future Medicaid Payments

Stotler Hayes Group Attorney, Nathan Peters, presented at the Texas Healthcare Association’s Board of Directors meeting on August 21st, 2019. Nathan shared two updates on how Stotler Hayes Group’s (SHG) Texas-based attorneys are successfully fighting to recover every Medicaid dollar available for our clients, and all Texas providers. SHG attorneys have litigated two major issues with the Texas Health and Human Services Commission (THHSC) and both could significantly impact future Medicaid payments in Texas. The issues the cases have dealt with include (1) the THHSC’s denial of an application for failing to exclude inaccessible resources for incapacitated Medicaid Applicants and (2) THHSC’s improper restrictions on Incurred Medical Expenses (IME). By some estimates, the IME payments could alone boost Medicaid provider payments over $40 million annually.

Unlike some state Medicaid agencies, THHSC previously refusing to exclude certain resources when reviewing Medicaid applications for incapacitated individuals. This policy is leading to a significant loss in payments for providers, because affected providers are left without a payor source until the incapacitated resident can secure a guardian with the authority to spend down their resources. Unfortunately for these providers, securing a guardian and spending down resources for incapacitated individuals is often a lengthy and complicated process. However, SHG’s recent victory in the case of Tex. HHS Comm’n v. Marroney, 2019 Tex. App. LEXIS 4298, 2019 WL 2237885 (Tex. App. – Austin May 24, 2019, Pet. Denied) should lead the THHSC to change its policy and start excluding inaccessible resources for incapacitated residents.

THHSC v. Marroney

Ms. Marroney was totally incapacitated and did not have a legal agent or POA when she was admitted to a nursing home in the DFW Metroplex. THHSC denied her Medicaid applications after they discovered that Ms. Marroney owned three whole life insurance policies with a cash surrender value of about $7,000.00. SHG filed for the appointment of a guardian of the person and estate. The Probate Court, wanting to explore lesser restrictive alternatives to guardianship prior to appointing a guardian, first appointed a Guardian ad Litem (GAL) to seek to liquidate Ms. Marroney’s life insurance policies. The GAL was unable to liquidate the insurance policies. After realizing that a lesser restrictive alternative was unavailable to avoid the need for guardianship, SHG, with cooperation of the Probate Court and Attorney ad Litem, filed an Application for Appointment of a Temporary Guardian of the Estate to liquidate and spend down the cash surrender values of the policies. Until those policies were liquidated and spent down, Ms. Marroney received no Medicaid benefits to pay for the cost of her care. THHSC approved Medicaid benefits the first month after the spend down was complete.

After exhausting the administrative remedies through the THHSC Hearing Officer and Administrative Review, both of which upheld the THHSC’s Denial of Ms. Marroney’s applications, SHG successfully petitioned the District Court of Travis County to enter judgment reversing THHSC’s final administrative decision. The Texas Third Court of Appeals in Austin affirmed the District Court’s decision on May 24, 2019. The court of appeals justices unanimously held that because neither Ms. Marroney, nor her representatives could access or spend down the value of her life insurance policies, that the policies could not meet the federal and state definitions for resources for Medicaid eligibility. The Court found no evidence that Ms. Marroney’s assets were available to her while she was incapacitated with no legal agent or guardian. THHSC petitioned the Texas Supreme Court to review the Court of Appeals decision. SHG filed the response on behalf of Ms. Marroney, and the THHSC’s petition was denied by the Supreme Court on January 17, 2020, making the Court of Appeals’ decision final. This success will have enormous implications for all LTC providers in Texas—facilities should no longer have to wait for a guardian to be appointed and excess assets spent down before incapacitated residents could qualify for Nursing Facility Medicaid benefits. SHG is currently working with the THHSC to revise its policy on this issue.

Incurred Medical Expenses

THHSC’s current policy is to deny the deduction of Incurred Medical Expenses (IME) for nursing home room and board (“Vendor Payments”) from patient liability and applied income calculations. This THHSC policy is inconsistent with the Texas State Medicaid Plan, federal Medicaid laws and regulations, and Centers for Medicare Services’ Medicaid policies. The policy is also inconsistent with how most states treat IME—most states allow IME, subject to certain time limitations or event no limitations. THHSC is specifically denying unpaid room and board costs incurred during the three months prior to the approval of Medicaid benefits, and during those months, applicants were not eligible for Medicaid, usually due to excess resources or income while the applicant and representatives work to spend down excess assets or create a Qualified Income Trust to manage excess income. Unfortunately, the policy allows THHSC to withhold an estimated $43 million in IME payments from Texas providers each year.

SHG attorneys brought this issue to the attention of THHSC and CMS in 2015 and demanded that they issue a “Corrective Action Letter” to THHSC. After THHSC failed to amend their IME policies, CMS finally issued a Corrective Action Letter to THHSC in 2019 and threatened to withhold portions of the Medicaid funding until THHSC corrected its policies. THHSC has since appealed the Corrective Action Letter and requested a CMS hearing. SHG was granted permission to participate in the hearing as amicus curiae (a “friend of the court” who can offer additional information to help a court make its decision), and we have submitted an amicus curiae brief to the CMS Hearing Officer on behalf of our Texas clients.

The THHSC and CMS agreed that the CMS Hearing Officer could decide the issue on the merits of the briefs submitted by all parties. The briefs and the issue remains pending before the CMS Hearing Officer and Administrator for issuance of a final decision. If the CMS Administrator issues the decision denying the THHSC’s appeal and enforcing federal law, Texas’ state plan, and CMS policy, THHSC will lose federal funding for Medicaid unless its takes corrective action to amend its policy on IME and stop denying the deduction of room and board costs incurred during the three months prior to an application for Medicaid benefits.

For more information, please contact Stotler Hayes Group.

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