This article reprinted from Trusts and Estates Law Section Newsletter. 

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THIS ARTICLE DISCUSSES NEW YORK LAW ONLY

THE CASE DISCUSSED BELOW WAS SUCCESSFUL IN THE LOWER COURT, REVERSED IN THE APPELLATE DIVISION, FIRST DEPARTMENT, AND UPON REARGUMENT, THE APPELLATE DIVISION REVOKED ITS PRIOR DECISION AND WROTE A NEW DECISION.  ALTHOUGH MS. FISHMAN STILL LOST HER APPEAL, THE NEW DECISION SET FORTH THAT THE LAW REQUIRES THAT THE SPOUSE MUST HAVE BOTH SUFFICIENT INCOME AND ASSETS IN ORDER TO MAINTAIN A CAUSE OF ACTION.  THE PRIOR DECISION  APPEARED TO STATE THAT, IF THE SPOUSE HAS SUFFICIENT ASSETS AND NOT SUFFICIENT INCOME, MEDICAID WOULD STILL HAVE A CAUSE OF ACTION.  THEREFORE, THIS DECISION IS MOST HELPFUL TO MANY SPOUSES WHO ARE BEING SUED BY MEDICAID OR POTENTIALLY WOULD BE SUED BY MEDICAID.

MEDICAID, SPOUSAL REFUSAL AND LAWSUITS AGAINST THE SPOUSE

By Jay J. Sangerman* © 2000
www.sangerman.com

Under the New York Medicaid rules, a spouse in the community ("community spouse") is limited in the amount of income and resources she or he is permitted to retain unless the spouse "refuses" to support the spouse in a nursing home ("institutional spouse").1 Therefore, most "community" spouses with income and resources above the allowable amount (presently income of $2,019 and resources of $74,820)2 refuse to pay for their institutionalized spouse's cost of nursing home care.

Assuming that all other financial eligibility requirements are met, Medicaid approves the application, then may sue the community spouse. The suit would seek to recover the amount Medicaid expended, up to the amount of excess income and/or resources possessed by the community spouse.

In Commissioner of the Dept of Social Services of New York v. Fishman,3wherein the Department of Social Services (DSS, now under the Office of Temporary and Disability Assistance) sued the community spouse for $225,651.45, the court dismissed the complaint against the community spouse, pursuant to Civil Practice Law and Rules (CPLR) section 3211(a)(7), due to plaintiff's failure to plead the necessary conditions precedent to suing a community spouse for the institutionalized spouse's cost of care. As a result of Fishman, the investigative procedures and pleadings that Medicaid presently uses in pursuing such lawsuits for recoupment against community spouses may need to change.

DSS lawsuits against community spouses are brought pursuant to Social Services Law sections 101, 102, 104 and 366_3(c).4 Social Services Law section 101 provides, in relevant part, that "the spouse ... of a recipient of public assistance or care ... shall, if of sufficient ability, be responsible for the support of such person." However, Social Services Law section 366(3)(a) provides that "[m]edical assistance shall be furnished to applicants in cases where, although such applicant has a responsible relative [e.g., a spouse] with sufficient income and resources to provide medical assistance . . ., the income and resources of the [spouse] are not available to such applicant because of the ... refusal . . . of such relative to provide necessary care and assistance."

Social Services Law section 366_c(5)(b) states that "[a]n institutionalized spouse shall not be ineligible for medical assistance by reason of excess resources ... if the institutionalized spouse executes an assignment of support from the community spouse in favor of [DSS]." Therefore, an institutional spouse with not more than the Medicaid allowable amount (presently $3,500) is financially eligible for medical assistance even though the community spouse has excess income and resources.

On the other hand, Social Services Law section 366(3)(a) also provides that when the community spouse "refuses" to pay for the care and assistance to the institutionalized spouse, the furnishing of medical assistance by DSS "shall create an implied contract with such relative, and the cost thereof may be recovered from such relative. " DSS argues that Social Services Law sections 101, 102 and 104 give it the statutory authority to bring an action against a community spouse to enforce liability to DSS for reimbursement of expenses which Medicaid paid on behalf of the institutionalized spouse.

Based upon Social Services Law sections 366(3)(a) and 366_c(5)(b), elder law attorneys generally advise community spouses with excess income_and resources to have the institutional spouse apply for medical assistance, even though the community spouse has income and resources in excess of the allowable thresholds. There is generally no loss to the community spouse for taking the risk of a lawsuit and, in fact, there may be a major financial benefit. Medicaid only sues for the amount which it expends. Because the Medicaid rate paid to nursing homes is significantly less than the private pay rate, the community spouse, if sued and required to pay, effectively receives a significant discount (which can be as much as one_third or greater) from the private pay nursing home rate.

The community spouse, therefore, files with Medicaid a statement that he or she "refuses" to support his or her spouse in the institution. Medicaid then requires the institutionalized spouse to sign an assignment of support over to Medicaid. If the institutionalized spouse is not competent, Medicaid requires a doctor's letter setting forth that the institutional spouse lacks mental capacity. Typically, a few months after Medicaid has determined the institutionalized spouse to be eligible for Medicaid, DSS sends a letter to the community spouse demanding payment for the amounts so far expended. If the community spouse does not reply, he or she can expect another such letter and then, months or years later, a summons and complaint.

Craig Case

In In re Craig,5 DSS sued the estate of the deceased community spouse for the recovery of medical assistance paid for the institutionalized spouse. The matter was dismissed due to the fact that the spouse's resources at the time DSS furnished assistance were below the permitted threshold. However, the Court of Appeals stated that "[w]hen medical assistance is furnished to an applicant who has a responsible relative with sufficient income and resources to provide medical assistance, the furnishing of such assistance shall create an implied contract with such relative."6 The Court poignantly noted that the definition of a "responsible relative" under the statute is one with "sufficient ability to pay at the time that the expenses are incurred."7 Therefore, a community spouse is not liable under Social Services Law section 366 if he or she lacked "sufficient ability" (i.e., "sufficient income and resources") "at the time" Medicaid provided such services.

As Craig illustrates, one possible defense against a spousal lawsuit by DSS is that the community spouse lacked either or both sufficient income or sufficient resources at the time Medicaid paid for medical services provided to the institutionalized spouse. For instance, in Steuben County Dept. of Social Services v, Deats,8 DSS sued the parent of a minor child to recoup payments which it made for the child's medical care. DSS argued that, pursuant to Social Services Law section 366(3)(a), an implied contract was created between DSS and Mr. Deats when DSS rendered medical assistance to his son.

The Court of Appeals disagreed with DSS and held that "no such implied contract is created under section 366(3)(a) where the responsible relative is without sufficient income and resources at the time the department furnishes the assistance."9 The Court found that Mr. Deats did not possess either sufficient income or sufficient resources at the time of DSS's medical assistance to his son. As a result, the Court held that Mr. Deats was under no obligation to reimburse DSS.

In other words, an indispensable condition precedent to DSS's establishing the creation of an implied contract between itself and a responsible relative is a showing that the responsible relative had both sufficient income and sufficient resources at the time DSS paid for such services.

Spousal lawsuits by DSS have been more prevalent since late 1993 and 1994. In 1993, the Social Security Act was amended to provide that when Medicaid payments have been made under the State Plan and a third party has a legal responsibility to pay for health care items or services furnished to an individual, "the State Plan is required to 'take all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services available under the plan.

As set forth recently by the Court of Appeals in Cricchid v, Pennisi, recoupment from a responsible third party "is necessary to ensure that the Medicaid program remains 'the payor of last resort.'"" Based upon this mandate, as well as language in Craig and Steuben, community spouses with excess resources and excess income should expect to be sued by DSS for payments by Medicaid.

Spellman Case

In the recent First Department decision of Commissioner of the Dept. of Social Services of New York v. Spellman,12 DSS sued Mr. Spellman on the theory of implied contract. He had refused to provide for his wife's care in a nursing home. Pursuant to the DSS requirements, he had completed a spousal refusal form. DSS's Office of Revenue and Investigation determined that Mr. Spellman had resources exceeding the statutory allowable resource level and asked him to pay for his wife's care. He refused and Medicaid sued on the theory of implied contract pursuant to Social Services Law section 366(3)(a).

Mr. Spellman moved to dismiss pursuant to CPLR section 3211 claiming, inter alia, that recovery can only be prospective and not retroactive under Social Services Law section 366, that there cannot be recovery due to federal preemption and that any such lawsuit for support must be brought in family court. The court held that DSS, pursuant to Social Services Law section 104, has the statutory power to sue the community spouse on the theory of implied contract.

In order words, once the institutionalized spouse has accepted Medicaid payments for his or her care, an implied contract between the community spouse and DSS is created, permitting DSS to sue the community spouse. The First Department upheld the lower court's decision, finding the statute created an implied contract between DSS and Mr. Spellman under which DSS could recover for expenses paid.

Fishman Case

Unlike Spellman, the defendant in Fishman did not challenge the statutes upon which DSS claims that it has the statutory authority to sue a community spouse. Instead, Mrs. Fishman argued that DSS did not meet the statutory conditions precedent for such a lawsuit.

DSS had sued Mrs. Fishman, who allegedly had total resources of $497,197.59, for $225,651.45 for care which it provided to Mr. Fishman in a nursing home. As in Spellman, Mrs. Fishman had filed a spousal refusal statement, received letters from DSS demanding reimbursement for payments made for Mr. Fishman's care and continued to refuse to make such payments.

Mrs. Fishman did not dispute that she had resources beyond the threshold amounts. However, she argued that the statutes pursuant to which DSS sued her have certain statutorily required conditions precedent which must be met by DSS to withstand a motion to dismiss pursuant to CPLR section 3211 (a)(7).

The Fishman court analyzed the relevant Social Services Law provisions, as follows:

1. Social Services Law section 101 states, inter alia, the community spouse shall, if of sufficient ability, be responsible for the support of the institutional spouse;

2. Social Services Law section 366(3)(a) specifically states that the person must have "sufficient income and resources";

3. If the community spouse does not have both sufficient income and sufficient resources, then the community spouse lacks "sufficient ability" to support the institutionalized spouse;

Under Social Services Law sections 101 and 366(3)(a), the "sufficient ability" of the community spouse is a condition precedent to the community spouse's obligation to reimburse DSS;

5. Under Social Services Law section 366_c, DSS must establish that the responsible relative's resources at the time assistance was granted exceeded the community spouse resource and income allowances during each relevant accounting period; and

6. In the absence of the satisfaction of the above conditions precedent, DSS does not have a cause of action pursuant to Social Services Law section 366(3)(a) and sections 101, 102 and 104.

Citing Steuben and Craig, the Fishman court stated "that DSS may recoup medical assistance expenses only from a person who could have paid those expenses at the time they were incurred." The court found that DSS failed to allege the condition precedent that Mrs. Fishman had income and resources in excess of the allowable thresholds at any time that DSS actually furnished assistance to Mr. Fishman. Therefore, the DSS action against Mrs. Fishman was dismissed.

Conclusion

The Fishman decision will not prevent successful lawsuits by DSS against community spouses with excess income and resources. It does appear, however, that Fishman will make spousal lawsuits more difficult for DSS to litigate.

Endnotes

Similar rules apply to the provision of community Medicaid, such as the payment by Medicaid for services in a hospital or at home with home care.

N.Y. Social Services Law 366_c(2)(d) (McKinney 1992 & S 1998) and regulations adopted thereto. The resource threshold does not include excluded resources, such as a primary residence. See Soc. Serv. Law 366_c(2)(e) (McKinney 1992). However, after the death of the Medicaid recipient or the spouse of such recipient, Medicaid may have a cause of action recoupment against such excluded resources on the grounds they were excluded only for purposes of calculation of eligibility.

N.Y.L.J., July 23, 1998, p. 22, col. 3.
Soc. Serv. Law (McKinney 1992 & Supp. 1998).
82 N.Y.2d 388, 504 N.Y.S.2d 908, 624 N.E.2d 1003 (1993).
Id. at 392.
Id.
76 N.Y.2d 451 (1990).
Id. at 458.
42 U.S.C. 1396aa(25)(A).
Cricchio v Pennisi, 90 N.Y.2d 296, 305, 660 N.Y.S.2d 679, 683 N.E.2d 301 (quoting Costello v. Geiser, 85 N.Y.2d 103, 106); S. REP. No. 146, 99th Cong. 2d Sess. 1, 312, reprinted in 1986 U.S.C.C.A.N. 42,279).
672 N.Y.S.2d 298 (1st Dep't 1998).
Note: DSS has filed a notice of appeal in the case DSS v. Fishman.

*Jay J. Sangerman is principal of Jay J. Sangerman, PLLC, an AV-rated law firm, which concentrates in the practice areas of Trusts and Estates and Elder Law. Jay J. Sangerman, PLLC represented Mrs. Fishman inCommissioner of the Dept of Social Services of New York v. Fishman. Mr. Sangerman is a founding member of the New York State Bar Association Elder Law Section and had served as Chair of its Elder Law Practice and Ethics Committee.

Reprinted with permission from: Trusts and Estates Law Section Newsletter, Winter 1998, Vol.3, No. 4, published by the New York State Bar Association, One Elk Street, Albany, New York 12207.

    JAY J. SANGERMAN, ESQ.
    Jay J. Sangerman, PLLC
    171 East 84th Street - Unit 21B
    New York, New York 10028
    Telephone (212) 922-0711
    Facsimile (212) 439-0056
     

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