Liens and Estate Recovery Challenges

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September 20, 2018
Author: Jerry E. Shiles
Organization: Parman & Easterday

Many of our clients are interested in leaving something for their children and other heirs. Many of their children are interested in receiving this inheritance that has been promised to them or to which they otherwise think they are entitled. This can become a problem, if a parent requires long-term care in a nursing facility and requires help from Medicaid to pay for this nursing home care. When this happens, all plans go out the window. If the Medicaid agency, in our case the Department of Human Services or DHS, has spent money on behalf of that parent, it will file a Medicaid lien to protect its interest. In other materials you have been provided, Craig Riffel and I have explained how an individual can qualify for Medicaid payment of his or her nursing home expenses. This section is devoted to explaining how the government is able to recover expenses paid by Medicaid for the benefit of an individual after these expenses have been paid and usually after the recipient has died.

The government uses the Medicaid lien to foreclose on a recipient’s property, usually after his or her death. On occasion, the government can seek to recover these assets from the individual directly while the individual is still living, but usually it is the estate that bears this burden. It really doesn’t matter as the government always gets its money.

The theory is simple. The government has used taxpayer money to pay for an individual’s care and the government should be able to recover that money for the public coffers. It wouldn’t be fair for the recipient to have had the benefit of these government payments and then for the children to inherit whatever assets remain without having to repay what has essentially been a government “loan.”

On the other hand, many individuals feel that the inheritance is so important to the goodwill of the family that the children should be allowed to receive it free of lien. In some cases, family members are successful in avoiding the enforcement of this Medicaid lien.

The Medicaid lien is a creature of statute. Even so, it is up to the government’s representative, DHS, to file the lien or to file a claim in the probate action to recover sufficient funds to satisfy the lien.

Because the lien is a creature of statute, it arises automatically with respect to the recipient’s property so long as the facts of the case fit within the statutory requirements to impose the lien. Once it is determined that the government is entitled to a lien, then notice and a hearing are required before the lien can be filed and foreclosed upon or raised as a claim in the probate case.

Let’s be sure we are all on the same sheet of music. There are two types of recipients of benefits. The first is called the “institutionalized individual.” This is a person who is a patient in a nursing facility, a medical institution to whom payment is made based on the level of care provided in a nursing facility, or someone who fits the description set forth in Section 1396(a)(10)(A)(ii)(VI) of the statute. This is the parent or recipient discussed at the beginning of this section.

The other class of individuals who may be entitled to benefit is referred to as the “noninstitutionalized individual.” This is someone who receives any of the services set forth in (c)(1)(C)(ii) of the statute, namely those services set forth in paragraph (7), (22), or (24) of Section 1396d(a), but excludes care provided in a nursing facility, the level of care in any other institution equivalent to that of a nursing facility, or home or community-based services provided under a waiver granted under sub-Section (C) or (D) of Section 1396n. In many instances, this is the spouse of an institutionalized individual. When we talk about recovering from the estate of a recipient, we are talking about the real and personal property, tangible and intangible, which are included in an individual’s probate estate as defined in Title 58 of the Oklahoma Statutes. In addition, for the purpose of the Medicaid lien, the recipient’s estate may also include at the state’s option (and will include in the case of an individual to whom paragraph (1)(C)(I) applies), any long-term care insurance policy benefits for the decedent or his or her estate. It may also include any legal title or interest the recipient may have had at the time of death, up to the extent of the recipient’s interest in said property, including assets which were conveyed to a surviving spouse, and heir, or an assignee of the decedent as a result of ownership in joint tenancy, tenancy in common, survivorship, a life estate, a living trust, or other similar arrangement.

For the government to recover property from a living recipient or a deceased recipient’s estate, the government must meet certain tests. These include:
1. That the government paid nursing home expenses are covered by the Medicaid lien law;
2. That the circumstances of the case are such that a lien attached as a matter of law;
3. That there are no superior claims or liens on the property; and
4. The amount of the lien claimed.

If the government meets its burden, usually the probate court will order the personal representative to pay the government the full amount of the lien out of available probate assets or, if there are insufficient assets to pay the lien in full, the probate court will assign its priority over other claims.

If the Medicaid lien attaches by law under the provisions of 42 U.S.C. Section 1396p, then the property may be recovered by the government.

From the above, the first issues that must be established are (1) do the facts of the case automatically result in a Medicaid lien attaching to the recipient’s property, and (2) then can the lien be foreclosed? Pursuant to the provisions of 42 U.S.C. Section 1396p, there are only two times when a lien can be foreclosed during the recipient’s lifetime. These are the following:

1. If the court finds that benefits were improperly paid to or on behalf of an individual, then the government can foreclose on the property of that recipient. See sub-Section (a)(1)(A).

2. If the recipient is a patient in a nursing home, intermediate care facility for the mentally retarded, or other medical institution, the recipient must pay all of his income but approximately $50 per month for this care, and is not expected to return home (which is presumed after a stay of one year or longer) then the government can foreclose its lien against the recipient’s unoccupied real property. See sub-Section (a)(1)(B). If you have followed along with me to this point, now we start into the meat of this section. This is where we begin looking at planning opportunities. If the facts can be altered so that they no longer fit the government model, a lien will not attach against the real estate.

For example, a Medicaid lien will not attach to the property if:
1. The spouse of the recipient resides in the home;
2. A child of the recipient is under age 21 and is blind or permanently or totally disabled;
3. A sibling who has an equity interest in the home and resided in the home for at least one year prior to the recipient’s admission to the nursing or other facility, resides in the home.

Likewise, if the recipient is discharged and returns home, the Medicaid lien ceases to exist (see sub-Section (a)(2) and (3)).

Even though DHS oversees the Medicaid program in Oklahoma, it is the Oklahoma Health Care Authority or OHCA that is responsible for recovering Medicaid expenses paid for care under the Medicaid program after July 1, 1994 for those who were 55 years of age or older when the care was received. For further information on this, you can refer to the Omnibus Budget Reconciliation Act of 1993. DHS and OHCA work closely together to ensure reasonable efforts are made to recover the cost of benefits provided under the Medicaid program.

In order for the government to recover these assets, it must follow prescribed procedures. For example, if a recipient is a patient in a nursing home or a similar facility, has been there for one year or longer, and is presumed not to be able to return to his or her home, and Medicaid is paying for the institutional care, the OHCA will send a notice of intent to file a lien to the recipient. Thereafter, a hearing will be scheduled with DHS to ascertain whether the statutory requirements for the imposition of the lien have been fulfilled. If the finding is yes, a lien will then be filed against the real property with the County Clerk of the county in which the property is situated. While it is unlikely that OHCA will move to foreclose the lien during the recipient’s lifetime, the lien is on file and serves as a cloud on title until it is released by OHCA.

There are two ways for the recipient or his or her family to attempt to avoid the imposition of this lien. The first is at the hearing following the notice of intent to file a lien. This is especially important if the recipient or his family can qualify for the exceptions previously outlined. That is, a spouse is living in the home, a child or children age 20 or younger is living in the home, a disabled child of any age is residing in the home, or a brother or sister of the recipient who has an equity interest and has been residing in the home for at least one year prior to the recipient’s admission to the facility is then living in the home. If these defenses exist but are not raised at the DHS hearing, they are lost.

The other way in which the recipient or his family can oppose the lien at the hearing is if it can be shown the recipient reasonably expects to be discharged and to return home, even if he has been institutionalized for over one year. Since the hearing officer knows that if the recipient returns home the lien will dissolve, it doesn’t make sense to file the lien unless it is clear that the recipient is not likely to return home.

It is worth examining exactly what it means to “return home.” In Medicaid jargon it means that the recipient will leave the nursing facility and return home for a period of 90 days without being readmitted as an inpatient to a facility providing nursing home care. The latter does not encompass short term hospitalizations that do not include convalescent care.

Once the recipient has been institutionalized for one year or longer, it is far more difficult to argue that the recipient is likely to return home. In fact, DHS provides notice to all newly admitted Medicaid recipients that once they have been institutionalized for a one year period, this will constitute a prima facie determination that there is no reasonable expectation of the recipient returning home for at least 90 days. This isn’t to say that this presumption cannot be rebutted, only that it is extremely difficult to do so. Furthermore, if DHS concludes that isn’t reasonably possible for the recipient to return home, DHS can take action even before the 12 months are up.

If the DHS hearing officer finds that the lien is valid, the Third Party Liability Unit of OHCA will file a lien with the County Clerk in the county in which the property is located and mail a copy to the recipient via certified mail.

Once the lien is in place, it may be enforced before or after the death of the recipient, but only in the following situations:
1. Following the death of the surviving spouse;
2. After the surviving spouse abandons the homestead;
3. If no children under the age of 21 reside in the home;
4. If no adult child who is blind or disabled as defined in OCA 317:35-1-2 resides in the home;
5. If no qualifying sibling is residing in the home; and
6. If no qualifying child of the recipient, who resided in the home for 2 years immediately prior to the recipient’s admission to the facility and provided care to the recipient which allowed him or her to reside in the home, rather than in an institution, is then currently living in the home.

If the lien is satisfied, by whatever means, or if it is dissolved because the recipient returns home and lives there for more than 90 days, OHCA will release the lien. Anyone needing further information on this process can contact the Third Party Liability Unit at the Oklahoma Healthcare Agency.

Additional information can be found in the Deficit Reduction Act of 2005, which was signed into law by President Bush in February 2006 and made effective in Oklahoma in August 2007, with most provisions of the DRA retroactive to the February 2006 date.

The above paper is a general explanation of the Medicaid liens and state recovery procedures utilized in the state of Oklahoma. It is not intended as legal advice, except of a general informational nature only. Federal and State Medicaid rules change often and occasionally vary from county to county. Medicaid cases are very fact specific. This paper should not be relied upon without doing additional research and seeking legal advice from a competent elder law attorney.

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