A New Jersey appeals court held that a needs-based credit applied to the accounts of residents of an assisted living facility counts as income for Medicaid eligibility purposes. R.W. v. Division of Medical Assistance and Health Services (N.J. Super. Ct., App. Div., No. A-4911-13T1, Feb. 22, 2016).

This case was brought by several residents of the Francis Asbury Manor (“FAM”), a non-profit assisted living facility operated by the United Methodist Homes of New Jersey (“UMH”) and funded by the United Methodist Homes of New Jersey Foundation (the “Foundation”). The Foundation offered a “Fellowship Fund” in which it provided a “safety net” for residents who qualified financially: a “fellowship credit” would be applied to qualified residents’ monthly billing statements to reduce the total amount the residents owed. The fellowship credits ranged from $2,500 to $9,000 per month.

The Monmouth County Board of Social Services determined that these monthly fellowship credits counted as income to the residents, and accordingly terminated or denied those residents’ eligibility for the Medicaid Global Options waiver program.

The Board found that the fellowship credit was a “vendor payment” that constituted unearned income under N.J.A.C. 10:71-5.4(a)(6), which provides:

Vendor payments: Cash payments, except those payments for medical costs, which are made on behalf of the individual by an organization or other third party shall be included as unearned income.

The residents argued that the fellowship credit was not income, because the FAM did not actually receive payment from the Fellowship Fund: although the fellowship credit would appear as a credit on a resident’s monthly billing statement, it was in fact a write-off of the resident’s shortfall. The Foundation would cover part of that shortfall, and the balance came from FAM’s operating budget.

On appeal, the Administrative Law Judge found that the fellowship credit was not a personal benefit to a resident, but was an accounting device to offset the resident’s shortfall, in which the Foundation would contribute to the UMH to help offset UMH’s resulting operating loss. The ALJ thus rejected Medicaid’s claim that the fellowship credit was a “vendor payment.”

The Division of Medical Assistance and Health Services (“DMAHS”) rejected the ALJ’s decision. Although the ALJ had concluded that N.J.A.C. 10:71-5.4(a)(13)(ii) excludes from income the support and maintenance furnished to residents of a private nonprofit residential care facility, DMAHS found that this regulation was inapplicable because the FAM is an assisted living facility, not a residential care facility. The DMAHS concluded that the Board had been correct, and that the “payments by a third party to the provider of assisted living services… was income” applicable to the residents’ accounts.

On appeal to the Appellate Division, the DMAHS decision was affirmed. The appeals court rejected the residents’ argument that the fellowship credit was not income because the FAM did not actually receive payment and funds were not actually applied to the residents’ accounts. The Appellate Division agreed that the FAM was not a “residential care facility” so the exclusion set forth in N.J.A.C. 10:71-5.4(a)(13)(ii) did not apply. It determined that the residents had not provided “evidence of their monthly income or the actual distribution among FAM residents of the … fellowship credits FAM received,” so it could not determine whether the amounts identified on the billing statements were paid or allocated to other residents’ accounts. The Appellate Division concluded that,

the fellowship credit was not an accounting device or “internal notation,” as appellants posit. The … Fellowship Fund provided financial assistance to residents who could not pay part or all of the costs for their care and services… They actually received fellowship credits on their monthly billing statements, and the credits were applied to their individual accounts and reduced what they owed FAM for non-medical services. Accordingly, DMAHS correctly determined that the fellowship credits were vendor payments includable as unearned income….

For the full text of this decision, go to: R.W. v. Division of Medical Assistance and Health Services

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