CMS Never Ending Penalty Period Rule Upheld in Appeal of Denial of Application for Assisted Living Facility Medicaid in New Jersey

The Center for Medicare and Medicaid Services (“CMS”) states that the Deficit Reduction Act of 2005 (Pub. L. No. 109-171, 120 Stat. 4, 151) (“DRA”) does not permit a person to receive benefits under a Medicaid waiver program (including assisted living facility Medicaid) if there has been a transfer of assets within sixty months of the Medicaid application. New Jersey has informally adopted CMS’ position on this issue. This position, dubbed the “Never Ending Penalty Period,” is based on the following rationale: Among the many changes made to federal Medicaid law by the DRA were changes to the rules for the treatment of asset transfers made on or after Feb. 8, 2006 by Medicaid applicants. Specifically, (i) Medicaid’s “lookback”period for all asset transfers is extended from thirty-six to sixty months. 42 U.S.C. § 1396p(c)(1)(B) and (ii) the start of the penalty period for assets transferred on or after the date of the enactment of the DRA is changed from the date of transfer to the date when the individual transferring the assets is eligible for medical assistance under the State’s Medicaid plan and would otherwise be receiving an institutional level care described in subparagraph (C) based on an approved application for such care but for the application of the penalty period. 42 U.S.C. § 1396p(c)(1)(D)(ii). Subparagraph (C) describes the services as either (i) nursing facility services; (ii) a level of care in any institution equivalent to that of nursing facility services; or (iii) home or community-based services furnished under a waiver granted under 42 U.S.C. § 1396n(c) or (d)

The circuitous argument for the Never Ending Penalty Period is that the penalty period for an individual who has made a transfer of assets within 60 months of applying for benefits under a home or community-based program cannot start until the applicant is receiving services under the Medicaid program. Problematic is the fact that the individual cannot receive waiver services under the Medicaid program because, under New Jersey’s Medicaid regulations, a medical assessment will not be completed and no application for such care approved until financial eligibility is determined; however, this will never occur during the look-back period because of the ineligibility period triggered by the asset transfer.

In contrast, New Jersey statute provides that if an applicant for home or community-based Medicaid services under 42 U.S.C. § 1396n(c) disposed of resources or income for less than fair market value within 36 months (or 60 months in the case of a trust) shall be ineligible for assistance for those services. The period of the ineligibility shall be the number of months resulting from dividing the uncompensated value of the transferred resources or income by the average monthly private payment rate for nursing facility services in the State as determined annually by the commissioner (currently $6,942). N.J.S.A. §30:4D-3i(15)(b).

See CMS Powerpoint Presentation provided courtesy of  NJ attorney John Callinan, Esq., in which the federal agency explains the basis for the “never ending penalty period,” available here – never-ending-penalty

In a recent administrative law case, ob-v-division-of-medical-assistance, Administrative Law Judge Joseph Paone reversed the denial of Medicaid benefits to an assisted living facility resident who had made an uncompensated trransfer within the 5 year lookback period. The applicant was told that the CMS’ “Never Ending Penalty Period” rule required the agency to impose a penalty period for the transfer which would never end while the applicant was in the assisted living facility. ALJ Paone held the rule to be an incorrect interpretation of the law, and reversed.

In New Jersey, administrative decisions are subject to plenary review by the head of the agency that issued the original decision. Therefore, ALJ Paone’s decision was reviewed by John R. Guhl, Director of the Division of Medical Assistance and Health Services, the State’s Medicaid agency. On review, Director Guhl reversed, upholding the CMS rule. Director Guhl’s decision constitutes the final agency action in the case. Director Guhl’s decision is annexed here  – final-agency-decision1. A court appeal is contemplated.