NJ ALJ Concludes That the Penalty Period for Applicants for Assisted Living Facility Medicaid Benefits Has a Start Date

An administrative law judge has concluded that an individual who is trying to avoid nursing home care by applying for home- or community-based coverage under a Medicaid waiver program, but who has made a transfer during the look-back period, must have the penalty period begin on the date on which the applicant would otherwise be eligible for the waiver services, but for the transfer. (O.B., et al. v. Division of Medical Assistance and Health Services.)

New Jersey’s Medicaid agency had taken the position that pursuant to the Deficit Reduction Act of 2005 (DRA), the penalty period for waiver applicants cannot start until the applicant is actually receiving services because only then would the applicant be considered an “institutionalized individual” under the law. This, of course means that the penalty period would never begin because the transfer itself prohibits the receipt of services.

A number of New Jersey applicants for waiver services who had made transfers after enactment of the DRA on February 8, 2006, challenged this interpretation, arguing that the actual receipt of services is not necessary to be an “institutionalized individual” and therefore the penalty period begins when the applicant would be otherwise eligible for Medicaid benefits but for the application of the penalty.

In an April 9, 2008, decision, the ALJ agreed with the applicants’ interpretation. Calling the state’s construction of the DRA “tortured” and “strained,” the ALJ found that “petitioners’ applications seeking community-based waiver services are sufficient to classify petitioners as institutionalized individuals.”

Significantly, the ALJ determined that an enclosure in a July 27, 2006, CMS letter to the effect that the penalty period begins when the applicant “is receiving institutional level of care” misquotes the statute and the state’s “reliance on it is misplaced.”

The ALJ went on to write that the state’s “interpretation would actually encourage placement in a nursing facility over less-costly waiver services and undermine the impetus for the DRA’s enactment.”

The ALJ concluded that “[t]he plain meeting of 42 U.S.C.A. § 1396p(c)(1)(D)(ii) is clear and the [State’s] strained interpretation is conflicting, contrived and inconsistent with the statute’s legislative history.”

The ALJ’s decision now goes to the Director of the Division of Medical Assistance and Health Services, who is expected to overturn it. An appeal of that decision is anticipated.

For a copy of the ALJ’s decision, click here.

UPDATED ON 9/3/08 – As expected, the Director of the Division of Medical Assistance and Health Services reversed the ALJ’s decision. The final agency decision can be found here –  final-agency-decision1. An appeal is expected.