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From Health Law Daily, August 26, 2016

Challenge to restricted Medicaid coverage barred by failure to appeal

A couple’s civil action against the Ohio Department of Medicaid (ODM) for a declaration that the ODM deprived them of their rights under the Medicaid Act in violation of 42 U.S.C. § 1983, was dismissed by the U.S. District Court for the Southern District of Ohio. The ODM had subjected the husband to restricted Medicaid coverage because an annuity that the couple had purchased was deemed an "improper transfer." The court found the civil action was barred by res judicata as the couple had not appealed the Ohio agency’s final administrative decision, and that under the Eleventh Amendment, it could not issue a declaration of past violations (Trask v. McCarthy, August 24, 2016, Black, T.).

Background. The husband is a Medicaid recipient living in a nursing home. After he entered the nursing home, but before his Medicaid eligibility was determined, the couple bought an annuity payable to the wife. Based on the State’s interpretation of Medicaid law, the husband was found eligible but subject to "restricted coverage" because the annuity purchase was deemed an "improper transfer." The husband’s restricted-coverage period lasted from February 2014 to March 2015, and during this period Medicaid did not pay for his nursing-home care. The husband’s appeal against the imposition of restricted coverage within Ohio’s administrative appeal system resulted in a final agency decision following quasi-judicial proceedings. The couple did not appeal the administrative decision.

In February 2016 the ODM issued Medicaid Eligibility Procedure Letter 112, revising its policy. Under the revised policy, the purchase of annuity by an individual or the individual’s spouse after the date of institutionalization, but before the eligibility determination date, in an amount above the Community Spouse Resource Allowance could not be determined improper if the purchase of the annuity met the requirements listed in Ohio Administrative Code 5160:1-3-05.3. Those requirements include that the State of Ohio be named as a remainder beneficiary in the correct position.

The couple brought civil action against the ODM seeking declaratory judgment in their favor that the ODM is depriving them of their federal rights by withholding the Medicaid payment. Against this civil action, the ODM filed motion to dismiss.

Bar of res judicata. The court found that the administrative proceedings before the State Agency were of a judicial nature, and noted that the wife had argued there, just as she did before the court, that there was a deprivation of federal rights. The State Agency considered this argument and rejected it. The court observed that the wife could have appealed this decision to the court of common pleas, but she did not. The court noted that although the couple’s claims before it were brought as causes of action under 42 U.S.C. § 1983, they arise from the same set of facts, and are substantially the same as the claims raised in the administrative proceedings. Though the court believed that the ODM’s Procedure Letter 112 undermined the ODM’s past finding that there was an improper transfer here, the court found that the final un-appealed administrative decision of the Ohio Agency bars the instant action. However, in the spirit of Procedure Letter 112, and as a matter of fairness, the court strongly urged the ODM to re-determine the husband’s Medicaid eligibility as of February 1, 2014, without imposing restricted coverage.

Eleventh Amendment. The court noted that even assuming that the couple’s claims are not barred by res judicata, they are nonetheless barred by Ohio’s sovereign immunity granted by the Eleventh Amendment pursuant to which federal courts cannot award payment for past public benefits on grounds that the State wrongly denied them. The court noted that nothing in the complaint amounts to an allegation of an ongoing violation of law, and there is no evidence that the ODM is currently violating the couple’s federal rights. The court noted that payment of past benefits—even if wrongfully withheld—is retrospective.

The case is No. 1:16-cv-528.

Attorneys: Ashley Joy Shannon (Beckman Weil Shepardson LLC) for Phillip J. Trask. Jeffrey Jarosch, Office of Ohio Attorney General, for John B. McCarthy, Director, Ohio Department of Medicaid.

Companies: Ohio Department of Medicaid

MainStory: TopStory CaseDecisions CoverageNews EligibilityNews MedicaidNews OhioNews

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