On April 28, 1998, Darrell Smith, a paraplegic, was admitted, as a Medicare patient to Life Care Center of Chattanooga suffering from severe bed sores. Three months later, with Mr. Smith's Medicare coverage about to expire, Life Care prepared a Pre-Admission Evaluation (PAE) that would allow him to begin receiving Medicaid coverage for his nursing home care. Shortly thereafter, Mr. Smith was admitted to a hospital with a high fever. On July 27, 1998, Tennessee Medicaid officials informed Life Care that Mr. Smith's PAE application had been denied on technical grounds. When Mr. Smith was ready for discharge from the hospital on July 30, 1998, Life Care refused to readmit him to its facility, claiming he was a dangerous patient.
Mr. Smith filed an action alleging, inter alia, that in denying him readmission, Life Care breached a contract to which he was a third-party beneficiary. The trial court granted Life Care's motion for summary judgment, concluding that Mr. Smith was not a third-party beneficiary to the contract between Life Care and the State of Tennessee. Mr. Smith appealed, contending that the contract was intended by the parties to benefit Medicaid-eligible patients, and that as a Medicaid-eligible patient he had enforceable rights under that contract.
Agreeing with Mr. Smith that he has rights under the contract, the Court of Appeals of Tennessee reverses. First, the court notes that while not 'Medicaid entitled,' Mr. Smith is 'Medicaid-eligible' as defined by the Tennessee Department of Health and Education. He had previously received Medicaid benefits for prior stays at other nursing homes and only stopped receiving Medicaid when he became eligible for limited Medicare coverage. The court also notes that the PAE denial indicated that Mr. Smith had met all the criteria to qualify for Medicaid reimbursement and that the PAE was denied only because Life Care itself improperly completed it. The court rules that his Medicaid-eligible status renders Mr. Smith a third-party beneficiary to the contract between the State of Tennessee and Life Care. The court goes on to hold that Life Care breached its contract by failing to comply with rules governing the readmission of patients. 'While a nursing facility may evict a patient if 'the safety of individuals in the facility is endangered,' ' the court writes, ' . . . specified procedures must be followed in such cases, including notice to the resident.' The court remands the case for determination of damages.
For the full-text of this decision, go to https://www.tsc.state.tn.us/PDF/tca/012/smithd.pdf
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