Retirement Community Cannot Forbid Medicaid Spend-Down

Maryland's highest court has ruled that a continuing care retirement community's requirement that residents not spend down their assets to qualify for Medicaid violates Medicaid law, at least in cases where a resident is admitted directly into the retirement community's nursing unit. Oak Crest Village, Inc., v. Murphy (Md., No. 27/03, Feb. 9, 2004).

Oak Crest Village is a continuing care retirement community (CCRC), a type of retirement facility that provides the elderly with a range of housing alternatives depending on their needs, from independent housing to assisted living to round-the-clock nursing services'”all under one "roof". Residents pay an entry fee and an adjustable monthly rent in return for the guarantee of care for the rest of their life.

In November 2001, Ruth and Sherwood Murphy moved to Oak Crest. Mrs. Murphy, then 81, moved into an independent living apartment, while her husband, then 94, was admitted directly into Oak Crest's Medicaid-certified nursing facility. As a condition of their acceptance into the CCRC, the Murphys had to agree not to sell or transfer any assets if this would result in their net worth falling below the minimum necessary to become an Oak Crest resident. Medicaid reimbursements to nursing homes are generally much lower than if the patient pays privately, so evidently Oak Crest wanted to keep its residents paying privately for as long as possible.

Nevertheless, shortly after their move to Oak Crest, Mrs. Murphy used nearly $300,000 of the couple's assets to buy annuities. Mr. Murphy subsequently applied for and became eligible for Medicaid benefits. Oak Crest sued the Murphys, alleging that they had violated their agreement. Lawyers for Mr. Murphy argued that Oak Crest's requirement violated state and federal Medicaid law. The circuit court agreed with Mr. Murphy and held that the agreement was invalid. Oak Crest then appealed.

The Court of Appeals of Maryland, the state's highest court, agreed with the lower court's ruling. The CCRC's requirement, the court writes, "effectively requires that [Mr. Murphy] continue to pay at the private pay rate even when he would be or could lawfully become eligible for Medicaid benefits, contrary to [Medicaid law], and permits him to be discharged from a Medicaid certified nursing facility because he is a Medicaid recipient, contrary to [Medicaid law]."

However, the court holds that its ruling applies only in cases in which a CCRC resident moves directly into a nursing unit. The court does not address whether a CCRC could make such a requirement of a resident who moves from its independent or assisted living unit to its nursing unit.

To download the full text of the opinion in PDF format.

Learn more about CCRCs.