The enforceability of skilled nursing care agreements

The environment for long-term care for the elderly, and particularly skilled nursing care, is complex, often emotionally charged, and marked by financial burdens on all sides. Skilled nursing care is costly to provide and thus expensive, and nursing homes and their residents are facing unprecedented staffing shortages, economic pressures, and a complicated network of statutes and regulations (including the Medicare and Medicaid laws). My family’s recent interaction with that environment helps illustrate the interplay between a nursing home’s need to receive payment for the services it provides to remain viable and continue to serve the community and the obligation of residents to pay their lawful share for those services.

One year ago, my elderly mother had what the doctors described as a “mini-stroke.” Already suffering from dementia, she spent a month in rehab and then came home to continue living with my father. We hired aides to help them out and keep my mother from falling; my siblings and I took turns coming over in the evening to bring our parents dinner and make sure that my mother took her medications. Just after Thanksgiving, my mother fell and broke her hip. After surgery, she again went to rehab, but was in appreciably worse shape than she had been before. The plan was to have aides in the house 24 hours a day to help both of our parents (which was very costly and not covered by Medicare or Medicaid). Then, when my mother was scheduled to come home, we learned that my father was dying. We brought my mother home with aides on duty 24/7, but my father quickly deteriorated and died about a month ago.

Our thoughts turned to placing our mother in a skilled nursing facility (a nursing home) so that she could live in a safe environment and eliminate the high cost of in-home aides. From our discussions with various facilities, we understood that we would have to use my mother’s assets and income (to the extent they were not exempt for Medicaid purposes) to pay the monthly charges for her care at the “private pay” rate, and that once those assets were spent, she would become eligible for Medicaid.

Most nursing homes accept Medicaid. However, a resident must meet the financial eligibility requirements to receive Medicaid for skilled nursing services. In other words, because Medicaid is intended for low-income persons only, a resident with non-exempt assets and income must first use those assets and that income to pay for their care until they meet the financial threshold for eligibility for Medicaid benefits.

When someone applies for admission to a nursing home, they must disclose the assets and income available to pay for their care (until such time they become eligible for Medicaid), and they must agree to use those assets and income for that purpose.

If, as in my family’s situation, the resident lacks capacity to contract, a responsible party, who is often the resident’s attorney-in-fact under the resident’s power of attorney, is asked to sign the admission agreement. In most admission agreements, the responsible party agrees that they have access to and control over the resident’s disclosed financial resources, and that they will use those financial resources to pay the nursing home for the care provided to the resident. Although no facility may require a responsible party to guarantee payment for the resident’s care out of the responsible party’s assets, both federal and New York State law expressly authorize agreements that bind a responsible party who agrees to use the resident’s disclosed financial resources to pay for the resident’s care.

In most circumstances, the responsible party abides by their agreement to use the resident’s financial resources to pay for the resident’s care. However, there are occasions in which the responsible party transfers some or all of the resident’s assets to themselves or diverts the resident’s financial resources to some other purpose rather than using those resources to pay for the resident’s care, or refuses to use the resident’s income (such as Social Security benefits) to cover part of the cost of that care. If a responsible party engages in such conduct, they are, at minimum, in technical breach of the admission agreement.

When that happens, the nursing home is put in a situation where it is providing the resident with the agreed care without any compensation and must try to convince the responsible party to honor the promise to use the resident’s financial resources to pay for that care.

When such efforts are unsuccessful, the nursing home may commence a lawsuit against the responsible party to recover the agreed charges. The complaint in such an action may assert, among other claims, causes of action for breach of contract and under the New York Debtor and Creditor Law (“NYDCL”). In these circumstances, a breach of contract claim is fairly straightforward: the responsible party breached their agreement to use the resident’s financial resources to pay for the resident’s care, and the nursing home incurred damages as a result. Generally speaking, claims under the NYDCL may include claims based on statutory language that defines a conveyance of assets with the actual intent to defraud a creditor as fraudulent, and/or claims based on statutory language that defines a conveyance that does or will render a person insolvent as fraudulent as to creditors, without regard to actual intent, if the conveyance is made without a fair consideration.

The New York Appellate Courts, including the Fourth Department, that have addressed the enforceability of admission agreements against responsible parties have held that a party responsible for the assets of a nursing home resident may be held personally liable for the cost of the resident’s care if it is shown that they breached the terms of an agreement with a nursing home by impeding the nursing home from collecting its fees from the resident’s funds or resources over which they exercised control. Moreover, the Fourth Department has held that claims under the NYDCL may be stated against an attorney-in-fact who has rendered a nursing home resident insolvent through uncompensated transfers.

Thomas F. Knab is managing partner and chair of Underberg & Kessler’s Litigation Practice Group. He focuses his practice on commercial litigation, business and corporate disputes and construction and real estate litigation. Tom can be reached at [email protected].