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CLEARY v. WALDMAN

February 25, 1997

THOMAS J. CLEARY by his next friend, Carolyne Cleary, and CAROLYNE CLEARY individually, on their own behalf and on behalf of all other persons similarly situated, Plaintiffs,
v.
WILLIAM WALDMAN, in his official capacity as COMMISSIONER OF NEW JERSEY DEPARTMENT OF HUMAN SERVICES, LEONARD FISHMAN, in his official capacity as COMMISSIONER OF NEW JERSEY DEPARTMENT OF HEALTH AND SENIOR SERVICES, VELVET G. MILLER, in her official capacity as DIRECTOR OF DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES, and MARK SCHIFFER, in his official capacity as DIRECTOR OF PASSAIC COUNTY BOARD OF SOCIAL SERVICES, Defendants.



The opinion of the court was delivered by: DEBEVOISE

 DEBEVOISE, SENIOR DISTRICT JUDGE

 Plaintiff, Thomas J. Cleary, is an "institutionalized spouse" (as defined in 42 U.S.C. § 1396r-5(h)(1)) residing at The Health Center at Bloomingdale in Bloomingdale, New Jersey. Plaintiff, Carolyne Cleary, Mr. Cleary's wife, is a "community spouse" (as defined in 42 U.S.C. § 1396r-5(h)(2)) and resides in Butler, New Jersey.

 The defendants are William Waldman, Commissioner of New Jersey Department of Human Services; Leonard Fishman, Commissioner of New Jersey Department of Health and Senior Services; Velvet G. Miller, Director of Division of Medical Assistance and Health Services; and Mark Schiffer, Director of Passaic County Board of Social Services.

 Plaintiffs seek to represent a class composed of all persons who:

 
(a) were, or in the future would be, admitted to New Jersey nursing facilities, as "institutionalized spouses" within the meaning of the Social Security Act, or were, are, or in the future would be "community spouses" within the meaning of the Social Security Act; and
 
(c) were not, or in the future would not be, adequately or correctly notified of their right to increase the "community spouse resource allowance" as part of the Medicaid application process; and,
 
(d) unnecessarily diminished, or in the future would unnecessarily diminish, needed income producing assets due to this lack of information; and subsequently
 
(e) were not, or in the future would not be, allowed to increase the "community spouse resource allowance," because of Defendant's impermissible and therefore unconstitutionally restrictive application of federal law.

 In this action plaintiffs challenge the interpretation of portions of the Medicare Catastrophic Coverage Act of 1989 (the "MCCA"), 42 U.S.C. § 1396r-5, which provide for the allocation and distribution of income and assets between institutionalized and community spouses for the purpose of deciding if the institutionalized spouse is Medicaid eligible. Plaintiffs have moved for an order preliminarily enjoining defendants (i) from continuing practices which violate notice provisions of the Social Security Act 42 U.S.C. § 1396, et seq., and (ii) from continuing to implement New Jersey's "income first rule" when determining when an institutionalized spouse becomes Medicaid eligible.

 Two organizations have moved to intervene. The New Jersey Association of Health Care Facilities (the "NJAHCF"), which includes among its members more than 200 of the State's 352 nursing facilities, and the New Jersey Association of Non-Profit Homes for the Aging (the "NJANPHA"), which is an association of more than 130 non-profit New Jersey facilities for the elderly. Each of these associations asserts that the relief plaintiffs seek would cause a significant reduction in monthly payments to them and subjects them to the risk of suits by residents of their facilities for restitution for past overpayments under the state regulatory structure which plaintiffs allege is unlawful.

 I. The Intervention Motion

 Both parties moving to intervene (referred to collectively as the "intervenors") are non-profit organizations which serve the interests of their constituent nursing homes. Each asserts that abandonment of New Jersey's income first regulations would have a devastating impact upon their members and would subject them to law suits by Medicaid recipients to recover payments made pursuant to the State's income first regulations,

 The income first rule will be dealt with in more detail in subsequent parts of this opinion, but a brief description of its role in New Jersey's Medicaid program is necessary in order to understand the nature of the intervenors' interests.

 The MCAA designates as the community spouses' minimum monthly maintenance needs allowance (the "monthly need") a sum sufficient to enable the community spouse to live independently in the community above the poverty level.

 The MCAA also allows the community spouse to retain marital assets known as the community spouse resource allowance (the "resource allowance").

 In the present case plaintiffs had combined assets of $ 248,428.80 at the time Mr. Cleary first entered a nursing home. The county agency handling his Medicaid application found that Mrs. Cleary's resource allowance was $ 76,740, based upon a formula authorized by the federal statute. It also found that her monthly need was $ 1,524.50, and that this would be provided by i) $ 516.50 which she received from Social Security, ii) $ 311.75 in the form of interest (at 5%) on her $ 76,740 resource allowance, and iii) $ 696.25 from her husband's income. Subsection (d) of MCCA provides in effect, that after the institutionalized spouse's eligibility is determined, any deficit in the community spouse's monthly need will be applied to her from the institutionalized spouse's income before it is applied to the institutionalized spouse's medical care expenses.

 When the county agency made this determination approximately $ 180,000 of plaintiffs' assets remained, the rest having been used for nursing home charges and other expenses. The institutionalized spouse, Mr. Cleary, would not be eligible for Medicaid until he had spent down the remaining assets to an amount equal to $ 2,000 plus $ 76,740 which would be payable to Mrs. Cleary as her resource allowance. While the spending down process continued Mr. Cleary would remain a private patient in his nursing home paying private patient rates of approximately $ 6,000 a month. When he became Medicaid eligible, the nursing homes would be required to accept the Medicaid reimbursement rate, an amount well below the costs of his care.

 Plaintiffs contend that under subsection (e)(2)(C) of MCCA Mrs. Cleary was entitled to a resource allowance of $ 243,780 rather than $ 76,740. The subsection provides:

 
If either such spouse establishes that the community spouse resource allowance (in relation to the amount of income generated by such an allowance) is inadequate to raise the community spouse's income to the minimum monthly maintenance needs allowance, there shall be substituted, for the community spouse resource allowance under subsection (f)(2) of this section, an amount adequate to provide such a minimum monthly maintenance needs allowance.

 It is plaintiffs' position that the $ 696.25 from Mr. Cleary's income cannot be counted as Mrs. Cleary's income when making the subsection (e)(2)(C) calculation, and that as a result her resource allowance must be increased by $ 167,040, an amount which, when invested, would produce income of $ 696.25 per month.

 If Mrs. Cleary's total resource allowance were $ 243,780 ($ 76,740 plus $ 167,040), Mr. Cleary would be entitled immediately to Medicaid assistance, and during the period when he otherwise would have been paying the nursing home $ 6,000 a month the nursing home would have been paid the much lower Medicaid monthly rate.

 Both intervenors assert that application of the resource first rule advocated by plaintiffs in place of the State's income first rule would have a devastating effect upon their member nursing homes and would inevitably have an adverse impact upon care for the institutionalized elderly in New Jersey.

 In their complaint plaintiffs estimate that if the resource first rule were adopted approximately 10,000 New Jerseyans would become immediately Medicaid eligible, swelling the State's rolls and changing reimbursement received by nursing facilities from private payers rates to the Medicaid rate. The intervenors estimate that the financial impact would amount to approximately $ 66 million per year. *fn1"

 Further, if it were held that the income first method is invalid, there is the prospect that persons such as the Clearys might seek reimbursement from their nursing homes for excessive past payments. MCCA was implemented in 1989, and there is the spector of claims in the amount of $ 66 million for each year since that date.

 NJAHCF includes among its membership more than 200 of the State's 352 nursing facilities. They are of a proprietary, non-profit and governmental structure.

 NJAHPHA is a state-wide association of more than 130 non-profit facilities for the elderly serving more than 25,000 persons each year. Catholic, Jewish and Protestant organizations sponsor two-thirds of NJAHPHA's members, while county governments, fraternal organizations, private charities and other community groups serve the rest. Most of NJAHPHA's members are nursing facilities, but they also include assisted living facilities, continuing care retirement communities, residential health care facilities and independent housing.

 The intervenors assert that they are entitled to intervene as of right pursuant to Fed.R.Civ.P.24(a), and that in any event they should be granted permissive intervention under Rule 24(b). Plaintiffs resist the motions asserting i) that the intervenors' estimates of the economic impact of a resource first rule are "grossly exaggerated", ii) that they lack a sufficient interest in the litigation and iii) that they lack standing.

 I conclude that the intervenors have met the requirements of Rule 24(a). As party seeking to intervene must shows that:

 
1. Its application is timely;
 
2. It has a direct interest in the subject matter of the litigation;
 
3. Its interests may be affected or impaired as a practical matter, by the ...

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