Hutson v. Mosier ( 2017 )

No. 117,020
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
MARCIA HUTSON,
Appellant,
v.
SUSAN MOSIER, M.D., in her official capacity as
SECRETARY OF KANSAS DEPARTMENT OF HEALTH
AND ENVIRONMENT,
Appellee.
SYLLABUS BY THE COURT
1.
The scope of judicial review of a state administrative agency action is defined by
the Kansas Judicial Review Act (KJRA), K.S.A. 77-601 et seq. The party asserting the
invalidity of an agency's action bears the burden of proving invalidity.
2.
Interpretation of a statute or an administrative regulation is a question of law over
which appellate courts have unlimited review.
3.
The United States Congress created the Medicaid program to provide federal
financial assistance to states that reimburse the costs of medical treatment for those in
need. Because it is a cooperative federal and state program, both federal and state law
govern Medicaid.
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4.
Kansas has elected to participate in Medicaid and must comply with federal
requirements for making eligibility determinations, collecting and maintaining
information, and administering the program.
5.
Generally, trust funds are to be counted as assets in making Medicaid eligibility
determinations.
6.
A person 65 or older may participate in a pooled supplemental or special needs
trust under the provisions of 42 U.S.C. § 1396p(d)(4)(C) (2012). However, a person age
65 or older who transfers assets to a pooled supplemental or special needs trust is subject
to the imposition of a transfer penalty under the rules of subsection 42 U.S.C. §
1396p(c)(1) if the transfer is for less than fair market value.
7.
Trusts established for disabled persons are exempt from application of the transfer
of assets penalty provisions only when the disabled person is under the age of 65.
8.
The determination of the fair market value of property—whether real or
personal—is generally a question of fact.
Appeal from Douglas District Court; PAULA B. MARTIN, judge. Opinion filed September 8, 2017.
Affirmed in part, vacated in part, and remanded with directions.
Molly M. Wood, of Stevens & Brand, L.L.P., of Lawrence, for appellant.
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Ron M. Landsman, of Ron M. Landsman, P.A., of Rockville, Maryland, and Craig Reaves, of
Reaves Law Firm, P.C., of Kansas City, Missouri, for amicus curiae National Academy of Elder Law
Attorneys, Inc.
Karen H. Weber, of Law Offices of Karen H. Weber, of Overland Park, for amicus curiae Special
Needs Alliance, Inc.
Brian M. Vazquez, of Kansas Department of Health & Environment, for appellee.
Before BRUNS, P.J., MCANANY, J., and STEVEN R. EBBERTS, District Judge, assigned.
BRUNS, J.: In this judicial review action, Marcia Hutson appeals from the district
court's decision affirming a final order issued by the Division of Health Care Finance
State Appeals Committee arising out of a Medicaid eligibility determination. The district
court upheld the imposition of a transfer penalty that significantly delayed Hutson's
receipt of Medicaid benefits for her long-term care. The Kansas Department for Children
and Families (DCF)—the state agency handling Medicaid eligibility processing at the
time—imposed the penalty on Hutson because she transferred assets to a pooled
supplemental needs trust when she was in her 70s. After an administrative law judge and
the State Appeals Committee upheld the imposition of the transfer penalty, Hutson
sought judicial review. The district court also upheld the penalty because it found that
Hutson did not receive fair market value for her transfer.
We find as a matter of law that transfers of assets by Medicaid applicants age 65
or older to a pooled supplemental needs trust are subject to a penalty period if the transfer
is for less than fair market value. However, because we find that whether a particular
transfer to a pooled supplemental needs trust is for less than fair market value is a
question of fact, we vacate the part of the district court's order that found as a matter of
law that Hutson "did not receive fair market value for her transfer." Accordingly, we
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affirm the district court's decision in part, we vacate it in part, and we remand this matter
for further proceedings consistent with this opinion.
FACTS
On August 10, 2015, Hutson—who resides in a nursing home facility in Eudora—
transferred $59,528.42 of assets to ARCare Trust II Pooled Trust. The trustee is ARCare,
Inc., which is a not-for-profit corporation that established the irrevocable pooled
supplemental needs trust in 1996 to help elderly and disabled people pay for living
expenses not covered by needs-based public benefit programs. The assets that Hutson
transferred to the pooled trust were funds that she received from the sale of her home as
well as from life insurance following the death of her husband. At the time of the transfer
of assets, Hutson was 72 years old.
Under the terms of the Transfer-Joinder Agreement signed on June 19, 2015,
ARCare, Inc. is to administer a sub-account within the pooled trust for the sole benefit of
Hutson. Specifically, the funds in the sub-account are to be used to maintain Hutson's
"health, safety and welfare . . . when, in the discretion of the [trustee], such requisites are
not being provided by any public agency, office, or department of the state . . . or are not
otherwise being provided by any other source of income available to [Hutson]." As the
trustee of the pooled supplemental needs trust, ARCare, Inc. has a contractual obligation
to pay for Hutson's needs in order to enhance her quality of life. Although ARCare, Inc.
has absolute discretion to approve or disapprove requests for disbursements from
Hutson's sub-account, it must act in good faith in administering the pooled trust.
Furthermore, the terms of the pooled supplemental needs trust provide that upon
Hutson's death, the trustee must reimburse the State for the total amount of Medicaid
benefits paid on her behalf if there are available funds left in her sub-account. If any
residual funds are left in Hutson's sub-account after the State has been reimbursed, these
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funds are to remain in the pooled supplemental needs trust to aid other trust beneficiaries,
to assist other indigent people with disabilities, or to be used for other charitable purposes
as determined by the trustee. Hutson's life expectancy is approximately 13 years based on
actuarial tables. Moreover, ARCare, Inc. estimates that at her current rate of supplemental
expenses, Hutson will likely exhaust her sub-account in four to six years.
On August 24, 2015, Hutson applied to DCF in Lawrence for Medicaid benefits to
assist with her long-term care needs. In support of her Medicaid application, Hutson
submitted a copy of the Transfer-Joinder Agreement that she had entered into with
ARCare, Inc. Hutson's daughter subsequently provided additional information to DCF in
support of her mother's application. In a notice dated October 19, 2015, DCF approved
Hutson's application for Medicaid assistance to assist with her long-term care expenses.
However, DCF imposed a transfer penalty that delayed Medicaid payments for a period
of 313 days.
On November 13, 2015, Hutson appealed the imposition of the transfer penalty to
the State Office of Administrative Hearings. The administrative law judge held a
prehearing conference, at which the parties evidently agreed that the judge should decide
the matter on the briefs. Because DCF was no longer handling Medicaid eligibility
determinations, the Kansas Department of Health and Environment (KDHE) replaced
DCF as the respondent in the administrative proceeding. Finally, on February 17, 2016,
the administrative law judge issued an initial order summarily affirming the imposition of
the transfer penalty.
On March 2, 2016, Hutson filed a request with the Division of Health Care
Finance State Appeals Committee for review of the initial order issued by the
administrative law judge. The State Appeals Committee—in its capacity as designee for
the Secretary of KDHE—issued a final order on April 11, 2016, affirming the initial
order. Thereafter, Hutson timely filed a petition for judicial review in district court.
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On November 8, 2016, the district court entered a memorandum decision
affirming the agency action. In reaching this decision, the district court concluded:
"While the court sympathizes with [Hutson's] circumstances and concerns, the
federal statutory language [found in 42 U.S.C. § 1396p(d)(4) (2012) and incorporated
into K.A.R. 129-6-109(c)(2)(G)] is clear. [Hutson] was over 65 at the time of the transfer
and did not receive fair market value for her transfer. Accordingly, [the agency] correctly
determined that the transfer was an uncompensated transfer subjecting [Hutson] to a
period of ineligibility."
On December 2, 2016, Hutson filed a notice of appeal. We subsequently granted
the National Academy of Elder Law Attorneys, Inc. and the Special Needs Alliance, Inc.
leave to file amicus briefs in this case. In addition, we granted leave to the National
Academy of Elder Law Attorneys, Inc. to participate in the oral arguments.
ANALYSIS
Issues Presented
On appeal, Hutson contends that the district court erred in interpreting the
applicable federal law and state administrative regulations relating to Medicaid
eligibility. Moreover, Hutson argues that she received fair market value for her transfer of
assets to the pooled supplemental needs trust, and as such, she should not be subject to a
transfer penalty. In response, KDHE contends that DCF appropriately imposed a transfer
penalty against Hutson because she did not receive fair market value for the transfer of
her assets to the pooled supplemental needs trust.
Standard of Review
This appeal arises out of a judicial review action commenced by Hutson in district
court. The scope of judicial review of a state administrative agency action is defined by
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the Kansas Judicial Review Act (KJRA), K.S.A. 77-601 et seq. See Ryser v. State, 295
Kan. 452, 458, 284 P.3d 337 (2012); Muir v. Kansas Health Policy Authority, 50 Kan.
App. 2d 854, 856, 334 P.3d 876 (2014). Under the KJRA, we exercise the same
statutorily limited review of an agency's action as does the district court. Kansas Dept. of
Revenue v. Powell, 290 Kan. 564, 567, 232 P.3d 856 (2010). The party asserting the
invalidity of an agency's action—in this case Hutson—bears the burden of proving
invalidity. K.S.A. 2016 Supp. 77-621(a)(1); see Golden Rule Ins. Co. v. Tomlinson, 300
Kan. 944, 953, 335 P.3d 1178 (2014).
Interpretation of a statute or an administrative regulation is a question of law over
which we have unlimited review. In re Tax Appeal of LaFarge Midwest, 293 Kan. 1039,
1043, 271 P.3d 732 (2012). When a statute or regulation is plain and unambiguous, we
are to give effect to the intent expressed through the words used—giving common words
their ordinary meaning—instead of attempting to determine what the law should or
should not be. Ullery v. Othick, 304 Kan. 405, 409, 372 P.3d 1135 (2016). Where there is
no ambiguity, we are not to resort to statutory construction. Rather, only if the language
or text is unclear or ambiguous are we to look at the canons of construction or legislative
history. 304 Kan. at 409.
Federal Medicaid Law
The United States Congress created the Medicaid program in 1965 to provide
federal financial assistance to states that reimburse the costs of medical treatment for the
needy. Schweiker v. Hogan, 457 U.S. 569, 571, 102 S. Ct. 2597, 73 L. Ed. 2d 227 (1982).
The purpose of Medicaid is to provide medical and rehabilitation assistance to those who
qualify as poor, aged, blind, or disabled. Village Villa v. Kansas Health Policy Authority,
296 Kan. 315, 317, 291 P.3d 1056 (2013). As a cooperative federal and state program,
both federal and state laws govern Medicaid. Schweiker v. Gray Panthers, 453 U.S. 34,
36-37, 101 S. Ct. 2633, 69 L. Ed. 2d 460 (1981); see Muir, 50 Kan. App. 2d at 859.
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Although it is not required to do so, Kansas has elected to participate in the Medicaid
program. See Village Villa, 296 Kan. at 317.
Once a state chooses to participate in the Medicaid program, it must comply with
various federal statutes and regulations governing its administration. Houghton ex rel.
Houghton v. Reinertson, 382 F.3d 1162, 1164-65 (10th Cir. 2004). A participating state is
also required to submit a plan to the United States Secretary of Health and Human
Services under 42 U.S.C. § 1396a(a) (2012). Once the plan is approved, the federal
government subsidizes the participating state's medical-assistance services. In addition,
the participating state must comply with "certain statutory requirements for making
eligibility determinations, collecting and maintaining information, and administering the
program." Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 275,
126 S. Ct. 1752, 164 L. Ed. 2d 459 (2006).
Participating states are given "substantial discretion to choose the proper mix of
amount, scope, and duration limitations" of their respective Medicaid programs.
Alexander v. Choate, 469 U.S. 287, 303, 105 S. Ct. 712, 83 L. Ed. 2d 661 (1985).
Nevertheless, the failure of a participating state to comply with federal law places the
state's receipt of federal funding at risk. See 42 U.S.C. § 1396a(a); see also 42 U.S.C. §
1396c (2012). Of particular relevance to the present case, participating states must
"comply with the provisions of section 1396p . . . with respect to . . . treatment of certain
trusts." 42 U.S.C. § 1396a(a)(18).
To be eligible for Medicaid, a person must have income and assets less than the
thresholds set by the United States Secretary of Health and Human Services. See 42
U.S.C. § 1396a(a)(17). For many years, individuals could transfer funds to a trust in order
to reduce the amount of assets considered for Medicaid eligibility. Lewis v. Alexander,
685 F.3d 325, 332 (3d Cir. 2012). However, the Omnibus Budget Reconciliation Act of
1993 amended 42 U.S.C. § 1396p (2012) to provide that trust funds would—as a general
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rule—be counted as assets for the purpose of determining Medicaid eligibility. Today,
subject to certain exceptions, funds held in trust are generally counted as resources for
determining Medicaid eligibility. 42 U.S.C. § 1396p(d)(3).
Three types of trusts are not subject to the general rule if certain statutory
requirements have been met. See 42 U.S.C. § 1396p(d)(4)(A), (B), and (C). Here, Hutson
placed assets into a pooled supplemental needs trust created pursuant to 42 U.S.C. §
1396p(d)(4)(C). A "pooled trust" is "'a special arrangement with a non-profit organization
that serves as trustee to manage assets belonging to many disabled individuals, with
investments being pooled, but with separate trust "accounts" being maintained for each
disabled individual.'" Lewis, 685 F.3d at 333 (quoting Myskowski, Special Needs Trusts
in the Era of the Uniform Trust Code, 46 N.H. Bar J., Spring 2005, at 16). "The pooled
special needs trust was intended for individuals with a relatively small amount of money.
By pooling these small accounts for investment and management purposes, overhead and
expenses are reduced and more money is available to the beneficiary." Lewis, 685 F.3d at
333.
Regarding pooled supplemental or special needs trusts, which are also referred to
as charitable pooled trusts, the Medicaid statute states:
"(4) [The statutory provisions counting trust funds as assets for purposes of
determining Medicaid eligibility] shall not apply to any of the following trusts:
....
(C) A trust containing the assets of an individual who is disabled (as defined in
section 1382c(a)(3) of this title) that meets the following conditions:
(i) The trust is established and managed by a nonprofit association.
(ii) A separate account is maintained for each beneficiary of the trust, but, for
purposes of investment and management of funds, the trust pools these accounts.
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(iii) Accounts in the trust are established solely for the benefit of individuals who
are disabled (as defined in section 1382c(a)(3) of this title) by the parent, grandparent, or
legal guardian of such individuals, by such individuals, or by a court.
(iv) To the extent that amounts remaining in the beneficiary's account upon the
death of the beneficiary are not retained by the trust, the trust pays to the State from such
remaining amounts in the account an amount equal to the total amount of medical
assistance paid on behalf of the beneficiary under the State plan under this subchapter."
42 U.S.C. § 1396p(d)(4)(C).
Furthermore, under 42 U.S.C. § 1396p(c)(1), an applicant for Medicaid long term
care assistance may be subject to a transfer penalty period if he or she transfers assets for
less than fair market value. However, 42 U.S.C. §1396p(c)(2)(B)(iv) provides that a
person will not be subject to a transfer penalty if the assets "were transferred to a trust
(including a trust described in subsection (d)(4) of this section) established solely for the
benefit of an individual under 65 years of age who is disabled . . . ." (Emphasis added.)
Kansas Medicaid Regulations
In addition to federal Medicaid law, Kansas has promulgated administrative
regulations—under the auspices of the Secretary of KDHE or her predecessors—to assist
with determining Medicaid eligibility. These regulations have the force and effect of law.
K.S.A. 77-425; see Village Villa, 296 Kan. at 320. Regarding pooled supplemental or
special needs trusts, K.A.R. 129-6-109(c)(2)(G) states:
"(G) [The regulatory provisions counting trusts as available assets for purposes of
determining Medicaid eligibility] shall not apply to a trust that contains the assets of an
individual who meets the . . . disability criteria of K.A.R. 129-6-85 if the trust meets all
the following conditions:
(i) The trust is established by a nonprofit association.
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(ii) A separate account is maintained for each beneficiary of the trust.
(iii) Accounts in the trust are established solely for the benefit of individuals who
meet the . . . disability criteria of K.A.R. 129-6-85.
(iv) Each account in the trust is established by that individual; the parent,
grandparent, or legal guardian of the individual; or a court. The state shall receive all
amounts remaining in the individual's account upon the death of the individual, up to an
amount equal to the total medical assistance paid on behalf of the individual.
Establishment of a trust under paragraph (c)(2)(G) for an individual who is at
least 65 shall be subject to the transfer of assets provisions of K.A.R. 129-6-57."
(Emphasis added.)
The Kansas regulations also address the transfer of assets by Medicaid applicants.
In particular, K.A.R. 129-6-57(b) provides that "[i]f an individual or spouse has
transferred or disposed of assets for less than fair market value on or after the specified
look-back date as determined by the date of transfer, the individual shall not be eligible
for payment of services for any institutionalized individual . . . ." However, K.A.R. 129-
6-57(c)(1) states that "[a]n individual shall not be ineligible for payment of services due
to a transfer of assets [if] [t]he fair market value of the assets transferred has been
received." Furthermore, K.A.R. 129-6-57(c)(5)(C) states that "[an] individual shall not be
ineligible for payment of services due to a transfer of assets [to] a trust established solely
for the benefit of an individual under 65 years of age who meets the . . . disability criteria
of K.A.R. 129-6-85."
"Fair market value" is defined in K.A.R. 129-6-57(a)(3) to mean "the market value
of an asset at the earlier of the time of the transfer or the contract of sale." Moreover,
pursuant to K.A.R. 129-6-57(a)(2), "compensation" includes "all money, real or personal
property . . . or service received by the individual . . . at or after the time of transfer in
exchange for the asset in question." The regulation also defines "uncompensated value"
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to mean "the fair market value of an asset less the amount of any compensation received
by the individual . . . in exchange for the asset." K.A.R. 129-6-57(a)(6).
Application of Medical Statute and Kansas Medicaid Regulations
Based on our review of the federal law and state administrative regulations, we
have no difficulty in concluding that individuals 65 or older may participate in a pooled
supplemental or special needs trust under the provisions of 42 U.S.C. § 1396p(d)(4)(C).
Likewise, we have no difficulty concluding that the terms of the ARCare Trust II satisfy
the Medicaid requirements for a pooled supplemental or special needs trust. The more
difficult issue, however, is whether a transfer penalty should be imposed on a Medicaid
applicant—like Hutson—who is 65 or older because he or she does not receive fair
market value by transferring his or her assets to a pooled trust.
We must answer this question by considering all of the provisions of 42 U.S.C. §
1396p together rather than in isolation. See Herrell v. National Beef Packing Co., 292
Kan. 730, 745, 259 P.3d 663 (2011). In doing so, we find the plain language of the statute
to mean that a person age 65 or older who transfers assets to a pooled supplemental or
special needs trust is subject to the imposition of a transfer penalty under the rules of
subsection 42 U.S.C. § 1396p(c)(1) if the transfer is for less than fair market value. Trusts
established for disabled persons are exempt from application of the transfer of assets
penalty provisions only when the disabled person is under the age of 65. See 42 U.S.C. §
1396p(c)(2)(B)(iv). Moreover, we find that the Medicaid regulations promulgated by the
State of Kansas are consistent with this interpretation. See K.A.R. 129-6-57(b), (c)(1),
and (c)(5)(C); K.A.R. 129-6-109(c)(2)(G).
We note that our interpretation of 42 U.S.C. § 1396p is consistent with the opinion
handed down by the United States Court of Appeals for the Eighth Circuit in Center for
Special Needs Trust Admin., Inc. v. Olson, 676 F.3d 688, 702 (8th Cir. 2012). It is also
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consistent with the opinion of the South Dakota Supreme Court in the case of In re
Pooled Advocate Trust, 813 N.W.2d 130, 142 (S.D. 2012). In addition, we note that the
United States Court of Appeals for the Third Circuit reached the same conclusion in dicta
in the case of Lewis, 685 F.3d at 351.
In Olson, 676 F.3d at 702, the Eighth Circuit held:
"When all paragraphs of [42 U.S.C. § 1396p] are read together, a disabled
individual over 65 may establish a type 'C' trust, but may be subject to a delay in
Medicaid benefits. Despite the lack of an age limit within paragraph 1396p(d)(4)(C) for
purposes of counting resources, Congress intended to exempt transfers of assets into
pooled trusts from the transfer penalty rules of subsection 1396p(c)(1) only if the
transfers were by those under age 65. 42 U.S.C. § 1396p(c)(2)(B)(iv)."
The Eighth Circuit also concluded that a North Dakota regulation subjecting those
who are 65 and over to the penalty of delayed eligibility for Medicaid benefits did not
conflict with federal law "[b]ecause Congress intended for transfers of assets into 'C'
pooled trusts by beneficiaries age 65 or older to be subject to a transfer penalty period" if
the transfer was for less than fair market value. 676 F.3d at 703.
Similarly, in the case of In re Pooled Advocate Trust, 813 N.W.2d at 142, the
South Dakota Supreme Court held that "under the unambiguous [federal] statutory
language, transfers of assets for less than fair market value into pooled trusts by
beneficiaries age 65 or older will be subject to a transfer penalty period for Medicaid
eligibility purposes." In reaching this conclusion, the court found that a transfer penalty
does not deny the applicant the ability to obtain long-term care assistance. Instead, the
transfer penalty simply delays an applicant's eligibility to start receiving Medicaid
assistance. Although the South Dakota Supreme Court recognized that such a delay may
have a significant impact on an applicant, it found that transfer penalties are "designed to
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preserve Medicaid benefits for those who truly lack the assets or resources to financially
secure long-term care." 813 N.W.2d at 143.
Here, it is uncontroverted that Hutson was in her 70s at the time she transferred
$59,528.42 in assets to the pooled supplemental needs trust established pursuant to 42
U.S.C. § 1396p(d)(4)(C). Accordingly, we conclude that, if she transferred assets for less
than fair market value, the State of Kansas has the authority to impose a transfer penalty
on Hutson under the rules set forth in 42 U.S.C. § 1396p(c)(1) and the related Kansas
regulations. As indicated above, pooled trusts are intended to assist individuals with a
relatively small amount of money who lack the financial resources to secure long-term
care. They are not intended to be vehicles for affluent individuals to use in order to divert
scarce Medicaid resources from those truly in need. See Ramey v. Reinertson, 268 F.3d
955, 961 (10th Cir. 2001); see also Miller v. State Dept. of S.R.S., 275 Kan. 349, 356-57,
64 P.3d 395 (2003) ("Medicaid was designed to provide basic medical care for those
without sufficient income or resources to provide for themselves."). Therefore, while we
recognize that in some cases the impact of a transfer penalty may seem harsh, the
imposition of such penalties are specifically authorized by federal law as well as state
regulation, and they serve a legitimate purpose.
Determination of Fair Market Value
Finally, Hutson contends that KDHE has failed to show that her transfer of assets
to the pooled supplemental needs trust was for less than fair market value. In response,
KDHE contends that Hutson has the burden of proof and cannot show that she received
fair market value of the transfer of her assets to the pooled supplemental needs trust.
Evidently, both parties believe they should prevail on this issue as a matter of law.
However, unlike the interpretation of a statute or regulation, the determination of the
value of property—whether real or personal—is generally a question of fact and not a
question of law. See In re Estate of Hjersted, 285 Kan. 559, Syl. ¶ 1, 175 P.3d 81014
(2008). Moreover, neither party included in their statements of uncontroverted fact,
submitted to the administrative law judge, any suggestion as to what the fair market value
of the transfer of assets to the pooled trust might have been at the time of the transfer.
In her initial brief, Hutson suggests that she simply exchanged legal title for
equitable title. However, she glosses over the plain language of the Transfer-Joinder
Agreement in which she gave the trustee absolute discretion over her assets placed into
the pooled trust. Although ARCare, Inc.—like any trustee—has a general duty to act in
good faith and is contractually obligated to use the funds for Hutson's benefit, we do not
find this is sufficient to determine as a matter of law that the transfer of assets was for fair
market value.
Hutson also argues that the "evidence [shows] that she received a benefit
exceeding zero." Perhaps this is true, but that does not equate to the evidence showing
that she received fair market value for the transfer. In addition, she argues in her reply
brief that "[a] future benefit has a quantifiable present value." Perhaps this is also true,
but we find nothing in the record on appeal that would allow us to determine what that
present value was at the time she entered into the Transfer-Joinder Agreement with
ARCare, Inc. In fact, we find nothing in the record that would allow us to conclude, as a
matter of law, that Hutson received fair market value for the transfer of nearly $60,000 to
the pooled supplemental needs trust.
On the other hand, we also find nothing in the record that would allow us to
conclude as a matter of law that Hutson received less than fair market value for the
transfer of her assets to the pooled supplemental needs trust. As the United States Court
of Appeals for the Third Circuit noted, "[b]y pooling these small accounts for investment
and management purposes, overhead and expenses are reduced and more money is
available to the beneficiary." Lewis, 685 F.3d at 333. Although we cannot say as a matter
of law what the fair market value of the investment and management services provided
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by ARCare, Inc. to Hutson was at the time of the transfer of assets, it seems clear that
these types of services have a value, which could be considered to be compensation to
Hutson under K.A.R. 129-6-57(a)(2).
Under the circumstances presented, we believe that the interests of justice require
that we vacate that portion of the district court's decision finding as a matter of law that
Hutson "did not receive fair market value for her transfer" of assets to the pooled
supplemental needs trust because we do not find substantial evidence in the record to
support this conclusion. Accordingly, pursuant to K.S.A. 77-622(b), we remand this
matter for an administrative hearing to determine the factual question of whether Hutson
transferred assets to the pooled supplemental needs trust for less than fair market value
and, if so, to determine if the penalty imposed was appropriate. At the hearing, the burden
of proof will be on Hutson as the party asserting the invalidity of an agency's action.
Although we do not know whether she will be able to meet her burden of proof, she
should at least be given the opportunity to try.
CONCLUSION
We conclude as a matter of law that the federal law and state administrative
regulations governing Medicaid permit those 65 or older to participate in a pooled
supplemental or special needs trust under the provisions of 42 U.S.C. § 1396p(d)(4)(C).
We also conclude as a matter of law that the terms of the ARCare Trust II as set forth in
the Transfer-Joinder Agreement entered into by Hutson satisfy the Medicaid federal and
state requirements for a pooled supplemental or special needs trust. Furthermore, we
conclude as a matter of law that the State of Kansas has the authority to impose a transfer
penalty on Hutson under the rules set forth in 42 U.S.C. § 1396p(c)(1) and related
administrative regulations if the transfer was for less than fair market value. However,
because a determination of fair market value involves a question of fact, we vacate that
part of the district court's order finding that Hutson did not receive fair market value for
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the transfer of assets and remand this matter for an administrative hearing to resolve this
factual question. Finally, in light of this conclusion, we deny Hutson's motion for
attorney fees and costs.
Affirmed in part, vacated in part, and remanded with directions.
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