[55 PA. CODE CH. 258]

Medical Assistance Real Estate Recovery

[31 Pa.B. 6034]

   The Department of Public Welfare (Department), by this order, under the authority of sections 201(2), 1410 and 1412 of the Public Welfare Code (62 P. S. § 201(2), 1410 and 1412) (act) adds Chapter 258 (relating to MA estate recovery) to implement a Medical Assistance (MA) estate recovery program to read as set forth in Annex A.

   Notice of proposed rulemaking was published at 29 Pa. B. 3888 (July 24, 1999).

Need for the Regulations

   The purpose of these regulations is to interpret and implement section 1412 of the act that requires the Department to establish and implement an MA estate recovery program. The regulations will implement requirements of the Federal Medicaid Program (42 U.S.C.A. § 1396p(b)(1)), which mandate that each state operate an estate recovery program.

   Title XIX of the Social Security Act (42 U.S.C.A. §§ 1396--1396v) established the Medicaid program in 1965 as a cooperative Federal-state program through which various health care services are provided to individuals who are poor and needy. Under Title XIX, a participating state shall designate a single state agency to administer or supervise the administration of the state Medicaid program. See 42 U.S.C.A. § 1396a(a)(5). The designated state agency shall prepare an MA plan consistent with Federal law and regulations and submit it to the Health Care Financing Administration (HCFA) of the United States Department of Health and Human Services (DHHS), for approval. Upon approval of its plan by HCFA, the state becomes eligible for Federal matching funds for reimbursement of the cost of specific types of medical care and services. See 42 U.S.C.A. § 1396a.

   The Commonwealth participates in the Title XIX Medicaid program. The Department is designated as the single State agency responsible for administration of the Commonwealth's Medicaid program, which is known as the MA program.

   Pub.L. No. 103-66 amended Title XIX to add a requirement that participating states establish and implement a program to recover MA payments from the probate estates of certain individuals. See 42 U.S.C.A. § 1396p(b)(1). To comply with this Federal mandate, the General Assembly amended the act in 1994 to authorize creation and implementation of the estate recovery program. See section 1412 of the act. The estate recovery program has been in operation in this Commonwealth since August 15, 1994. Notice of rule change (NORC) was published at 25 Pa.B. 1916 (May 13, 1995). During the period of its operation, many questions have arisen as to interpretation and procedures under the statute. These regulations are needed to supply guidance with respect to issues not directly addressed by the Federal and State statute and to resolve ambiguities in the statutory language. Conforming changes to §§ 178.1(h) and 257.21(b) (relating to general policy on MA resources common to all categories of MA; and policy) will be made when those chapters are revised.

Affected Individuals, Groups and Organizations

   Affected persons include attorneys administering estates, courts and heirs of decedents.


   These regulations will increase compliance by estates with the Federally mandated estate recovery requirements and will decrease confusion regarding those requirements. These regulations will result in increased recovery amounts currently pending collection as unadministered estates. These regulations encourage and support the use of home and community based services by permitting undue hardship waivers for persons who live in the home with the individual and provide care and support to the individual to prevent or delay admission to a nursing facility. These regulations encourage family and friends to help maintain the home while an individual receives home and community based services, or while an individual is in a nursing facility, by permitting undue hardship waivers for the person to recover maintenance expenses for the home.


   This chapter applies to the estates of deceased individuals who received MA for nursing facility services, home and community based services or related hospital and prescription drug services, who were 55 years of age or older at the time that MA was received, who died on or after August 15, 1994, and who received MA on or after August 15, 1994. This chapter does not apply to individuals who received MA before 55 years of age, and whose MA eligibility terminated before 55 years of age.

   Although the General Assembly has authorized adoption of a broad estate recovery program, the Department has generally elected to establish the minimum program required by Federal law consistent with the policy of Executive Order 1996-1. The Department will recover only from the estates of persons who were 55 years of age or older at the time assistance was received. The Department will restrict its recovery efforts to obtaining reimbursement for the following types of MA: nursing facility services, home and community based services and related hospital and prescription drug services. The Department will not seek reimbursement for other services. The Department will also restrict its recovery efforts to property that passes through a decedent's estate. Accordingly, property held jointly with a right of survivorship, Totten trust bank accounts and property held in trust at time of death will generally not be subject to estate recovery.

   Section 1412 of the act uses the term ''probate estate'' to define the scope of estate recovery, and in this Commonwealth, the term ''probate'' generally refers to a proceeding involving a will. See 20 Pa.C.S. § 3131 (relating to place of probate). However, the Federal statute requires the Commonwealth to include all assets included in an estate as defined for purposes of ''State probate law.'' Nationally, the term ''probate'' has a much broader meaning. See for example Black's Law Dictionary (4th Ed. 1968). It is clear from the Federal statute, as well as from Federal interpretative materials, that intestate estates are subject to the estate recovery program. The Legislature's intent was to conform to Federal law and accordingly, the Department has adopted an interpretation, which includes property passing by intestacy in its definition of ''estate property.''

Paperwork Requirements

   These regulations require no added paperwork from that which is required in the existing estate recovery program. The estate recovery program requires paperwork to obtain and provide statements of claim. However, there is no reasonable alternative to the paperwork. These regulations do not increase paperwork beyond that required since August 15, 1994.

Summary of Public Comment and Changes

   Written comments, suggestions and objections regarding the proposed regulations were requested within a 30-day period following the publication of proposed rulemaking at 29 Pa.B. 3888. A total of 25 letters were received by the Department within the 30-day public comment period, in response to the proposed rulemaking. In addition, the Independent Regulatory Review Commission (IRRC) and the Senate Minority Chairperson of the Public Health and Welfare Committee submitted comments on the proposed regulations. The majority of the comments submitted on the regulations were from IRRC. The public comments submitted centered around several issues including testamentary trusts, the Pennsylvania Uniform Fraudulent Transfer Act, postponement of collections, undue hardship waivers, unadministered estates and due process. Following is a summary of the major comments received and the Department's response to those comments. A summary of the major changes from proposed rulemaking is also included.

§ 258.2.  Defintions.

Relocation of defintions

   Several definitions were relocated to the body of the chapter. If a term to be defined is used in only one section of the regulations, the term should be defined in the appropriate section. This makes it easier for the reader to find the definition at the location of use, rather than have the reader flip to the beginning of the regulations to find the definition of a term.

   The definition of ''cash equivalent assets'' was relocated within the definition of protectable assets. The definition of ''estate property'' was relocated to § 258.3(a) (relating to property liable to repay the Department). The definition of ''facility of payment clause'' was relocated to § 258.3(c). The definition of ''family exemption'' was relocated to § 258.6(d) (relating to priority of the Department's claim). The definition of ''immediate family member'' was relocated and is now listed specifically in § 258.10(c) (relating to undue hardship waivers). The definition of ''income producing asset'' was relocated to § 258.10(c). The definition of ''perfected liens'' was revised, a new term of ''properly perfected security interests'' is used and the definition was relocated to § 258.7(c)(2) (related to postponement of collection). The definition of ''testamentary trust'' was relocated to § 258.3(d).

Elimination of definitions

   Several definitions were eliminated since they are not used in the regulations. In accordance with Pennsylvania Code requirements, definitions may include only terms used in the chapter. The terms ''primary residence'' and ''surviving spouse or child'' were therefore deleted.

Definition of ''fair market value''

   IRRC suggested clarification of ''fair market value.''


   The Department added a definition to clarify the meaning of ''fair market value.''

Definition of ''nursing facility services''

   The Department clarified that ''nursing facility services'' include intermediate care facilities for persons with other related conditions. The term ''intermediate care facility for persons with other related conditions (ICF/ORC)'' is derived from 42 CFR 483.400--483.480.

Definition of ''personal representative''

   IRRC requested clarification of the phrase ''administrator of any description.''


   The Department clarified that this is broad and encompassing and includes all types and forms of executors and administrators.

Definition of ''protectable asset''

   IRRC requested clarification of monetary limits and whether the limits are cumulative or exhaustive.


   The Department agrees that this was unclear as proposed, and has dropped the proposed subparagraph (iv) relating to other property in excess of $10,000. Subparagraph (ii) has been revised to indicate that this applies to an individual item with a fair market value in excess of $10,000.

Definition of ''real and personal property''

   IRRC suggested adding a new definition of ''real and personal property.''


   In response to the request of IRRC, this definition was added. This definition is intentionally broad so that this definition will remain valid as any other laws related to ''real and personal property'' are written or changed.

Definition of ''response period''

   IRRC requested adding the statutory reference prescribing the 45-day response period.


   This statutory reference to section 1412(b) of the act was added to § 258.4(b) (relating to request for statement of claim) in the section of the regulations where the 45-day period is addressed. Since it is a substantive requirement and not a definition, the requirement for the 45-day period was relocated from the definition of ''response period'' to the body of § 258.4(b).

Definition of ''statement of claim''

   IRRC suggested adding a definition of ''statement of claim.''


   This new definition was added.

Definition of ''surviving spouse or child''

   IRRC requested clarification of ''surviving spouse or child'' and asked about the age of the surviving child.


   The Department agrees that this definition was unclear and inaccurate and has deleted this from the definitions since it is no longer used in the regulations. This term was used to specify requirements for the postponement of collections. Section 258.7 specifies the applicability of the postponement of collections for surviving relatives. As specified in § 258.7, there is no age limit for a child with a disability, and the age of the surviving child without a disability is 21 years of age.

§ 258.3. Property liable to repay the Department.

   Subsection (a). IRRC suggested changing the term from ''estate'' to ''estate property.'' IRRC suggested referencing other subsections where exemptions are set forth.


   The Department has added a sentence explaining the concept of estate recovery. The Department has not included cross-references to the exceptions because the references would not add clarity to the regulations.

Subsection (c).  IRRC requested clarification of third party.


   The Department has revised this subsection to delete the reference to third party and clarify the circumstances under which life insurance is subject to the Department's claim.

   Subsection (e). IRRC and one commentator suggested that testamentary trusts for disabled children of any age be exempt from the Department's claim.


   This new exemption was added. The Department agrees that those trusts should be exempt for estate recovery.

   Subsection (f). IRRC requested clarification as to which assets are exempt with a cross reference to 20 Pa.C.S. § 3101 (relating to payments to family and funeral directors).


   The proposal does cross reference 20 Pa.C.S. § 3101. The Department deleted the listing of the specific examples and will rely on the referenced statute.

   Proposed subsection (f). IRRC, the Senate Minority Chairperson of the Public Health and Welfare Committee and several private attorneys submitted extensive comments relating to the application of 12 Pa.C.S. §§ 5101--5110 (relating to Pennsylvania Uniform Fraudulent Transfer Act) (UFTA). They questioned the Department's legal authority to apply this requirement, suggested inconsistency with the UFTA, requested clarification of less than equivalent value and offered general objections to this section.


   After careful consideration, the Department has deleted this subsection in its entirety. The Department believes that the interpretation of the UFTA in the context of estate recovery is more properly left to the courts. This deletion is not meant to imply that the Department concurs with the commentators' position that the UFTA does not apply to transfers of assets made by MA recipients. However, the extent to which the UFTA applies in individual cases can only be determined through appropriate legal proceedings.

   Subsection (g). The Department added a new subsection (g) to specify exemptions from estate recovery for special populations in accordance with HCFA's State Medicaid Manual amendments, Transmittal 75, issued January 11, 2001, relating to exemptions for special populations.

§ 258.4.  Request for statement of claim.

   Subsection (a). IRRC suggested adding a definition of ''statement of claim.''


   This change was made.

   Subsection (a). IRRC asked why a certified mail date is necessary to establish the date of the notice from the personal representative. IRRC suggested that the Department permit communication by alternate means to submit notices. Two other commentators suggested that all forms of communication be subject to same rules.


   An accurate, written date is necessary to clearly establish and track the date of receipt by the Department. The receipt date starts the Department's 45-day clock in preparing the statement of claim. The Department amended this section to permit a notice requesting a statement of claim to be submitted to the Department by facsimile or electronic mail, in addition to certified mail, in order to make it easier for a personal representative to submit a notice. Notices by telephone are not acceptable as an official notice, since written documentation is required and there is no method to accurately record the date the information was submitted. The date on the certified mail receipt, electronic mail or facsimile document will start the Department's 45-day clock.

   The proposed subsection (e) related to receipt of information by alternate means was deleted as it allowed Departmental discretion and it did not allow the 45-day clock to start.

   A new paragraph (8) specifying what must be sent with the request for a statement of claim was added to require documentation of the value of the estate. This is needed to apply for the exemption in § 258.10(f) (relating to undue hardship waivers) to exempt estates with a gross value of $2,400 or less from estate recovery.

Subsection (b).

   IRRC requested that procedures and time frames be established to specify what happens if a personal representative does not submit accurate and complete information.


   If the Department finds an error or missing information in the notice by the personal representative, the Department's Third Party Liability Unit makes a telephone call or sends a written notice to the personal representative or his attorney notifying him of the error or missing information. This notice will include notice to the personal representative that the 45-day clock will not start until the Third Party Liability Unit receives the corrected or missing information.

   Subsection (c). IRRC suggested that the Department should not rely on its own internal date stamp for documentation of receipt of a notice from a personal representative.


   The Department concurs and will use the certified mail receipt date, date on the electronic mail or date on a facsimile document as the official receipt date of the notice of the personal representative.

   Subsection (d). This section was revised to clarify the date as the issuance date of the statement of claim, versus the submission date.

   Subsection (e). IRRC interprets section 1412(b) of the act regarding the 45-day Departmental response period as a firm one that cannot be altered by regulation.


   The Department has applied standard rules of statutory construction regarding the computation and application of time limits. There are numerous cases when statutory deadlines are interpreted to mean the next business day following a date that falls on a weekend or holiday.

   This regulation also provides the personal representative with the opportunity to request an extension of the Department's time period if desired. An extension of the time period might be requested by the personal representative if they know they have outstanding documentation they want to be considered when the Department's prepares the statement of claim. Nothing in the statute prohibits a personal representative from waiving the 45-day limit.

   It is well-settled that individuals can waive a statutory or constitutional right when waiver is not contrary to public policy. Morgan Signs, Inc. v. Pa. Dept. of Transportation, 676 A.2d 1284 (Pa. Cmwlth. 1996). In this instance, the General Assembly's intent in enacting the 45-day limit was to insure that the estate recovery program did not unduly delay the estate administration process. However, it is sometimes the case that estate administration is delayed for other reasons, and an extension of time granted to the Department will not have any impact. In these situations, the personal representative will often request or consent to an extension.

   Subsection (f). IRRC questioned the Department's legal authority to amend a statement of claim after it has been issued and the 45-day time period has passed.


   The Department has added clarification to this subsection to explain the circumstances under which the Department will amend a claim. This will occur only if there is new or updated information relating to the statement of claim. For example, additional medical bills or funeral expenses, or updated property lists or appraisals could be submitted to the Department after the original statement of claim is prepared. The Department will amend its claim to be fair to the personal representative and to prepare an accurate statement of claim. The Department does not believe this violates the 45-day time period in section 1412(b) of the act, since a statement of claim was prepared in accordance with the statute. The statute does not preclude amendment of a claim. The concept of an amendment being timely, because it relates back to an original document, is an established legal concept. Thus for example, a civil complaint may be amended after the statute of limitations has expired if it does not introduce a new cause of action. Laursen v. General Hospital of Monroe County, 494 Pa. 238, 431 A.2d 237 (1981). Likewise, a claim against an estate may be amended if it does not introduce a new cause of action. Cepull v. Borland, 81 D & C 527, 34 Westmoreland 79 (1952). A similar rule exists in bankruptcy. In re: Kolstad, 928 F. 2d 171 (5 th Cir. 1991). The Department believes the General Assembly intended that a similar rule apply to estate recovery.

§ 258.5.  Computation of claim.

   Subsection (b). IRRC suggested adding a definition of ''qualified Medicare beneficiary.''


   This definition was added.

   Subsection (c). IRRC suggested adding a definition of ''capitation payment.'' IRRC commented that the proposed subsection (e) relating to MCOs was unclear.


   The Department revised this section to include the new requirements in HCFA's State Medicaid Manual amendments, Transmittal 75, issued January 11, 2001, relating to managed care.

   The Department deleted the proposed subsection (e) as it was no longer necessary and conflicted with the new subsection (c).

   The Department deleted the proposed subsection (c) relating to postponement since this concept is adequately and appropriately addressed in § 258.7.

   Subsection (d). IRRC and the Senate Minority Leader of the Public Health and Welfare Committee stated that it is not reasonable to shift the burden of proof to the personal representative to show that the Department's claim is not correct; they also questioned the Department's legal authority to adopt this requirement.


   The Department has considered this comment and decided to delete this proposed section because the Department lacks authority to regulate the burden of proof in orphans' court. Case law provides that while a creditor has the burden of proving its claim, the Department's records are entitled to a presumption of correctness. See Cameron's Estate, 130 A.2d 173 (Pa. 1957).

§ 258.7.  Postponement of collection.

   IRRC requested that the Department include its internal operating process for initiating, reviewing and making a decision on postponement requests.


   The Department will develop internal operating procedures to manage postponement requests.

   Subsection (a). IRRC questioned the use of ''the later of one of the following.'' IRRC requested adding the statutory citation for the Supplemental Security Income Program. One commentator suggested that claims should be permanently waived for those specified in this section, rather than postponed.


   The language is correct as proposed. This means until the last of any of these occur. For example, if there is a surviving spouse and an adult child who has a disability, the claim is postponed until both the spouse and adult child are deceased.

   The citation for the Supplemental Security Income Program was added.

   The Department considered permanent waivers versus postponement as suggested, but this section is based on section 1917(b)(2) of the Social Security Act (42 U.S.C.A. § 1396p(b)(2)) that addresses the temporary postponement of collection.

   Paragraph (4) was relocated from § 258.10(d) so that all the postponement clauses was located together. The period of time was corrected to ''1 year'' to coincide with section 1917p(a)(2)(c) of the Social Security Act.

   Subsection (c). IRRC and another commentator suggested that this allows the Department to take enforcement action on an unripe claim. IRRC questioned how the dollar amounts were determined, how appraisals would be done and how a properly perfected security interest would be placed on the property. IRRC also requested the addition of a definition of ''remainderman.'' Another commentator requested that the $10,000 limit be applied to individual items rather than the total of all items. IRRC asked the Department to specify the directions of the Department in subsection (c)(4).


   The Department is required by Federal law to postpone collection of its claim against certain property, but the Department does not have authority to simply forgive the claim. The Department has tried to balance the right of heirs to use property subject to postponement with the interest of the Commonwealth and Federal government in obtaining ultimate repayment from that property.

   The Department revised and relocated the definition of ''properly protected security interest'' in subsection (c)(2) to clarify how security interests are placed on property. This is a legal process governed by Article 9 of the Uniform Commercial Code, 13 Pa.C.S. §§ 9101--9507.

   The Department made the change to subsection (c)(2) as requested by the commentator to consider the $10,000 amount for each individual item as opposed to the total value of all property. A properly perfected security interest will be placed only on an individual item valued in excess of $10,000, but not for any item valued at $10,000 or less.

   The amounts specified in subsection (c)(2) and (3) are reasonable amounts based upon cost effectiveness for the Department to recover MA dollars. Appraisals to determine the value of the property items are undertaken by the executor or administrator of the estate.

   The Department added a definition of ''remainderman'' to subsection (c)(3) where the term is used.

   The Department revised subsection (c)(4) to clarify that the personal representative shall appropriately protect assets by an appropriate method. Appropriate methods might include noting the Department's interest on a certificate of title. The Department decided not to list examples in the regulations as this provision is intended to deal with novel or unusual circumstances.

   Subsection (f). The Department added a new subsection (f) to clarify that the Department's claim is subject to collection at the end of the postponement period.

   Subsection (e). IRRC asked why the age in subsection (e) is 18 years of age and in subsection (a)(3) it is 21 years of age. IRRC also requested that the Department specify the procedures for waivers.


   The age in subsection (a)(3) is taken directly from the Federal statute, which prescribes the age at 21 years of age. See 42 U.S.C.A. § 1396p(a)(2)(B). The age in subsection (e) is specified as ''under 18 years of age'' since the term ''adult child'' used in this subsection legally covers a person who is age 18 years of age and older. The age specification in this paragraph clarifies that a child under 18 years of age needs a legal representative acting on his behalf.

   There is no waiver procedure or process. This simply allows an heir to turn over property to the Department prior to the end of the official postponement period. This is at the full discretion of the heir.

§ 258.8.  Liability of personal representative.

   IRRC suggested that the Department state what is acceptable documentation of fair market value. One commentator suggested that subsection (d) discourages resolution of small estates by family settlements. One commentator suggested that the personal representative should be held to a negligence standard versus strict liability.


   The Department added a definition of ''fair market value.'' Acceptable documentation might be a real estate appraisal.

   Family settlements are only appropriate when they do not prejudice the rights of creditors. There is nothing to prevent the use of a family settlement agreement if the Department's claim is satisfied.

   A stringent standard for personal representative conduct is appropriate given the fiduciary relationship undertaken by the representative relative to the estate and its creditors.

§ 258.9.  Liability of transferees.

   IRRC asked what is acceptable documentation for fair market value and suggested that the transferee be limited to the difference between the amount paid for an asset and the fair market value.


   The Department added a definition of ''fair market value.'' Acceptable documentation might be a real estate appraisal.

   The Department made the requested change to limit the difference between the amount paid for an asset and the fair market value. The Department clarified that the transferee's liability is limited to the fair market value of the property that was not protected.

§ 258.10.  Undue hardship waivers.

   Subsection (b). IRRC and the Senate Minority Leader of the Public Health and Welfare Committee requested that the language for the granting of undue hardship waivers be changed from ''may'' which is discretionary, to ''will'' which is mandatory. Five other commentators also requested clarification of the vagueness of waiver criteria and requested waivers be granted if the guidelines are met.


   The Department agrees and has made this change from ''may'' to ''will'' throughout this section relating to hardship waivers. Waivers must be granted if all of the criteria are met. Waiver criteria have been revised to be clear and precise.

   Subsection (b). IRRC, the Senate Minority Leader of the Public Health and Welfare Committee and three other commentators suggested that the criteria for undue hardship waivers be extended to apply beyond immediate family members.


   This change was made to extend the waiver criteria to include not only immediate family, but also extended family and nonrelatives.

   Subsection (b).  The Senate Minority Leader of the Public Health and Welfare Committee and one other commentator suggested that an amendment be made to include home and community based services, as well as nursing facility services.


   This change was made. Home and community based services were added in subsection (b)(1) and (3).

   Subsection (b). IRRC, the Senate Minority Leader of the Public Health and Welfare Committee and 17 other commentators suggested that a homestead exemption of a specific amount such as $50,000. The homestead exemption means that no MA would be recovered for the value of the home, if the decedent leaves a home valued at $50,000 or less.


   The Department spent considerable time researching and meeting with the Intergovernmental Council on Long Term Care and others regarding this issue. When completing a thorough review of the public comments and talking with many consumer, advocacy and provider organizations, the Department found that the homestead exemption was suggested for five main reasons: a) to reduce urban blight and abandonment of homes; b) the right for heirs to inherit something from decedent's estate; c) concern over refusal of home and community based services due to fear of self or spouse losing home; d) a desire to settle the many unadministered estates now in limbo with no recovery paid; and e) a reward for family, extended family and nonrelatives who moved into home and provided care and support to delay or prevent admission to a nursing home.

   Many different alternatives were reviewed and considered. The following four alternatives best address the concerns of the commentators: 1) There would be a homestead exemption of a specified amount, for homes of modest value (based on appraised value of home). This means that if the decedent owned a home at the time of his death, valued at or below a specific dollar amount, the heir would keep the home and no recovery would be made on the sale/value of the home. If the home is valued above the specific amount, the entire value of the home would be subject to recovery; 2) There would be a flat exemption of a specified amount, for estates of any value, not based on home ownership. This would apply for all heirs and estates regardless of the value of the estate, the income of the heirs or the value of any home. The first specified amount of any estate, based on the net value of an estate of any value would not be subject to recovery; 3) Waiver criteria would be revised to expand opportunities for extended family and nonrelatives living with and caring for person to be considered for a hardship waiver; and 4) There would be an exemption for estates valued below a specified amount (such as $2,000).

   The Department weighted the pros and cons of each of these four alternatives and considered cost implications for each. While the homestead exemption option was the favored option of those submitting public comments, as the Department met with external stakeholders this option was not necessarily the preferred option, since it was applicable to only some of the estates and only some of the reasons given for the requested change. When meeting with external stakeholders, their concerns narrowed to three: 1) the fear of losing one's home while receiving home and community based services or the fear of a surviving spouse losing the home; 2) the need to settle unadministered estates and recover added potential revenue; and 3) the desire to reward persons who moved into the home with the decedent to provide care.

   The Department found no evidence to support the notion that a homestead exemption would decrease the number of abandoned homes in urban areas. There is no data in this Commonwealth or in other states to suggest that urban blight is the result of, or related to, estate recovery. The Department reviewed the HCFA's State Medicaid Manual amendments, Transmittal 75, issued January 11, 2001, relating to a homestead exemption. While the HCFA transmittal provides additional clarification as to how a homestead exemption might be calculated, the HCFA continues to provide this as an option for states to consider. Very few states have chosen to adopt the homestead exemption option.

   The concern that individuals will lose their homes if they receive MA services or that their surviving spouses will lose their home is unwarranted. The Department and the external stakeholders agree that a broad based public education program is needed to explain to potential users of MA that they will never lose their homes while receiving MA and that their surviving spouses, minor children or adult children with disabilities will never lose the home. The Department will soon publish and disseminate a brochure on the estate recovery program to explain that people will not lose their homes as a result of the estate recovery program

   The Department also considered the cost impact for the four alternatives. Both the homestead exemption and the flat exemption for estates of any value are estimated to result in substantial loss of recovery dollars. Dollars recovered through the estate recovery program are used to directly fund other individuals in need of home and community based services or nursing facility care. Every $1 million recovered through the estate recovery program provides services to approximately 70 home and community based slots or 140 individuals living in home and community based settings annually.

   The Department made several major changes to address the concerns of the commentators relating to the hardship waivers. First, the Department extended the provision that had limited waivers to immediate family members to include not only extended family, but nonrelatives as well.

   Next, the waiver criterion that allowed waivers to be granted only for persons who had an annual gross income that does not exceed 100% of the Federal Poverty Guidelines was deleted. This permits anyone to receive a waiver regardless of family income. Although not requested by commentators, this change was made to support and encourage persons to provide live-in care and support to individuals, regardless of the person's income level.

   Third, the Department substituted a new waiver criterion, to replace the proposed poverty guideline requirement, with a requirement that the person living in the home with the decedent provided care or support to the decedent during which time the decedent needed care or support in order to remain at home. This is similar to the provision in § 178.101 (relating to disposition of property and fair consideration provisions for transfers during the period of January 4, 1991, through July 29, 1994), which requires a son or daughter to have provided care for a 2-year period prior to the transfer of property. This will support and encourage the use of home and community based services by permitting the individual to remain at home for as long as possible. Use of home and community based services not only provides individuals with the opportunity and choice to stay at home, but also save taxpayer dollars, since home and community based services are a less expensive option than nursing facility care.

   Fourth, the Department added an exemption from estate recovery for administered estates valued at $2,400 or less (§ 258.10(f)). This exemption will apply to about half of the estate recovery claims filed by the Department. No waiver process would be applied. The estates valued at $2,400 or less will simply be exempted. Exemption amounts of between $5,000 and $2,000 were studied for fiscal impact. With an exemption of $5,000, the State share loss to the estate recovery program, and hence the reduction to the Commonwealth's long-term care appropriation, would be slightly over $1 million. With an exemption of $2,400, the State share loss will be about $500,000, which can be absorbed by the other potential revenue-increasing components to the regulations.

   The combination of these four major changes to the regulations, coupled with an education campaign relating to the estate recovery program, will address the majority of the stakeholder concerns related to undue hardship waivers. The Department further addresses the concern relating to unadministered estates in § 258.11 (relating to unadministered estates).

   Subsection (c). Although not specifically requested, the Department raised the income level from 100% to 250% of the Federal poverty guidelines for the gross family income allowed for income producing asset-related waivers. The Department made this change to allow a spouse or other family member to have a reasonable income outside the family farm or business, and still permit the waiver for the family farm or business.

   The Department also extended the term ''immediate family member'' as proposed to include grandchildren of the decedent.

   Subsection (d). The definition of ''income producing asset'' was relocated from § 258.2 to subsection (d) so that readers can easily find the definition where the term is actually used.

   Subsection (e). This new subsection was added to allow persons who paid expenses to maintain a decedent's vacant home while the decedent was in a nursing facility, or during receipt of home and community based services, to be reimbursed for the home maintenance costs. Maintenance costs include real estate taxes, utility bills, home repairs and home maintenance such as lawn care and snow removal necessary to keep the property in adequate condition for the decedent to return home or to live in the home.

   This may indirectly address some of the concern about abandoned properties. If a person knows that if he spends his own money to maintain a family or friend's home, he can recover his maintenance expenses from the estate at a later date, perhaps he will be more wiling to maintain the home in good condition.

   Subsection (g). This new subsection was added to clarify that a person who is eligible for a postponement of collection in § 258.7 is not precluded from also seeking a permanent undue hardship waiver under this section, as long as all the undue hardship waiver criteria are met.

§ 258.11(a).  Unadministered estates.

   IRRC raised questions of the Department's legal authority to either refer cases of unadministered estates outside this Commonwealth for settlement or to handle the cases of unadministered estates directly. IRRC raised the concern of conflict of interest if the Department handled the settlement of estates. IRRC requested clarification of reasonable fees. One commentator requested clarification of the role of outside attorneys. One commentator objected to referral of unadministered estates to outside attorneys because it would result in unfair and inequitable application of estate recovery.


   The Department spent considerable time and effort to resolve not only the concerns of the commentators, but also to address a major concern it has with the existing estate recovery program. There are numerous unadministered estates sitting in limbo in the Department's Office of Legal Counsel. While estates sit in limbo, no recovery is made, resulting in loss of recovery dollars and any real estate title remains under a cloud. The case remains ''on the books'' and continues to be tracked in the estate recovery program. While the new exemption for estates valued under $2,400 will reduce the number of unadministered estates, there will continue to be cases pending and needing resolution.

   The Department has revised subsection (a), to refer unadministered estates to the probate and estate sections of local county bar associations. This will facilitate the resolution of unadministered estates and provide a central location in each county where information regarding those estates may be obtained. The administration of estates by private attorneys will not result in an unequal application of the estate recovery program as the commentator suggested. The local attorneys will simply file the necessary paperwork to settle the estate. They will not administer the estate recovery program.

   Lists of unadministered estates will be sent periodically to the local bar associations. The frequency will depend on the number of pending cases. For example, Philadelphia County Bar Association may receive a list of pending cases monthly, while a smaller county may receive notice of cases on an ad hoc basis as they occur. It is expected that this provision will permit the settlement of a large percent of currently unadministered estates. This will result in a higher amount of MA dollars recovered, which can be used to provide home and community based services, and a reduction in the tracking paperwork for the estate recovery program.

   As requested, the Department has specified the maximum administration and attorney fee that can be charged. These fees are based on existing rates generally charged by private probate and estate attorneys, providing that a fair amount may be charged for handling even very small estates.

   In response to the perceived potential conflict of interest for the Department to settle estates directly, this may be done legally by any creditor. While there may be a conflict of interest between the role of a personal representative and that of a creditor, the same kind of conflict exists when an inheriting child or spouse serves in the role of personal representative. Indeed, substantial conflict of interest is inherent in the estate administration system. As a creditor of the estate, the Department has express authority to administer estates under 20 Pa.C.S. § 3155(b)(4) (relating to persons entitled). A private creditor may file and administer an estate to recover outstanding bills. It is extremely rare that the Department's Office of Legal Counsel has the staff time or a reason to settle an unadministered estate directly; however, the Department wants to make clear the procedures that would apply should it desire to do so. The same fee requirements that apply to an outside attorney would apply to the Department.

§ 258.12(a).  Administrative enforcement.

   IRRC requested clarification of ''other remedies allowed by law'' and suggested that citations to other laws be added. IRRC suggested that the Department clarify how the personal representative will be notified of the assessment of liability and the right to appeal. One commentator suggested that this creates two different forums for actions, conflicts with existing laws and creates notice and due process problems for transferees.


   The Department added clarification that the personal representative will be notified in writing of the assessment of liability and the right to appeal the decision in accordance with § 258.13 (relating to appeals and jurisdiction).

   As suggested by IRRC, the Department has added citations to section 1412(a.1)(1) and (2) of the act.

   The Department does not agree with the commentator who raised legal concerns with this section. The Department has successfully used this process for over 50 years. This is much simpler process than to have all cases go to the court of common pleas.

§ 258.13.  Appeals and jurisdiction.

   IRRC suggested adding a cross-reference to the rules governing the appeal procedure. IRRC questioned the Department's authority to claim exclusive jurisdiction and the use of the abuse of discretion standard. IRRC and the Senate Minority Public Health and Welfare Committee questioned the Department's authority to claim concurrent jurisdiction with the court of common pleas and to supercede the jurisdiction of the orphan's courts. IRRC and the Senate Minority Public Health and Welfare Committee requested that the error of law standard be used instead of the abuse of discretion standard.


   The Department has added a reference to the applicable hearing and appeals regulations. The Department clarified subsection (c) regarding the abuse of discretion standard to clarify that it is not a function of the hearing officer to substitute his discretion for that of the Third Party Liability Section of the Department, but rather to review the legal sustainability for that discretion. Where discretion is not involved, the hearing officer is expected to decide the case de novo.

   The Department did not change the statement in subsection (c) that the Department has exclusive jurisdiction over issues of waiver, compromise or postponement of a claim. This is the usual standard for review of discretionary actions of an administrative agency. However, the Department recognizes that courts retain jurisdiction to determine whether the Department has a valid claim within the framework of the estate administration process.

   The Department clarified subsection (d) to eliminate the requirement that filing with the Bureau of Hearing and Appeals (Bureau) is deemed as an election to proceed exclusively before the Bureau. The Department clarified that the decision is binding upon all parties participating before the Bureau. The Department understands that there could be cases where the court of common pleas applies and the Department would defer. However, the Department would encourage the use of the Bureau to resolve disputes when possible to reduce court time and costs.

Fiscal Impact

Public Sector--Commonwealth

   The annual recovery amount the estate recovery program has generated in calendar year 2000 was approximately $20 million. Forty-four percent of the amount recovered (the State share) goes directly into the long-term care appropriation to provide home and community based services and nursing home services to qualified individuals. For every $1 million recovered through estate recovery, approximately 70 home and community based slots or 141 individuals in home and community based settings are served annually.

   The Department anticipates a negligible cost impact as a result of these regulations. The total estate recovery collection amount will be reduced with the implementation of the new exemption for estates valued at $2,400 or less and by the implementation of the new waiver provision providing for waivers for persons living in the home and caring for decedent. However, this cost will be offset by increased revenues due to improved program efficiency resulting in better compliance with estate recovery requirements, in collection of recovery moneys now pending in unadministered estates, collection at the end of postponement periods where applicable, active enforcement of the new regulations and as a result of the Department's new public education campaign.

Public Sector--Local Government

   These regulations may impact the process of estate administration in the courts of common pleas. In particular, these regulations clarify the duties and responsibilities of personal representatives. However, no significant impact is expected because the changes to the process of estate administration are minimal.

Private Sector--General Public

   The estate recovery program results in an increase of revenue to the Commonwealth and helps to ensure continued financing of long term care services under MA. These regulations reduce the amount of inheritance an heir would have received, if the decedent received MA for nursing home or home and community based services. With the exception of a home of a decedent, this inheritance amount is minimal since the decedent is required to spend down most assets prior to becoming eligible for MA services.

Effective Date

   This chapter is effective February 1, 2002.

Sunset Date

   A sunset date is not anticipated because the underlying statute is permanent.

Regulatory Review Act

   Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on June 29, 2001, the Department submitted a copy of these final-form regulations to IRRC and to the Chairpersons of the House Committee on Health and Human Services and the Senate Committee on Public Health and Welfare.

   Under section 5(c) of the Regulatory Review Act, the Department provided IRRC and the committees with copies of all comments received during the public comment period. The Department has also provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of this material is available to the public upon request. In preparing the final-form regulations, the Department has considered all comments received from the public, IRRC and the Committees.

   Under section 5.1(d) of the Regulatory Review Act (71 P. S. § 745.5a(d)), on July 19, 2001, these final-form regulations were deemed approved by the House Committee on Health and Human Services and the Senate Committee on Public Health and Welfare. Under section 5.1(e) of the Regulatory Review Act, IRRC met on August 23, 2001, and approved the final-form regulations.


   The Department finds that:

   (1)  Public notice of proposed rulemaking was given under sections 201 and 202 of the July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.

   (2)  A public comment period was provided as required by law and all comments were considered.

   (3)  These final-form regulations are necessary and appropriate for the administration of sections 201(2), 1410 and 1412 of the act.


   The Department, acting under the act, orders that:

   (a)  The regulations of the Department, 55 Pa.Code, are amended by adding §§ 258.1--258.14 to read as set forth in Annex A.

   (b)  The Secretary of the Department has submitted this order and Annex A to the Office of General Counsel and the Office of the Attorney General for review and approval as to legality and form as required by law. The Office of General Counsel and the Office of the Attorney General have approved this order and Annex A as to legality and form.

   (c)  The Secretary of the Department shall certify and deposit this order and Annex A with the Legislative Reference Bureau as required by law.

   (d)  This order takes effect on February 1, 2002.

   (Editor's Note:  For the text of the order of the Independent Regulatory Review Commission, relating to this document, see 31 Pa.B. 5211 (September 8, 2001).)


   Fiscal Note:  14-445. No fiscal impact; (8) recommends adoption.

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