Hazel M. Reed v. State of La., Department of Health & Hospitals

NOT DESIGNATED FOR PUBLICATION

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

07-1208

HAZEL M. REED

VERSUS

STATE OF LOUISIANA, DEPARTMENT
OF HEALTH AND HOSPITALS

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APPEAL FROM THE
TWENTY-SEVENTH JUDICIAL DISTRICT COURT
PARISH OF ST. LANDRY, NO. 06-C-5038
HONORABLE ALONZO HARRIS, DISTRICT JUDGE

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OSWALD A. DECUIR
JUDGE

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Court composed of Oswald A. Decuir, Jimmie C. Peters, and Marc T. Amy, Judges.

AFFIRMED.

Dwight D. Reed
Attorney at Law
P. O. Drawer 568
Opelousas, LA 70571
(337) 942-5191
Counsel for Plaintiff/Appellee:
Hazel M. Reed

Neal R. Elliott, Jr.
Bureau of Legal Services
Department of Health and Hospitals
P. O. Box 3836
Baton Rouge, LA 70802-3836
(225) 342-1103
Counsel for Defendant/Appellant:
State of Louisiana, Department
of Health and Hospitals

DECUIR, Judge.

Hazel M. Reed brought this claim against the State of Louisiana, Department

of Health and Hospitals, after Medicaid long term care vendor payments, paid on her

behalf for three years, were discontinued. After exhausting the administrative

procedure available to her through the Department, Ms. Reed appealed to the district

court, where judgment was rendered in her favor. The Department now appeals,

arguing to this court that the trial court erred in disregarding Medicaid eligibility

requirements, substituting its judgment for that of the administrative law judge, and

finding the termination of benefits to be arbitrary and an abuse of discretion. For the

following reasons, we affirm.

The trial court succinctly set forth the facts of this case as follows:

Petitioner, an eighty-four year old nursing home resident, was
approved for Medicaid Assistance effective September 1, 2003.
Approximately three years later, Ms. Reed was deemed ineligible for
continued Medicaid Health Care coverage and Long Term Care benefits
because she was found to possess resources in excess of $2,000.00.
This closure of Petitioner’s Medicaid coverage was based on the
agency’s discovery that she retained a lifetime usufruct over several
certificates of deposit that she had donated to her children between
August 7, 1997 and September 23, 1998. Defendant maintains that at
the time of said donation, these certificates of deposit had a total face
value of $114,169.90 and as of May 2006, Ms. Reed was receiving
interest from at least two of these certificates. Defendants also assert
that Petitioner’s Medicaid benefits were legally terminated since as of
July 1, 2006, Ms. Reed’s assets included a lifetime usufruct over
certificates of deposit having a face value of at least $60,000.00.

The record establishes that when Ms. Reed initially applied for long term care

benefits in 2003, she provided the Department with evidence that she had donated the

disputed certificates of deposit but had reserved the usufruct. With that information,

the Department considered only the interest earned by the certificates as income for

purposes of determining eligibility for benefits. The face value of the certificates was

not counted as a resource or asset. The Department contends that Ms. Reed was

approved for long term care benefits in error, as the Medicaid rules applicable herein

provide a calculation for valuing a usufruct. Had the appropriate calculations been

made, Ms. Reed would not have been certified for benefits in 2003. The Medicaid

rules further provide for the recovery of ineligible payments made as the result of

administrative error.

The Administrative Procedure Act, La.R.S. 49:950 et seq., governs judicial

review of an administrative agency’s decision. La.R.S. 49:964(G) provides that a

court may reverse an agency’s decision if the substantial rights of the petitioner “have

been prejudiced because the administrative findings, inferences, conclusions, or

decisions are:

(1) In violation of constitutional or statutory provisions;

(2) In excess of the statutory authority of the agency;

(3) Made upon unlawful procedure;

(4) Affected by other error of law:

(5) Arbitrary or capricious or characterized by abuse of discretion or clearly

unwarranted exercise of discretion; or

(6) Not supported and sustainable by a preponderance of evidence as

determined by the reviewing court.”

In compliance with this standard of review, the trial court reached the

following conclusions:

The Court finds that Defendant’s decision to treat the cash value
of the certificates of deposit as an asset for the purpose of determining
Petitioner’s eligibility for medicaid benefits was indeed arbitrary. The
court views this as an abuse of discretion in light of the fact that
Petitioner was approved for said benefits just two years prior while in
possession of the same resources. The Court is also not moved by
Defendant’s claim the Petitioner was originally approved in error. Such
an error on the part of the defendant should not function to further
disadvantage Petitioner, who claims that she is unable to care for herself
outside of the nursing home but is unable to pay the costs of nursing
home care. Accordingly, the administrative law judge’s decision

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terminating Petitioner’s Medicaid coverage and Long Term Care
benefits is hereby REVERSED pursuant to La.R.S. 49:964(G).

Our review of the record reveals no manifest error in the decision reached by

the trial court. The position advocated by the Department in this case is both arbitrary

and untenable and illustrates the conflict between the Department’s eligibility rules

and state law. Under the Department’s rules, the owner of a usufruct does not have

the right to sell the property from which the usufruct arises. In fact, Section I-

1634.28 of the Medicaid Eligibility Manual specifically states that the owner of a

usufruct does not have title to the property “for which he has been granted usufruct,”

and “[t]he right to sell the property is the right of the remainder man.” Therefore,

under the Department’s description of a usufruct, the underlying property is

unavailable to the usufruct holder as an asset or resource. Nevertheless, by adding

the value of the underlying property to the value of the usufruct, the Department

penalizes an applicant for “owning” an asset or resource to which she has no access

and which can never be used for her care.

Conversely, under the pertinent Louisiana Civil Code articles, if the property

subject to a usufruct is consumable, the usufructuary may “consume, alienate, or

encumber [it] as he sees fit,” but the value of the property must be restored to the

naked owner upon termination of the usufruct. La.Civ.Code art. 538. Applying

Article 538 to the present case, Ms. Reed could cash in the certificates of deposit over

which she holds a usufruct interest and use that money for nursing home care, as the

Department advocates. However, Ms. Reed would then have no funds to restore the

value of the certificates to the rightful owners as required by article 538. The

Department is advocating a position which would result in the depletion of property

which could never be restored to the naked owner as required by law. The

Department is also advocating a position which flies in the face of its own eligibility

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rules forbidding the alienation of the underlying property. Accordingly, we find the

Department’s position advocating the valuation of the certificates of deposit donated

in 1997 and 1998 to the detriment of Ms. Reed’s eligibility status to be arbitrary.

Additionally, we find no merit to the argument that Ms. Reed’s post trial

renunciation of her usufruct constitutes an additional ground of ineligibility, i.e., a

transfer of resources for less than fair market value. Not only is the record void of

admissible evidence of a renunciation, it likewise does not include evidence of

whether the value of the usufruct at the time of renunciation could have affected

eligibility status or even whether it would be counted as a resource or as income.

For the above and foregoing reasons, the judgment of the trial court is affirmed.

Costs of the appeal are assessed against the Department of Health and Hospitals.

AFFIRMED.

This opinion is NOT DESIGNATED FOR PUBLICATION. Rule 2-16.3, Uniform Rules,
Courts of Appeal.

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