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Medicaid Fraud and Unjust Enrichment

Medicaid is a useful resource for paying for the great expense of long-term care. Only the truly needy qualify; strict Medicaid rules dictate asset and income thresholds, along with penalties for certain transfers.  In addition to the traditional criminal penalties that come with Medicaid fraud, there may be a finding of unjust enrichment in civil court.

An Oregon court recently issued an opinion regarding Medicaid fraud accountability and repercussions. The key players in this case were Larisa’s Home Care LLC, an adult foster care provider (the facility); Prichard, the resident; and Gardener, Prichard’s son and power of attorney.

Prichard was a resident of the facility. Her son, and power of attorney, applied for Medicaid benefits on her behalf and Prichard was approved. These benefits allowed her to receive services from the facility at a discounted rate. Unbeknownst to Prichard, her son had made fraudulent claims on her Medicaid application. Prichard’s son had been transferring funds from his mother, as her power of attorney, to himself over several years, yet stated on her Medicaid application that she had not made any transfers within the look-back period. Upon learning this information, the facility sought equitable relief for the difference between the Medicaid rate and the private pay rate from Prichard’s estate.

Appellate Journey

The trial court, in a bench trial, found that Prichard was unjustly enriched when she received the fraudulently obtained discount for services from the facility.  Upon review, the appellate court reversed – finding that there was no unjust enrichment, but not speaking to any defenses against recovery by the facility. The facility appealed to the Oregon Supreme Court, which reversed the appellate court’s decision and remanded the case for further review on applicable defenses – specifically whether Medicaid law prevented the facility’s recovery. Upon further review, the Appellate Court affirmed the Supreme Court’s decision that unjust enrichment was present and determined that no defenses to recovery applied.

Rationalization on Review

Defendant, Prichard’s estate, relied upon Medicaid law preventing facilities from seeking additional funds beyond the agreed upon Medicaid rate as a bar to the facility’s recovery. The law states, in part, that the rate set by the Department of Human Services (DHS) is considered payment in full. Therefore, the facility should be barred from recovering any amount beyond the Medicaid rate that it agreed to accept from Prichard. In addition, the Supreme Court addressed the following three arguments in Defendant’s brief to the Court.

Defendant first argued that since the claim of fraud was asserted by the facility and not based on a finding by DHS, evidence of fraud was not conclusive and the original DHS eligibility determination would apply. The Supreme Court opined that the state’s Medicaid laws did not bar a Medicaid service provider from seeking equitable relief – that the law cannot be interpreted to limit determinations of fraud solely to DHS. Considering that it is unlawful to obtain benefits fraudulently, it would follow that a scorned service provider could justifiably seek recovery from the “fraud feasor[,] in equity.”

Defendant’s second argument was that Prichard did not make the fraudulent claims – her son did – and her eligibility should not be invalidated. The Court found, without hesitation, that Prichard’s agent committed fraud on her behalf. Thus, her agent’s fraudulent actions were attributable to her.

Defendant’s final argument was that Prichard would not have been disqualified for benefits had the transfers been disclosed, due to a provision describing non-disqualifying transfers for victims of fraud. Defendant argued that it would follow that her eligibility status would stand under this provision. The Court disagreed. The relevant regulation specifies that transfers are not disqualifying if the person were a victim of fraud and legal steps had been taken to recover that which was transferred. The transfers made from Prichard to Gardener were not excepted under the argued rule for victims of fraud because at the time of application for benefits, legal steps to recover the transferred funds be taken had not occurred. Despite the fact that legal steps for recovery were eventually sought and received, the court found that the law did not apply retroactively – only forward-looking. Consequently, at the time of application, the element was not satisfied and resulted in the inapplicability of the provision to this case.  

Accepting the Supreme Court’s determinations on Defendant’s arguments, the question on remand to the Appellate Court was how the law barring recovery by the facility could apply in cases where recipients fraudulently obtain benefits. The defense did not submit a supplemental brief on remand – the Court had to rely upon the arguments made in its original brief to the court. In its brief, the defense did not illustrate how the law preventing recovery would apply in cases of fraud. Therefore, the Court had no justification for concluding that the facility was precluded from seeking recovery for the difference in rates not received.

Simply Put

In Oregon, a facility may seek repayment for the difference between Medicaid rates and private pay rates when a resident was ineligible for Medicaid benefits. Defendant failed to show how a facility that agrees to the Medicaid rate for a particular resident could be barred from recovery if the resident had initially gained eligibility through fraudulent means.

Other Considerations: POAs

Prichard ultimately committed fraud via her agent’s actions and prevented the facility from receiving its due amount for services. Thus, it is reasonable for the facility to be made whole by receiving the difference between the Medicaid rate and the private pay rate. However, it is arguable for the estate to turn to Prichard’s agent – Gardener – for repayment for that sum as restitution for his fraudulent statements that resulted in the estate’s unjust enrichment, and subsequent repayment to the facility.

In Sum

If a resident takes advantage of the Medicaid system and obtains undeserved benefits, that person can be liable to the facility for the unjust enrichment they enjoy – even if there was fraud was on behalf of the resident through a recognizable agent. Exceptions to this rule will likely be discovered as unique examples are distinguished from Oregon’s general rule. Particularly, the court left open the possibility that the result may differ if a resident is also a genuine victim of fraud in their receipt of Medicaid benefits. This case also serves as a reminder that an agent under a power of attorney truly acts on behalf of the principal, and any malfeasance can be attributed to the principal. 

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