Brewer v. Schalansky, 91,044.

• Decision Date: 17 December 2004
• Docket Number: No. 91,044.,91,044.
• Citation: 278 Kan. 734,102 P.3d 1145
• Parties: REGINA G. BREWER, Appellee, v. JANET SCHALANSKY, et al., Appellant, and REGINA HELLEBUYCK, et al., Appellees.
• Court: Kansas Supreme Court

278 Kan. 734

102 P.3d 1145

REGINA G. BREWER, Appellee, v. JANET SCHALANSKY, et al., Appellant, and REGINA HELLEBUYCK, et al., Appellees.

No. 91,044.

Supreme Court of Kansas.

Opinion filed December 17, 2004.

Reid Stacey, of Kansas Department of Social and Rehabilitation Services, Legal Division, argued the cause and was on the briefs for appellant.

Christopher J. Sherman, of Payne & Jones, Chartered, of Overland Park, argued the cause, and Keith Martin, of the same firm, was with him on the brief for appellee Regina G. Brewer.

Ted J. McDonald and Tim S. Davidson, of McCormick, Adam & Long, P.A., of Overland Park, were on the brief for amicus curiae ManorCare of Kansas, Inc.

The opinion of the court was delivered by

LUCKERT, J.

This is a Medicaid eligibility case in which the Kansas Department of Social and Rehabilitation Services (SRS) denied the application for benefits filed by Joan Seiker Wilson for her aunt, Regina Brewer (petitioner/appellee). SRS found that Brewer had nonexempt available resources in excess of regulatory limits because she held stocks worth approximately $33,000 in joint tenancy with two nieces, Joan Seiker Wilson and Regina Hellebuyck (defendants/appellees).

Brewer inherited the stocks upon her husband's death in 1991. He had received the stock as a benefit of his employment with Southwestern Bell Telephone Company. In 1994, Brewer added her two nieces, whom she had raised, as joint tenants with rights of survivorship of the stock. In 2001, Brewer sought Merrill Lynch's assistance in tracking shares she received from stock splits and as a result of various spin-offs and mergers of telecommunications companies following the break-up of AT&T. Brewer and her nieces opened an account with Merrill Lynch as joint tenants with rights of survivorship.

At the time of the Medicaid application, the stock could not be sold or otherwise disposed of without the consent of each joint tenant. Both of Brewer's nieces refused to consent to a sale of the stock.

After SRS denied Brewer's application for Medicaid benefits, Brewer requested a fair hearing pursuant to K.S.A. 2003 Supp. 75-3306 and argued that the nature of the parties' ownership of the stock precluded Brewer from selling it or converting it to cash; therefore, the stock was unavailable to Brewer as a resource. The hearing officer entered an initial order upholding the denial of benefits and ruling that the stock was an available resource. The hearing officer found that Wilson, who holds Brewer's power of attorney, had not taken reasonable steps to make the stock available, including legal action to force the sale. Brewer timely petitioned for review by the State Appeals Committee, which affirmed the hearing officer's decision.

Brewer then petitioned for judicial review of the agency's action. The district court reversed SRS's decision, ruling that Brewer was not obligated to file a lawsuit seeking partition because the cost of such a lawsuit would likely exceed any benefit Brewer would receive as a result and because such a lawsuit was unlikely to succeed. The district court chose not to address Brewer's additional argument that federal law precludes SRS from considering the stock as an available resource.

SRS timely appealed, and the appeal was transferred to this court on its own motion pursuant to K.S.A. 20-3018(c).

Amicus Curiae

ManorCare of Kansas, Inc., the nursing home where Brewer currently resides, has filed an amicus curiae brief. That brief contains several appendices which include information about the cost of care, the amount of Brewer's outstanding balance with ManorCare, and a subsequent application for Medicaid filed by Brewer in November 2003. Because these appendices do not comply with the requirement of Supreme Court Rule 6.02(f) (2003 Kan. Ct. R. Annot. 35) that an appendix consist of "limited extracts from the record on appeal," the court will disregard them. See Thompson v. KFB Ins. Co., 252 Kan. 1010, 1015-16, 850 P.2d 773 (1993).

On legal issues, the amicus brief generally parallels the arguments Brewer makes in her brief.

Standard of Review

Because this case involves judicial review of an agency action under the Kansas Act for Judicial Review and Civil Enforcement of Agency Actions (KJRA), K.S.A. 77-601 et seq., this court's standard of review is statutorily defined by K.S.A. 77-621. See Fischer v. Kansas Dept. of SRS, 271 Kan. 167, 175, 21 P.3d 509 (2001). As applicable to this case, the court may grant relief if the agency has erroneously interpreted or applied the law; if the agency action is based on a determination of fact that is not supported by substantial evidence when viewed in light of the record as a whole; or if the agency's action is unreasonable, arbitrary, or capricious. K.S.A. 77-621(c).

This court makes the same review of an agency's action as does the district court. Miller v. Kansas Dept. of SRS, 275 Kan. 349, 353, 64 P.3d 395 (2003). A rebuttable presumption of validity attaches to an administrative agency's actions, and the party challenging the agency's action bears the burden of proving arbitrary and capricious conduct. Connelly v. Kansas Highway Patrol, 271 Kan. 944, 965, 26 P.3d 1246 (2001), cert. denied 534 U.S. 1081 (2002). The appellate court "must accept as true the evidence and all inferences to be drawn therefrom which support or tend to support the findings of the factfinder. We are to disregard any conflicting evidence or other inferences. [Citation omitted.]" Connelly, 271 Kan. at 965.

Did SRS Correctly Determine that Petitioner was Ineligible for Medicaid Because of Excess Resources?

The declared purpose of the Medicaid program under Title XIX of the Social Security Act is to furnish "medical assistance on behalf of . . . disabled individuals, whose income and resources are insufficient to meet the cost of necessary medical services . . . ." 42 U.S.C. § 1396 (2000). The program is a cooperative administered by the federal government and participating states. Kansas, as well as any state which chooses to participate in the program, must comply with federal statutory requirements. Ussery v. Kansas Dept. of SRS, 258 Kan. 187, Syl. ¶ 1, 899 P.2d 461 (1995). See Harris v. McRae, 448 U.S. 297, 301, 65 L. Ed. 2d 784, 100 S. Ct. 2671 (1980).

42 U.S.C.A. 1396a(a)(17)(B) (Supp. 2004) provides that a state plan for medical assistance must "include reasonable standards. . . for determining eligibility for and the extent of medical assistance under the plan which . . . provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient." The statute further limits consideration to such income and resources as would not be disregarded in determining an applicant's eligibility for other programs, including Supplemental Security Income or SSI.

The Kansas Legislature made the plan available to those who have "insufficient income or resources to provide a reasonable subsistence compatible with decency and health" and delegated the specifics of defining eligibility criteria to the Secretary of SRS. K.S.A. 39-709(a)(1). Pursuant to this authority, the Secretary has promulgated regulations specifying eligibility criteria. Among the eligibility requirements is a limitation upon the value of resources which an applicant may own; if the applicant has nonexempt available resources in excess of $2,000, he or she is not eligible for public medical assistance. K.A.R. 30-6-107.

Federal regulations define the term "resources," in pertinent part, as

"cash or other liquid assets or any real or personal property that an individual. . . owns and could convert to cash to be used for his support and maintenance. If the individual has the right, authority or power to liquidate the property, or his share of the property, it is considered a resource." 20 C.F.R. § 416.1201.

This definition reflects two critical components: (1) ownership and (2) the power to liquidate. This case focuses upon the second aspect of the definition.

Transfer of Assets

Under K.A.R. 30-6-56, a "transfer of assets" for less than adequate consideration which occurs within a 3-year "look-back" period will incur Medicaid eligibility penalties if the inclusion of the assets' value causes the applicant's resources to exceed the $2,000 limit. In this case, Brewer transferred the stock into joint tenancy ownership with her nieces 7 years before her application for Medicaid, well outside the 3-year time limit. Brewer argues that as a result the stock should not be considered as an available resource. ManorCare's amicus brief makes a similar argument.

To support her argument, Brewer cites § 3258.8 of the Department of Health and Human Services' (DHHS) Centers for Medicare and Medicaid Services' (CMS) State Medicaid Manual. The manual "makes available to all State Medicaid agencies . . . informational and procedural material needed by the States to administer the Medicaid program." CMS State Medicaid Manual, Part 2, Foreword (A). Directives in the manual are "official interpretations of the law and regulations, and, as such, are binding on Medicaid State agencies." Part 2, Foreword (B.1). Section 3258.8 provides:

"[I]f placing another person's name on the account or asset actually limits the individual's right to sell or otherwise dispose of the asset (e.g., the addition of another person's name requires that the person agree to the sale or disposal of the asset where no such agreement was necessary before), such placement constitutes a transfer of assets."

Brewer argues that if she "transferred" the stock in 1994, it must have been unavailable to her in 2001 when she applied for Medicaid. This argument ignores the fact that K.A.R. 30-6-56 defines "transfer of assets" as "any act . . . which partially or totally passes the use, control, or ownership of assets of an applicant or recipient to another person." (...