Pioneer Ridge Nursing Facil. Oper. v. Ermey

• Citation: 203 P.3d 4
• Decision Date: 06 March 2009
• Docket Number: No. 100,095.,100,095.
• Parties: PIONEER RIDGE NURSING FACILITY OPERATIONS, L.L.C., Appellant, v. Randy ERMEY, Appellee.
• Court: Court of Appeals of Kansas

203 P.3d 4

PIONEER RIDGE NURSING FACILITY OPERATIONS, L.L.C., Appellant, v. Randy ERMEY, Appellee.

No. 100,095.

Court of Appeals of Kansas.

March 6, 2009.

Pamela L. Smith, of Midwest Health Management, Inc., of Topeka, for appellant.

Emily A. Donaldson, of Stevens & Brand, L.L.P., of Lawrence, for appellee.

Before ELLIOTT, P.J., GREEN and MARQUARDT, JJ.

GREEN, J.

Pioneer Ridge Nursing Facility Operations, L.L.C. (Pioneer), appeals from the trial court's judgment dismissing its collection action against Randy Ermey. The trial court held that Pioneer Ridge had failed to state a claim against Ermey. Ermey signed a promissory note with Pioneer for his mother's care. When Ermey neglected to make the payments under the note as promised, Pioneer sued Ermey. Ermey moved to dismiss the action. The trial court agreed, dismissing the action based on the Nursing Home Reform Act and on a failure of consideration to support the note. Because we are unable to state with certainty the untenability of Pioneer's position, we determine that Pioneer's petition should not have been dismissed for a failure to state a claim. Accordingly, we reverse and remand.

On February 21, 2006, Ermey's mother, Neva Ermey, executed a general durable power of attorney appointing Ermey as her attorney-in-fact, giving him legal access to her income and resources. Neva was then admitted to Pioneer, where she resided from February 22, 2006, until her death on June 25, 2006.

Because Neva's status at the time of her admission to Pioneer was "Medicaid eligibility pending," Neva was originally classified as a "private pay" resident. As a result, she was responsible for paying for her own care. Although eventually approved for Medicaid assistance, Neva incurred $13,424.99 in nursing care expenses during her stay as a private pay resident.

On May 10, 2006, Pioneer sent Neva a notice of discharge because she had not paid on her private pay account. On June 9, 2006, Neva received approval for Medicaid assistance, and she was not discharged from Pioneer.

On June 13, 2006, Ermey met with Pioneer staff to discuss Neva's private pay account balance; Ermey signed the promissory note agreeing to pay the $13,424.99 balance in installment payments. Both parties agree the promissory note was signed. Nevertheless, Ermey contends that Pioneer made Neva's continued stay at Pioneer conditional on his signing the promissory note.

Neva died on June 25, 2006, less than 2 weeks after Ermey signed the promissory note. On July 13, 2006, Ermey's counsel sent Pioneer a letter telling Pioneer that Neva probably died without assets. Moreover, the letter reminded Pioneer that federal law prohibited a third-party guarantee of payment as a condition of continued stay at a nursing facility. Pioneer responded by sending Ermey two bills — one for $13,424.99 (effectively accelerating the private pay account debt as provided for in the promissory note agreement) and the other for $632 (for non-Medicaid covered expenses incurred between June 9 and June 25, 2006).

On October 31, 2006, Pioneer sent another billing for $623 (the discrepancy was not explained.) On November 10, 2006, Ermey sent Pioneer a $623 check in an attempted accord and satisfaction; however, Pioneer returned the check to Ermey within 90 days of receipt. Ermey made no further payments on the debt, and on February 8, 2007, Pioneer brought this action against Ermey.

Ermey moved to dismiss, and the trial court granted the motion on two grounds. First, the court found that Pioneer was prohibited from personally requiring Ermey to guarantee payment as a condition of his mother's continued stay at its facility under the Nursing Home Reform Act. The court found that, as Neva's attorney-in-fact, Ermey was required to pay for Neva's nursing care services only from his mother's income and resources, not his own. Moreover, in carrying out his fiduciary responsibility to his mother, this fiduciary responsibility did not make him personally responsible for her nursing care charges, even valid ones, incurred by her. Second, the trial court found that the promissory note was signed without consideration because (1) Pioneer was prohibited from discharging Neva because of her protected Medicaid recipient status, (2) Ermey did not have personal liability for Neva's nursing care expenses, and (3) Pioneer did not give Ermey anything in exchange for signing the promissory note.

Did the Trial Court Err in Granting Ermey's Motion to Dismiss for Failure to State a Claim?

"When a district court has granted a motion to dismiss for failure to state a claim, an appellate court must accept the facts alleged by the plaintiff as true, along with any inferences that can reasonably be drawn therefrom. The appellate court then decides whether those facts and inferences state a claim based on plaintiff's theory or any other possible theory. If so, the dismissal by the district court must be reversed. Nungesser v. Bryant, 283 Kan. 550, 559, 153 P.3d 1277 (2007)." Rector v. Tatham, 287 Kan. 230, 232, 196 P.3d 364 (2008).

A. NURSING HOME REFORM ACT

Congress enacted the federal Nursing Home Reform Act (NHRA) as part of the Omnibus Budget Reconciliation Act of 1987. See Pub.L. No. 100-203, 101 Stat. 1330-160-221 (codified, in large part, at 42 U.S.C. § 1395i-3 [2007] and 42 U.S.C. § 1396r [2007]). Under the NHRA, skilled nursing facilities (including nursing homes) accepting Medicare and Medicaid assisted residents are governed by the NHRA. See 42 U.S.C. § 1396a(28)(A) (2007); 42 U.S.C. § 1396r(b)(d); see generally 42 U.S.C. § 1395 (2007).

According to the NHRA, skilled nursing facilities cannot "require a third party guarantee of payment to [its] facility as a condition of admission (or expedited admission) to, or continued stay in, [its] facility." 42 U.S.C. § 1395i-3(c)(5)(A)(ii); 42 U.S.C § 1396r(c)(5)(A)(ii). Nevertheless, this restriction does not prevent "a facility from requiring an individual, who has legal access to a resident's income or resources available to pay for care in the facility, to sign a contract (without incurring personal financial liability) to provide payment from the resident's income or resources for such care." 42 U.S.C. § 1396r(c)(5)(B)(ii); see also 42 C.F.R. § 483.12(d)(2) (2009).

In this case, Pioneer clearly had the right to require Ermey to sign the promissory note because he was Neva's attorney-in-fact, which obligated him to use Neva's income and resources to reimburse Pioneer on the past due account. Furthermore, although Kansas has not directly addressed this issue, other states have allowed breach of contract actions in cases involving the fraudulent transfer of assets from a Medicaid recipient to an individual contractually bound to pay a skilled nursing facility according to a contract signed under 42 U.S.C. § 1396r(c)(5)(B)(ii). See, e.g., Manor of Lake City, Inc. v. Hinners, 548 N.W.2d 573 (Iowa 1996); Putnam Nursing & Rehab. Center v. Bowles, 239 App. Div.2d 479, 658 N.Y.S.2d 57 (1997).

This brings us to our current issue: Is it permissible for a skilled nursing facility regulated under the NHRA to obtain a third party's personal payment guarantee if it does so in a way that does not make a resident's admission, or continued stay, at its facility conditional on a resident's ability to obtain a third-party guarantor? Although Kansas has not addressed this issue, some states have allowed skilled nursing facilities to obtain third-party guarantees when they are voluntarily given. See, e.g., Podolsky v. First Healthcare Corp., 50 Cal.App.4th 632, 58 Cal.Rptr.2d 89 (1996); Manor of Lake City, Inc., 548 N.W.2d 573. These courts reason that "had Congress intended to forbid third party guarantees under any circumstances, ... it would have said so." 50 Cal. App.4th at 646, 58 Cal.Rptr.2d 89. Furthermore, no court has held that the NHRA requires disclosure on the part of a skilled nursing facility to obtain a third-party guarantee. In his brief, Ermey argues that the Podolsky court's analysis of 42 U.S.C. § 1396r(c)(5)(B)(ii) included an extensive disclosure and waiting period requirement. Nevertheless, Ermey cites Podolsky out of context: the Podolsky court was clearly discussing the effect of California's Business and Professions Code on obtaining a third party's personal guarantee to pay for another's nursing home expenses-not its interpretation of requirements imposed under the NHRA. See 50 Cal.App.4th at 647-56, 58 Cal.Rptr.2d 89.

As a skilled nursing facility accepting Medicaid recipients, Pioneer was required to comply with the NHRA in its dealings with Neva, and with Ermey as her attorney-in-fact and third-party guarantor. Specifically, Pioneer was prohibited from threatening to discharge Neva in order to coerce Ermey into personally guaranteeing payment for Neva's nursing care expenses. Nevertheless, in its response to Ermey's motion to dismiss, Pioneer made the following assertions:

"11. The resident's stay at the facility from February 26, 2006, through June 9, 2006, did not qualify for Medicaid due to a `transfer or property penalty' and as such was deemed a private pay stay.

"12. The resident was sent a discharge letter on May 10, 2006, because of the outstanding private pay balance. When the resident qualified for Medicaid on June 9, 2006, however, the discharge was abandoned.

"13. The defendant signed the note to make payments on June 13, 2006, after discussions with the Regional Director regarding payment of the private pay arrearages.

"14. The note was signed after the resident's discharge was withdrawn, thereby eliminating the argument the note was signed as a condition of the resident's continued stay at the facility."

Paragraphs 12 and 14 of Pioneer's response created a factual question regarding whether Ermey's signing of the promissory note was a condition precedent to Neva's continued stay at the facility.

In Rector, our Supreme Court stated that disputed issues of fact...