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Governor to Privatize Pennsylvania Estate Recovery Collections

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The Corbett Administration is moving to privatize the collection of estate recoveries from the estates of older Medical Assistance (Medicaid) recipients.

What is Estate Recovery?  

Federal law (42 U.S.C.§ 1396p(b)) requires Pennsylvania to seek to be repaid (“recover”) for money spent by the Medicaid program to provide long term care services to persons age 55 and older. Recoverable services include nursing home care and in-home care provided under the Aging Waiver program, as well as certain other services. The State is required to try to collect the money from the estates of benefit recipients after their deaths.

“Estate Recovery” is the name given to this collection program. Estate Recovery does NOT create a debt owed by the decedent’s family and heirs, but rather creates a claim against the assets in the recipient’s estate. The State Medicaid agency (the Department of Public Welfare also known as “DPW” in Pennsylvania) has a claim against the estate and can enforce it in the same manner as other creditors of the estate.

Assets that were exempt for purposes of determining Medicaid eligibility (most notably the home) are no longer exempt after the death of the benefit recipient. This provides a ready source of assets against which the State can recover.

The maximum amount of the claim is the value of the decedent’s estate, or the cost of the Medicaid long-term care provided to the recipient after age 55, whichever is less. If the assets of the estate are insufficient to fully pay the Medicaid claim, the remainder of the claim is extinguished.

Medicaid is jointly funded by the Federal and State Governments. Over half of the money collected by Estate Recovery goes to the Federal Government, not to the State. In the 2012 fiscal year Pennsylvania collected over $36 million in estate recoveries.

For more information on the operation of the Estate Recovery program in Pennsylvania see my earlier posting Medicaid Estate Recovery – A Medicaid Death Tax.

Privatization

Since its inception in 1994, the Pennsylvania Estate Recovery program has been administered by employees of DPW’s Division of Third Party Liability. Now, the Corbett administration is moving to hire a private contractor to administer the program.

The proposal to turn estate recovery collections over to the private sector was noted in the budget the Governor proposed in February of this year. It does not appear that Legislative approval is required. On July 18th, DPW published a solicitation for bids on the project.  See: http://tinyurl.com/ktv8cpb.  DPW is also seeking to privatize other functions of its Division of Third Party Liability, which handles other claims in addition to estate recoveries.

The Department’s Bid Solicitation (Request for Proposal)

DPW’s Request for Proposal (RFP) states that purposes of the outsourcing are “to increase recoveries, provide timely statements of claim to liable third parties and personal representatives of the affected probate estates and enhance existing processes to ensure all liable third parties and all probate estates subject to recovery are being pursued.”

The Corbett Administration projects savings of $1,462,000 for the Department’s programs from the outsourcing. My reading of the Governor’s Proposed Executive Budget 2013-2014 is that $219,000 of savings are projected for the Medical Assistance Inpatient program (page E37.16) and $1,243,000 for the Income Maintenance program (page E37.23).

A concerning aspect of the outsourcing is that it will be a contingency fee contract. The RFP states that bidders must provide their proposed estate recovery contingency fee. That fee is to be inclusive of all costs of the costs of performing the services and meeting the Department’s requirements.

Paying a private contractor a percentage of the funds recovered raises the potential for over-aggressive collection efforts. It is not clear how the Department intends to monitor the contractor to limit abusive collection practices. Query: will the Fair Debt Collection Practices Act apply to the actions of the selected contractor?

The selected contractor will refer claims related to estate recovery and annuities to attorneys approved by DPW’s Office of General Counsel. Those legal fees will be paid by the contractor. The  attorneys will litigate claims that DPW has determined are cost effective to pursue in cases where:

a)   The amount of the Department’s claim is contested;

b)   The personal representative has claimed excessive fees or has proposed an improper distribution;

c)   The personal representative or other responsible party has not acted to pay the Department’s claim in a timely manner;

d)   It is determined that an overpayment exists and the Office of Inspector General has declined to pursue it due to the recipient’s death.

My Two-Cents

I have to admit that I am no fan of the estate recovery program. I know that people who need Medicaid funded long-term care sometimes decline such services for fear that their home will be lost to the government. Without Medicaid long-term care benefits, they may require repeated hospitalizations, may not be able to get proper medications, and may be unable to take care of themselves or their homes. They and their families are faced with very difficult choices.

If they do accept Medicaid-funded care seniors are often depressed by the prospect of the eventual loss of their home to estate recovery. Some are ashamed that their inability to care for themselves in the last years of an otherwise productive life means that their children will lose the right to inherit the home. Heirs who were depending on, and may feel they have earned, their inheritance are surprised by estate recovery, and angry that the State is taking a home that is so financially and emotionally important to them.

And it has always troubled me that the program discriminates against seniors since it only applies to the estates persons who were age 55 when they received long-term care.

So, I have always felt that estate recovery was a nasty business. The State is forced to become a collection agency primarily for the federal government.

But putting those feelings aside, I have to admit that in my dealings the DPW estate recovery staff since 1994 I have found them to be knowledgeable, professional and consistent. It seems to me that this is an area where DPW has done a good job of performing the unpleasant task of collecting money for the government from small estates.

I fear that a private collection firm, especially one operating on a contingent fee basis, will hire aggressive debt collectors who are less knowledgeable, professional, and consistent than DPW employees. I fear that the profit motive may lead to abuses against families who are ill prepared to defend themselves, and may be still recovering from the lengthy disability and death of their father or mother. Estate recovery collections may indeed increase if profit driven inappropriate debt collection is allowed.

I hope my worries are ill-founded. Time will tell. It looks like privatization is about to happen. Still, it couldn’t hurt if concerned seniors and their families expressed that concern to their legislative representatives.

Overall, my view is that DPW’s internal administration of the estate recovery program isn’t broken. But a lot of other functions of state government are. The Governor should look elsewhere for something to fix.