“I Signed Up for WHAT?!”

(A Note on Admission Contracts)

Recently a client came to our office asking for assistance with qualifying dad for Medicaid. Dad is already in a long-term care facility, and he’s running out of money. This conversation generally went as follows:

“When can dad apply for Medicaid?”

“What does his admission agreement say?”

“His what?”

“The contract that was signed when he moved into his facility.”

“Oh yeah. I remember signing that.”

“You signed it, rather than dad?”

“Yes. I’m dad’s POA, and dad has dementia.”

“Did you read it before you signed it?”

“Kind of, not really. The facility told me I had to sign it to get dad in, so I did.”

“Can you provide me with a copy of it?”

“Sure, here it is.”

“Ok, this says you signed as a financially responsible party.”

“Yes, I’m his POA.”

“Yes, but this says you are personally guaranteeing the contract.”

“What does that mean?”

“It means that if dad runs out of money, the facility can come after your personal assets to pay for dad’s care.”

“WHAT?!”

“Unfortunately, yes.”

“Is that even legal?”

Our office has this conversation with clients, often. The answer to “is it legal?” may come down to how the facility is licensed.

If dad is in a skilled nursing facility (a “real” nursing home), those facilities are prohibited by federal law from requiring a personal guarantee from someone other than the resident. In particular, 42 CFR § 483.15(a)(3) says:

The facility must not request or require a third-party guarantee of payment to the facility as a condition of admission or expedited admission or continued stay in the facility. However, the facility may request a require a resident representative who has legal access to a resident’s income or resources available to pay for facility care to sign a contract, without incurring financial liability, to provide facility payment form the resident’s income or resources.     

In simple terms, a skilled nursing facility cannot define a “responsible party” as someone who will use their own money to guarantee payment. The facility can have someone agree to help make sure dad’s assets are used to pay dad’s nursing home bill each month and serve as a contact person, just like a power of attorney agent might do.

Facilities will sometimes say, “well, we didn’t require it, but we can ask for it.” The law says the facility should not even be requesting it. If dad is in a skilled nursing facility, a third-party guarantor provision is illegal. That’s the good news.

If dad is in a “lesser” level of care, like assisted living, the answer is not so good. In Wisconsin, facilities might be licensed as a group home, or a community based residential facility (“CBRF”), or a residential care apartment complex (“RCAC”), for example. Regardless of the specific type of license, if dad is in one of these lower levels of care, and not a skilled-nursing facility, then the prohibition in 42 CFR § 483.15(a)(3) does not apply. This means if dad runs out of money and rings up a large bill before he passes away or is asked to leave, the guarantor can be held legally responsible for paying that debt from their own assets.

“Are you saying that because I signed the contract for dad’s assisted living, and I signed a third-party guarantor agreement, that I’m on the hook?”

“Quite possibly, yes.”

“Well, what now? Should I have dad move?”

“Does dad want to move?”

“No, he likes it there and I think the care is pretty good. And we’ve already privately paid for over a year. But I don’t want to lose my house when he runs out of money. Ugh, this is terrible.”

If the contract is not already in place, the obvious advice is to read it before it is signed and seek a legal opinion if at all unsure of what it says. All admissions agreements are not the same. They vary from facility to facility and contain all sorts of things that may or may not be problematic or enforceable. Reviewing it carefully before it is signed can avoid major issues later.

After the contract is in place, the options are different. Now, the important step is to make sure the facility has no reason to go after the third-party guarantor. The facility does this when they aren’t getting paid. Therefore, the crucial thing for the client to do is work with an experienced elder law attorney to help them understand (1) when dad is going to run out of money, (2) whether the facility accepts Medicaid and what that looks like (restrictions, change of room, etc.), and (3) how to make sure dad achieves Medicaid eligibility as soon as he’s out of money so that the third-party guarantor doesn’t end up stuck with an unpaid assisted living bill. Sometimes this is straightforward; sometimes it’s a jigsaw puzzle.   

Initial missteps do not automatically spell disaster. The name of the game is being as proactive as possible, no matter what stage of planning the client is at. And of course, always, always read the agreement before it is signed.