Medi-Cal Liens on Homes Jolt Survivors of Patients : Benefits: Changes in law allow dwellings to be targeted. State says it is just recovering medical costs.

Grace Kleiman was still recovering from the shock of her husband’s death in a nursing home last November when she got another jolt.

The state Medi-Cal program, which had paid her husband’s nursing home bills, unexpectedly slapped a $42,000 lien on her three-bedroom home in Westchester to recoup the cost of her deceased husband’s care.

“This was such a shock, I panicked,” said Kleiman, 77.

“This came out of the blue,” said her son, Leonard Kleiman Jr.

Without notice, hundreds of elderly Californians like Kleiman recently have had liens placed on their houses by Medi-Cal officials seeking to recover medical bills run up by their late spouses in nursing homes, hospitals and elsewhere.

The homes of elderly Medi-Cal patients have long been considered sacrosanct assets. So those who have been hit by liens say they were caught by surprise--and were given no warning or information about how to appeal.

In some cases, the liens have frozen pending sales or refinancing of properties. In others, survivors say, the lien amount was not itemized or was miscalculated.

A little-known change in state law in July, coupled with amended federal legislation in October, has enabled state health officials for the first time to systematically use property liens to recover Medi-Cal payments from homeowners.

State officials said the changes close a legal loophole that has given homeowners favorable treatment by allowing them to shelter a substantial asset.

“A lot of people are saying: ‘Here’s the state going after poor people for no good reason,’ ” said Deputy Atty. Gen. Beverley Meyers. “But these are not necessarily poor people. They have homes. There is one house we know of that is worth about $400,000. . . . A person like that isn’t indigent.”

A class action lawsuit challenging the new policy has been filed in federal District Court in San Francisco. Attorneys are scheduled to ask the judge Wednesday for a temporary restraining order against the state.

So far, about 407 liens have been recorded statewide. Last week, 260 were rescinded because they had been “erroneously filed,” according to Gerry Rohlfes, chief of the state health department’s third-party recovery branch, which examines estates left by Medi-Cal recipients.

The liens, which are being recorded on the homes of deceased Medi-Cal beneficiaries over age 65, do not have to be paid immediately and do not force residents out of their homes prematurely, state officials said. But they do unequivocally stake out the state’s claim to payment, which must be made when the house is sold, transferred or refinanced by survivors.

“I was floored,” said Conchita Diaz when a $24,000 lien was placed on a modest two-bedroom house in San Francisco that she and her siblings inherited this year from her parents and were in the middle of refinancing. An itemization of the lien amount, Diaz said, included her mother’s medical bills dating back to 1977.

The liens range from $500 to $200,000 but average about $19,000, Rohlfes said.

He estimated that the new lien program will enable the state to recoup more than $12 million annually, a small portion of the $17-billion Medi-Cal budget. About $2.9 billion is spent on nursing home care alone for about 75,000 impoverished Californians.

To qualify for Medi-Cal, nursing home residents must spend or relinquish all but $2,000 worth of assets. However, they are allowed to keep their homes.

“The home has been somewhat sacrosanct,” said Pat McGinnis, executive director of the California Advocates for Nursing Home Reform in the San Francisco Bay Area.

“In computing your assets to qualify for Medi-Cal, your home is exempt,” she said. “And if you died in a nursing home, you always knew that at least your surviving spouse would have the house.”

The liens, she said, have set off panic and confusion among the elderly and their children. She said she has received at least 100 calls. “We’ve had people call from other states like Washington and Oregon saying that their parents have gotten liens and are going nuts.

“One old guy came in to see me trembling like a leaf,” McGinnis said.

She said in her 22 years as an advocate for the elderly, “people’s No. 1 concern about nursing homes is not the lousy care that they may get there, but they worry about losing their home.”

In a class action lawsuit challenging the liens on behalf of a dozen plaintiffs statewide, attorney Amitai Schwartz of San Francisco has accused state officials of violating the law by filing liens without prior notice or opportunity for a hearing. The lawsuit also contends that the appeals process for contesting liens is inadequate and that officials have miscalculated lien amounts or erroneously placed liens on certain properties.

Rohlfes said he is confident that the lien amounts are accurate because state computers keep track of every individual’s Medi-Cal billings. He said that when a Medi-Cal enrollee dies, the computer prints out all the bills of the deceased that were run up since age 65. A lien for the total amount is then placed on the home of the surviving spouse.

A more complicated problem for the state, Rohlfes acknowledged, is figuring out the surviving spouse’s share of property when there are multiple owners. He said there may be some cases where the state has imposed a lien that exceeds the surviving spouse’s ownership interest in the property.

But issues such as these, as well as hardship cases, can be thrashed out at a hearing after the lien is recorded, he said. Within the last few months, he said, the department has adopted regulations that set forth a formal appeals process.

Rohlfes said that in California the liens are a “brand new concept that just came into being with the new law,” but he said New Hampshire has adopted a similar policy and some other states are considering it.

He said Californians should not be surprised to receive the liens because all Medi-Cal enrollees sign a form explaining that the state has an “estate recovery program” that may attempt to recoup the cost of their care. He acknowledged, however, that the forms have no reference to liens.

Meyers of the attorney general’s office noted that it is not realistic to give notice of liens before they are recorded because “surviving spouses and their savvy estate planners will transfer property to others in title only” to avoid payment.

She said the new lien program, following the directive of the state Legislature and Congress, will help “plug a legal loophole” that has long given favorable treatment to elderly homeowners and their heirs. Unlike renters, she noted, homeowners are allowed to shelter and bequeath to their children a substantial asset--their houses.

The state Senate passed legislation last year that was incorporated into a voluminous budget trailer bill signed by the governor last summer.

Gov. Pete Wilson’s office referred inquiries to state health officials. Lynda Frost, spokeswoman for the Department of Health Services, said: “He felt we should . . . collect money for the Medi-Cal program that the taxpayers have spent.”

Schwartz said the plaintiffs he represents are all poor, living at bare subsistence level, with no savings and no assets except for their homes--ranging from mobile homes in rural counties to modest tract homes in metropolitan areas.

Ralph Ainsworth, 86, who lives in a Laguna Nigel retirement community, said the $11,700 lien placed on his home in January exceeds his equity in the property.

Ainsworth said he is barely squeaking by each month. His monthly income from Social Security and some minor investments totals about $1,139. But he owes $606 on his house mortgage and $290 on his retirement community fee, leaving $243 each month for food, utility bills, clothing and all other expenses.

Ainsworth’s wife, Virginia, died of cancer in September, after five months in a nursing home at a cost of about $11,000 paid by the Medi-Cal program. The next month, he said, he got a letter from the state saying he would not have to repay this money.

Then in January, Ainsworth said, he was stunned to learn that a lien had been put on his home. Last week, the lien was lifted after state officials concluded that they had erroneously targeted people like his wife who died before the federal legislation took effect in October.

The experience has been a stomach-churning roller-coaster ride for the ailing octogenarian, who is recovering from a stroke he suffered about 18 months ago.

Attorney Schwartz said: “It just goes to show how they’re filing liens first and asking questions later. This is putting people through all sorts of turmoil. I’m just outraged.”

“This new policy,” McGinnis said, “is a terribly sneaky attempt by the state to get money in violation of the law from the backs of people who can least afford it.”

Meyers, the deputy attorney general, said state health officials are moving in “more aggressive ways” to recoup Medi-Cal costs.

“It’s people’s misconception that once you go on Medi-Cal, you don’t have to pay any money back,” she said. She noted that the new lien policy generously allows surviving spouses to live in their houses until their own death and pay off their deceased spouses’ medical bills many years or months after they were incurred.

“There’s no interest being charged on these bills,” she said.