FINRA and SEC Adopt New Rule to Help Curb Elder Financial Fraud

FINRA, the Financial Industry Regulatory Authority, Inc. (a private corporation that acts as a self-regulatory organization (SRO)). has released a series of questions and answers designed specifically to address elder financial exploitation. Frequently Asked Questions Regarding FINRA Rules Relating to Financial Exploitation of Seniors (FAQ's)  explains new rules that take effect on February 5, 2018.

The SEC recently approved: (1) the adoption of new FINRA Rule 2165 (Financial Exploitation of Specified Adults) to permit members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers; and (2) amendments to FINRA Rule 4512 (Customer Account Information) to require members to make reasonable efforts to obtain the name of and contact information for a trusted contact person (“trusted contact”) for a customer’s account. FAQs Nos. 1 and 2 deal with temporary holds, No. 3 deals with trusted contacts, and No. 4 with disclosures.  The FAQs are available here.

FINRA Rule 2165 allows a FINRA member firm that reasonably believes financial exploitation may be occurring or has occurred to place a temporary hold of up to fifteen (15) business days on the disbursement of funds or securities from the account of a “Specified Adult” customer.  A Specified Adult is either (a) a person aged 65 or older; or (b) a person, aged 18 or older, who the firm reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interest.

Rule 2165 also establishes additional recordkeeping requirements in order to comply with the rule including identification, escalation and reporting of matters related to the financial exploitation of Specified Adults.

Further, Rule 2165 requires a member firm’s supervisory procedures to identify the title of the person authorized to place, terminate or extend a temporary hold.  The person specified at the member firm must serve in a supervisory, compliance or legal capacity.

The rule allows member firms to exercise discretion in placing temporary holds on disbursements of funds or securities from the accounts of Specified Adults.  The rule serves as a safe harbor from violations of other FINRA rules, but Rule 2165 raises the question as to whether a stockbroker is qualified to pass judgment on the mental condition of his or her clients.

Additionally, the rule requires members to develop and documents training policies or programs reasonably designed to ensure that associated persons comply with its requirements to aid in identifying tell-tale signs of elder financial abuse.

Agent Under Power of Attorney Liable for Damages to Nursing Home for Breach of Contract

Nursing homes have devised numerous strategies to legally seek reimbursement from residents' family members in light of federal and state laws prohibiting them from demanding that family members personally guarantee payment of  a resident's nursing home bill. The Nursing Home Reform Act (NHRA), for example, which governs skilled nursing facilities and nursing facilities accepting Medicare and Medicaid assisted residents 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); see also 42 C.F.R. § 483.12(d)(2).  

Nursing Home admission agreements are, therefore, filled with alternate provisions, such as those requiring that family member or agents assist in obtaining Medicaid or other government assistance, or those requiring family member agents to ensure that the resident's assets are spent down on nursing home care.  Planners are concerned that these provisions might negate or interfere with otherwise lawful spend down strategies, such as spending assets for improvement of a home, or for purchase of a car for a resident's spouse.  

Supporting these efforts to find alternative reimbursement is a recent decision by an Ohio Court of Appeals.  The Court ruled in favor of a nursing home suing a resident's agent for breach of contract, holding that the nursing home is entitled to damages if the agent had control of liquid assets at the time the nursing home invoice came due even though some of the assets were paid to maintain the resident's home. Classic Healthcare Systems, LLC v. Miracle (Ohio Ct. App., 12th Dist., No. CA2017-03-029, Nov. 13, 2017).

David Miracle was his mother's agent under a power of attorney. When his mother entered a nursing home, he signed the admission agreement on her behalf and agreed to use his mother's finances to pay the facility. Mr. Miracle paid the nursing home infrequently, and his mother owed more than $100,000 by the time she was discharged.

The nursing home sued Mr. Miracle for breach of contract. Evidence showed that Mr. Miracle used $56,486.63 of his mother's resources to maintain her real estate and spent an additional $12,971.54 on payments not related to his mother. The trial court found that the additional payments were unauthorized and awarded the nursing home damages in that amount. The nursing home appealed, arguing that it was also entitled to the money that was used to maintain Mr. Miracle's mother's home.

The Ohio Court of Appeals reversed and remanded the case to the trial court.  The Court held that the nursing home is entitled to damages for breach of contract if Mr. Miracle "had control over liquid assets at the time an invoice came due." The court ruled that the trial court improperly looked at the entire nursing home stay as one transaction. According to the court, if Mr. Miracle "had control of [his mother's] liquid assets on the due date that were not paid to [the nursing home] then that amount constitutes damages properly payable to [the nursing home]."

For the full text of the opinion, go here. 

Patients Are Not Given Quality-Of Care Information When Discharged From Hospitals to Nursing Homes

"Aging in Place" as a discreet estate planning objective requires knowledge, planning, and proper assessment of risks.  One persistent risk is the health care system's incentivizing institutional care.  Another risk is that of short term institutional care turning what should be a short term need for care into a long term or permanent need for institutional care.  

These are important risks given that a significant number of nursing home residents are shorter-term residents who are recuperating from surgery or illness. A recent study centered on the information provided when patients are discharged from hospitals to nursing homes, and they or their families are tasked with choosing a post-acute care facility.

As a result of regulations and incentives imposed by CMS and the Affordable Care Act, hospitals began being held partly accountable for Medicare patients’ care after discharge. The process of patients choosing a post-acute care facility was, however, a subject of speculation.

Researchers have recently illuminated the process.  Researchers used a case study approach to determine how patients select a post-acute care facility. The study explored how patients requiring post-acute care decide which skilled nursing facility to select. Further, the study examined the role of hospital staff members in the patients’ decision-making process.

Researchers interviewed 138 staff members of 16 hospitals and 25 skilled nursing facilities, as well as 98 patients in 14 of the skilled nursing facilities. The study found that most patients reported that they received only lists of skilled nursing facilities from hospital staff members, with no other data or information regarding quality of care. The researchers concluded that  hospital staff members provided little guidance to patients when they were selecting a facility for postacute care:

Hospital staff members do not appear to provide patients who need care in a skilled nursing facility with data that would allow them to select better-quality facilities. This is in spite of the fact that hospitals are now held at least partly accountable for the postacute care their patients receive, including for rehospitalizations. A system based on quality reporting and competition for patients cannot succeed if patients do not have the data necessary to make an informed choice. Hospitals should provide these data and help patients and their families understand them. 

Staff members reported that patient choice regulations precluded them from sharing data about facilities’ quality with patients. Consequently patients’ choices of a skilled nursing facility following hospitalization were usually not based on quality data that is readily available.

According to the report:

"Across the country, the postacute care patients we interviewed made strikingly similar comments—reporting that hospital discharge planners offered them lists of SNFs containing names and addresses but little else. Patients’ experiences did not vary based on hospital characteristics, bed availability in the market, or the patient’s diagnosis or condition. In the cases where patients were Medicare Advantage beneficiaries, either they were given lists of the managed care organization’s contracted facilities, or the managed care organization staff handled discharge planning. When we asked patients what information they had been given by hospital staff members to help them select a SNF, only four patients said that they had received any information about SNF quality or instructions about where to find such data.

Instead, patients made comments such as this: “I got a two-page list of different facilities that I could go to. It basically was the name, the address, and a phone number.” Several patients in one market reported receiving a list of all SNFs in the region, which contained over 100 such facilities. When asked to describe the list she received, one patient said: “Well, there were— there’s like a hundred of them. It’s all the facilities in the area.”

What we heard from patients was consistent with what we had heard from hospital staff members. Almost all of the discharge planners we interviewed reported providing lists of SNFs to patients, with no qualitative information. Only one discharge planner reported pointing patients and their family members to the Nursing Home Compare website, which provides data to aid consumers in their selection of a postacute care facility. Typical of what we heard from hospital staff members was this comment: “So right now, how it works is everybody gets a list with all of the local SNFs on it, and everybody can choose.” Another discharge planner similarly reported: “We hand them the list. The patients usually do it [choose a SNF] based on location or preference, but we try absolutely not to sway it. In fact, we do have a form that the patients do sign with their choice.” 

Consumers have greater accesss to information regarding the quality of nursing homes.  It is unfortunate that hospitals are not aiding patients and their families access and understand this information at a time when they are in need, and vulnerable to poor decision-making.  

Skipping the 401(k) RMD Without Penalty For Those Continuing to Work After Age 70

More than ever, workers are continuing to work into their 70s and beyond.  The general rules governing retirement accounts require nearly every individual account owner to begin taking Required Minimum Distributions (RMDs) by April 1 of the year following the year in which the owner turns 70½.  There exists a notable exception for employer-sponsored 401(k) accounts owned by employees who continue working past age 70½.

If the plan allows, an owner who leaves funds in the 401(k) can avoid RMDs if s/he remains employed with the employer who sponsors the plan.  Moreover, the owner can also continue to make contributions to the 401(k)! 

This exception has some significant requirements, though.  The current employer must sponsor the 401(k);  an owner cannot change employers and defer RMDs beyond age 70½.  In other words, if a former employer sponsors the relevant 401(k), the owner must take RMDs even if continuing to work for another employer that also sponsors a 401(k).  If the owner has more than one 401(k) and the plans allow for rollovers, however, it may be possible to roll all 401(k) funds into the 401(k) of a current employer and delay RMDs on all of the funds if the still working exception applies. Combining accounts will also simplify RMD planning once the owner stops working, because the RMD on each account would have to be determined separately.

The plan, too, must permit the exception.  Because not all 401(k) plans permit the exception, even though permitted by law, an account owner must ensure that his/her plan actually does allow the funds to remain in the plan to avoid a steep 50 percent penalty that apply to missed RMDs.

The exception does not apply if the plan is an IRA (whether a traditional, SEP or SIMPLE IRA).  As an aside, remember that RMDs do not apply to Roth IRAs during the original account owner's lifetime.   

Despite these carefully prescribed and limited conditions, the last condition, that the owner continues to work for the employer, is without a concrete definition, and therefore, may permit flexibility.  Because the IRS does not provide a provides a concrete definition of what it means to continue working past age 70½, it may be possible for an owner to continue working on a reduced-hours or consulting basis and still defer his or her RMDs past the traditional required beginning date.Of course, if special arrangements are crafted by an employer and employee, it is advisable to consult an attorney to document the special relationship in order to ensure that it won't be deemed a sham or fraudulent  arrangement by the IRS.

While an account owner may generally avoid taking RMDs from his or her 401(k) as long as s/he continues working past age 70½, many small business owners are not permitted to take advantage of this exception, because the exception does not apply to participants who are five percent owners of the business sponsoring the retirement plan.  Plan participants  who own a portion of the business sponsoring the 401(k) must also be aware of the constructive ownership rules that apply when determining whether s/he is a five percent owner; interests held by certain members of the owner's family (e.g., spouse, children, parents, etc.) and by certain entities which the owner controls  will be added to the ownership interest of the participant/business owner in determining whether the 5 percent threshold has been crossed.

The above article is based upon an article  published by ThinkAdvisor, which in turn was drawn from Tax Facts Online, and originally published by The National Underwriter Company, a Division of ALM Media, LLC, as well as a sister division of ThinkAdvisor. 

Nursing Home Complaints Rose by 33% over Four Years

From McKnight's Long Term Care News: complaints filed against nursing homes between and including the years 2011 and 2015 were up by a third, according to a federal report. 

In 2011, there were 47,279 complaints, which had risen to 62,790 by 2015, notes the new report from the Office of Inspector General Report from the Department of Health and Human Services.  More than half were prioritized as high priority or resulting in immediate jeopardy, triggering  onsite investigations within 10 working days. A third of complaints were substantiated, according to the OIG.

The increase in complaints may not reflect declining care quality, authors suggested, but instead, may reflect better options for filing and  tracking the reports.  For those concerned with care quality, however, the increase in complaints suggests that, even if care quality is not decreasing, care quality remains a significant challenge.  More than half of complaints related to quality of care/treatment or resident/patient/client neglect. Examples given included a lack of blood glucose strips for a patient with high blood sugar who was later found deceased, and a resident who called for assistance after a bowel movement and wasn't helped until three and a half hours later.

The summary of the Report reads:

"State survey agencies must conduct onsite investigations within certain timeframes for the two most serious levels of complaints-those that allege serious injury or harm to a nursing home resident and require a rapid response to address the complaint and ensure residents' safety. However, previous reports by OIG and the Government Accountability Office found that States did not conduct onsite investigations within the required timeframes for some of these complaints.

Each year, half of all nursing home complaints were at the level of seriousness that requires a prompt onsite investigation, and the most common allegations among these related to quality of care or treatment. During the period we reviewed, States conducted nearly all the required onsite investigations. Although almost all States conducted most of their onsite investigations within required timeframes, a few States fell short. Furthermore, almost one-quarter of States did not meet CMS's annual performance threshold for timely investigations of high priority complaints in all 5 years. Lastly, States substantiated (i.e., verified with evidence) almost one third of the most serious nursing home complaints.

Tennessee accounted for most of the immediate jeopardy complaints in the five-year period, the report says. Additionally, Tennessee, Arizona, Maryland and New York accounted for almost half of the high priority complaints not investigated onsite within 10 working days.

To read the Report, click here.  To read the OIG's summary and explanation of the Report, click here.

To learn how your estate plan might facilitate "Aging in Place," click here.