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Tristani v. Richman

March 25, 2009

RITA L. TRISTANI, BY AND THROUGH HER ATTORNEY IN FACT, MARIA C. KARNES, AND JOSHUA C. VALENTA, INDIVIDUALLY, AND ON BEHALF OF OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
ESTELLE B. RICHMAN, IN BOTH HER INDIVIDUAL AND OFFICIAL CAPACITIES, AND FEATHER HOUSTOUN, IN HER INDIVIDUAL CAPACITY, DEFENDANTS.



The opinion of the court was delivered by: Conti, District Judge

MEMORANDUM OPINION

Introduction

Pending before the court are cross-motions for summary judgment filed by Rita L. Tristani, by and through her Attorney in Fact, Maria C. Karnes, and Joshua C. Valenta, individually and on behalf of others similarly situated ("plaintiffs"), and by Estelle B. Richman, in both her individual and official capacities, and Feather Houstoun, in her individual capacity ("defendants"). This controversy concerns liens placed by the Pennsylvania Department of Public Welfare on settlement proceeds obtained from third parties by recipients of Medicaid benefits under Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. For the reasons that follow, the motion for summary judgment filed by defendants will be granted in part and denied without prejudice in part, and the motion for partial summary judgment filed by plaintiffs will be denied.

Background*fn1

On September 14, 2001, plaintiff Rita L. Tristani ("Tristani"), by and through her attorney in fact, Maria C. Karnes ("Karnes"), commenced a medical malpractice action in the Pennsylvania Court of Common Pleas of Washington County against the Washington Hospital, the Washington Family Practice Center, Jason W. Booth, M.D. ("Dr. Booth"), T. Grant Phillips, M.D. ("Dr. Phillips"), Sarah C. Duncan, M.D. ("Dr. Duncan"), Richard A. Aprea, M.D. ("Dr. Aprea"), and Janice M. Salansky, R.N. ("Salansky"), alleging that they had provided negligent medical treatment to her, thereby causing her to suffer serious and permanent injuries. (Defs.' Summ. J. App. 17A-19A.) According to Tristani, she underwent a bunionectomy in early September 1999.*fn2 (Id. 21A.) This surgery was performed by Dr. Mark Hofbauer ("Dr. Hofbauer"). (Id.) On September 28, 1999, eighteen days after her surgery, Tristani was examined by Dr. Hofbauer. (Id.) During his examination, Dr. Hofbauer discovered that Tristani's left leg had recently become painful and warm with a red, black and blue discoloration.

(Id.) Suspecting that Tristani was suffering from deep venous thrombosis, Dr. Hofbauer immediately referred Tristani to the Washington Family Practice Center. (Id.)

Later that day, Tristani was examined by Dr. Booth, who was a resident physician. (Id. 22A.) Dr. Phillips was Dr. Booth's preceptor. (Id.) Dr. Booth and Dr. Phillips allegedly performed no laboratory studies, imaging studies or diagnostic tests on Tristani, opting to rely solely on Dr. Booth's physical examination findings. (Id.) They allegedly ruled out deep venous thrombosis as the cause of Tristani's medical problem and diagnosed her as having superficial thrombophlebitis. (Id. 22A-23A.) Despite Dr. Booth's relative inexperience, Dr. Phillips did not examine Tristani himself. (Id. 23A.) Dr. Booth and Dr. Phillips indicated that Tristani should be reevaluated if her symptoms were not resolved within two to three days. (Id. 24A.) Tristani's symptoms did not resolve as expected. (Id. 23A.)

On October 1, 1999, Tristani telephoned the Washington Family Practice Center to inquire about whether she should be reevaluated. (Id.) A medical assistant responded to Tristani's first telephone call by emailing Dr. Booth. (Id. 24A.) Dr. Booth allegedly failed to respond to the message. (Id.) Five hours later, Dr. Apnea, another resident physician, responded with an email instructing the medical assistant to "follow up as needed." (Id.) Tristani apparently received no further communication in response to her first telephone call. (Id.) Later that day, Tristani again called the Washington Family Practice Center. (Id.) The call was answered by another medical assistant, who responded by sending an email message to Salansky, a registered nurse. (Id.) Salansky allegedly returned Tristani's telephone call, instructing her to continue to take medication which had been prescribed by Dr. Booth and Dr. Phillips and advising her that she did not need to be reevaluated. (Id.)

Four days later, on October 5, 1999, Tristani suffered a massive pulmonary embolism and stroke. (Id. 25A.) She suffered brain damage, partial paralysis and disfigurement. (Id.) Because of her impairments, Tristani resides in a full-time medical care facility. (Id.) She is paralyzed on her right side, and uses a wheelchair to get around. (Joint Concise Statement of Material Facts, Pl.'s Facts ("J.S.P.") ¶¶ 22-23.) She needs assistance in washing, getting dressed, using the bathroom, and preparing her food. (Id. ¶ 23.)

On November 7, 2001, while Tristani's action was pending in the state trial court, Jessica L. Bupp ("Bupp"), a third-party liability program investigator for the Pennsylvania Department of Public Welfare ("DPW"), sent a letter to Tristani's counsel indicating that Tristani was a recipient of medical assistance under the Medicaid program, and that Pennsylvania law provided that the rights of medical assistance recipients to recover the costs of medical care from liable third parties were assigned to the DPW by operation of law. (Defs.' Summ. J. App. 1A-3A.) Tristani's counsel continued to correspond with Bupp for the next three years. (Id. 4A-7A.) In a letter to Tristani's counsel dated December 14, 2004, Bupp stated:

The Department of Public Welfare maintains a lien in the amount of $247,514.98 for the above-referenced incident.

The Department has agreed to reduce its lien by 33.33% and accept the net payment of $165,018.24 to satisfy the total lien amount.*fn3 (Id. 8A (underlining in original).) The "above-referenced incident" referred to in the letter was Tristani's massive pulmonary embolism and stroke on October 5, 1999. (Id.)

Jessica L. Strawbridge ("Strawbridge"), another third-party liability program investigator, began to handle the matter on or around March 1, 2005. (Id. 10A.) In a letter to Strawbridge dated April 12, 2005, Tristani's counsel advised that Tristani had retained his law firm on a 40% contingency fee basis, and not on a 33.33% contingency fee basis. (Id. 11A.) On April 19, 2005, Strawbridge responded with a letter to Tristani's counsel which stated:

The Department of Public Welfare maintains a lien in the amount of $247,514.98 for the above-referenced incident.

The Department has agreed to reduce its lien by 40% and accept the net payment of $148,508.99 to satisfy the total lien amount.

(Id. 14A.)

A settlement was reached in Tristani's medical malpractice action on or around May 31, 2005. (J.S.P. ¶ 35.) In an order dated June 2, 2005, the state trial court acknowledged the settlement of the case for a total of $5,200,000.00. (Defs.' Summ. J. App. 35A-36A.) The order indicated that the settlement was to be paid on behalf of the Washington Hospital and Dr. Phillips, and that the claims against the Washington Family Practice Center, Dr. Booth, Dr. Duncan, Dr. Aprea and Salansky were being dismissed with prejudice. (Id. 36A.) The Washington Hospital and Dr. Phillips were ordered to pay $1,030,761.00 to "Pacific Life & Annuity Company" and $4,169,239.00 to "Maria C. Karnes, Attorney in Fact for Rita L. Tristani, and Loughren, Loughren & Loughren, P.C., her attorneys." (Id. 35A.) Beginning on June 15, 2005, Pacific Life & Annuity Services, Inc., was ordered to make monthly, tax-free payments of $3,800.00, which were to increase annually by 3%, to the Trustee of the Rita L. Tristani Irrevocable Trust. (Id.) These payments were to continue for the duration of Tristani's life if she were to live for more than twenty-five years, or for a minimum of twenty-five years if she were to expire sooner. (Id.) The law firm which had represented Tristani was ordered to pay, within twenty days of its receipt of the $4,169,239.00 payment, $1,847,268.59 to the "Smithfield Trust Company, Trustee of the Rita L. Tristani Irrevocable Trust," $148,508.99 to the DPW "in full and final satisfaction of its subrogation lien" against Tristani, $47,223.98 to "UFCW, Local 23 and Employers Benefit Funds" "in full and final satisfaction of its subrogation lien" against Tristani, $693,333.33 to "Amatangelo & Baisley" "in full and final satisfaction of its attorney fee," and $1,432,904.14 to itself (i.e., "Loughren, Loughren & Loughren, P.C.") "in full and final satisfaction of its attorney fee and litigation expenses." (Id. 36A.) The order did not specify what portion of the settlement was attributable to Tristani's medical expenses.

On July 5, 2005, in conformity with the terms of the settlement order, Tristani's counsel sent Strawbridge a check payable to the "Pennsylvania Department of Public Welfare" in the amount of $148,508.99. (Id. 15A.) In a letter sent with the check, Tristani's counsel specifically referenced Strawbridge's letter of April 19, 2005. (Id.) Sharon E. Smith ("Smith"), another third-party liability program investigator, acknowledged the DPW's receipt of the $148,508.99 payment in a letter to Tristani's counsel dated July 18, 2005. (Id. 16A.)

Plaintiff Joshua C. Valenta ("Valenta") was injured in a multi-vehicle accident on January 29, 2005. (J.S.P. ¶ 5.) The accident resulted in two fatalities. (Id. ¶ 9.) As a result of his injuries, Valenta was hospitalized for a period of six days. (Defs.' Summ. J. App. 140A.) He suffered multiple fractures to his right femur, and a rod was implanted into his femur during his hospital stay. (Id. at 104A, 141A.) Because of the fatalities, multiple claimants were seeking recovery from the responsible third-party's liability limits of $300,000.00 per occurrence under an insurance policy issued by State Farm Insurance Company ("State Farm"). (Id. 95A.) Valenta was enrolled in a medical assistance program subsequent to the accident. (J.S.P. ¶ 10.)

On April 26, 2005, DPW claims investigative agent Ara K. Danchick ("Danchick") sent Valenta's counsel a letter stating that the rights of medical assistance recipients to recover the costs of medical care from liable third parties were assigned to the DPW by operation of law. (Defs.' Summ. J. App. 84A-86A.) Margaret L. Sohn ("Sohn"), another claims investigative agent, informed Valenta's counsel by way of correspondence dated August 2, 2005, that the DPW had a lien in the amount of $15,581.56 against Valenta's "personal injury award." (Id. 87A-89A.) The DPW reduced the lien to $10,000.00 to account for attorneys' fees and costs. (J.S.P. ¶ 18.) In a letter to the DPW dated August 18, 2005, Valenta's counsel stated:

Enclosed please find a check in the amount of $10,000.00, payable to Department of Public Welfare, which represents full and complete payment and final satisfaction of any and all liens pertaining to Department of Public Welfare payments made due to injuries Joshua C. Valenta sustained in the above-dated accident. The Department of Public Welfare agreed, on August 10, 2005, to accept this amount as full and complete satisfaction. (Defs.' Summ. J. App. 90A.) The "above-dated accident" referenced in the letter was Valenta's accident of January 29, 2005. (Id.) In a letter to Valenta's counsel dated August 24, 2005, Sohn acknowledged the DPW's receipt of the $10,000.00 payment. (Id. 91A.)

On November 1, 2005, Valenta commenced an action in the Pennsylvania Court of Common Pleas of Allegheny County against Lingaraj S. Patil ("Patil") and Deondre E. Morris ("Morris"), alleging that Patil's negligence had been the cause of Valenta's injuries. (Id. 92A-93A.) On October 30, 2006, Patil and State Farm settled with Valenta for $70,000.00. (Id. 95A-96A.) Through his counsel, Valenta also pursued and recovered underinsured motorist ("UIM") benefits. (J.S.P. ¶ 12.) Valenta's total gross recovery for his injuries was $130,000.00.*fn4 (Id. ¶ 13.)

Procedural History

Tristani and Valenta commenced this action against defendants Estelle B. Richman ("Richman"), Pennsylvania's Secretary of Public Welfare, Feather Houstoun ("Houstoun"), Richman's predecessor in that position, and the DPW on May 26, 2006, alleging that the DPW's liens against their recoveries had violated Title XIX of the Social Security Act, the Takings Clause of the Fifth Amendment to the United States Constitution, the Due Process Clause of the Fourteenth Amendment to the United States Constitution, and the Takings Clause of article I, section 10, of the Pennsylvania Constitution. (Compl. (Docket No. 1) ¶¶ 108-21.) The action was filed as a proposed class action under Federal Rule of Civil Procedure 23. (Id. ¶¶ 99-106.) On June 9, 2006, Tristani and Valenta filed an amended class action complaint, naming only Richman and Houstoun as defendants. (Am. Compl. (Docket No. 3).)*fn5 Richman and Houstoun filed a motion to dismiss on September 29, 2006. (Mot. to Dismiss (Docket No. 10).) While the motion to dismiss was still pending, Tristani and Valenta sought leave to amend their complaint for the second time. (Mot. to Amend (Docket No. 13).) The court granted the request for leave to amend on October 27, 2006. (Order of Ct. (Docket No. 16).) Tristani and Valenta filed their second amended class action complaint on November 10, 2006. (Second Am. Compl. (Docket No. 19).)

On January 3, 2007, Richman and Houstoun filed a new motion to dismiss. (Second Mot. to Dismiss (Docket No. 22).) The court heard oral argument with respect to the motion to dismiss on April 17, 2007. (Tr. of Oral Argument (Docket No. 47).) The motion to dismiss was denied without prejudice so that the relevant factual and legal issues could be evaluated on a more developed record at the summary judgment stage. Richman and Houstoun filed a motion for summary judgment on April 9, 2008. (Defs.' Mot. for Summ. J. (Docket No. 64).) Tristani and Valenta filed a motion for partial summary judgment on April 10, 2008. (Pls.' Mot. for Partial Summ. J. (Docket No. 68).) These motions are the subject of this memorandum opinion.

Standard of Review

Federal Rule of Civil Procedure 56(c) provides that summary judgment may be granted if, drawing all reasonable inferences in favor of the non-moving party, "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). A motion for summary judgment will not be defeated by the mere existence of some disputed facts, but will be defeated only if there is a genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In determining whether a dispute is genuine, the court's function is not to weigh the evidence or to determine the truth of the matter, but only to determine whether the evidence of record is such that a reasonable jury could return a verdict for the nonmoving party. Id. at 249.

Discussion

A. The Relevant Legal Developments

The present controversy resulted from a complicated history of legal developments concerning the Medicaid program under the Social Security Act. Medicaid is a complex program. "The system is a web; a tug at one strand pulls on every other." Stephenson v. Shalala, 87 F.3d 350, 356 (9th Cir. 1996). For this reason, the court must trace the legal developments so that the issues raised by Tristani and Valenta can be viewed in context.

Congress appropriated funds to enable the states to provide "medical assistance" for those "whose income and resources are insufficient to meet the costs of necessary medical services."

42 U.S.C. § 1396. The Medicaid program involves cooperation between the states and the federal government. A participating state is required to comply with statutorily-prescribed mandates involving eligibility determinations, the collection and maintenance of relevant information, and the administration of the program. 42 U.S.C. § 1396a. Depending on the particular state's per capita income, the federal government pays anywhere between 50% and 83% of the costs that the state incurs for providing medical assistance to those who are eligible to receive it. 42 U.S.C. § 1396d(b). Because Congress provides funding for the Medicaid program, it possesses the constitutional authority under the Spending Clause and the Necessary and Proper Clause to attach conditions on the states' receipt of federal funds in order to "further broad policy objectives." South Dakota v. Dole, 483 U.S. 203, 206 (1987) (quoting Fullilove v. Klutznick, 448 U.S. 448, 474 (1980) (Burger, C.J.).

Title XIX of the Social Security Act includes many such conditions. The relevant portions of 42 U.S.C. § 1396a provide:

§ 1396a. State plans for medical assistance

(a) Contents. A State plan for medical assistance must-- . . ..

(25) provide--(A) that the State or local agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties . . . to pay for care and services available under the plan, including--(i) the collection of sufficient information (as specified by the Secretary in regulations) to enable the State to pursue claims against such third parties, with such information being collected at the time of any determination or redetermination of eligibility for medical assistance, and

(ii) the submission to the Secretary of a plan (subject to approval by the Secretary) for pursuing claims against such third parties, which plan shall be integrated with, and be monitored as a part of the Secretary's review of, the State's mechanized claims processing and information retrieval systems required under section 1903(r) [42 U.S.C. § 1396b(r)];

(B) that in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State or local agency will seek reimbursement for such assistance to the extent of such legal liability;

(H) that to the extent that payment has been made under the State plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance, the State has in effect laws under which, to the extent that payment has been made under the State plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services.

42 U.S.C. § 1396a(a)(25)(A)-(B), (H). Other provisions of Title XIX, which are codified at 42 U.S.C. § 1396k, provide:

§ 1396k. Assignment, enforcement, and collection of rights of payments for medical care; establishment of procedures pursuant to State plan; amounts retained by State

(a) For the purpose of assisting in the collection of medical support payments and other payments for medical care owed to recipients of medical assistance under the State plan approved under this title [42 U.S.C. § 1396 et seq.], a State plan for medical assistance shall--(1) provide that, as a condition of eligibility for medical assistance under the State plan to an individual who has the legal capacity to execute an assignment for himself, the individual is required--(A) to assign the State any rights, of the individual or of any other person who is eligible for medical assistance under this title [42 U.S.C. § 1396 et seq.] and on whose behalf the individual has the legal authority to execute an assignment of such rights, to support (specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party;

(B) to cooperate with the State . . . (ii) in obtaining support and payments (described in subparagraph (A)) for himself and for such person . . .; and

(C) to cooperate with the State in identifying, and providing information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan, unless such individual has good cause for refusing to cooperate as determined by the State agency in accordance with standards prescribed by the Secretary, which standards shall take into consideration the best interests of the individuals involved . . . .

(b) Such part of any amount collected by the State under an assignment made under the provisions of this section shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of an individual with respect to whom such assignment was executed (with appropriate reimbursement of the Federal Government to the extent of its participation in the financing of such medical assistance), and the remainder of such amount collected shall be paid to such individual.

42 U.S.C. § 1396k(a)(1), (b).*fn6

While no state is required to participate in the Medicaid program, all fifty states have opted to do so. Pennsylvania carried out its federally-imposed obligation to seek reimbursement for its Medicaid expenses by enacting 62 PA. STAT. ANN. § 1409, which governs third-party liability in the Medicaid context. Section 1409(b)(1) gives the DPW the right to recover from a liable third-party tortfeasor or insurer "the reasonable value" of the medical assistance benefits provided to a Medicaid beneficiary in an action instituted and prosecuted by the state attorney general of Pennsylvania in the name of either the DPW or the injured medical assistance recipient. 62 PA. STAT. ANN. § 1409(b)(1). An action brought on behalf of the DPW in accordance with section 1409(b)(1) does not bar an action brought by the Medicaid beneficiary against the liable tortfeasor or insurer, nor does it deny him or her the portion of a recovery not subject to the DPW's claim for reimbursement. 62 PA. STAT. ANN. § 1409(b)(3).

In addition to the provisions governing an action by the DPW against a liable third-party tortfeasor or insurer, Pennsylvania law provides for the reimbursement of the DPW for the cost of medical assistance benefits out of the proceeds of a Medicaid recipient's judgment, award or settlement in a suit or claim against a liable third-party tortfeasor or insurer. 62 PA. STAT. ANN. § 1409(b)(7). Prior to July 7, 2005, section 1409(b)(7) provided:

§ 1409. Third party liability

(7) In the event of judgment or award in a suit or claim against such third party or insurer:

(i) If the action or claim is prosecuted by the beneficiary alone, the court or agency shall first order paid from any judgment or award the reasonable litigation expenses, as determined by the court, incurred in preparation and prosecution of such action or claim, together with reasonable attorney's fees, when an attorney has been retained. After payment of such expenses and attorney's fees the court or agency shall, on the application of the department, allow as a first lien against the amount of such judgment or award, the amount of the department's expenditures for the benefit of the beneficiary under the medical assistance program, as provided in subsection (d).

(ii) If the action or claim is prosecution [sic] both by the beneficiary and the department, the court or agency shall first order paid from any judgment or award, the reasonable litigation expenses incurred in preparation and prosecution of such action or claim, together with reasonable attorney's fees based solely on the services rendered for the benefit of the beneficiary. After payment of such expenses and attorney's fees, the court or agency shall apply out of the balance of such judgment or award an amount of benefits paid on behalf of the beneficiary under the medical assistance program.

62 PA. STAT. ANN. § 1409(b)(7).*fn7

The DPW instituted a managed care program on February 7, 1997. (J.S.P. ¶ 56.) Under this program, the DPW contracts with managed care organizations ("MCOs"), which are private entities, to provide medical assistance services to Medicaid recipients on a capitated basis. (Id. ¶ 57.) Pursuant to this arrangement, an MCO provides medical assistance to a particular recipient in exchange for a monthly fee paid to it by the DPW. (Id. ¶ 59.) The DPW pays the capitation fees for all individuals enrolled in MCOs at the beginning of each month. (Id. ¶ 60.) The monthly capitation fee is the only money that the DPW spends on a medical assistance recipient who is enrolled in an MCO. (Id. ¶ 61.) Enrollment in an MCO is mandatory for recipients in twenty-five Pennsylvania counties and voluntary for recipients in twenty-seven Pennsylvania counties. (Id. ¶ 63.)

On January 31, 2005, the Pennsylvania Superior Court decided In re C.S., No. 83 WDA 2004 (Pa. Super. Ct. Jan. 31, 2005). (Docket No. 28 at 1-8.) In that unpublished decision, the superior court construed the phrase "the amount of the department's expenditures for the benefit of the beneficiary under the medical assistance program," as it appeared in section 1409(b)(7)(i), to refer only to the amount of the capitation fees paid by the DPW to an MCO for the benefit of the particular medical assistance recipient at issue. (Id. at 6-7.) The superior court reasoned that the DPW would obtain a windfall if it were able to recover the medical expenses incurred by the MCO in providing medical assistance to the recipient because the only expenses incurred by the DPW for that recipient's benefit had been the capitation fees paid to the MCO. (Id. at 7.)

Rule 65.37(A) of the superior court's internal operating procedures provides: An unpublished memorandum decision shall not be relied upon or cited by a Court or a party in any other action or proceeding, except that such a memorandum decision may be relied upon or cited (1) when it is relevant under the doctrine of law of the case, res judicata, or collateral estoppel, and (2) when the memorandum is relevant to a criminal action or proceeding because it recites issues raised and reasons for a decision affecting the same defendant in a prior action or proceeding. When an unpublished memorandum is relied upon pursuant to this rule, a copy of the memorandum must be furnished to the other party [and] to the Court.

210 PA. CODE § 65.37(A).*fn8 By its very terms, rule 65.37(A) permits a party to rely on an unpublished decision of the Superior Court for purposes of res judicata and collateral estoppel. In Liberto v. Suburban General Hospital, GD No. 02-020275 (Pa. Ct. Com. Pl. Allegheny County June 23, 2005), the Pennsylvania Court of Common Pleas of Allegheny County held that the DPW was collaterally estopped from arguing that section 1409(b)(7)(i) permitted the DPW to recover the expenses incurred by an MCO in providing medical assistance to a Medicaid recipient, since the superior court had already held, in In re C.S., that section 1409(b)(7)(i) provided only for the recovery of the capitation fees paid to an MCO by the DPW for the treatment of a recipient enrolled in an MCO. (Docket No. 71-2 at 2-5.) In so holding, the state trial court relied on language in Mellon Bank v. Rafsky, 535 A.2d 1090, 1093 (Pa. Super. Ct. 1987), declaring that "[c]ollateral estoppel may be used as either a sword or a shield by a stranger to the prior action if the party against whom the doctrine is invoked was a party or in privity with a party to the prior action." (Id. at 3.) The state trial court reasoned that since the DPW had been a party in In re C.S., the medical assistance recipient at issue in Liberto could use the superior court's decision in that case as a "sword" with respect to the construction of section 1409(b)(7)(i). (Id. at 2-4.)

Apparently displeased with the superior court's decision in In re C.S., the Pennsylvania legislature on July 7, 2005, amended § 1409(b)(7). 2005 Pa. Laws 190. The word "settlement" was added to the prefatory language contained in section 1409(b)(7) to clarify that the provision was applicable to a "settlement" as well as to a "judgment" or an "award." Id. In addition, the following language was added to section 1409(b)(7):

(iii) With respect to claims against third parties for the cost of medical assistance services delivered through a managed care organization contract, the department shall recover the actual payment to the hospital or other medical provider for the service. If no specific payment is identified by the managed care organization for the service, the department shall recover its fee schedule amount for the service.

62 PA. STAT. ANN. § 1409(b)(7)(iii). The effect of this statutory amendment was to reverse the decision in In re C.S., thereby allowing the DPW to recover from liable third-party tortfeasors and insurers the costs incurred by MCOs in providing medical assistance to Medicaid recipients.

The next major legal development relevant to this case occurred on May 1, 2006, when the United States Supreme Court decided Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006). At issue in Ahlborn was an Arkansas statute providing that where a Medicaid recipient obtained a tort settlement after the payment of medical costs on his or her behalf by Medicaid, a lien was to be placed on the settlement proceeds in an amount equal to Medicaid's costs. Id. at 272. The amount of the lien was tied to the costs incurred by the Medicaid program rather than to the portion of the settlement proceeds attributable to medical costs. Id. Consequently, where the amount of Medicaid's expenditures on behalf of a recipient exceeded the portion of the recipient's settlement proceeds attributable to medical costs, satisfaction of the state's lien required payment out of settlement proceeds attributable to damages other than medical costs, such as damages for pain and suffering, lost wages, or loss of future earnings.*fn9 Id. The question presented in Ahlborn was whether the enforcement of that lien was consistent with federal law.

In a unanimous decision, the Supreme Court construed the phrase "payment by any other party for such health care items or services" appearing in § 1396a(a)(25)(H), and the phrase "payment for medical care from any third party" appearing in § 1396k(a)(1)(A), to mean that federal law required a state to recoup only the portion of a Medicaid recipient's settlement that was attributable to medical expenses. Id. at 280-82. The Supreme Court explained that Title XIX contained other provisions which expressly limited a state's authority to recover expenses incurred for the benefit of a Medicaid recipient, thereby precluding a determination that Title XIX merely "supplied a recovery 'floor' upon which States were free to build." Id. at 283. The provisions to which the Supreme Court referred are codified at 42 U.S.C. §§ 1396a(a)(18) and 1396p(a)-(b).

Under § 1396a(a)(18), "[a] State plan for medical assistance must . . . comply with [§ 1396p] with respect to liens, adjustments and recoveries of medical assistance correctly paid . . . ." 42 U.S.C. § 1396a(a)(18). The relevant portions of § 1396p provide:

§ 1396p. Liens, adjustments and recoveries, and transfers of assets

(a) Imposition of lien against the property of an individual on account of medical assistance rendered to him under a State plan.

(1) No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except--(A) pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or [in circumstances not relevant to this case]. . . . .

(b) Adjustment or recovery of medical assistance correctly paid under a State plan.

(1) No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except [in circumstances not relevant to this case].

42 U.S.C. § 1396p(a)-(b). In Ahlborn, the Supreme Court observed that the anti-lien provision contained in § 1396p(a)(1), "[r]ead literally and in isolation," would appear to preclude a lien even on the portion of a recipient's settlement proceeds attributable to payments for medical care. Ahlborn, 547 U.S. at 284. The Medicaid recipient at issue in that case, however, did not argue that the anti-lien provision precluded the encumbrance of the portion of her settlement proceeds attributable to medical expenses. Id. ("Ahlborn does not ask us to go so far, though; she assumes that the State's lien is consistent with federal law insofar as it encumbers proceeds designated as payments for medical care."). Instead, she argued only that the anti-lien provision precluded the Arkansas Department of Health and Human Services ("ADHHS") from attaching or encumbering the remainder of her settlement proceeds. Id. The Supreme Court found this argument to be persuasive.

At the outset, it was noted in Ahlborn that §§ 1396a(a)(25) and 1396k(a) expressly provided Arkansas with the authority to require a Medicaid recipient to assign his or her right, or chose in action, to receive payments for medical care. Id. The Supreme Court also assumed, as did the parties in the case, that Arkansas could also "demand as a condition of Medicaid eligibility that the recipient 'assign' in advance any payments that may constitute reimbursement for medical costs." Id. Proceeding on the assumption that it was authorized by §§ 1396a(a)(25) and 1396k(a), the Supreme Court treated this "forced assignment" as an exception to § 1396p(a)(1). Id. ("To the extent that the forced assignment is expressly authorized by the terms of §§ 1396a(a)(25) and 1396k(a), it is an exception to the anti-lien provision.") (emphasis added). The Supreme Court held that the "exception carved out by §§ 1396a(a)(25) and 1396k(a) [was] limited to payments for medical care," and that § 1396p(a)(1) prohibited Arkansas from placing a lien on any portion of a Medicaid recipient's settlement award which was not attributable to medical expenses. Id. at 284-85.

The language used in Ahlborn shows that the Supreme Court assumed that §§ 1396a(a)(25) and 1396k(a) created an exception to § 1396p(a)(1). Id. at 291-92 ("That does not mean, however, that Congress meant to authorize States to seek reimbursement from Medicaid recipients themselves; in fact, with the possible exception of a lien on payments for medical care, the statute expressly prohibits liens against the property of Medicaid beneficiaries.") (emphasis added). Consequently, whether a state can place a lien on the portion of a Medicaid recipient's settlement proceeds attributable to payments for medical care remains an open question. McMillian v. Stroud, 83 Cal. Rptr. 3d 261, 272-73 (Cal. Ct. App. 2008) (recognizing that the Supreme Court, in Ahlborn, did not determine whether a state could impose a lien on the portion of a Medicaid recipient's settlement proceeds attributable to payments for medical care). Ahlborn's holding is that a state cannot place a lien on portions of a recipient's settlement proceeds attributable to other forms of damages, such as pain and suffering, lost wages, or loss of future earnings. The applicability of the anti-recovery provision contained in § 1396p(b)(1) in the context of liens imposed on payments for medical care remains an open question. The parties in Ahlborn did not raise that issue, and the Supreme Court stated in a footnote that it would "leave for another day the question of [§ 1396p(b)(1)'s] impact on the analysis." Ahlborn, 547 U.S. at 284 n.13.

On July 4, 2008, the Pennsylvania legislature enacted legislation in order to bring Pennsylvania's administration of the Medicaid program into conformity with the Supreme Court's decision in Ahlborn. 2008 Pa. Legis. Serv. 279 (West). This statutory amendment is codified in 62 PA. STAT. ANN. § 1409.1, which provides:

Section 1409.1. Federal Law Recovery of Medical Assistance Reimbursement

(a) To the extent that Federal law limits the department's recovery of medical assistance reimbursement to the medical portion of a beneficiary's judgment, award or settlement in a claim against a third party, the provisions of this section shall apply.

(b) In the event of judgment, award or settlement in a suit or claim against a third party or insurer:

(1) If the action or claim is prosecuted by the beneficiary alone, the court or agency shall first order paid from any judgment or award the reasonable litigation expenses, as determined by the court, incurred in preparation and prosecution of the action or claim, together with reasonable attorney fees. After payment of the expenses and attorney fees, the court or agency shall allocate the judgment or award between the medical portion and other damages and shall allow the department a first lien against the medical portion of the judgment or award, the amount of the expenditures for the benefit of the beneficiary under the medical assistance program.

(2) If the action or claim is prosecuted both by the beneficiary and the department, the court or agency shall first order paid from any judgment or award the reasonable litigation expenses incurred in preparation and prosecution of the action or claim, together with reasonable attorney fees based solely on the services rendered for the benefit of the beneficiary. After payment of the expenses and attorney fees, the court or agency shall allocate the judgment or award between the medical portion and other damages and shall make an award to the department out of the medical portion of the judgment or award the amount of benefits paid on behalf of the beneficiary under the medical assistance program.

(3) The department shall be given reasonable advance notice before the court makes any allocation of a ...


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