Opinion
No. CV 020515106S
August 1, 2003
MEMORANDUM OF DECISION
This is an appeal from an administrative hearing. Plaintiff-appellant James Peters appeals from defendant-appellee's Connecticut Department of Social Services Fair Hearing Decision (hereinafter DSS).
BACKGROUND
James Peters was seriously injured in a motorcycle accident on June 22, 1997. Subsequently, he had several surgeries and was disabled for almost two years. His medical bills totaled $280,000.00.
Mr. Peters' claim against the tortfeasor was the subject of an arbitration. He recovered $747,500.00 less attorneys fees and costs. The net proceeds amounted to $526,298.33. The State of Connecticut claims a lien for medicaid reimbursement of $62,008.16, and for general assistance of $7,700.00. The issue at the administrative hearing concerned Mr. Peters' claim that the lien amount should be reduced pro rata for attorneys fees and costs. The hearing officer found that there was no provision for such reduction in Connecticut law, and denied the appeal.
The full amount of the lien is $70,590.72. This figure represents $62,890.72 in Title XIX assistance and $7,700.00 in reimbursable general cash public assistance. There is no dispute between the parties that $7,700.00 is fully reimbursable. Thus, only the amount of the lien for the Title XIX assistance is challenged by plaintiff. There is another portion of the lien in dispute. Plaintiff claims the lien should be reduced by $882.66 for a total of $69,708.16. There was a figure given as an "interim amount" which did not include the $882.66. Mr. Peters claims prejudice by what he deems "delayed accounting" because he did not have this final figure before he made his demand at the arbitration. This claim is without merit. By letter dated May 23, 2001 (Record, p. 38), the DAS Financial Services Center notified Mr. Peters that the current amounts represented interim figures and would increase by the amount of any additional assistance received. Subsequently, in a letter dated August 21, 2001, Mr. Peters' attorney wrote requesting the "final amounts due." (Record, p. 14.) Clearly, the attorney recognized that the letter from DAS referencing "interim" amounts meant that additions to the lien were possible.
ISSUE
The issue in this appeal can be expressed in several ways. In the larger sense, the issue is simply whether DSS erred in determining that the state was entitled to the full amount of its statutory lien pursuant to General Statutes §§ 17b-93 and 17b-94. Within this general issue is the question of whether DSS erred in rejecting plaintiff's claim that the state's lien should be reduced pro rata for attorneys fees. Finally, the issue can be expressed in monetary terms. The question is then whether the state should recover $62,890.72 for accident-related Title XIX medical assistance or a lesser amount reflecting a pro rata reduction for attorneys fees.
DISCUSSION
General Statutes § 17b-93 (a) provides in pertinent part:
If a beneficiary of aid under the state supplemental program, medical assistance program, aid to families with dependent children program, temporary family assistance program or state-administered general assistance program has or acquires property of any kind or interest in any property, estate or claim of any kind, except moneys received for the replacement of real or personal property, the state of Connecticut shall have a claim . . . which shall have priority over all other unsecured claims and unrecorded encumbrances, against such beneficiary for the full amount paid, subject to the provisions of section 17b-94, to him or in his behalf under said programs . . .
General Statutes § 17b-94 (a), which is referenced in § 17b-93, provides, in pertinent part:
In the case of causes of action of beneficiaries of aid under the state supplement program, medical assistance program, aid to families with dependent children program, temporary family assistance program or state-administered general assistance program, subject to subsections (b) and (c) of section 17b-93, or of a parent of a beneficiary of the aid to families with dependent children program, the temporary family assistance program or the state-administered general assistance program, the claim of the state shall be a lien against the proceeds therefrom in the amount of the assistance paid or fifty per cent of the proceeds received by such beneficiary or such parent after payment of all expenses connected with the cause of action, whichever is less, for repayment under said section 17b-93, and shall have priority over all other claims except attorneys fees for said causes, expenses of suit, costs of hospitalization connected with the cause of action by whomever paid over and above hospital insurance or other such benefits, and, for such period of hospitalization as was not paid for by the state, physicians' fees for services during any such period as are connected with the cause of action over and above medical insurance or other such benefits; and such claims shall consist of the total assistance repayment for which claim may be made under said programs. The proceeds of such causes of action shall be assignable to the state for payment of the amount due under said section 17b-93, irrespective of any other provision of law . . .
The plain reading of these two sections leaves no doubt that the state's lien is legitimate and that the state is entitled to the full amount as claimed. Nevertheless, this court requested that counsel submit additional briefs to address the issue of whether the statutory scheme met the requirements of federal law for participation in the medicaid program.
Under federal law, 42 U.S.C. § 1396a (a) (25) (A) requires:
. . . that the state or local agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties (including health insurers, group health plans . . ., service benefit plans, and health maintenance organizations) to pay for care and services under the plan . . . (B) that in any case where such legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement of 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 . . .
In order to meet these mandates, federal law sets forth requirements that a state plan must meet for participation in the medicaid program. 42 U.S.C. § 1396k (a)(1) states that:
. . . a state plan for medical assistance shall — (1) provide that, as a condition for 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 . . . and to payment for medical care from any third party . . .
Connecticut law has complied with federal law in enacting §§ 17b-93 and 17b-94, which require recovery from third parties.
The plaintiff takes issue as to the methods employed by the state in meeting the federal mandate. It is his position that the state has an affirmative duty to bring claims against third parties. Plaintiff claims that the state has failed in this obligation. According to plaintiff, if the state does not reduce the attorneys fees pro rata, he is being penalized for taking the initiative in securing the recovery to satisfy the state's lien. The applicable sections of federal law set forth herein require only that a state have a recovery policy. There is no specific requirement that the state must pursue third parties on its own. Connecticut law makes no provision for pro rata reductions for costs incurred in procuring recovery from third parties. Plaintiff cannot prevail on this question unless he can show that pro rata reductions are mandated under federal law in order for a state to meet the criteria for participation in the medicaid program.
A state's medicaid plan must conform with the requirements of federal law. See Schweiker v. Gray Panthers, 453 U.S. 34, 37, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981). If a state statute fails to conform with federal law, it may be invalidated to the extent necessary to harmonize the state scheme with the federal scheme. Cf. Dalton v. Little Rock Planning Services, 516 U.S. 474, 476, 116 S.Ct. 1063, 134 L.Ed.2d 115 (1996); Union Ctr. Redevelopment Corp. v. National R.R. Passenger Corp., 103 F.3d 62, 64 (8th Cir. 1997). Thus, if there is any tension between the state and federal schemes, the state scheme must yield to the extent necessary to effectuate the federal scheme.
Norwest Bank of North Dakota, N. A. v. Doth, 159 F.3d 328, 334, 335 (8th Cir. 1998) (Judge Heaney, concurring). Plaintiff cites this concurring opinion in support of his claim for pro rata reduction of attorneys fees. His reliance on this case is grossly misplaced. In this opinion, the majority specifically declines to consider the issue of pro rata reductions stating: "Nor do we decide the question of whether the state must bear some portion of the cost, including attorneys fees, of securing the award or settlement." Norwest, at 334 (citation omitted). In his concurrence, Judge Heaney answers the question that the majority did not. He expresses his opinion, in dicta, that the state's recovery should be reduced to reflect the costs of recovery.
Plaintiff also relies on Wilson v. State of Washington, 142 Wash.2d 40, 10 P.3d 1061 (2000), cert. denied, 532 U.S. 1020 (2001). Again, his reliance is misplaced. The State of Washington has an explicit provision in its statutes for a pro rata reduction for costs of recovery. Nor does Wilson support plaintiff's assertion that the state must pursue third parties directly. "However, the assignment is for the right of payment from the third party, not solely the right to pursue a course of action against the third party. [Footnote omitted.] The state is not required to pursue a cause of action against the third party." (Emphasis not in original.) Wilson v. State, supra, 49.
The defendant concedes that the state could have enacted a provision for a pro rata reduction in attorneys fees and still be in compliance with federal law. The court agrees, as federal law is silent on this point, and gives the state broad discretion so long as the state has a recovery policy.
Even more fatal to plaintiff's argument is that, unlike the federal law pertaining to medic aid, the regulations applicable to medi care do provide for a pro rata reduction for costs of recovery. See 42 C.F.R. § 433.136. Had Congress intended this provision to apply to medicaid, it would have done so, as there was clearly an awareness of the issue.
In 1981, Judge Borden, now Justice Borden, addressed the issue in a decision on a motion to strike:
It may or may not be a wiser or fairer policy to recognize the equitable principles, relied on by defendant, that (1) he was in a fiduciary capacity over the fund collected and should be compensated therefrom, and (2) one enjoying the fruits of a recovery should be required to contribute to the costs of growing them. The answer to these arguments is two-fold. First, § 17-83f makes provision for full deduction of defendant's fee out of the proceeds before attachment of the lien; thus, if defendant is a fiduciary there is ample provision for his compensation. Second, whether the state should be required to contribute to the legal fee for generating the fund is a matter of policy which the legislature has clearly resolved in the negative under § 17-83f. It is free, of course, to change that policy, as it did with respect to no-fault insurers under § 38-325 (b) in 1980. See Public Acts, 1980, No. 80-131. But unless and until it does this court cannot read § 17-83f to do so.
State of Connecticut v. Attorney Norman Ebenstein, Superior Court, judicial district of Hartford-New Britain at Hartford, Docket No. 251148 (July 6, 1981).
Plaintiff argues that a different result should be reached today in view of the 1993 amendments to federal law. The provisions of federal law noted herein which include the 1993 amendments simply do not mandate this conclusion. Judge Borden's decision remains the state of the law today, regardless of the amendments to federal law. Plaintiff presses Judge Heaney's concurrence in Norwest because Judge Heaney chose to expound on what he thought the law should be despite the constraint of the majority:
While I concur in the result reached by the majority, I write separately to highlight the state's obligation with respect to attorneys fees and costs under the federal scheme.
As the majority correctly points out, a medicaid recipient under the federal scheme must "assign the State any rights . . . to payment for medical care from any third party." 42 U.S.C.A. § 1396k (a)(1)(A) (West 1992). A recipient is also required "to cooperate with the State in identifying, and provid[e] information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan." Id. § 1396k (a)(1)(C). After the state pursues such claims, [s]uch part of any amount collected by the State under an assignment . . . 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 . . . and the remainder of such amount collected shall be paid to such individual. 42 U.S.C.A. § 1396k (b) (West 1992). Implicit in these provisions is a state's affirmative obligation to pursue causes of action against potentially liable third parties. In my view, a state is obligated to pursue such causes of action that have a reasonable likelihood of success, and while there may be cases in which it will be appropriate for a state to exercise discretion in foregoing fruitless suits, this is not one of them.
Here the state failed to pursue the claims against the potentially liable third parties identified by Lotzer and Lerud. While the federal scheme imposes an obligation on the states to pursue such claims, it is silent as to the consequences when a state does nothing and then seeks reimbursement from a plaintiff who was forced to vindicate his or her own rights. The majority declines to address Norwest's challenge to the validity of Minn.State.Ann. § 256B.042 (West 1998). Even though I am inclined to consider Norwest's arguments as properly before this court, I limit my observations to the state's share of the attorneys fees and costs.
A state's medicaid plan must conform with the requirements of federal law. See Schweiker v. Gray Panthers, 453 U.S. 34, 37, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981). If a state statute fails to conform with federal law, it may be invalidated to the extent necessary to harmonize the state scheme with the federal scheme. Cf. Dalton v. Little Rock Family Planning Servs., 516 U.S. 474, 476, 116 S.Ct. 1063, 134 L.Ed.2d 115 (1996); Union Ctr. Redevelopment Corp. v. National R.R. Passenger Corp., 103 F.3d 62, 64 (8th cir. 1997). Thus, if there is any tension between the state and federal schemes, the state scheme must yield to the extent necessary to effectuate the federal scheme.
In addressing third party liability, Minnesota law provides that the state "shall have a lien for the cost of the care upon any and all causes of action or recovery rights" against liable third parties. Minn.Stat.Ann. § 256B.042 subd. 1 (West 1998). In the event the state foregoes its affirmative obligations under the federal scheme and seeks to cash in on a plaintiff's award, costs and attorneys fees are first deducted from the net settlement. See Minn.Stat.Ann. § 256B.042 subd 5 (West 1998). The state may recover up to two-thirds of the remaining funds. See id. In Lerud's case, for example, the gross recovery was $140,000. (See Appellant's Reply Br. at 19.) Costs and attorneys fees totaled approximately $46,000, leaving a net recovery of $94,000. See id. Of the $94,000, the state is entitled to medical payments expended or up to two-thirds of the net recovery, whichever is smaller. See Minn.Stat.Ann. § 256B.042 subd 5 (West 1998). If the state scheme were allowed to operate with full force, the state could recoup the entire $56,000 without having to bear any burden with respect to recovery costs. This is clearly inconsistent with respect to the federal scheme.
In my view, when a state fails to perform its duty of pursuing claims against potentially liable third parties that have a reasonable likelihood of success, the state must, at the very least, bear its portion of the attorneys fees and costs of recovering medical payments from liable third parties. [Footnote omitted.] Thus, rather than receiving the full $56,000, the state's recovery should be reduced by the proportional share of costs required to recover that amount. Because $56,000 is forty percent of the gross recovery, the state would pay forty percent of the total attorneys fees and costs. Because the state's share of those costs would be $18,400, the state's total recovery would be $37,600. This result is the very least required to effectuate the federal scheme, and while the state may have been able to pursue this action at less expense, because it violated its affirmative duty to do so, it is bound by the expenses incurred by the plaintiffs.
Norwest, supra, 334, 335. While this is a cogent argument for what, in Judge Borden's words, ". . . may or may not be a wiser or fairer policy . . .," it is, in the opinion of this court, based, in part, on a false premise. This court does not agree that the state has an "affirmative duty" to pursue third-party claims on its own under federal law.
In a treatise on medicaid, the author notes that:
The medicaid rules and regulation do not contain detailed statutory provisions pertaining to attorney fees. It would appear however that when medicaid collects from a recipient who has recovered in tort against a third party who caused an injury necessitating medicaid financed medical care, medicaid may, depending on state law, be required to share in the cost of the recipient's attorneys fees. [Footnote omitted; emphasis added.]
McCormick, Medicare and Medicaid Claims and Procedures (Third Edition 2001, Vol. 2 § 27:34; emphasis added).
McCormick recognizes that federal law does not require that the cost of attorneys fees be shared unless state law so provides. The author then adds an editorial comment:
In the course of the tort litigation, the attorneys for the medicaid agency are not active in the case. They usually enter the case as an Interpleaded Defendant or by some other method. All the trial work is done by the attorneys for the beneficiary who pay for all the costs such as expert witnesses. It is only through the efforts of the attorneys for the beneficiary that recovery is achieved. Therefore the medicaid agency should be compelled to contribute to the attorney fees in such situation.
Id.
While the pro rata sharing of attorneys fees and costs may well be the "fairer and wiser" policy, it remains for the legislature to decide this issue for Connecticut.
The Connecticut legislature has addressed the issue to some degree:
In 1984, the statute [ 17b-94, formerly 17-83f] was again amended to reduce the amount of the state's lien against the proceeds of causes of action held by public assistance beneficiaries to the lesser of 50 percent thereof or the amount of assistance paid . . . The obvious purpose of reducing the amount of the state's lien on such proceeds and, thereby, affording some of the recovery to the public assistance beneficiary, was to give an incentive to the beneficiary to prosecute his or her cause of action, thus benefitting the beneficiary and, possibly, the state as well, as described previously.
State v. Marks, 239 Conn. 471, 479, 686 A.2d 969 (1996).
CONCLUSION
For the foregoing reasons, the appeal is dismissed.
Dunnell, J.