Plaintiff s Attorneys And Reimbursement To The Pennsylvania Department Of Human Services Of Personal Injury Settlements And Awards

Transcription

1 Plaintiff s Attorneys And Reimbursement To The Pennsylvania Department Of Human Services Of Personal Injury Settlements And Awards By RICHARD P. WEISHAUPT, 1 Philadelphia County Member of the Pennsylvania Bar THE BIPARTISAN BUDGET ACT (BBA) OF LIMITS ON REIMBURSEMENT UNDER THE PA HUMAN SERVICES CODE MANAGED CARE ORGANIZATIONS (MCOs) TABLE OF CONTENTS ATTORNEY S FEES AND COSTS CASH ASSISTANCE CHILD SUPPORT CLAIMS ON RECOVERIES CONCLUSION: ETHICAL CONSIDERATIONS ABSTRACT One of the common issues that arise for attorneys doing personal injury work is the obligation of an attorney to reimburse the state Department of Human Services (DHS) 2 out of funds obtained for a personal injury client. For Medicaid, or Medical Assistance (MA), as it is sometimes known in Pennsylvania, the relevant state statutory provisions are in the Human Services Code (formerly the Public Welfare Code) 3 at 62 P.S and (2010), which provide that, in cases where DHS has made Medical Assistance expenditures as a result of injuries sustained for which another person is liable, an attorney has an obligation to provide DHS with the notice of the institution of legal proceeding, notice of settlement of any such lawsuit and certain other details discussed below. In light of two decisions by the Pennsylvania Supreme Court which held that failure of attorneys to abide by the requirements 1409 was not actionable in any way, Commonwealth of Pennsylvania, Department of Public Welfare v. Portnoy 4 and Commonwealth of Pennsylvania, Department of Public Welfare v. Thomas, 5 the General Assembly amended the statute in 1994 and again in The amended provision creates an obligation, enforceable by civil and criminal penalties against both plaintiffs and lawyers, to satisfy the interest of 1. Mr. Weishaupt is a Senior Attorney at Community Legal Services, Inc., Philadelphia. He may be reached at rweishaupt@clsphila.org, phone Pennsylvania recently changed the name of the Department of Public Welfare (DPW) to the Department of Human Services. Act 92 of P.S. 101 et seq P.S. 101 et seq. 4. Commonwealth of Pennsylvania Department of Public Welfare v. Portnoy, 612 A.2d 1349 (mem) (1992). 5. Commonwealth of Pennsylvania Department of Public. Welfare v. Thomas, 587 A.2d 727 (mem) (1992). 6. Section 14 of the Act of June 16, 1994 (P.L.319, No.49) and section 9 of the Act of July 4, 208 (P.L.557, No.44). PENNSYLVANIA BAR ASSOCIATION QUARTERLY April

2 70 PENNSYLVANIA BAR ASSOCIATION QUARTERLY April 2017 the Department for reimbursement for MA spent because of the injury. 7 Recent developments have made things more difficult for tort plaintiffs and their counsel. This article will address both federal and state issues of which attorneys must be aware in these situations. THE BIPARTISAN BUDGET ACT (BBA) OF 2013 Under the BBA, regardless of the amount of the settlement recovery, the Medicaid agency is entitled to recover the full value of the plaintiff s medical bills. In 2013, Congress passed the Bipartisan Budget Act of Under prior Supreme Court case law, Medicaid s recovery was limited to the part of the settlement or judgment specifically related to health care items or services. Arkansas DHHS v. Ahlborn 9 and Wos v. E.M.A. 10 Prior to the Bipartisan Budget Act of 2013, if a plaintiff negotiated his or her claim to settle for 25 percent of the value, then the medical expenses would be adjusted proportionally as well. The Bipartisan Budget Act (BBA) effectively overturned Ahlborn and Wos. Regardless of the final recovery in the case, under federal law a state Medicaid agency may seek the full value of the medical bills it paid as the result of a tort, which may include the portion of the settlement allocated to lost wages or pain and suffering. Medicaid may claim the full settlement amount, less attorney s fees but may not seek excess amounts beyond the final value. 11 Under the BBA, regardless of the amount of the settlement recovery, the Medicaid agency is entitled to recover the full value of the plaintiff s medical bills. This new provision is especially problematic because settlement funds allocated for lost wages or pain and suffering are now subject to recovery if the medical expenses portion of the settlement is less than the value of medical expenses. Because of the new statutory and regulatory requirements, it is even more essential for insurance carriers and defense counsel to identify the amount of any Medicaid lien as early in the case as possible. Once this lien has been so identified, it is essential that the Medicaid claim is not negotiated downward during settlement negotiations, since the plaintiff will still be liable for the full amount. LIMITS ON REIMBURSEMENT UNDER THE PA HUMAN SERVICES CODE However, despite the change in the federal statute, the Human Services Code still contains explicit limitations 12 upon DHS s right to reimbursement. First, the statute and its strong penalties apply only to Medicaid benefits provided and not to other state administered forms of cash assistance such as TANF, P.S. 1409(b)(9); 55 Pa. Code Pub. L , 127 Stat. 117, 42 U.S.C. 1396a(a)(25). 9. Arkansas Department of Health and Human Services v. Ahlborn, 126 S.Ct. 1752, 1763 (2006). 10. Wos v. E.M.A., 133 S.Ct (2013) C.F.R An additional limitation on DHS s right to recover is that based on the nature of the Assigned Claims Plan. That plan and the payments it makes are not subject to reimbursement. Commonwealth Department of Public Welfare v. Pennsylvania Financial Responsibility Assigned Claims Plan, 731 A. 2d 228 (Pa. Commonwealth 1999), aff d 746 A.2d 1107 (mem) (2000). 13. The Aid to Families with Dependent Children (AFDC) program was replaced in Pennsylvania by the Temporary Aid to Needy Families (TANF) program on March 3, TANF is distinguished from the

3 Plaintiff Attorneys And Reimbursement To The PA Department of Human Services 71 provided while a tort action was pending. Note that while DHS may recover cash assistance, the Social Security Administration never seeks to recover for the Supplemental Security Income program (SSI). 14 Second, the statute applies only to Medicaid paid because of an injury for which another is liable and not for other medical services rendered to the individual or his/her family. Since DHS records do not always specifically identify expenditures to determine which were caused by a particular tort and no one looks at the underlying medical records, it is imperative that an attorney double check DHS s claim as to Medicaid expenditures. Third, the state statute provides that DHS may waive the claim if it determines that collection of the medical expenses would result in undue hardship upon the injured person. 16 Fourth, although federal law provides that the injured person s entire settlement amount is subject to a Medicaid reimbursement claim, state law precludes DHS from collecting more than one-half the value of the injured person s recovery after deducting for attorney s fees, litigation costs, and medical expenses related to the injury paid for by the beneficiary. 17 MEDICAID MANAGED CARE ORGANIZATIONS (MCOS) Given the prevalence of Medicaid managed care systems (offered in Pennsylvania under the rubric of HealthChoices), additional questions and considerations arise. Under HealthChoices, most Medicaid recipients must join a Managed Care Organization (MCO) for their physical health care. Moreover, behavioral health care (mental health care and drug and alcohol services) is delivered through a separate county based Managed Care Organization called a Behavioral Health Care Organization, which also functions as an agent of the county. (Given the relative rarity of personal injury cases involving psychiatric treatment and issues concerning causation, reimbursement claims from behavioral service organizations are relatively unusual.) DHS s position on claims arising after February 1, 1997, was originally set out in a Statement of Policy. 18 The Department maintains that the MCOs act as DHS s agents and therefore that their claims are covered by 62 P.S When an attorney notifies DHS of a potential claim pursuant to the 62 P. S. 1409, he or she is directed to send information about the plaintiff, including name, age, Social Security number and nature of injury to the Department s Third Party Liability (TPL) division. 19 The TPL unit then contacts the particular MCO that provided coverage and asks it to provide a list of services rendered. These services can include services that the MCO paid for on an individual basis, such as hospital bills, specialist visits and prescription drugs, and on a capitated basis, such as visits to a primary care provider. This prior AFDC program most notably by the time limit it places on receipt of benefits. TANF is generally limited to five years in an adult recipient s lifetime. 42 U.S.C. 608(a)(7)(A). By reimbursing the Department for assistance received, the clock governing lifetime benefits is reset for those who make reimbursement. See DHS, Cash Assistance Handbook SSI is furnished to low income people who are aged (65+), blind or disabled by the Social Security Administration, see, 42 U.S.C et seq. Neither it, nor the companion Social Security program, requires reimbursement. See Id P.S. 1409(b)(1). 16. Id. at 1409(b)(2)(ii). 17. Id. at 1409(b)(11) Pa. Code Pa Code

4 72 PENNSYLVANIA BAR ASSOCIATION QUARTERLY April 2017 later point provides interesting issues about the appropriate rate for such services. DHS maintains that the appropriate billing rate for primary care is the rate it pays for such a service under the fee for service system, which is a relatively low rate. Recently the statute was amended to make this position clear: (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. 20 It is advisable to be fairly specific about the nature of injuries when communicating with the TPL unit, since the services reported by the MCO may include many unrelated medical services that took place at around the time of the injury that is the subject of litigation. (Of course, when the statement is ultimately provided, it should be carefully scrutinized to avoid mistaken billings.) The MCOs are contractually obligated to respond to TPL unit requests within 15 days, but often fail to meet this deadline. Failing to receive complete data from the MCO, DHS will ask for an amount equal to the full capitation for the months since the injury until the settlement/resolution of the case. 21 The MCO is then liable to the Department should the capitation prove insufficient. 22 (Additional claims after 15 days should be resisted.) In cases where reimbursement based on the capitation is clearly too high, i.e., higher than the medical care rendered for the injury, it should be argued that collecting the capitation is inconsistent with the statute, which requires reimbursement only for medical care provided as a result of the injury, which the capitation clearly is not. If the capitation appears to be on the low side, the considerations will be different. DHS, in its Statement of Policy, contends that the capitation amount should be paid until sufficient information is provided to compute a statement of claim In the former situation, attorneys should resist turning over to DHS more than the agency is entitled to with only the hope that some of the recovery will be refunded when the MCO gets around to meeting its contractual obligation, especially since counsel will usually have closed the case and the client will be left on his or her own. In the latter situation, attorneys should insist on full release as a condition for payment, in order to avoid giving DHS a second bite of the apple. ATTORNEY S FEES AND COSTS It must also be remembered that DHS is obligated to pay its share of attorney s fees and costs. 24 The statute at several points refers to the obligation to pay reasonable attorney s fees but gives no further guidance as to what constitutes a reasonable fee. 25 DHS often tries to minimize its liability under this provision by claiming it has a policy to set limits on fees, especially in cases that settle before trial. Needless to say, this percentage (25% to 33%) is considerably lower than the contingency fees charged by most lawyers. This policy appears nowhere in DHS regula P.S. 1409(b)(7)(iii) Pa.Code 259.1(b). 22. Id. 23. Id. 24. Shearer v. Moore, 419 A.2d 665 (Pa. Super. 1980); 62 P.S. 1409(b)(7)(i) and (ii). 25. It should be noted that there is dicta in Tristani v. Richman, 652 F. 3d 360, 376 (3rd Cir. 2011) that accepts fees of 40% and there is no reported objection by DHS.

5 Plaintiff Attorneys And Reimbursement To The PA Department of Human Services 73 tions and should be strenuously resisted; otherwise plaintiffs are forced to pay not only their agreed upon rate but also make up DHS s missing share (unless, of course, the attorney agrees to reduce his or her fee in order to benefit DHS). Courts have not looked with favor on DHS s attempt to do this. 26 Attorneys should take the position that if the fee charged the client is consistent with Rule 1.5 of the Rules of Professional Conduct, (prohibiting excessive fees), then DHS should be bound to contribute its share. Indeed, charging the client the excess fee that should be paid by DHS is ethically suspect, since the case law suggests that it is inappropriate to let DHS reduce its obligation at the client s expense; a strong case can be made that allowing DHS to avoid its responsibility is contrary to the attorney s duty to his or her client. Attorneys should also be aware that DHS agents often represent that the recognition of the Department s fee obligation is a compromise concession in negotiating a settlement of its claim. 27 While it is true that DHS has statutory authority to compromise claims, and even waive such claims in the face of hardship, 28 recognizing a statutory obligation is hardly a concession and should not be taken as such. CASH ASSISTANCE With regard to cash assistance (GA or TANF) provided to the tort victim, until 2005 DHS had a limited statutory and common law right to recover such assistance paid to a beneficiary. 29 However, the Pennsylvania General Assembly in 2005 enacted a provision that strengthens the Department s position regarding recovery of cash assistance for DHS recipients. The amended law states: Lien against proceeds In order to carry out the purposes of this section, the department shall have a first lien against the proceeds of any cause of action that existed during the time an individual, his spouse or his unemancipated children received cash assistance. Unless otherwise directed by the department, no payment or distribution shall be made to a claimant or claimant s designee of the proceeds of any action, claim or settlement where the department has an interest without first satisfying or assuring the satisfaction of the interest of the Commonwealth. Any person who, after receiving notice of the department s interest, knowingly fails to comply with this subsection shall be liable to the department and the department may sue and recover from the person. 30 This for the first time gives DHS a lien against recoveries and puts attorneys at risk if they knowingly make distribution of proceeds in violation of DHS s lien. Note that nothing in the statute overturns DHS s obligation to pay reasonable attorney s fees on its portion of the recovery. It should be noted, however, that DHS s right to recover cash assistance is not without limitations. 26. The leading case in this area is O Neil, a Minor By and Through his Parents and Natural Guardians, Janet O Neil and Carl O Neil amd Janet O Neil and Carl O Neil in Their Own Right v. Henry s Riverside Market, 566 A.2d 307 (Pa. Super 1989) (finding a pro rata share to be reasonable); subsequently O Neil was followed in Cataldi ex rel Cataldi v. Methodist Hospital, 747 A.2d 1239 (Pa. Super. 2000), appeal denied 766 A.2d 1242 (table) (Pa. 2000) (reducing DHS s MA claim to cover pro rata share of attorneys fee of 33% in a medical malpractice case that settled before trial). 27. See Tristani, supra note 25, at P.S. 1409(a)(2)(i) (ii). 29. Section 4 of the former act of June 24, 1937 (P.L.2045, No.396), entitled the Support Act of 1937, provided that a beneficiary had an obligation to repay DHS for cash assistance received for any periods during which said beneficiary owned personal property or possessed a right or cause of action from which property could result. See also, In re Reiver s Estate, 22 A.2d 655, 656 (1941); In re Waits Estate, 7 A.2d 329, 331 (1939) Pa.C.S.A 4604(d) (emphasis added).

6 74 PENNSYLVANIA BAR ASSOCIATION QUARTERLY April 2017 First, DHS can only recover cash benefits paid during the time period that the client possessed a cause of action from which ownership of property resulted. 31 Second, DHS may seek reimbursement only for assistance provided to a recipient parent and his or her unemancipated children. DHS may not seek reimbursement for cash assistance given to non-parental caregivers such as grandparents for minors in their care. Third, some case law upholds the right of courts approving a minor s injury recoveries to withhold execution of DHS s reimbursement claims and judgment for equitable considerations. 32 In the past, it was possible for advocates to argue that DHS could not recover for Medicaid expenses on behalf of a minor because the minor is not the beneficiary of Medicaid. 33 However, in 2009 the Supreme Court of Pennsylvania adopted an alternative interpretation stating that minors are the beneficiaries of Medicaid. 34 Furthermore, the General Assembly also amended the underlying statute 35 to extend the statute of limitations by tolling it until the child plaintiff reaches his or her 18th birthday. In cases where the parent does not seek a recovery for medical expenses paid by the Medicaid program, the parent must give DHS special notice of a negative election or face the risk of a $5,000 fine. 36 Representatives should pursue a recovery on behalf of the minor to avoid a situation where such a recovery has not been sought but DHS nonetheless seeks reimbursement from other funds. 37 Finally, DHS should not be permitted to collect reimbursement for assistance that has already been reimbursed (through child support or retroactive SSI payments) or that has been earned through workfare assignments. CHILD SUPPORT CLAIMS ON RECOVERIES Another development in DHS reimbursement that is becoming increasingly common is DHS s claim on personal injury awards to reimburse the Commonwealth for unpaid child support. Under the terms of the federal Personal Responsibility and Work Opportunities Reform Act, 38 states were required to enact legislation creating a lien against personal injury recoveries to pay child support orders. Pennsylvania has enacted such conforming legislation. 39 When DHS provides cash assistance to a child and his or her parent, it requires the family to assign such child support orders to the Commonwealth. 40 If the absent parent (usually the father) falls behind on 31. Thus DHS could not, under any legal theory, recover benefits paid prior to the date of the accident in the typical tort case. It is important that attorneys be alert to this principle since occasionally demands are accidently made for additional reimbursement. 32. See e.g., Wilson v. Bensalem Township School District, 367 A.2d 397 (Pa.Commonwealth 1976); In re Akers Estate, 35 Pa.D.&C. 2d 476 (Wash. Co. 1964); McCullough v. Colonial Salvage, Oct. Term, 1978, No.1350 (C. P. Phila.) (Levin, J. denying DHS reimbursement claim). See also, Essex County Welfare Board v. Hellams, 236 A.2d 416 (N.J. Super. 1967). More recently, the Pennsylvania Superior Court held that the purpose of Wilson was to allow courts to supervise settlements involving minor claimants in order to adequately protect minors interests. Estate of Murray by York Bank and Trust Company v. Love, 602 A.2d 366, 369 (Pa. Super. 1992). The court also emphasized the importance of trial courts ability to prevent settlements that are unfair to minor litigants. Id. Given that the purpose of court-supervised settlement is to protect minors, some attempt to reduce the claimed amount should be made, especially if the money is needed to improve the minor s living conditions or meet the special needs or education of the child. 33. Bowmaster ex rel. Bowmaster v. Clair, 933 A.2d 86 (Pa. Super. 2007). 34. E.D.B. ex rel. D.B. v. Clair, 987 A.2d 681 (Pa. 2009) P.S 1409(c). 36. See generally, the Act of July 4, 2008 (P.L.557, No.44), amending 62 P.S See, E.D.B. ex rel. D.B., supra, note U.S.C.A Act 58 of 1998, 23 Pa.C.S.A et seq Pa.C.S.A

7 Plaintiff Attorneys And Reimbursement To The PA Department of Human Services 75 such orders, the arrears become the property of the Department. Those arrears become a debt for which the Department can seek reimbursement against any form of income, including personal injury awards. 41 DHS will then attempt to pursue plaintiffs owing child support on behalf of both DHS and the family. In fact, the law gives the Domestic Relations Section of Family Court the power to intercept and seize judgments and settlements. 42 This is an area where the personal injury bar can expect to see increased activity. CONCLUSION: ETHICAL CONSIDERATIONS Attorneys often express concern that this is a difficult area in which to operate. DHS collection agents often imply that repayment is ethically compelled. In fact, the opposite may be true. While attorneys are obligated to obey the law and to honor legitimate liens, they also have an obligation to vigorously represent their clients and assert all reasonable defenses. 43 They also have an obligation to ensure that the interests of their clients are zealously represented, thus it is incumbent upon attorneys to design settlements that maximize the clients identified interests and preserve, if they so desire and, as far as possible, their eligibility for public benefits Pa.C.S.A Pa.C.S.A. 4305(b)(10) Pa. Code 81.4, explanatory comment 1 and rule 3.1 explanatory comment Some or all of recoveries can be sheltered in a Special Needs Trust. DHS acknowledges such a strategy, and its website lays out the ground rules for establishing such trusts. groups/public/documents/communication/s_ pdf.