Return to Ahlborn decision.
Hidden Medicaid Lien? 'Ahlborn,' Supplemental Needs
Hidden Medicaid Lien? 'Ahlborn,' Supplemental Needs
By Jay J. Sangerman
New York Law Journal
February 16, 2007
Arkansas Department of Heath and Human Services v. Ahlborn,
The recent U.S. Supreme Court decision, holds that Medicaid's lien for recovery against a personal injury/medical malpractice settlement and award is limited to that amount (or percentage) of the award allocated to compensate the plaintiff for past medical expenses.
Therefore, Ahlborn, on the surface, appears to be a significant "victory" for plaintiffs resulting in the reduction of Medicaid's liens. As a result of Ahlborn, it appears that there should be greater net payments to plaintiffs from their settlements or awards. For defendants, the Ahlborn analysis may reduce the amount of the settlement. For both plaintiffs and defendants, Ahlborn may be a factor in achieving settlement.
Prior to the Ahlborn decision, the law in New York State was that Medicaid districts had the right to a 100 percent indemnification from lawsuit proceeds for the amount that Medicaid had paid for the plaintiff's care which was causally related to the cause of action.2 If Medicaid is not indemnified by the plaintiff, Medicaid, pursuant to statute, can seek a recovery in subrogation from the defendant.3 The only exceptions to the foregoing rules were that the Medicaid districts could not recover for Medicaid provided to the plaintiff which was educationally related4 or related to an injury arising from nursing home negligence.5 Medicaid's right to recovery against settlements and awards applies whether or not the plaintiff is a minor or an adult.6 With the Ahlborn decision, the New York State Court of Appeals decisions7 authorizing recovery from settlement and award proceeds by Medicaid for all Medicaid paid are effectively reversed and Medicaid's right of recovery may have become restricted.
The New York State Department of Health, Office of Medicaid Management, issued a General Information System memorandum (GIS) to the local Medicaid districts informing them that they must apply Ahlborn in their recoveries from settlements and awards. The GIS states that Medicaid districts may obtain reimbursement only from that portion of the settlement or award "specifically allocated to compensate the plaintiff Medicaid recipient for past medical expenses" related to the cause of action.8 (emphasis added). Any portion of the settlement or award, states the GIS, not "specifically allocated," is unavailable for purposes of indemnification and subrogation by New York State Medicaid districts. As the GIS states, "to the extent that the lien amount exceeds the portion of the personal injury settlement or award specifically allocated to repayment of past medical expenses, the district's recovery of the lien consequently will be reduced."9
Certain New York State Medicaid districts, notwithstanding Ahlborn and the GIS, argue that, under certain circumstances, where settlement proceeds are placed into a supplemental needs trust, they can ultimately collect the reduced amount of their Medicaid liens.
Therefore, if these Medicaid districts are correct, Ahlborn is but an illusory victory for plaintiffs who are recipients of Medicaid.
If these Medicaid districts are correct, then, plaintiffs, although told that Medicaid issued a nonassertion letter against the settlement or award, or reduced its lien against the settlement or award proceeds, may ultimately learn that the Medicaid lien was merely deferred, not satisfied.
Simply stated, these Medicaid districts argue, based upon the statutes authorizing the creation of supplemental needs trusts, that if a Medicaid beneficiary's settlement or award is placed into a supplemental needs trust, the Medicaid district, upon the death10 of the Medicaid beneficiary, is entitled to recover that amount of Medicaid expenditures for the injury incurred which Medicaid could not collect from the lawsuit proceeds because of Ahlborn. On the other hand, if the settlement or award proceeds are not placed into a supplemental needs trust, these Medicaid districts agree that they have no statutory basis for the recovery of any reduced amount of the Medicaid lien. Therefore, the creation of supplemental needs trusts and their funding with settlement or award proceeds could create a large liability owed to Medicaid from the Medicaid recipient or recipient's heirs, which otherwise would not exist. Therefore, based on the supplemental needs trust statutes, certain Medicaid districts argue that their remainder interest in the supplemental needs trust includes that amount of Medicaid expended related to the injury which could not be collected due to Ahlborn.
Pursuant to federal and New York State laws, an individual under 65 years of age, who is legally disabled pursuant to federal law, can have her assets placed into a supplemental needs trust and remain eligible for Medicaid and Supplemental Security Income.11 The quid pro quo is that Medicaid (but not the Social Security Administration) must have a payback upon the death of the trust beneficiary (or early termination of the trust). The federal and New York State statutes state that property in a supplemental needs trust, and the income earned on the property in the supplemental needs trust, are not countable for purposes of Medicaid eligibility under the following provisions:
(I) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3)) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title. 42 USC §1396p(d)(4)(A).12
The issue is the meaning of "total" in the statute.
Medicaid districts, within and with out the state of New York, differ as to the meaning of the word "total" in the statute. Some Medicaid districts state that "total" means all Medicaid paid as of the date of the creation of the trust, while other Medicaid districts state that "total" means all Medicaid paid during the trust beneficiary's lifetime (including Medicaid provided prior to the creation of the trust ) and a third category of Medicaid districts state that if the trust states "all lifetime," then they will seek to collect for "all lifetime"; however, if the trust quotes the statute, they will collect only as of the date of the creation of the trust.
A. At the time of 'Cricchio,' attorneys argued that Medicaid is entitled to "all Medicaid paid during lifetime." A significant contributing factor to the present problem in the statutory construction of the supplemental needs trust statute stems from arguments made in Cricchio v. Pennisi13 before the New York State Court of Appeals in 1997.
The issue before the Court of Appeals was, when settlement or award funds are to be placed into a supplemental needs trust, whether the Medicaid lien must be paid at the time of the settlement or verdict, or can the payment of the Medicaid lien be deferred until the termination of the supplemental needs trust. The plaintiff/Medicaid beneficiary in Cricchio argued that the Medicaid lien against the settlement or award proceeds does not need to be paid until the termination of the supplemental needs trust. The Court of Appeals did not accept this argument of the plaintiff/Medicaid beneficiary and agreed with The Department of Social Services of the City of New York and the New York State Department of Social Services that Medicaid liens against settlement proceeds must be paid prior to the funding of the supplemental needs trust.
In arguing against the payment of the Medicaid lien attributable to the settlement or award prior to the funding of the supplemental needs trust, the plaintiff argued that Medicaid's statutory reimbursement for the "total" Medicaid paid upon termination of the supplemental needs trust means that Medicaid is entitled to collect for all Medicaid paid during the "lifetime" of the Medicaid beneficiary.
The argument was that, since the statute, according to the plaintiff/Medicaid beneficiary, provided for reimbursement for all Medicaid paid during "lifetime," Congress intended that Medicaid's lien against settlement proceeds need not be paid until the termination of the supplemental needs trust, at which time, Medicaid would be entitled to collect for all Medicaid paid during lifetime, inclusive of the Medicaid paid which was related to the cause of action.
By virtue of the foregoing argument, the plaintiff in Cricchio, contrary to the state and New York City Medicaid agencies, argued that Medicaid has an extensive "payback" from a supplemental needs trust, which is inclusive of both Medicaid related to the injury and any other Medicaid that had been paid both prior to the creation of the supplemental needs trust and thereafter. This "payback," therefore, is inclusive of any reduction in the Medicaid lien pursuant to the Ahlborn analysis, which, but for the supplemental needs trust, would not have had to be reimbursed to Medicaid.
B. At the time of 'Cricchio,' Medicaid districts argued that Medicaid's entitlement is only as of the date of the creation of the supplemental needs trust. The irony in Cricchio is that corporation counsel of the city of New York, on behalf of the Department of Social Services of the City of New York and the New York State Attorney General, on behalf of the New York State Department of Social Services, argued that Medicaid's scope of recovery against the supplemental needs trust is limited. The New York City and State Medicaid offices argued, contrary to the Cricchio plaintiff, that Medicaid's remainder interest from a supplemental needs trust is only as of the date of the creation of the trust, not for all Medicaid paid during the trust beneficiary's lifetime. In their briefs to the New York State Court of Appeals, corporation counsel and the attorney general argued that any other interpretation leads to "absurd" results. In fact, they argued that the interpretation of the Cricchio plaintiff would create double dipping by the Medicaid districts.14
The Hidden Medicaid Lien
If - as plaintiff in Cricchio argued, and now certain Medicaid districts, based upon the plaintiff's argument in Cricchio, argue - "total" in the supplemental needs trust statute means all Medicaid paid during lifetime, then the reduced Medicaid lien against settlement and award proceeds pursuant to Ahlborn, comes back into Medicaid's remainder interest at the termination of the supplemental needs trust. The Ahlborn decision, therefore, may be an illusory victory when settlement proceeds/awards are placed into supplemental needs trusts.
In the settlement of Medicaid liens against medical malpractice and personal injury lawsuits, plaintiff and defense attorneys, when settlement proceeds are anticipated to be placed into a supplemental needs trust, must be cautious as to any representation that the Medicaid lien, reduced in accordance with Ahlborn, is the total amount that would ultimately be due to Medicaid. It is possible that the amount that had been reduced would be available to Medicaid as part of its remainder interest in the supplemental needs trust. Supplemental needs trusts, which permit a disabled plaintiff to have settlement or award funds available for her use and benefit, and still retain Medicaid eligibility to pay for often expensive medical needs, can be of great benefit in improving the lives of disabled individuals - provided, however, that prior to the creation of the supplemental needs trust, the plaintiff attorney in discussion with the plaintiff and the court, in the instance of a minor or incompetent plaintiff, analyze whether the supplemental needs trust best meets the long-term needs of the disabled plaintiff, or whether there is a better plan to meet the needs of the disabled plaintiff.
This foregoing analysis is especially important in those instances when there is a possibility that the supplemental needs trust would be terminated early, during the plaintiff's lifetime, requiring repayment of Medicaid's remainder interest at such time, which may include reimbursement for all Medicaid paid during the individual's lifetime, inclusive of that amount of the Medicaid lien reduced by the Ahlborn analysis.
Lastly, there are several considerations with regard to the provisions in the supplemental needs trusts themselves. Many attorneys, apparently based upon the plaintiff's arguments in Cricchio (90 NY2d 296, 660 N.Y.S.2d 679 (N.Y. 1997)), draft supplemental needs trusts with a remainder provision to Medicaid for all Medicaid provided during lifetime. Many of these supplemental needs trusts are copies of the supplemental needs trust included in Matter of Morales, which was drafted during the Cricchio litigation, when the lower courts issued decisions holding that Medicaid's lien against settlement proceeds is not payable until the termination of the supplemental needs trusts; these lower court decisions were reversed by the New York State Court of Appeals.
However, Morales continues to be used as a "model" by many attorneys, as well as by certain judges. Based upon the Ahlborn decision and the possibility for significant reductions in the Medicaid lien in the settlement phase of litigation, attorneys need to consider the foregoing factors for determining when a supplemental needs trust is appropriate in a particular matter and when other devices for the placement of settlement proceeds would be more beneficial to the disabled plaintiff.
Jay J. Sangerman, is the principal of Jay J. Sangerman, PLLC, with offices in New York, New Jersey and Florida.
1. 547 US; 126 SCt 1752; 2006 U.S. LEXIS 3455; 74 U.S. LAW 4214 (April 2006).
2. See Robin K. Calvanese v. Anthony J. Calvanese et. al. Suffolk County Department of Social Services, Respondent; Patricia Callahan, Appellant. 93 NY2d 111; 710 N.E.2d 1079 (1999) (the Court held that all settlement proceeds were available to satisfy Medicaid liens, and that transfer of settlement funds from a tort recovery to a supplemental needs trust could be made only after the liens were paid); Arvil Samerson et al., Respondents, v. Mather Memorial Hospital et al., Defendants, 90 NY2d 870; 684 N.E.2d 271; 1997 N.Y. LEXIS 4809; 661N.Y.S.2d 822 (1997) (the Medicaid lien must be established prior to the establishment of the Supplemental Needs Trust with settlement proceeds before satisfying a Medicaid lien).
3. See, Cricchio v. Pennisi, 90 NY2d 296, 660 N.Y.S.2d 679, amended sub nom. Link v. Town of Smithtown, 1997 N.Y. LEXIS 2309 (N.Y., July 1, 1997), at 305, 682, 42 USC §1396k [a]  [A]; §1396a [a]  [I]); 42 CFR 433.146 [c]; Social Services Law §366  [h] ; Social Services Law §367-a (2)(b); 18 NYCRR 360-7.4 [a] ); 42 USC §1396k [a]  [C]; Perry v. Dowling, 95 F3d 231, 234 [2d Cir 1996]) 42 U.S.C. 1396k(b).
4. See, e.g., Local Commissioners Memorandum, DSS-4037EL, Transmittal No. 97 OMN LCM-7; New York State ADM, 02 OMM/ADM-3, April 17, 2002; Andree v. The County of Nassau, E.D.N.Y., N.Y.L.J., April 9, 2004, pages 24ff; Hannah v. NYC Housing Authority, Supreme, Kings, N.Y.L.J, June 26, 2001; Individuals with Disability Act (IDEA), 20 USCA §1400ff; Public Health Law, Article 25, Title II.
5. Pub. Health Law §2801-d (5); New York State Department of Health, Transmittal 02 OMN/ADM-3 (April 17, 2002) at p. 15.
6. The recovery of the Medicaid lien prior to the funding of the supplemental needs trust also applies to infants. See the joined appeals before the New York State Court of Appeals, (i) Abraham Gold, an Infant, by Kathleen A. Gold, His Mother and Natural Guardian v. United Health Services Hospitals, Inc., and (ii) Kimberly Santiago, an Infant, by Benita Santiago, Her Mother and Natural Guardian, v. Craigbrand Realty Corp., 95 NY2d 683; 746 N.E.2d 172; 723 N.Y.S.2d 117; 2001 LEXIS 526 (2001).
7. Supra. at fn 2 and 6.
8. General Information System, Division of Medicaid Management, GIS 06 MA/022, Sept. 14, 2006.
9. Id.; See also <http://www.courts.state.ny.us/reporter/3dseries/2006/2006_26340.htm> Nyisha Lugo, an Infant by her Parent and Natural Guardian, Cindy Lugo, and Cindy Lugo, Individually v. Beth Israel Medical Center and Orli Langer M.D., 13 Misc3d 681, 819 N.Y.S.2d 892 (Sup. Ct. NY Cty. 2006); <http://www.courts.state.ny.us/reporter/3dseries/2006/2006_26376.htm> Margaret Fergeson, Individually and as Mother and Natural Guardian of Cecilia Harriott v. IHB Realty, (2006 NY Slip Op 26376; 821 N.Y.S.2d 8484 (Sup. Ct. Kings Cty. 2006); <http://www.courts.state.ny.us/reporter/3dseries/2006/2006_26478.htm> In re Virginia Ramirez, Deceased, 2006 NY Slip Op 26478; 2006 N.Y. Misc. LEXIS 3601 (Surr. Ct. Bronx Cty. 2006); .
10. 42 USC 1396(d)(4)(A)(i) and N.Y. Soc. Serv. Law §366(2)(b)(iii) (McKinney 1992 & Supp.); N.Y. Est. Powers and Trusts Law §7-1.12. See also Social Security Income, Procedural Operations Manual at SI 00835.510, SI 01120.200, SI 01120.201, SI 01120.203 and EM-00067, stating that the supplemental needs trust terminates upon the death of the trust beneficiary, Medicaid districts have agreed to early termination, prior to death, payment of Medicaid's remainder interest. See In re Sutton, 641 NYS2d 515 (New York Co., Sur. Ct., 1996).
12. N.Y. Soc. Serv. Law §366(2)(b)(iii) is the New York State enabling legislation for supplemental needs trusts and incorporates the same language as the federal law, i.e., "total Medicaid paid." Neither the New York statute, nor any regulation nor administrative directive define the meaning of "total Medicaid paid" contained in the statute.
13. Supra. fn. 3.
14. See, e.g., brief to the New York Court of Appeals of The New York State Department of Social Services, by its attorney, Dennis C. Vacco, Attorney General of the State of New York, in its reply brief in Cricchio argued that "total" Medicaid means only as of the date of the creation of the supplemental needs trust, as follows:
Plaintiffs' other arguments are equally misguided. Plaintiffs place great emphasis on the fact that the State has a remainder interest in the trust upon the death of the beneficiary up to an amount equal to the "total" Medicaid assistance paid. See 42 USC §1396p (d) (4) and SSL §366 (2) (b) (2) (iii). Plaintiffs contend, erroneously, that this covers Medicaid payments subject to liens that preexisted the SNT. However, nothing in the cited statutory provisions purports to govern payments pursuant to such liens. As the city respondent-appellant aptly demonstrates in its brief, such an application of the word "total" would also be contrary to the express mandate of the lien statutes and would lead to absurd consequences