I. INTRODUCTION
On March 25, 2009, United States District Judge, Joy Flowers Conti, authored a 97 page
Memorandum Opinion addressing the validity of liens placed by the Pennsylvania Department of Public Welfare on settlement proceeds obtained from third parties by recipients of Medicaid benefits. Tristani v. Richman, C.A. No.2:06-cv-00694-JFC, 2009 WL 799747 (W.D. Pa. Mar. 25, 2009). In her Opinion, Judge Conti ultimately opined that State Medicaid agencies may not assert liens on personal injury awards. Judge Conti further opined that Congress intended for the States themselves to actively pursue reimbursement of medical expenses paid by Medicaid. The Defendants, Estelle B. Richman, Secretary of Public Welfare for the Commonwealth of Pennsylvania, and Feather Houston, Richman’s predecessor in that position, have filed a Motion for Leave to Appeal by Permission to the United States Third Circuit Court of Appeals, which Motion is presently pending.
PROCEDURAL AND FACTUAL HISTORY
A. TRISTANI
On September 14, 2001, Plaintiff, Rita L. Tristani (“Tristani”) instituted a medical malpractice action in the Court of Common of Pleas for Washington County, Pennsylvania, against a local hospital, family practice center and several doctors, all of whom allegedly provided negligent medical care to Tristani, thereby causing her to suffer serious and permanent injuries. Tristani underwent a bunionectomy in September 1999. Eighteen days after this surgery, on September 28, 1999 Tristani was seen in follow up by her surgeon. Her surgeon then learned that Tristani’s leg had recently become painful and warm, with red, black and blue discoloration. Suspecting that Tristani was suffering from deep vein thrombosis, her surgeon, who was not a defendant to Tristani’s lawsuit, immediately referred her to the defendant family practice center.
On the same day as her surgeon’s referral, Tristani was examined by a defendant resident physician. Neither this resident physician, nor his defendant preceptor physician, performed any lab studies, imaging studies or diagnostic tests upon Tristani. Rather, they chose to rely solely upon the resident physician’s physical examination findings. They allegedly ruled out deep vein thrombosis as the cause of Tristani’s medical problem. They allegedly further diagnosed her as having superficial thrombophlebitis. Despite the resident physician’s relative inexperience, his preceptor physician did not examine Tristani himself. Both doctors indicated that Tristani should be reevaluated if her symptoms did not resolve within 2-3 days. Tristani’s symptoms did not resolve within this timeframe.
Thereafter on October 1, 1999, Tristani telephoned the defendant family practice center to inquire as to whether or not she should be reevaluated. A medical assistant initially responded to Tristani’s first call by e-mailing the defendant resident physician. This doctor allegedly failed to respond to this e-mail message. Five hours later, another defendant resident physician responded with an e-mail instructing the medical assistant to “follow up as needed”. Tristani allegedly received no further communication in response to her first call. Later that same day, Tristani called the defendant family practice again. This time her call was taken by different medical assistant, who responded by sending an e-mail message to a defendant registered nurse. This registered nurse allegedly returned Tristani’s telephone call, instructing Tristani to continue to take the medication prescribed by the resident physician and his preceptor. This registered nurse allegedly further advised Tristani that she did not need to be reevaluated. Four days later, on October 5, 1999, Tristani suffered a massive pulmonary embolism and stroke, concurrent with brain damage, partial paralysis and disfigurement. Due to her impairments, Tristani now resides in a full-time medical care facility. Tristani is paralyzed on her right side, needs a wheelchair to get around, needs assistance in washing, getting dressed, using the bathroom, and in preparing her food.
On November 7, 2001, while Tristani’s State action was pending in the Court of Common Pleas of Washington County, a third-party liability program investigator for the Pennsylvania Department of Public Welfare (“DPW”) sent Tristani’s counsel a letter indicating that Tristani was the recipient of medical assistance under the Medicaid program and that Pennsylvania law provided that the rights of such medical assistance recipients to recover the cost of medical care from liable third parties were assigned to DPW by operation of law. Thereafter, Tristani’s counsel continued to correspond with the DPW over the next three years. In this regard, the DPW third-party liability program investigator sent Tristani’s counsel a letter dated December 14, 2004, wherein it 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.
Thereafter, a different third-party liability program investigator took over the handling of this matter for DPW and in a letter of April 12, 2005, was advised by Tristani’s counsel that counsel’s firm had been retained by Tristani on a 40% contingent fee agreement, not on a 33.33% contingent fee agreement. Accordingly, the new third-party liability program investigator for DPW sent Tristani’s counsel a letter on April 29, 2005, similar in fashion to the letter cited above, but which now changed DPW’s agreement to reduce its lien by 40%, not 33.33%, and to accept a payment of $148,508.99 to satisfy the DPW lien.
On or about May 31, 2005, a settlement was reached in Tristani’s medical malpractice action. In a Court Order dated June 2, 2005, the Court of Common Pleas of Washington County acknowledged the settlement of Tristani’s action for $5,200,000.00, and further acknowledged the payment of $148,508.99 to DPW “in full and final satisfaction of its subrogation lien”. While addressing various other distributions from Tristani’s settlement, the Court Order did not specifically identify what portion of the settlement was attributed to Tristani’s medical expenses. On July 5, 2005, Tristani’s counsel sent DPW a check in the amount of the aforementioned lien. In the letter sent with the check, Tristani’s counsel specifically referenced the most recent letter from DPW of April 19, 2005. Thereafter, in a letter of July 18, 2005, another third-party liability program investigator with DPW acknowledged receipt of Trisani’s payment.
B. VALENTA
On January 29, 2005, the Plaintiff, Joshua C. Valenta (“Valenta”) was injured in a multi-vehicle accident. As a result of this accident, Valenta was hospitalized for a period of six days and suffered orthopedic injuries in the nature of multiple fractures to his right femur. However, because the accident in question also resulted in two fatalities, multiple claimants were seeking recovery from the tortfeasor’s third party liability policy limits of $300,000.00 per occurrence. Following the accident, Valenta was enrolled in a medical assistance program.
By letter dated April 26, 2005, a DPW claims investigative agent sent a letter to Valenta’s counsel stating that the rights of medical assistance recipients to recover the costs of medical care from liable third parties were assigned to DPW by operation of law. Another claims investigative agent advised Valenta’s counsel, by letter dated August 2, 2005, that DPW had a lien in the amount of $15,581.56 against Valenta’s “personal injury award”. Ultimately, DPW reduced this lien to $10,000.00 to account for attorney’s fees and costs. By letter dated August 18, 2005, Valenta’s counsel provided DPW with a check in the amount of $10,000.00, indicating in said letter that this check and amount:
… represents full and complete payment and final satisfaction of any and all liens pertaining to Department of Public Welfare payments made due to injuries of 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.
In a letter dated August 24, 2005, the DPW claims investigative agent acknowledged DPW’s receipt of this $10,000.00 payment.
Thereafter, on November 1, 2005, Valenta commenced his action in the Court of Common Pleas of Allegany County against the tortfeasors whose negligence had allegedly caused Valenta’s injuries. On October 30, 2006, the tortfeasors and their insurance carrier settled with Valenta. Valenta also pursued and recovered underinsured motorist benefits, which ultimately lead to a total gross recovery of $130,000.00.
C. THE TRISTANI/VALENTA FEDERAL COURT CLASS ACTION
On May 22, 2006, Tristani and Valenta commenced their federal action against Defendants, Estelle B. Richman, Pennsylvania’s Secretary to Public Welfare, Feather Houston, Richman’s predecessor in said position, and the Department of Public Welfare. In commencing their action, these Plaintiffs alleged that the DPW’s liens against their personal injury recoveries were in violation of Title XIX of the Social Security Act, the Takings Clause of the 5th Amendment to the United States Constitution, the Due Process Clause of the 14th Amendment to the United States Constitution, and the Takings Clause of Article I, Section 10 of the Pennsylvania Constitution. The Plaintiffs’ action was filed as a proposed class action under Federal Rule of Civil Procedure 23.
On June 9, 2006, the Plaintiffs filed an Amended Class Action Complaint naming only Richman and Houston as Defendants. On September 29, 2006, Defendants Richman and Houston filed a Motion to Dismiss. While this Motion to Dismiss was still pending, the Plaintiffs sought leave to amend their Complaint for a second time. The Court granted this request for leave to amend on October 27, 2006. The Plaintiffs then filed their Second Amended Class Action Complaint on November 10, 2006. On January 3, 2007, the Defendants filed a new Motion to Dismiss. The Federal Court heard oral argument with respect to this Motion to Dismiss on April 17, 2007. This 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. Accordingly, Defendants filed a Motion for Summary Judgment on April 9, 2008. Plaintiffs filed a Motion for Partial Summary Judgment on April 10, 2008. These Motions were the subject of Judge Conti’s Memorandum Opinion of March 25, 2009.
THE UNITED STATES DISTRICT COURT’S RULING IN TRISTANI
After an 80 page, detailed constitutional law analysis, Judge Conti’s Memorandum Opinion concluded and ruled as follows:
The plain language of §§1396.p(a)(1) and 1396.p(b)(1) precludes the “liens” and “recoveries” challenged in this case. The application of section 1409(b)(7)(i), which authorized the DPW to impose such liens and obtain such recoveries, was unconstitutional under the Supremacy Clause. Richman and Houston are entitled to qualified immunity due to the law concerning these issues being not clearly established at the time of the discretionary actions in question. Tristani and Valenta cannot establish violations of §1396k(b), the Takings Clause of the Fifth Amendment, or the Due Process Clause of the Fourteenth Amendment, nor can they establish actual violations of Pennsylvania law. Accordingly, the motion for summary judgment filed by Richman and Houston will be granted except insofar as it seeks a determination that Tristani and Valenta lack standing to seek declaratory or injunctive relief either on their own behalf or on behalf of a proposed class. The motion will be denied as to those issues without prejudice, since those issues will be dealt with at a later stage. The motion for partial summary judgment filed by Tristani and Valenta will be denied. (Italics added).
Simply stated, Judge Conti found that an application of 62 Pa. Stat. Ann. §§1409(b)(7)(i) and 1409.1(b)(1), which provides DPW with the authority to impose liens, and to enforce such liens or obtain recoveries of such liens out of the proceeds of Medicaid’s recipients’ judgments, awards or settlements, in third-party personal injury actions, was unconstitutional under the Supremacy Clause of the United States Constitution. Judge Conti concluded that these relevant sections of Pennsylvania statutory law were preempted by Title XIX’s anti-lien and anti-recovery provisions found at 42 U.S.C. §§1396p(a)(1) and 1396(p)(b)(1).
Furthermore, Judge Conti found that the Plaintiffs could not establish violations of Section 1396k(b), the Takings Clause of the Firth Amendment, the Due Process Clause of the Fourteenth Amendment, or of relevant Pennsylvania law. As stated above, Judge Conti found that the relevant Pennsylvania law set forth in Sections 1409(b)(7)(i) and 1409.1(b)(1) were preempted by the relevant federal law as set forth at Sections 1396p(a)(1) and 1396p(b)(1). Thus, the DPW’s application of Section 1409(b)(7)(i) to the settlement proceeds secured by the Plaintiffs was unconstitutional under the Supremacy Clause.
Citing Pennsylvania statutory law, Judge Conti went further stating that the DPW was not without means to protect its interest in recouping its expenses from liable third party tortfeasors. Pennsylvania Law puts a burden upon Medicaid beneficiary/recipients to “provide a reasonable notice” to the DPW when an action or claim seeking recovery of medical expenses incurred by the Medicaid program is commenced. Pennsylvania law permits the DPW to become party to an action brought by such a Medicaid beneficiary/recipient against the third-party tortfeasor or insurer. See 62 Pa Stat. Ann. §1409(b)(5)(v). Of course, the DPW is still also free to assert its own interests as well.
IMPLICATIONS ARISING FROM THE TRISTANI DECISION
If Judge Conti’s Memorandum Opinion and Decision is upheld on appeal, it effectively eliminates Medicaid lien law in Pennsylvania as we now know it. As such, the DPW would need to intervene in potentially thousands of pending court cases to stem the potential loss of revenues as lawyers escrow funds pending the outcome of litigation which could reach tens of millions of dollars. Presently, Pennsylvania has a Medicaid third-party liability case load in excessive of 10,000 cases.
While our Commonwealth’s “Plaintiffs Bar” and “Defense Bar” might have slightly different perspectives on this current legal situation, the perspective and opinion that cannot or should not be ignored at this time is that of the Pennsylvania Department of Public Welfare. Specifically, the Commonwealth of Pennsylvania, Department of Public Welfare, Bureau of Financial Operations, Division of Third Party Liability, Casualty Unit, has apparently been issuing its own “opinion” letters when contacted by counsel questioning the DPW’s right of reimbursement from a plaintiff’s personal injury claim, in light to the Tristani holding. The DPW has its own perspective on the background of this case and, in a letter shared by the Pennsylvania Defense Institute, points out as follows:
On March 25, 2009 United States District Court in Pittsburgh issued an interlocutory opinion in Tristani v. Richman finding that, inter alia, DPW cannot assert statutory liens on personal injury proceeds but, rather, is required to actively intervene in recipient personal injury actions in order to assert its reimbursement claims.
No injunction or declaratory judgment was issued by the Tristani court. In fact, for technical reasons, partial summary judgment was entered in favor of DPW and against the plaintiffs. While DPW has filed for permission to take an interlocutory appeal, ultimate resolution of the Tristani case may take several years. At this point in time there is no Court Order declaring Pennsylvania’s Medicaid lien statute to be invalid, only an interlocutory opinion to that effect. Thus, DPW does not consider that opinion to be binding in any respect.
Moreover, as the Tristani court recognized in its opinion, its interpretation that State Medicaid agencies may not assert liens on personal injury awards conflicts with other court decisions. Indeed, the Connecticut Supreme Court squarely rejected the argument adopted by the Tristani court. Connecticut v. Peters, 946 A.2d 1231 (Conn. 2008). We believe that, ultimately, the Third Circuit will reject the District Court’s reasoning, adopt that of the Connecticut Supreme Court and uphold the statutory lien provision at issue in this case.
With this in mind, the DPW gives advise to counsel based upon one of two scenarios, those scenarios being whether a Plaintiff’s case had already settled or not.
When a Plaintiff’s case has not already settled, DPW recommends as follows:
1. Your client can voluntarily agree to protect the Department’s claim notwithstanding Tristani. Please let us know, as soon as possible, if you decide to take this option.
2. You can refuse to protect the Department’s claim. In that case, you should strictly comply with the notice requirements of 62 P.S. §1409(b) and 55 Pa. Code Chapter 259. DPW will evaluate your client’s case and determine whether it will intervene in the case. If DPW does not intervene in the case, you should consider the Department’s claim disputed and, upon resolution of the case, deposit an amount equal to the gross amount of the Department’s claim into an interest bearing escrow account pending resolution of the Tristani case. See Rule of Professional Conduct 1.15(f).
The DPW opinion letter goes on to recommend that if a Plaintiff’s case has not already settled:
1. You can negotiate a voluntary resolution of the Department’s claim notwithstanding Tristani.
2. You can assert whatever rights you believe your client may have in light of the district court’s interlocutory opinion in Tristani. In that case you should strictly comply with the notice requirements of 62 P.S. 1409(b) and 55 Pa. Code Chapter 259 as they relate to settlements. DPW will evaluate your client’s case and determine whether it will file a post-settlement intervention motion as authorized by Jordan v. Western Pennsylvania Hospital, 961 A.2d 220 (Pa. Cmwlth 2008). You should consider the Department’s claim disputed and deposit an amount sufficient to cover the gross amount of the Department’s claim into an interest bearing escrow account pending resolution of the Tristani case. See Rule of Professional Conduct 1.15(f).
The DPW’s “opinion letter” goes on to further advise “that the Tristani court recognized that the Department could protect itself by intervening into cases and the Department has retained outside counsel for this purpose.” Finally, as if anyone familiar with these matters and dealing with the DPW would ever forget the same, the DPW’s opinion letter goes on to state that one should “also note that the Department has authority to impose significant civil money penalties for violations of the notice requirements of 62 P.S. §1409.”
CONCLUSION
The Tristani Memorandum Opinion has the potential to throw a major wrench into the world of personal injury litigation. However, the reality of this situation is such that there will be no easy answers in the immediate future. Rather, protection of one’s insured or client mandates working with the assumption that DPW’s liens are not just going to magically go away. As such, in resolving any case where such liens are known to defense counsel, counsel would be wise to accept nothing less than a final authorization letter from DPW, or to make a settlement contingent upon receipt of such a final letter from the DPW. Furthermore, going forward Defendants and insurance carriers should always obtain Releases with indemnification language indicating that once such a Release has been executed, the Plaintiff has assumed the liability to pay any such DPW lien.
