Federal Court Opinion Disallows Department Of Public Welfare (“Dpw”) Lien On Settlement Proceeds

Federal Court Opinion Disallows Department Of Public Welfare ("Dpw") Lien On Settlement Proceeds

May 2009

On March 25, 2009, Judge Joy Flowers Conti, of the United States District Court for the Western District of Pennsylvania, held that the manner in which the DPW asserts its lien on settlement proceeds violates the federal anti-lien and anti-recovery statutes and the United States Supremacy Clause.

In the underlying case, Rita Tristani, a Medicaid recipient, settled her malpractice case for a total of $5,200,000. Of that amount, $148,508.99 was paid to DPW. Plaintiff Joseph Valenta, also a Medicaid recipient, was injured in a multi-vehicle accident on January 29, 2005. Before instituting the lawsuit, Valenta satisfied the DPW lien in the amount of $10,000. Both Tristani and Valenta liens were reduced to account for attorney’s fees and costs. Neither Tristani nor Valenta attempted to negotiate a reduced lien with DPW. No parties dispute that the sums paid to DPW were allocated to medical expenses and that DPW was authorized to assert the lien under Pennsylvania law.

However, Judge Conti found that the Pennsylvania statute, under which DPW acted, violated the federal anti-lien and anti-recovery statutes. Judge Conti ruled that it was illegal for DPW to assert any liens against their recipient’s settlement awards, regardless of how the lien was calculated. Judge Conti found that the plain and unambiguous language of the federal anti-lien statute prohibits liens of the kind asserted in the settlement proceeds by DPW and that the anti-recovery provision of that statute prohibited DPW from seeking recovery of the medical assistance which had been correctly paid on behalf of its recipients.

Judge Conti concluded that the anti-lien and anti-recovery statutes manifested a congressional intent that DPW bring direct actions against liable third-parties for the cost of medical assistance furnished to Medicaid recipients. Since the statutory language clearly refers to direct actions by state entities against liable third-parties, Judge Conti concluded that participating states could only pursue liable third-parties directly.

DPW has the option of commencing its own action against the liable third-parties to reimburse itself for the expenditures incurred in providing medical assistance or intervene in the underlying cases. Since a Medicaid recipient is required to provide reasonable notice when he or she commences an action or seeks recovery of medical expenses incurred by the Medicaid program for his or her benefit, DPW will have ample time to assert its recovery rights.

Judge Conti’s decision makes it clear that DPW can longer chose to remain on the sidelines in actions commenced by Medicaid beneficiaries against liable third-parties. It must institute its own action and/or intervene in the underlying action.

An interesting by-product of this decision is the impact that the holding might have upon the special damages that may be asserted by an injured claimant. If, DPW institutes its own action or intervenes in the underlying action, it seems reasonable that the injured party should no longer be able to assert those Medicaid payments as part of his or her damages. Otherwise, the third-parties could be subject to paying twice for the same treatment.

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 v. Estelle B. Richman, both her individual and official capacities and Feather Houstoun, in her individual capacity, United States District Court (W.D. PA), No. 06-694