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Third Circuit Court of Appeals Holds That Medicaid Liens are Not Prohibited by Anti-Lien and Anti-Recovery Provisions of The Social Security Act

In Tristani v. Richman, the United States Court of Appeals for the Third Circuit held that Medicaid liens on judgments or settlements limited to medical costs are not prohibited by the anti-lien and anti-recovery provisions of the Social Security Act, 42 U.S.C. § 1396p(a)-(b).

In Tristani, the Pennsylvania Department of Public Welfare (the DPW) paid medical benefits on behalf of three individuals who suffered injuries allegedly caused by the negligence of others. The three individuals filed separate lawsuits against the ostensibly negligent parties, seeking compensatory damages for the injuries they sustained. After the plaintiffs settled their lawsuits with the parties allegedly responsible for their injuries, the DPW asserted liens against each of the plaintiffs’ settlements for the amount of medical expenses paid on each respective plaintiffs’ behalf, less a proportionate share of the plaintiffs’ costs and attorneys fees. The plaintiffs then commenced a putative class action lawsuit against the DPW and the agency’s current and former secretaries in the United States District Court for the Western District of Pennsylvania seeking a determination of whether the DPW had authority to assert such liens against Medicaid beneficiaries.

Two years after initiating their lawsuit against the DPW, the plaintiffs filed a motion for summary judgment in which they asked the district court to declare that: (1) the Commonwealth’s practice of asserting Medicare liens is invalid; (2) the DPW’s ability to recover medical payments made by managed care organizations is limited to capitation payments made by the State; and (3) Pennsylvania’s current method of determining what portion of a settlement constitutes medical costs violates Supreme Court precedent. The district court denied the DPW’s motion after determining that federal law prohibited the DPW from asserting liens against third-party recoveries obtained by Medicaid beneficiaries. However, the district court further held that Pennsylvania’s method of apportioning settlements between medical costs and other portions of the recovery did not violate federal law. The parties then filed cross-appeals to the United States Court of Appeals for the Third Circuit.

On appeal, the Third Circuit began by noting that the Social Security Act (the Act) requires states, as a condition to receiving Medicaid assistance, to oblige Medicaid recipients to assign to the State any rights they may possess to recover medical costs from a third party. The Third Circuit further observed that the Act requires states to seek reimbursement for medical assistance payments made to Medicaid recipients whenever a state determines that a third party is legally liable to pay for a recipient’s medical care. The Third Circuit noted that the Act does not set forth a method by which states must seek reimbursement of medical assistance payments they have made.

The Third Circuit then remarked that the foregoing provisions of the Act conflict with other sections of the Act which prohibit states from imposing liens against the property of Medicaid beneficiaries or recovering any medical assistance properly paid on an individual’s behalf. The Court concluded that the plain language of these conflicting provisions could not be reconciled.

Nevertheless, the Third Circuit determined that the conflicting language in the Act was not fatal to the DPW’s position. Rather, the court followed the well-settled tenet that, when interpreting a statute, a court should not look only at a particular clause in which general words are used, but rather, should examine provisions in the context of the entire statute, and the objects and policy of the law, and construe the statute in a manner that will execute the legislature’s will. The Third Circuit then concluded that, upon consideration of the Act as a whole, including its text, structure, purpose and legislative history, the DPW’s practice of asserting liens against the portion of a Medicaid recipient’s recovery that relates to medical costs must be viewed as an exception to the anti-lien and anti recovery provisions of the Act.

In reaching this conclusion, the Third Circuit stressed that the anti-lien and anti-recovery provisions of the Act significantly predate the reimbursement and forced assignment provisions. The court further noted that the two sets of provisions were enacted to achieve different goals. Specifically, the anti-lien and anti-recovery provisions were created to ensure that Medicaid beneficiaries were not required to directly bear the costs of their medical care. The reimbursement and forced assignment provisions, on the other hand, were enacted to allow states to recoup their medical assistance payments in circumstances where a third party is responsible for a Medicaid recipient’s injuries. According to the court, the only way to effectuate both goals underlying these conflicting provisions is to view the reimbursement and forced assignment provisions of the Act as exceptions to the anti-lien and anti-recovery provisions.

Moreover, the Third Circuit determined that the legislative history of the Act supports the notion that Medicaid beneficiaries are not entitled to retain money paid to them by liable third parties to compensate the beneficiaries for their medical costs. The court reached this conclusion after observing that the anti-lien and anti-recovery provisions were inserted into the Act to protect Medicaid recipients and their spouses from the loss of their property, usually their home, during their lifetime. The court then declared that “Congress’s concern for protecting a Medicaid beneficiary’s personal assets – not her interest in recovering medical costs paid on her behalf – clearly animated the enactment of the anti-lien and anti-recovery provisions.”

The legislative history of the Act’s reimbursement and forced assignment provisions, on the other hand, demonstrates that Congress intended to ensure that states recovered medical assistance payments made to Medicaid recipients whenever third parties are found liable for the recipient’s medical expenses despite the apparent proscription against seeking recovery of such payments. According to the court, “{i} defies common sense to conclude that Congress intended to protect the rights of Medicaid beneficiaries to recover medical costs that they never paid in the first place.” Rather, the court maintained that the reimbursement and forced assignment provisions were meant to limit the financial burden of Medicaid on the states and to ensure that Medicaid beneficiaries did not receive a windfall by recovering medical costs they never paid. Thus, the court concluded that “the forced assignment and reimbursement provisions are best viewed as creating an implied exception to the anti-lien and anti-recovery provisions of the Social Security Act.” The court then held that liens on settlements or judgments that are limited to medical costs are not prohibited by the anti-lien and anti-recovery provisions of the Act.

Finally, the court determined that Pennsylvania’s current statutory scheme, which permits Medicaid recipients to appeal from the statutory default rule of allocation for tort recoveries, is a permissible default apportionment method under federal law.


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