HARDIMAN, Circuit Judge.
In 1965, Congress amended the Social Security Act to create a program for states to assist the poor with their medical expenses. Through this program, known as Medicaid, the fifty states pay medical expenses on behalf of qualified beneficiaries. For more than thirty years, in circumstances where third parties are liable for such medical expenses, the Pennsylvania Department of Public Welfare (DPW) has recouped its expenditures by asserting liens against future settlements or judgments. In Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268, 280 n. 9, 291-92, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006), the Supreme Court assumed without deciding that such liens, when limited to the portion of a settlement or judgment constituting reimbursement for medical costs, are an implied exception to the federal law prohibiting states from imposing liens on the property of Medicaid beneficiaries. We now must decide whether these liens in fact constitute such an exception.
This appeal involves a putative class action filed by three Pennsylvania Medicaid beneficiaries subject to DPW liens. The District Court certified a question for interlocutory review pursuant to 28 U.S.C. § 1292(b), asking us to determine whether state agencies responsible for administering the Medicaid program have the authority to assert such liens and, if so, whether Pennsylvania's statutory framework is consistent with the Supreme Court's decision in Ahlborn.
We begin by reviewing the facts of the state court cases filed by each of the three plaintiffs (collectively, the Beneficiaries).
Rita L. Tristani underwent a bunionectomy in 1999 that resulted in pain and discoloration in her leg. Her surgeon suspected that she was suffering from deep venous thrombosis, and immediately referred her to the hospital. Upon her arrival, Tristani was examined by a medical resident who misdiagnosed her condition as superficial thrombophlebitis. Roughly one week after the misdiagnosis, Tristani suffered a massive pulmonary embolism and stroke, which left her partially paralyzed, disfigured, and brain-damaged. Consequently, Tristani resides in a facility where she receives full-time medical care.
Tristani was eligible for assistance under Pennsylvania's Medicaid program, and the DPW — the state agency responsible for administering Medicaid — paid for her medical care. In September 2001, Tristani filed a medical malpractice action in which she sought, inter alia, the costs of medical expenses that had been paid on her behalf by the DPW. Approximately two months after the complaint was filed, the DPW wrote Tristani's counsel that, as a recipient of medical assistance, Tristani had assigned her right to recover medical expenses to the DPW. In May 2002, Tristani preliminarily settled her malpractice claim for $5.2 million. Thereafter, seeking to recoup funds it had expended for Tristani's medical care, the DPW sent Tristani's counsel another letter asserting a lien of $247,514.98 against her settlement. The agency later reduced this lien by 40% to $148,508.99 to bear its proportionate share of Tristani's contingency fee obligation to her counsel. On June 2, 2005, the state trial court issued an order directing payment of the DPW's lien in full.
In January 2005, Joshua Valenta was injured in a traffic accident and suffered
A.H. is a young girl who suffered brain injuries following surgery to correct a congenital heart defect. The DPW enrolled A.H. in an MCO and paid capitation fees totaling $25,095.91 on her behalf. The MCO's payments to A.H.'s health care providers totaled $171,617.18. The DPW also paid $1,458.10 on a fee-for-service basis for A.H.'s benefit. In June 2005, A.H. filed a medical malpractice claim against her doctors, which was settled in April 2007 for an undisclosed amount. After the settlement, the DPW asserted a lien for $106,306.88 to reflect the cost of her medical care, less attorneys' fees and pro-rata costs. A.H. challenged the validity of the DPW's lien, and, instead of paying the lien directly, A.H.'s mother obtained court approval to place the disputed funds in an escrow account pending the outcome of this litigation.
In May 2006, Tristani and Valenta commenced a putative class action in the District Court against: Estelle B. Richman, Pennsylvania's Secretary of Public Welfare; Feather Houston, Richman's predecessor; and the DPW. Tristani and Valenta sought a refund of their payments to the DPW, as well as declaratory and injunctive relief invalidating Medicaid liens generally. They argued that the DPW's claims were prohibited by the anti-lien and anti-recovery provisions of the Social Security Act. See 42 U.S.C. § 1396p(a)-(b). Alternatively, they asserted that Pennsylvania's scheme for recouping medical expenses from Medicaid recipients was impermissible under the Supreme Court's holding in Ahlborn.
Several months after Tristani and Valenta commenced their action, Richman
In April 2008, Richman and Houston filed a motion for summary judgment. The next day, Tristani and Valenta filed a motion for partial summary judgment in which they sought a declaration that: (1) Pennsylvania's practice of asserting Medicaid liens is invalid; (2) the DPW's ability to recover medical payments made by MCOs is limited to the capitation payments made by the State; and (3) Pennsylvania's current method of determining the portion of a settlement that constitutes medical costs violates the Supreme Court's holding in Ahlborn.
The District Court issued a comprehensive opinion denying Tristani and Valenta's motion for partial summary judgment and granting in part and denying in part the Secretaries' motion. The District Court determined that federal law prohibits the DPW from asserting liens against third-party recoveries obtained by Medicaid beneficiaries. Nevertheless, the District Court denied Tristani's and Valenta's claims for monetary damages, holding that the Secretaries were entitled to qualified immunity. The District Court also held that Pennsylvania's practice of apportioning settlements between medical costs and other portions of the recovery was permissible under Ahlborn. The Court denied the Secretaries' motion for summary judgment as to Tristani's and Valenta's claims for declaratory and injunctive relief, but noted an unresolved issue regarding their standing to seek equitable relief.
After the District Court issued its order, the parties filed a joint motion to add a party to cure the potential standing problem. The Court permitted the parties to add A.H. who, both parties agreed, had standing with respect to the remaining issues. The District Court thus amended its prior order to deny the Secretaries' motion for summary judgment with regard to the validity of 62 Pa. Stat. Ann. § 1409(b)(7) — Pennsylvania's statutory mechanism for attaching liens to recoveries made by Medicaid beneficiaries — and granted the parties' motion to certify an interlocutory appeal pursuant to 28 U.S.C. § 1292(b).
Although the parties agree that we have jurisdiction over this interlocutory appeal, we "have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party." Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) (internal citation omitted). The District Court had jurisdiction over the Beneficiaries' federal claims pursuant to 28 U.S.C. § 1331, and exercised supplemental jurisdiction over their state law claims pursuant to 28 U.S.C. § 1367(a).
Consistent with the requirements of § 1292(b), the Secretaries timely petitioned this Court for leave to appeal. After we granted the Secretaries' petition for interlocutory appeal, the Beneficiaries filed a notice of cross-appeal in the District Court.
The first issue we must confront with respect to our jurisdiction is whether the Secretaries have standing to appeal the order of the District Court. "The general rule is that a party may not appeal a favorable decision." Ryan v. C.I.R., 680 F.2d 324, 325 (3d Cir.1982) (citing Elec. Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 242, 59 S.Ct. 860, 83 L.Ed. 1263 (1939)). Here, although the District Court held that the Medicaid liens asserted by the DPW were impermissible, it ultimately concluded that Richman and Houston were entitled to qualified immunity. Thus, the Secretaries prevailed on this issue in the District Court. Cf. Horne v. Coughlin, 191 F.3d 244, 247-48 (2d Cir.1999) (noting that when a District Court makes an adverse constitutional holding followed by a determination that qualified immunity exists, appellate review of the constitutional decision may be precluded for lack of standing).
After issuing its opinion, however, the District Court permitted the parties to add A.H. to the litigation to ensure that the Beneficiaries would have standing to pursue declaratory and injunctive relief. Following the addition of A.H., and prior to certifying this interlocutory appeal, the District Court amended its order to deny the Secretaries' motion for summary judgment with respect to the validity of the Pennsylvania law permitting Medicaid liens. This issue was included in the District Court's certification for interlocutory appeal, and constitutes an adverse judgment from which the Secretaries may properly seek appellate review.
Having decided that we possess jurisdiction over the Secretaries' appeal, we must now determine whether we have jurisdiction over the Beneficiaries' cross-appeal. Although they filed a notice of cross-appeal in the District Court, the Beneficiaries failed to petition for leave to appeal in this Court. We must decide whether this omission deprives us of jurisdiction over the issues raised in their cross-appeal. Stated differently, when an
In Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199, 205, 116 S.Ct. 619, 133 L.Ed.2d 578 (1996), the Supreme Court explained: "[a]s the text of § 1292(b) indicates, appellate jurisdiction applies to the order certified to the court of appeals.... [Therefore,] the appellate court may address any issue fairly included within the certified order." Accordingly, when we granted the Secretaries' petition for leave to appeal pursuant to § 1292(b), we obtained jurisdiction over the entire certified order of the District Court, including any portions that were decided in the appellant's favor. See United Transp. Union Local 1745 v. City of Albuquerque, 178 F.3d 1109, 1122 (10th Cir.1999) (Briscoe, J., concurring and dissenting). Thus, to the extent that the issues raised in the Beneficiaries' cross-appeal were included in the certified order of the District Court, they are properly before us on appeal.
We exercise plenary review over an order resolving cross-motions for summary judgment. Cantor v. Perelman, 414 F.3d 430, 435 n. 2 (3d Cir.2005). In determining whether summary judgment is appropriate, we apply the same standard as the District Court. Bucks Cnty. Dep't of Mental Health/Mental Retardation v. Pennsylvania, 379 F.3d 61, 65 (3d Cir.2004). Summary judgment should be granted when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED.R.CIV.P. 56(a).
Having established that jurisdiction lies, we proceed to the principal substantive
The Social Security Act provides that, as a condition to receiving Medicaid assistance, states must require individuals "to assign [to] the State any rights ... to support ... and to payment for medical care [the individual has] from any third party." 42 U.S.C. § 1396k(a)(1)(A). The Act also requires states to "ascertain the legal liability of third parties ... to pay for care and services under the plan" and, "in any case where such a legal liability is found to exist after medical assistance has been made ... [, to] seek reimbursement... to the extent of such legal liability." Id. § 1396a(a)(25)(A)-(B).
However, and of significance to this appeal, the Act also provides:
Id. at § 1396p(a)(1). This is known as the "anti-lien" provision.
Of equal importance, the Act provides that "[n]o adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except [in limited circumstances not at issue in this case]." Id. at § 1396p(b)(1). This is known as the "anti-recovery" provision.
Pennsylvania has enacted a detailed statutory framework in an attempt to comply with the requirements of the Social Security Act. Consistent with the federal mandate, 62 PA. STAT. ANN. § 1404(b) provides that "[t]he acceptance of medical assistance benefits shall operate as an assignment to [the DPW], by operation of law, of the assistance recipient's rights ... to payment for medical care from any third party."
Although a Medicaid beneficiary must assign the portion of her recovery relating to medical costs to the State, Pennsylvania's statutory framework provides the beneficiary with a number of options for prosecuting the remainder of her claim against a third party. For example, after providing notice to the DPW, a Medicaid beneficiary may elect not to include medical costs as damages in her lawsuit against a third party. See 62 PA. STAT. ANN. § 1409(b)(5).
When a Medicaid beneficiary chooses to pursue damages for medical costs, however, the method of transferring this portion of the recovery to the State will vary depending on whether the State is involved in the lawsuit. If the action is prosecuted by the Medicaid beneficiary alone, after the payment of litigation expenses and attorneys' fees, "the court or agency shall allocate the judgment or award between
The Beneficiaries claim the DPW's practice of asserting liens on recoveries made by Medicaid recipients violates the anti-lien and anti-recovery provisions of the Social Security Act. Despite having assigned to Pennsylvania the portion of their recovery relating to medical costs, the Beneficiaries claim they retain a property interest in their choses in action, including their claims for medical expenses. Thus, they claim that § 1409.1(b)(1) — which permits Pennsylvania to take a lien on the portion of a settlement that constitutes medical costs — effectively authorizes the imposition of a lien on a Medicaid beneficiary's property in violation of federal law. The DPW counters that its liens fall within an exception to the federal prohibitions on imposing liens on the property of Medicaid beneficiaries and on recovering medical assistance payments made on their behalf. The DPW further asserts that the Supreme Court's decision in Ahlborn, in which the Court assumed without deciding that such an exception exists, demonstrates that its liens are valid.
The District Court held that the Pennsylvania statute authorizing Medicaid liens was preempted by federal law. The District Court recognized the tension between the plain language of the anti-lien and anti-recovery provisions of the Social Security Act, which prohibit states from recouping medical assistance payments made on behalf of Medicaid beneficiaries, and the forced assignment and reimbursement provisions of the Act, which require states to recover medical assistance payments made on behalf of beneficiaries. Relying on dicta in the Ahlborn decision, the District Court determined that Medicaid beneficiaries, despite having assigned their recovery of medical costs to the State, retain an enduring property interest in this portion of their recovery. See Tristani v. Richman, 609 F.Supp.2d 423, 480 (W.D.Pa. 2009) ("Since Pennsylvania law permitted Tristani and Valenta to recover the entire amounts of their damages (including the amounts of payments made by the DPW to provide them with medical assistance), the entire settlement awards were their `property.'" (citing Ahlborn, 547 U.S. at 285, 126 S.Ct. 1752)). The District Court then attempted to harmonize the conflicting provisions of the Social Security Act by interpreting them to require Pennsylvania to take an active role in the recovery of medical costs, either by intervening in lawsuits initiated by Medicaid beneficiaries or
"Our task is to give effect to the will of Congress, and where its will has been expressed in reasonably plain terms, `that language must ordinarily be regarded as conclusive.'" Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 570, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1982) (quoting Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 64 L.Ed.2d 766 (1980)). As outlined above, the Social Security Act requires states to "seek reimbursement" for medical assistance payments made on behalf of
The District Court attempted to resolve the apparent conflict by interpreting the Act to require intervention by the states. However, the Court did not adequately explain, nor is it apparent to us, how its holding is consistent with the anti-recovery provision, which prohibits states from seeking "adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State [medical assistance] plan." Id. By its terms, the anti-recovery provision limits the ability of states to recover medical assistance payments made on behalf of Medicaid beneficiaries, regardless of the specific collection method utilized. Thus, the District Court's conclusion that Pennsylvania must intervene in tort actions filed by Medicaid beneficiaries cannot be reconciled with the anti-recovery provision.
The Supreme Court has stated that "[w]hen `interpreting a statute, the court will not look merely to a particular clause in which general words may be used, but will take in connection with it the whole statute ... and the objects and policy of the law, as indicated by its various provisions, and give to it such a construction as will carry into execution the will of the legislature.'" Kokoszka v. Belford, 417 U.S. 642, 650, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974) (quoting Brown v. Duchesne, 60 U.S. 183, 19 How. 183, 194, 15 L.Ed. 595 (1857)). When we consider the Social Security Act as a whole, including its text, structure, purpose, and legislative history, we conclude that the DPW's practice of asserting liens against that portion of a Medicaid beneficiary's recovery relating to medical costs must be viewed as an exception to the anti-lien and anti-recovery provisions.
The anti-lien and anti-recovery provisions significantly predate the reimbursement and forced assignment provisions. As we shall explain, Congress was pursuing different goals in enacting these two sets of provisions. While the anti-lien and anti-recovery provisions were intended to ensure that Medicaid beneficiaries were not forced to directly bear the costs of their medical care, the reimbursement and forced assignment provisions were intended to allow states to recoup their expenditures for medical assistance payments when third parties are held liable. By allowing states to recover these expenditures, Congress both protected the public fisc and ensured that beneficiaries did not receive a windfall by recovering medical expenses they did not pay. In order to effectuate the goals animating these conflicting provisions, we must view the reimbursement and forced assignment provisions as exceptions to the anti-lien and anti-recovery provisions.
An examination of the Social Security Act reveals that Congress has consistently pursued the dual goals of protecting the personal property of Medicaid beneficiaries while ensuring that liable third parties reimburse states for Medicaid expenditures. As we shall describe below, the Act's evolution over time reveals that Congress has not viewed these objectives to be in conflict. Rather, the available evidence indicates that Congress did not intend that liens for medical costs would fall within the scope of the anti-lien and anti-recovery provisions.
The anti-lien and anti-recovery provisions were first incorporated into the Social Security Act in 1960, some five years before Medicaid came into being. They required state medical assistance plans for the aged to:
42 U.S.C. § 302(a)(11)(E) (Supp. II 1959-1961).
The legislative history of the anti-lien and anti-recovery provisions confirms this understanding.
The reimbursement provision of the Act was first enacted in 1967, and required state medical assistance plans to provide:
42 U.S.C. § 1396a(a)(25) (Supp. III v.2 1965-1968). The plain language of this provision requires states to consider third-party liability when making Medicaid eligibility determinations, and to seek reimbursement of sums expended when third-party liability is unknown at the time payments are made. In this way, the reimbursement provision protects the public fisc while preventing Medicaid beneficiaries from receiving a windfall. Although the anti-lien and anti-recovery provisions were in force when the reimbursement provision was enacted, Congress made no attempt to reconcile this new requirement with the prohibition against states recovering medical assistance payments made on behalf of Medicaid beneficiaries. Instead, the statute simply requires states to consider any known third-party liability as an asset of the individual in determining eligibility, and to seek reimbursement when liability is discovered after medical assistance payments have been made.
The legislative history of the reimbursement provision confirms that Congress intended to ensure that states recover medical assistance payments made on behalf of Medicaid beneficiaries whenever third parties are found liable for medical expenses. As stated during a Senate hearing:
Social Security Amendments of 1967: Hearing Before the S. Comm. On Finance, 90th Cong. 1572 (1967) (statement of Wallace M. Smith).
The forced assignment provision of the Social Security Act was first enacted in 1977. As a condition of receiving Medicaid benefits, the forced assignment provision obligates states to require individuals
42 U.S.C. § 1396k(a)(1)(A). By its terms, this provision requires individuals, as a condition of receiving Medicaid benefits, to confer upon the state their right to recover the costs of their medical care. This is further evidence of congressional intent to ensure that Medicaid beneficiaries do not receive a windfall by recovering medical costs they did not pay.
Our conclusion that liens on medical costs are excepted from the anti-lien and anti-recovery provisions is bolstered by the forced assignment provision. The District Court viewed the forced assignment provision as evidence of congressional intent to require states to intervene in lawsuits initiated by Medicaid beneficiaries against third parties. We see it differently.
As the Secretaries correctly point out, a partial assignment typically creates a lien on a portion of the recovery in favor of the assignee. See, e.g., Matchett v. Wold, 818 F.2d 574, 576 (7th Cir.1987) ("An ordinary lien attaches to property in being; the statutory attorney's lien attaches to an expectation [of recovery], the court thought the statute better described therefore as making the attorney in effect a partial assignee of his client's interest in the lawsuit...."); Angeles Real Estate Co. v. Kerxton, 737 F.2d 416, 419 (4th Cir. 1984) ("[U]nder general common law principles, a partial assignment creates an equitable lien in favor of the assignee."); Law Research Serv., Inc. v. Martin Lutz Appellate Printers, Inc., 498 F.2d 836, 837 (2d Cir.1974) ("[T]he assignment of [part of] an existing right [under a judgment] creates an immediate lien in favor of the assignee that is valid against later lien creditors of the assignor."). We do not believe that Congress would prohibit states from imposing liens to recoup medical costs while at the same time imposing a requirement that has the legal effect of creating such liens. The more logical conclusion is that Congress understood that the legal effect of the forced assignment provision would be to provide the states with a lien on recoveries of medical costs. Thus, in our view, the forced assignment provision is evidence of Congress's intent to except recoveries of medical assistance payments whenever third parties are found liable for them.
Unlike the District Court, we do not believe that Congress intended to require states to intervene in Medicaid beneficiaries' lawsuits in order to recoup medical costs from third parties. Congress enacted the forced assignment provision more than a decade after it began requiring states to "seek reimbursement" for medical costs from liable third parties. The purpose of the provision was to ensure that states were able to recoup their outlays. Thus, far from restricting the state's ability to recoup medical expenses, the forced assignment provision was intended to facilitate the state's recovery of those funds.
The text of the Social Security Act, when combined with its structure, purpose, and legislative history, reveals that Congress sought to accomplish different goals in enacting the anti-lien and anti-recovery provisions on the one hand, and the reimbursement and forced assignment provisions on the other hand. While the anti-lien and anti-recovery provisions were intended to protect the assets of Medicaid recipients, the subsequently-enacted forced assignment and reimbursement provisions were intended to limit the financial burden of Medicaid on the states and ensure that Medicaid beneficiaries did not receive a windfall by recovering medical costs they did not pay.
Having determined that liens limited to recoveries for medical costs are not prohibited by the anti-lien and anti-recovery provisions, we now turn to Pennsylvania's method of apportioning settlements between medical costs and the remainder of a beneficiary's recovery. Typically, a Medicaid beneficiary's recovery from a third party will compensate her for a variety of damages, including medical costs, lost wages and pain and suffering. Pursuant to the Supreme Court's holding in Ahlborn, states may be reimbursed only for the portion of the recovery constituting compensation for medical expenses. Many settlements, however — including those at
Pennsylvania has addressed this allocation problem by providing:
62 PA. STAT. ANN. § 1409(b)(11). As the District Court noted, the DPW has construed this provision as "`establish[ing] a statutory default rule of allocation for tort recoveries consistent with Ahlborn.'" Tristani v. Richman, 609 F.Supp.2d 423, 464 (W.D.Pa.2009) (quoting 37 Pa. Bull. 4881, 4228 (Sept. 8, 2007)). Pursuant to the DPW's construction of section 1409(b)(11), in the absence of a judicial allocation of damages, the DPW is entitled to recover the lesser of its actual expenditures on medical costs or one half of the beneficiary's recovery after expenses.
In this appeal, the Beneficiaries' medical costs constitute less than one-half of their recoveries; therefore, the DPW has recovered (or, in A.H.'s case, seeks to recover) the full amount of its Medicaid expenditures, less a pro rata reduction for attorneys' fees and costs. The Beneficiaries argue, however, that they settled their claims for less than full value, and that the DPW's recovery for medical costs should be reduced correspondingly. Because no such reduction occurred, the Beneficiaries claim that the DPW's liens exceed the scope of the interests they assigned to the agency in violation of Ahlborn.
The District Court rejected the Beneficiaries' argument, concluding that Pennsylvania law validly adopted a default apportionment mechanism to divide settlements between medical costs and other expenses. The District Court noted that although section 1409(b)(11) predates Ahlborn, thereafter the DPW has interpreted it as establishing a default apportionment between non-medical and medical expenses. This interpretation has since been codified in 55 PA.CODE § 259.2, which states:
This regulation explains section 1409(b)(11)'s relationship to the rule of Ahlborn, and formally establishes a default method for establishing the portion of a recovery relating to medical costs.
The District Court found this scheme to be consistent with federal law. The Court noted that Ahlborn recognized the possibility that plaintiffs would manipulate settlement agreements to artificially depress the portion attributable to medical expenses. In Ahlborn, the Supreme Court suggested that this risk could "be avoided either by obtaining the State's advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision." Ahlborn, 547 U.S. at 288, 126 S.Ct. 1752. In a footnote, the Court stated:
Id. at n. 18. The District Court held that Pennsylvania's 50% allocation and agency appeal provisions are "special rules and procedures" of this kind that are consistent with the federal requirement that the State's recovery not exceed the portion of the third-party recovery attributable to Medicaid-paid expenses. The Supreme Courts of North Carolina and Idaho have reached similar conclusions with respect to analogous state laws. See State Dep't of Health & Welfare v. Hudelson, 146 Idaho 439, 196 P.3d 905, 911 (2008); Andrews ex rel. Andrews v. Haygood, 362 N.C. 599, 669 S.E.2d 310, 314 (2008).
Alternatively, the District Court held that Pennsylvania's apportionment scheme is valid because, under Pennsylvania law, a settlement represents full compensation for an individual's damages, which implies that the Beneficiaries cannot, after settling, claim that they were not made whole. Under Pennsylvania law, "when a subrogor settles a claim, he essentially waives his right to a judicial determination of his losses, and therefore conclusively establishes the settlement amount as full compensation for his damages." Goldberg v. Workers' Comp. Appeal Bd. (Girard Provision Co.), 152 Pa.Cmwlth. 559, 620 A.2d 550, 552 (1993). "Hence, in effect, [Pennsylvania] law indicates that when an individual settles his suit he is later estopped from claiming that his damages exceed the amount settled for." Allstate Ins. Co. v. Clarke, 364 Pa.Super. 196, 527 A.2d 1021, 1025 n. 4 (1987). The Pennsylvania Supreme Court has never explicitly adopted this rule, but as the cases quoted above demonstrate, it has gained some traction in the lower courts. Accordingly, the District Court held that, even in the absence of the statutory default allocation, the "made whole" doctrine would fix the portion of the Beneficiaries' settlement attributable to Medicaid expenses at an amount equal to the DPW's actual expenditures.
We agree with the District Court's conclusion that Pennsylvania's apportionment scheme is valid. Pursuant to the current
Despite the validity of Pennsylvania's current apportionment scheme, the question remains whether the prior scheme, which did not provide a right of appeal from the default allocation, is valid under Ahlborn.
Although the Ahlborn Court acknowledged the existence in state law of "special rules and procedures" for allocating settlements, and left open the possibility that such rules may be employed to address concerns about settlement manipulation, 547 U.S. at 288 n. 18, 126 S.Ct. 1752, it did not give states unfettered discretion to allocate settlements without regard to the actual portion attributable to medical expenses. Indeed, Ahlborn expressed a preference for resolving allocation disputes "either by obtaining the State's advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision." Id. at 288, 126 S.Ct. 1752.
We express no view as to whether allocation disputes of this type must be adjudicated by a court, or may instead be resolved through other "special rules and procedures." Id. at 288 n. 18, 126 S.Ct. 1752. We hold merely that in determining what portion of a Medicaid beneficiary's third-party recovery it may claim in reimbursement for Medicaid expenses, the state must have in place procedures that allow a dissatisfied beneficiary to challenge the default allocation. As the Beneficiaries point out, without such a rule nothing would prevent states from allocating 75%, 90% or even 100% of a settlement to medical expenses, thereby eviscerating the rule promulgated by Ahlborn. Because the District Court concluded otherwise, we will reverse its order in this respect and remand for further proceedings consistent with this opinion.
In Ahlborn, the Supreme Court assumed without deciding that liens on recoveries made by Medicaid beneficiaries for medical costs constitute an exception to the anti-lien and anti-recovery provisions of the Social Security Act. Medicaid beneficiaries in Pennsylvania have questioned this assumption by challenging the State's practice of utilizing such liens. Our examination of the text, structure, history and purpose of the Social Security Act leads us to conclude that liens limited to medical costs are not prohibited by the anti-lien and anti-recovery provisions of the Act. Accordingly, we uphold Pennsylvania's longstanding practice of imposing such liens.
The Beneficiaries have also challenged Pennsylvania's practice of disaggregating medical costs to comport with the requirements of Ahlborn. We hold that Pennsylvania's current statutory framework, which
For the foregoing reasons, we will affirm in part, vacate in part, and remand the case for further proceedings consistent with this opinion.
POLLAK, District Judge, dissenting.
I agree with the majority that we possess jurisdiction over the defendants' appeal, and that we possess jurisdiction over the issues raised in the plaintiffs' cross-appeal to the extent those issues were included in the certified order of the District Court. However, like the District Court, I do not believe Congress intended to permit state Medicaid agencies, such as the Pennsylvania Department of Public Welfare ("DPW"), to impose liens on judgments and settlements obtained by Medicaid beneficiaries from third parties.
As a condition of participating in Medicaid, states must prepare a state Medicaid plan to comply with various requirements set out in the Social Security Act. See generally 42 U.S.C. § 1396a. As relevant here, a state Medicaid plan must permit the state to seek "reimbursement" when third parties are liable for medical services provided by Medicaid. Specifically, the plan must provide:
Id. § 1396a(a)(25)(A)-(B) (emphasis added) ("reimbursement" provision).
A state's Medicaid plan must also require individuals enrolled in Medicaid to assign to the state their right to payment for medical care from third parties, and to cooperate with the state's efforts to recover those payments. In relevant part, this "assignment/cooperation" provision states that:
Id. § 1396k(a)-(b) (emphasis added).
In addition to the reimbursement and assignment/cooperation provisions, the Social Security Act contains an "anti-lien" provision, which states that:
Id. at § 1396p(a)(1). The Act also contains an "anti-recovery" provision, which states that "[n]o adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except [in limited circumstances not at issue in this case]." Id. at § 1396p(b)(1).
To comply with the foregoing provisions of the Social Security Act, Pennsylvania has enacted 62 Pa. Stat. Ann. § 1404(b),
If the beneficiary institutes an action against such a third party, the beneficiary must notify the DPW of the suit within thirty days, id. § 1409(b)(5), and the DPW may intervene in the suit at any time before trial, id. § 1409(b)(5)(v). However, the DPW is not required to intervene in a beneficiary's suit, and may instead wait until the suit has proceeded to a judgment or settlement. In such cases, the resulting judgment or settlement must first be used to pay the reasonable litigation expenses and attorneys' fees incurred by the beneficiary. Id. § 1409.1(b)(1). Then, in cases that proceed to a judgment, "the court or agency shall allocate the judgment or award between the medical portion and other damages," and the DPW may assert a "lien against the medical portion of the judgment or award," in "the amount of the expenditures for the benefit of the beneficiary" made by the DPW. Id.
The majority concludes that the various provisions of the Social Security Act set forth in the preceding section should be construed to permit state Medicaid agencies, such as the DPW, to impose liens on future judgments and settlements obtained by Medicaid beneficiaries from third parties. The majority opinion derives much of its force from its argument that this construction prevents Medicaid recipients from obtaining windfall recoveries, because "[i]t 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." Op. at 374.
I disagree with the majority opinion's construction of the Social Security Act for three primary reasons. First, the opinion ignores language in the reimbursement and assignment/cooperation provisions which indicates that Congress intended states to directly litigate claims against liable third parties. Second, the opinion erroneously concludes that because Congress intended to create a limited implicit exception to the anti-recovery provision, this court must read an even broader implied
The last of these three reasons deserves particular emphasis: because § 1409(b)(5)(vi) is preempted by the plain language of the Social Security Act, Medicaid beneficiaries will not be able to obtain windfall recoveries. As a result, it is not necessary to devise textually tenuous implicit exceptions in order to read the Act in a way that prevents such recoveries.
Turning to the first reason, the District Court held that the reimbursement and assignment/cooperation provisions, taken together, indicate that Congress did not intend to permit state Medicaid agencies to free-ride on the efforts of plaintiffs by asserting liens after a judgment or settlement has been obtained. Rather, Congress wanted states to either initiate suit against or intervene in actions against liable third parties, and wanted Medicaid recipients to cooperate in those efforts by providing state agencies with any information they might require. As the District Court explained:
The majority opinion rejects the District Court's conclusion that states may only seek reimbursement for care and services provided by Medicaid by bringing their own lawsuits against third parties or by intervening in suits brought by Medicaid recipients, suggesting that § 1396a(a)(25)(B) "is silent regarding the method by which reimbursement must be sought" by the state. Op. at 370. This statement is, in a strict sense, accurate: § 1396a(a)(25)(B) does not itself specify whether the state must seek reimbursement directly from third parties.
However, like the Supreme Court, "[w]e do not ... construe statutory phrases in isolation; we read statutes as a whole." United States v. Morton, 467 U.S. 822, 828, 104 S.Ct. 2769, 81 L.Ed.2d 680 (1984); see also United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988) ("A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme...."). The majority opinion does not quote or otherwise address the immediately preceding subsection, which indicates that Congress wanted "the State to pursue claims against such third parties." 42 U.S.C. § 1396a(a)(25)(A) (emphasis added). The opinion also ignores § 1396k(a)(1)(C), which states that individuals must provide information "to assist the State in pursuing" liable third parties. And it does not
My second reason for disagreement with the majority opinion arises from its construction of the anti-lien and anti-recovery provisions. The District Court found that the anti-lien and anti-recovery provisions can be rendered consistent with Section 1396a(a)(25), the reimbursement provision, and Section 1396k, the assignment/cooperation provision, by construing the latter provisions "to require an assignment for the purpose of enabling a participating state to directly pursue claims against third parties liable for the costs of providing medical assistance to Medicaid recipients." Tristani, 609 F.Supp.2d at 470. The majority opinion rejects this construction on the ground that "the District Court's conclusion that Pennsylvania must intervene in tort actions filed by Medicaid beneficiaries cannot be reconciled with the anti-recovery provision" because "[b]y its terms, the anti-recovery provision limits the ability of states to recover medical assistance payments made on behalf of Medicaid beneficiaries, regardless of the specific method." Op. at 370.
I agree with the majority that the anti-recovery provision would, if read in isolation, seem to prohibit the state from using any method from seeking to recover medical assistance payments expended on behalf of Medicaid recipients. From this, it follows that the reimbursement and assignment/cooperation provisions, which expressly state that states must pursue assigned claims directly against third parties, must constitute an implicit exception to the anti-recovery provision permitting states to recover from liable third parties.
However, it does not follow that the reimbursement and assignment/cooperation provisions create an exception to the anti-recovery provision permitting states to recover from Medicaid beneficiaries. Nor does it follow that the reimbursement and assignment/cooperation provisions must be read to impliedly repeal the anti-lien provision. See 42 U.S.C. § 1396p(a)(1) ("No lien may be imposed against the property of any individual ... on account of medical assistance paid ... under the State plan...." (emphasis added)).
In short, while a limited implied exception must be read into the anti-recovery provision to permit recoveries from liable third parties, that fact alone does not require — much less justify — reading an even broader implied exception into the anti-recovery provision or an additional implied exception into the anti-lien provision. Accordingly, I would affirm the District Court's holding that "[t]o the extent that sections 1409(b)(7)(i) and 1409.1(b)(1) permit the DPW to impose liens on the awards obtained by Medicaid recipients from liable third parties during the lifetimes of the recipients, they are preempted by § 1396p(a)(1) [the anti-lien provision]." Tristani, 609 F.Supp.2d at 473. In addition, to the extent that sections 1409(b)(7)(i) and 1409.1(b)(1) permit the DPW to seek recoveries of "medical assistance correctly paid" from Medicaid beneficiaries' settlements and judgments, rather than directly from third parties, they are preempted by § 1396p(b)(1), the anti-recovery provision.
I would go a step further than the District Court, and also hold that § 1409(b)(5)(vi) — which permits a Medicaid beneficiary suing a third-party to "include as part of his claim the amount of [Medicaid] benefits that have been or will be provided" by the DPW — conflicts with the Social Security Act and is therefore preempted. As discussed above, the reimbursement and assignment/cooperation provisions indicate that Congress wanted state agencies to pursue claims against third parties for reimbursement of Medicaid expenditures, and imposed upon individual Medicaid recipients only the obligation that they cooperate with state agencies by providing them with any information necessary to pursue their claims. See 42 U.S.C. § 1396a(a)(25)(A)(i) (requiring state plan to provide for "the collection of sufficient information ... to enable the State to pursue claims against ... third parties". (emphasis added)); id. § 1396k(a)(1)(C) (requiring state plan to direct individuals to "cooperate with the State in identifying, and providing information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan" (emphasis added)).
The natural reading of these provisions is that Congress wanted the states, and the states alone, to be able to pursue claims against third parties for reimbursement of Medicaid expenditures. Congress did not intend to authorize Medicaid recipients to include in their suits claims that properly belong to the states. Such a reading of the Social Security Act would, because of the anti-lien and anti-recovery provisions discussed above, permit Medicaid recipients to obtain a windfall recovery — which, as the majority recognizes, is an absurd result that Congress cannot have intended. Thus, I would hold that § 1409(b)(5)(vi) is also preempted by the third party liability provisions of the Social Security Act.
I come to this conclusion notwithstanding the fact that neither party to this litigation has argued that § 1409(b)(5)(vi) is preempted. The parties' positions are perhaps unsurprising, because both have self-interested reasons for seeking to rely upon this provision of Pennsylvania law: the plaintiffs hope to recover (or keep their recoveries of) Medicaid expenditures from third parties, and then shield themselves from the DPW using the anti-lien and anti-recovery provisions, while the DPW hopes to free-ride on the efforts of plaintiffs and their counsel in order to avoid the expenses of actually litigating claims against third parties. The parties, of course, are entitled to their litigation positions, but the judiciary's duty is to "say what the law is." Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177, 2 L.Ed. 60 (1803). Because § 1409(b)(5)(vi) permits Medicaid recipients to assert claims belonging to the DPW, and is therefore the underlying source of the difficulties in this case, I would reach the question of whether it is preempted, and would answer that question in the affirmative.
The construction of the Social Security Act defended in this dissent remains faithful to the plain language of the Act, while also eliminating the possibility that Medicaid recipients will be able to obtain windfall
We note that both the Second and Tenth Circuits based their analyses in part on Federal Rule of Appellate Procedure 5(b), which governs appeals by permission, and provides that a cross-petition for leave to file a cross-appeal may be filed within 10 days after the initial petition is served. At the time these cases were decided, it was understood that Rule 5 was jurisdictional. More recently, however, the Supreme Court has clarified that non-statutory rules of procedure cannot be regarded as jurisdictional because "[o]nly Congress may determine a lower federal court's subject-matter jurisdiction." Kontrick v. Ryan, 540 U.S. 443, 452-56, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004).
Although these decisions have permitted the use of Medicaid liens limited to medical costs, the majority of them have not clearly articulated their rationale for doing so. Indeed, some courts appear to be under the misapprehension that the Supreme Court held such liens to be permissible in Ahlborn. See, e.g., In re Matey, 147 Idaho 604, 213 P.3d 389, 394 (2009) ("[A] state may not seek reimbursement from damages awarded for lost earnings, lost household services, non-economic injury and the like because, according to the Supreme Court, those damages are the property of the Medicaid recipient. However, the Supreme Court specifically stated that damages received for medical care did not constitute property subject to the anti-lien provisions.") (citing Ahlborn, 547 U.S. at 284, 126 S.Ct. 1752).
These three anti-lien and anti-recovery provisions remained in place until 1982, when Congress consolidated them into 42 U.S.C. § 1396p. See Pub.L. 97-248, tit. I. § 132(b), 96 Stat. 324, 370 (1982). Section 1396p actually broadened the authority of states to seek reimbursement from Medicaid beneficiaries by allowing them, in certain circumstances, to impose liens on the homes of beneficiaries during their lifetimes. See S. REP. No. 97-530, at 437 (1982) ("States are allowed to impose liens on real property including the home, of institutionalized [M]edicaid beneficiaries who the State determines, after notice and opportunity for a hearing, are reasonably likely to remain in a nursing home for the remainder of their lives."). Section 1396p remains in force today, and has undergone numerous amendments adjusting the exact circumstances under which states may recover from Medicaid beneficiaries. For purposes of our analysis, however, the various iterations of the anti-lien and anti-recovery provisions are irrelevant. Our focus is on the fact that the provisions have been in force since 1960, have been repeatedly re-enacted, and have consistently been animated by a legislative intent to insulate Medicaid beneficiaries from the costs of their medical expenses, and, in particular, to protect the family home.
Id. § 1396a(a)(25)(H).
In addition, it should be noted that other public policy concerns aside from efficiency are at issue in this case, notably the attorney-client relationship. Pursuant to § 1409(b)(5)(vi), a plaintiff may pursue claims against third parties for Medicaid expenditures made by the DPW. If her case settles, then the DPW is entitled to recover its medical expenditures in an amount of up to one-half of the beneficiary's recovery after deducting for attorney's fees and litigation expenses, regardless of how a court would have actually allocated the plaintiff's medical and non-medical damages. Id. § 1409(b)(11). As a result of this essentially arbitrary default rule, a plaintiff whose medical damages were relatively small in comparison to her non-medical damages is likely to be under-compensated by the settlement (which was made in light of the risks that always attend going to trial), while the DPW will be over-compensated (because the DPW does not have to factor such risks into its recovery). If the plaintiff wishes to challenge this default allocation, she must pursue a potentially expensive administrative appeal. See 55 Pa.Code § 259.2(d).
The plaintiff's attorney, however, is in a quite different position. Because the attorney's fees are deducted before the DPW takes its cut of the settlement, the attorney will always be fully compensated for her efforts. Thus, under Pennsylvania's statutory scheme, the plaintiff's attorney has an incentive to include the plaintiff's Medicaid damages in the complaint — which is likely to increase the amount of time the attorney will spend on the case and therefore her fees — even if that would not be advantageous for her client. While I am confident that most attorneys in Pennsylvania would (like plaintiffs' counsel in this action) do what is in the best interests of their clients regardless of what is in their own best interests, I nonetheless suspect that Congress did not intend to create such temptations.
