HOW TO VACATE A MEDICAID LIEN IN AN INFANT’S CASE

HOW TO VACATE A MEDICAID LIEN IN AN INFANT’S CASE

by Joseph Lichtenstein* and Mark R. Bower*

Introduction

Practitioners who handle personal cases involving claims of serious injuries to infants are often faced with very substantial lien claims from the Department of Social Services for amounts paid by Medicaid for hospital and medical bills. Medicaid has a statutory lien against any recovery, per Social Service Law §104(2). Where the Medicaid lien is substantial, it can make it difficult or even impossible to settle a case, as the obligation to repay the lienholder be may leave little or nothing left over for the injured child, and the parents may wonder whether they brought a lawsuit only for the benefit of the attorneys and the lienholder. To the extent permissible under the law, the task of the plaintiff’s lawyer is to protect the infant’s settlement funds from Medicaid’s grasp.

Following the decisions of the Court of Appeals in Cricchio v. Pennisi, 90 NY2d 296, and Calvanese v. Calvanese, 93 NY2d 111, the Department of Social Services contended – and the plaintiff’s bar generally accepted - that no matter how severely a lien eviscerated a settlement, the Courts had no authority to reduce or vacate these statutory liens.

Justice Karla Moskowitz’s (Supreme Court, N.Y. County) recent decision in Fraylich vs. Maimonides Hospital changes that.

Facts of the Fraylich case.

In Fraylich, the authors of this article represented the infant plaintiff in a medical malpractice case involving catastrophic injuries resulting in medical expenses (and a lien) approaching two hundred thousand dollars. Plaintiffs alleged a failure to diagnose a rare birth defect, congenital diaphragmatic hernia, in the womb. In simple terms, the baby developed in-utero with an abnormal hole in his diaphragm. The opening allowed the intestines to move up into the chest, impinging on the developing lungs and compromising lung development. It was claimed that the newborn baby should have received extra-corporeal membrane oxygenation ("ECMO") immediately after birth. ECMO is a sophisticated kind of neo-natal heart/lung machine that bypasses the injured or undeveloped lung, and allows it to mature. At the time, this specialized form of treatment was not available at the defendant hospital. The baby was transferred to a different hospital, and received ECMO after he began to severely deteriorate at the defendant hospital. The child was left with severe and totally disabling brain damage. The plaintiffs alleged that the baby was transferred too late. The defendant argued that the ECMO caused most of the child’s injuries.

Following jury selection, the case settled for $800,000.00 – a small amount relative to the severe injuries, but a favorable settlement considering the very difficult liability.

The Department of Social Services asserted a lien of nearly $200,000.00 against the settlement; and because the settlement was more than four times the amount of their lien, would not agree to compromise the lien in a reduced amount.

The Medicaid lien would have to be repaid from the infant’s net share of the recovery. After deducting the costs of the prosecution of the case and the attorneys’ fees, and then reducing the remainder by the amount of the lien, there would be very little left over to take care of the catastrophically injured child. Accordingly, plaintiffs moved to vacate the lien.

Precedents on Vacating Medicaid liens

Nearly twenty five years ago, in Baker v. Sterling, 39 N.Y.2d 397 (1976), the Court of Appeals held that pursuant to Social Service Law Section 104(2), only that portion of the settlement which compensates the plaintiff for past medical expenses is subject to a Social Services lien, and that "that portion [of the settlement] representing a compromise of the infant’s claim for personal injury is beyond the Department’s reach."

Fraylich is the third recent Supreme Court decision to address the interrelationship between Social Security Law §§ 104 and 104-b, and whether the Department of Social Services may demand payment of their Medicaid lien before settlement of an infant plaintiff’s personal injury cause of action.

The two prior decisions, Temple v. Doran, 181 Misc.2d 637 (Sup. Ct., Cortland Cty.) and Matter of Santiago v. Melamud, 1999 N.Y. Misc. LEXIS 464 (Sup. Ct., NY Cty.), reached disparate determinations on the issue. The Temple court held that, pursuant to SSL §104(2) and Baker, supra, DSS may not press a lien against an infant’s settlement. The Santiago court rejected that position, but failed to address how the settlement monies should be allocated between medical expenses, which may be directed toward satisfaction of the lien, as opposed to the infant plaintiff’s "reasonable requirements, taking into account his maintenance, education, medical care and any other factors applicable to his condition." Baker, supra.

Plaintiff relied upon Temple v. Doran, 181 Misc.2d 637 (Sup. Ct., Cortland Cty., 1999). The Temple court held:

In as much as an award for personal injuries simply compensates the infant for his loss by providing a fund to satisfy his anticipated needs occasioned by the injury, the Baker court held such funds can never be considered money or property in excess of the infant’s reasonable requirements. Consequently, that part of an infant’s settlement intended as compensation for personal injury was found to be beyond the department’s reach because of the limitation imposed by Social Service Law §104(2)....

The factual evidence presented by the plaintiff being uncontroverted, a hearing is not required. The medical proof establishes that [the infant’s] injuries are serious and permanent, yet the total amount of the settlement is relatively small, due primarily to the fact that liability is far from certain, and there is apparently conflicting evidence as to causation as well.

The Temple court vacated the Medicaid lien entirely.

Plaintiff argued that, as in Temple, the Fraylich case settled for a relatively small amount given the extreme gravity of the injuries. The settlement was not intended to pay for past medical payments, but rather for the infant’s future needs, and to compensate for the terrible loss of quality of life that this child will endure for the rest of his life. Plaintiffs’ brief was quoted by the Court in the decision:

The injuries at issue have taken from [the infant] the very basis of his life, and all of those activities, whether inter-personal, religious, career-oriented or otherwise, which would have made up the quality of his life. This is what was being compensated, in whatever relatively minimal way, in the within settlement. Reimbursement of past medical expenses would be the last item for which recovery would be sought in the context of representing this child at trial and for the settlement.

In opposition, Social Services relied upon Matter of Santiago v. Melamud, 1999 N.Y.Misc. LEXIS 64 (Sup. Ct., NY Cty.). The Santiago court wrote, with regard to Temple:

I must disagree with the conclusion reached in this case. The lien asserted herein, as were the liens asserted in Cricchio and Calvanese, may be enforced pursuant to the aforesaid assignment, subrogation and recoupment provisions of the Social Services Law, mandated by Federal law. There is nothing in said statute that would make the provisions thereof inapplicable to Medicaid payments made on behalf of an infant...[T]he effect of the foregoing conclusion is that prior to settling a case involving an infant, an attorney should determine the amount of any lien and attempt to negotiate a reduction thereof as he or she would if the plaintiff were an adult.

The Decision and its Application

After reviewing all the existent precedents, in what we believe was an extremely well- reasoned decision, Justice Karla Moskowitz reconciled the competing claims:

While I agree that the Temple court’s decision is not supported by the Court of Appeals’ cases construing the interplay between Sections 104 and 104-b since Baker v. Sterling, supra, I am also not prepared to follow lockstep with the result in the Santiago analysis. This court is charged with the dual obligations of protecting the infant plaintiff’s interests and allowing D.S.S, to assert its lien and properly pursue reimbursement of medical expenses the department paid on the infant’s behalf. There is no basis in the motion papers that this court can use to determine the allocation of medical expenses versus other monies in the eight hundred thousand-dollar settlement negotiated between the parties in this action. Nonetheless, D.S.S. is entitled to enforce its lien to the extent that the settlement covers past medical expenses.

The Court therefore ordered a hearing to determine what "portion of the settlement.... represents a compromise of the claim for medical expenses" which is subject to a lien, and what portion of the settlement is for the child’s "reasonable requirements, taking into account his maintenance, education, medical care and any other factors applicable to his condition [which] will be beyond the Department’s reach."

Denise Rubin, Principal Law Clerk to Justice Moskowitz, points out that the Fraylich bridges the Santiago and Temple cases described above. "First, the decision applies the more recent Court of Appeals’ cases requiring an allocation of the settlement between medical expenses and other monies, as well as recognizing that plaintiff has assigned his right to recovery to DSS in exchange for his right to collect Medicaid. Thus, unlike Temple, the Fraylich decision recognizes that DSS is not collecting its lien from the infant plaintiff in violation of SSL §104(2), but is actually seeking "reimbursement for medical expenses paid from third parties ‘who are liable for a medical recipient’s medical expenses,’" i.e., the defendants who are paying the settlement. Fraylich departs from Santiago, however, because counsel are directed to appear for a hearing to determine the allocation of the settlement between medical payment reimbursement and other expenses, as contemplated by the Court of Appeals in Baker."

Thus, Fraylich is in accord with McClenahan v. Farber, 668 N.Y.S.2d 689 (2^nd Dep’t., 1998) where, in a five million dollar settlement, a hearing was required to determine what portion of the settlement is for "past reimbursed medical expenses." The Court discerned that in such a large settlement, certainly some portion of the settlement would probably be for "past reimbursed medical expenses."

The Fraylich hearing will be held in the near future. While the outcome cannot be assured in advance, there is good reason to expect the evidence adduced to be substantially one-sided. The proof as to how the settlement was attained, and what elements of damages the parties intended to satisfy when the settlement was entered, can only be offered by the plaintiffs. The defendants have no interest in how their settlement is allocated, as long as the peace they bought is undisturbed. As Social Services was not involved in the settlement negotiations, it has no evidence to offer as to how much of the settlement was intended to compensate for past medical expenses, as opposed to any other components comprising the settlement amount.

The Fraylich case sets forth a blueprint of how to have a lien vacated in an infant’s case. One must demonstrate that regardless of the gross amount recovered, the settlement is modest relative to the very serious injuries and the child’s future needs, so that the entire settlement amount was intended to compensate the child’s future needs and not to reimburse the lienholder.