Amendments to Recovery of Department Of Public Welfare Liens

Earlier this past November, the Pennsylvania Legislature significantly amended the rules relating to the reimbursement of Department of Public Welfare (DPW) liens for Medical Assistance (MA) payments from recoveries by or on behalf of MA recipients. Most importantly, these amendments (known collectively as Act 44) place new obligations on defendants and their insurers and authorize civil fines for violations.

The New Obligations

The new obligations imposed by Act 44 apply only to tort actions commenced on or after September 2, 2008. In short, the new obligations create a direct relationship between the defendant/insurer and DPW's Division of Third Party Liability. The goal of the obligations is to provide DPW with both notice of suit and notice of settlement in any case where the defendant or insurer has information indicating that the claimant received MA benefits.

If the defendant or insurer is aware that a plaintiff to whom it will pay a settlement was/is a MA beneficiary, the tort defendant or insurer must provide written notice of the claim or action to DPW. If the MA beneficiary's status is apparent from the documents in possession of the defendant or insurer, they will be presumed to have knowledge of the DPW lien (and the reporting requirements thus attach). The written notice, which must be sent by certified or registered mail to the Division of Third-Party Liability, Department of Public Welfare, P. O. Box 8486, Harrisburg, PA 17105, shall include: (1) the name of the beneficiary; (2) the beneficiary's MA identification number, if known; (3) the beneficiary's date of birth; (4) the name of the beneficiary's attorney, if applicable; (5) the insurance carriers and claim numbers, if applicable; (6) the date and specific injuries giving rise to the claim; (7) the court and docket number in which the claim is pending; (8) the filing date of the lawsuit or claim; and (9) the close of discovery date. DPW can impose a fine of $5,000 for each reporting violation or failure to insure that DPW's lien is paid.

Act 44 includes a safe harbor provision that specifies actions the defendant or insurer can take to shield themselves from potential liability to DPW. Specifically, liability will not attach if: (1) the defendant or insurer pays DPW's lien; (2) the defendant or insurer requires the beneficiary to satisfy the DPW lien and makes DPW a payee on the settlement draft so that DPW's endorsement is required to negotiate the draft; or (3) the defendant or insurer obtains a statement from the Division of Third-Party Liability that no lien exists.

As a result, if your defendant or insurer is reasonably on notice (from the documents you/they have or from other sources) that the plaintiff received MA benefits, the above reporting requirements attach. Again, these new obligations apply only to tort actions commenced on or after September 2, 2008.

Other Notable Changes

Putting aside the new obligations for defendants and insurers, the amendments make other significant changes.

Codifying Ahlborn. The amendments codify the U.S. Supreme Court's holding in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752 (2006), that states can seek reimbursement for MA payments only from the portion of a settlement/verdict that is attributable to medical expenses; reimbursement may not be sought from portions of the settlement/verdict attributable to other types of damages (lost wages, pain and suffering, and other nonmedical damages).

Minors' Right of Action. Unless DPW intervenes or brings its own lawsuit, MA beneficiaries (including minors) are vested with the right to recover medical expenses, and such expenses will be deemed to be included in any recovery unless the court expressly orders otherwise. Notably, this change effectively overrules the Superior Court's decision in Bowmaster v. Clair, 933 A.2d 86 (Pa. Super. 2007), which held that a minor may not sue for past medical costs in his own right. However, the Supreme Court has granted allocatur in Bowmaster. Additionally, the Commonwealth Court held twice in November 2008 that a minor is not prevented from seeking medical expenses incurred while he is a minor and, therefore, DPW can recover its lien for monies it has expended, so long as such a claim is not duplicated by the parents. See Jordan v. W. Pa. Hosp., 2008 Pa. Commw. LEXIS 565 (Pa. Cmwlth., filed November 10, 2008), and Shaffer-Doan v. Commonwealth, 2008 Pa. Commw. LEXIS 529 (Pa. Cmwlth., filed November 3, 2008). We will have to see what the Supreme Court does with these conflicting decisions, but I would assume in the meantime that, as Act 44 indicates, a minor may sue for medical expenses in his own right.

Settlements Without Litigation. If a beneficiary settles a tort claim without litigation, the settlement is presumed to include medical expenses unless: (1) the case involves a minor or incapacitated person and the court enters an order denying DPW's claim after DPW had notice and an opportunity to be heard; (2) the beneficiary is legally incapable of recovering the medical expenses; or (3) the beneficiary notifies both DPW and the defendant or insurer that the beneficiary's claim does not include medical expenses prior to settling the claim.

Certain Amendments Apply Only To Cases Filed Prior to September 2, 2008. Act 44 is primarily divided by those amendments that apply to actions filed before September 2, 2008, and those that are filed thereafter. With respect to the former, unless the court orders otherwise, one-half of the net proceeds of any recovery are allocated to be available to repay the DPW lien. Net proceeds equal the gross proceeds minus attorney's fees, litigation costs, and medical expenses relating to the injury that were paid for by the beneficiary prior to the settlement/verdict.

Second, anytime a MA beneficiary attempts (by motion, agreement with defense counsel, or otherwise) to limit or preclude DPW's lien, DPW must receive "reasonable advance notice" (defined as 30 days notice) in writing, via certified or registered mail, to the Division of Third-Party Liability, Department of Public Welfare, P.O. Box 8486, Harrisburg, PA 17105. The notice must include the name of the beneficiary, the beneficiary's MA identification number, the beneficiary's date of birth, the name of the beneficiary's attorney, if applicable, the insurance carriers, if applicable, the date and specific injuries giving rise to the claim, and the court and docket number in which the claim is pending, if applicable.

Third, if a court does not adjudicate the amount of the DPW lien against a settlement, the Bureau of Hearings and Appeals has jurisdiction to hear and determine an appeal by a beneficiary contesting the amount of DPW's claim.

Certain Amendments Apply Only To Cases Filed After September 2, 2008. As noted, the new duties of defendants and insurers apply only to actions filed on or after September 2, 2008. Other amendments have the same effective date.

First, if a MA beneficiary elects not to recover medical expenses, the beneficiary must notify DPW in writing. DPW has the statutory right to pursue the claim itself. DPW will not reduce its claim for attorney fees or costs. The beneficiary is prohibited from attempting to recover past or future medical expenses paid by MA. The election not to recover medical expenses may be revoked by the beneficiary only with the written consent of DPW. The beneficiary's decision not to pursue medical expenses must be communicated to the defendant or insurer. The beneficiary shall cooperate with DPW's efforts to recover from the defendant or insurer as a condition for continued MA eligibility.

Second, a beneficiary may not settle or release DPW's lien without DPW's consent.

Third, a notice of election to exclude medical expenses that is made within 30 days of filing the complaint must contain a copy of the complaint. A notice of election to exclude medical expenses that is made more than 30 days after the filing of the complaint must contain a copy of the complaint and the docket entries in the case.

Fourth, a notice of election to exclude medical expenses must be provided before the close of discovery. If the case settles before the close of discovery, notice must be given more than 30 days before the settlement agreement is fully executed.