Cricchio v. Pennisi

Decision Date25 March 1997
Citation683 N.E.2d 301,660 N.Y.S.2d 679,90 N.Y.2d 296
Parties, 683 N.E.2d 301, 53 Soc.Sec.Rep.Ser. 1010, Medicare & Medicaid Guide P 45,138 Patricia CRICCHIO, Individually and as Guardian ad Litem of Christopher Cricchio, Respondent, v. Joseph A. PENNISI et al., Defendants, and Michael Dowling, as Commissioner of the New York State Department of Social Services, et al., Appellants. James H. LINK, as Conservator of the Property of Patricia Gibson, Respondent, v. TOWN OF SMITHTOWN, Defendant, and Suffolk County Department of Social Services, Appellant.
CourtNew York Court of Appeals Court of Appeals

Dennis C. Vacco, Attorney-General, New York City (Richard T. Mathieu, Barbara Gott Billet, Peter H. Schiff and Robert A. Forte, of counsel), for Michael Dowling, appellant in the first above-entitled action.

Paul A. Crotty, Corporation Counsel, New York City (Mordecai Newman and Larry A. Sonnenshein, of counsel), for Marva Hammons, appellant in the first above-entitled action.

Robert, Lerner & Robert, Rockville Centre (Charles R. Robert and Joan Lensky Robert, of counsel), for respondent in the first above-entitled action.

Pegalis & Wachsman, P. C., Great Neck (Steven E. Pegalis and James B. Baydar, of counsel), New York State Trial Lawyers Association amicus curiae in the first above-entitled action.

David Goldfarb, New York City, and Joseph Rosenberg for Association of the Bar of the City of New York, amicus curiae in the first above-entitled action.

Sonia Crannage, Pomona, for NYSARC, Inc., and others, amici curiae in the first above-entitled action.

M. Catherine Richardson, Robert Abrams, Shana Siegel, Nancy Levitin, Robert Freedman and Vincent Russo, Albany, for New York State Bar Association, amicus curiae in the first above-entitled action.

Robert J. Cimino, County Attorney of Suffolk County, Hauppauge (Paul G. Costello, of counsel), for appellant in the second above-entitled action.

Black & Black, Commack (Bronwyn M. Black, of counsel), for respondent in the second above-entitled action.


TITONE, Judge.

We are asked on these appeals to determine whether a Medicaid lien placed pursuant to Social Services Law § 104-b on the proceeds of a personal injury settlement must be satisfied before those funds may be transferred to a "supplemental needs trust" that complies with EPTL 7-1.12. Applying both Federal and State Medicaid statutes, we conclude that the Department of Social Services (DSS) is entitled to first satisfy the lien from those funds, leaving the remainder available for transfer to a supplemental needs trust. Accordingly, we reverse.

The pertinent facts in each of these unrelated appeals are essentially the same. Plaintiffs were allegedly injured due to the negligence of third parties. Each applied for Medicaid from their local DSS office and was determined to be eligible. As a condition of Medicaid eligibility, both plaintiffs agreed to assign to DSS their rights to recover from any third parties who were responsible for their injuries.

Each plaintiff commenced a personal injury action against the defendants who were allegedly responsible for their disabling injuries, and entered settlement agreements specifying the net amount of damages they would receive. The parties agreed that, after the payment of attorney's fees and other various costs, the balance owed to the plaintiffs would be transferred into a supplemental needs trust (see, EPTL 7-1.12). A supplemental needs trust, or "SNT," is a "discretionary trust established for the benefit of a person with a severe and chronic or persistent disability" (EPTL 7-1.12[a][5] ) that is designed to enhance the quality of the disabled individual's life by providing for special needs without duplicating services covered by Medicaid or destroying Medicaid eligibility (Bill Jacket, L. 1993, ch. 433). Under Federal and State Medicaid laws, funds placed in a SNT are not considered resources that are "available" to a Medicaid recipient for purposes of assessing the recipient's eligibility for benefits, so long as the trust document conforms with the EPTL's requirements 1 and further grants to the State a remainder interest in the trust assets remaining at the recipient's death up to the amount of all public assistance provided (see, 42 U.S.C. § 1396p [d][4]; Social Services Law § 366[2][b][2][iii] ). 2

In accordance with the EPTL's guidelines, the proposed trust agreements before us each named the State as the first remainderman. However, DSS objected to each proposal on the ground that they did not require satisfaction of the respective Medicaid liens from the proceeds of the tort settlements before funding the trusts from those sums. In each case, DSS sought to place a lien on the settlement proceeds pursuant to Social Services Law § 104-b to recoup from the responsible third parties the medical assistance paid to the plaintiffs.

Supreme Court approved both settlements and directed that a supplemental needs trust be created for each plaintiff with the net settlement proceeds. The courts denied DSS' request for immediate payment of the lien, reasoning that the State's interest in reimbursement was protected because, pursuant to Social Services Law § 369(2), it is entitled to recoup upon the recipient's death the total of lifetime medical assistance provided to that individual from the remaining trust assets.

In Cricchio v. Pennisi, the Appellate Division affirmed, holding that a supplemental needs trust may be funded "prior to the satisfaction of a public welfare official's lien for medical assistance furnished prior to the formation of [a public] trust." (220 A.D.2d 100, 107, 640 N.Y.S.2d 573.) The Court largely based its conclusion on the fact that the Legislature had failed on one occasion to enact proposed amendments to Social Services Law § 366 that would have included as part of the applicant's available resources for eligibility purposes funds held in trust unless any outstanding Medicaid liens were satisfied, and on another had rejected legislation providing that no trust fund could be created for a disabled individual under age 65 so long as a Medicaid lien existed against the recipient's property. The Appellate Division concluded that "[t]he most plausible inference to be drawn from [the Legislature's failure to enact either version of the amendments to section 366] is that the Legislature did not intend the existence of a claim pursuant to Social Services Law §§ 104, 104-b or 369 to stand as an impediment to the funding of the special needs trust in conformity with the provisions of Social Services Law § 366(2)(b)(2)." (220 A.D.2d, at 107, 640 N.Y.S.2d 573, supra.) The Appellate Division in Link v. Town of Smithtown, 226 A.D.2d 351, 640 N.Y.S.2d 768 affirmed, relying on the Appellate Division decision in Cricchio. This Court granted DSS' motion for leave to appeal in both cases, and we now reverse.

Medicaid is a jointly funded Federal and State medical assistance program that is established by title XIX of the Social Security Act (42 U.S.C. § 1396 et seq.) and is implemented in this State by article 5, title 11 of the Social Services Law. The purpose of the program is to pay for necessary medical care for eligible individuals whose income and resources are insufficient to meet the costs of their medical care (42 U.S.C. § 1396; Social Services Law § 363; Matter of Costello [Stark] v. Geiser, 85 N.Y.2d 103, 623 N.Y.S.2d 753, 647 N.E.2d 1261). As a condition of the receipt of Federal program funding, State Medicaid plans must conform with the statutory standards established by Federal law and the regulations promulgated by the Secretary of Health and Human Services (42 U.S.C. § 1396a; Social Services Law § 363-a[1] ).

In 1993, the Social Security Act was amended to provide that in any case where Medicaid payments have been made under the State plan and a third party has a legal responsibility to pay for health care items or services furnished to an individual, "the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services" (42 U.S.C. § 1396a[a][25][I] ). To that end, the Act requires that a State or local agency administering the State plan "take all reasonable measures to ascertain the legal liability of third parties * * * to pay for care and services available under the plan" (42 U.S.C. § 1396a[a][25][A] ). A third party is defined as an individual, entity or program that is or may be liable to pay all or part of the expenditures for medical assistance furnished under the State plan (42 C.F.R. § 433.136). Recoupment from responsible third parties is necessary to ensure that the Medicaid program remain " 'the payor of last resort' " (Matter of Costello [Stark] v. Geiser, 85 N.Y.2d 103, 106, 623 N.Y.S.2d 753, 647 N.E.2d 1261, supra; S.Rep. No. 146, 99th Cong., 2d Sess. 1, 312, reprinted in 1986 U.S.Code Cong. & Admin. News, 42, 279).

The recoupment of Medicaid funds from responsible third parties is accomplished by Federal directives that the State plan include assignment, enforcement and collection mechanisms (42 U.S.C. § 1396k[a][1][A]; § 1396a[a][25][I] ). Specifically, as a condition of eligibility, an applicant must assign to DSS any rights he or she has to seek reimbursement from any third party up to the amount of medical assistance paid (42 U.S.C. § 1396k[a][1][A]; 42 C.F.R. § 433.146[c]; Social Services Law § 366[4][h][1]; 18 NYCRR 360-7.4[a][6] ). Additionally, a Medicaid recipient must "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," unless good cause exists for his or her refusal to cooperate (42 U.S.C. § 1396k[a][1][C]; see also, Perry v. Dowling, 95 F.3d 231, 234 [2d Cir.1996] ).

New York's statutory scheme provides that DSS "shall be subrogated, to the extent of [its] expenditures * * * for medical...

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