Waldman v. Candia

• Citation: 317 N.J. Super. 464,722 A.2d 581
• Parties: William WALDMAN, Commissioner, Department of Human Services, State of New Jersey and Velvet G. Miller, Director, Division of Medical Assistance and Health Services, State of New Jersey, Plaintiffs/Intervenors-Appellants, v. Lisa Ann CANDIA, Rose Mary Candia and Michael Candia, Plaintiffs-Respondents, v. Vito Francis Pakonis and Clara Maass Medical Center, Defendants. William Waldman, Commissioner, Department of Human Services, State of New Jersey and Karen Squarrel, Acting Director, Division of Medical Assistance and Health Services, State of New Jersey, Plaintiffs/Intervenors-Appellants/Cross-Respondents, v. Ayana Morris, an infant by her guardian ad litem, Jodi Morris and Jodi Morris, individually, Plaintiffs-Respondents/Cross-Appellants, v. Joseph A. Calvetto, Frank A. Cocco, Ocean Gynecological and Obstetrical Associates, Kimball Medical Center and Virginia Post, Defendants.
• Decision Date: 28 January 1999
• Court: New Jersey Superior Court

722 A.2d 581

317 N.J. Super. 464

William WALDMAN, Commissioner, Department of Human Services, State of New Jersey and Velvet G. Miller, Director, Division of Medical Assistance and Health Services, State of New Jersey, Plaintiffs/Intervenors-Appellants, v. Lisa Ann CANDIA, Rose Mary Candia and Michael Candia, Plaintiffs-Respondents, v. Vito Francis Pakonis and Clara Maass Medical Center, Defendants.

William Waldman, Commissioner, Department of Human Services, State of New Jersey and Karen Squarrel, Acting Director, Division of Medical Assistance and Health Services, State of New Jersey, Plaintiffs/Intervenors-Appellants/Cross-Respondents, v. Ayana Morris, an infant by her guardian ad litem, Jodi Morris and Jodi Morris, individually, Plaintiffs-Respondents/Cross-Appellants, v. Joseph A. Calvetto, Frank A. Cocco, Ocean Gynecological and Obstetrical Associates, Kimball Medical Center and Virginia Post, Defendants.

Superior Court of New Jersey, Appellate Division.

Argued October 27, 1998.

Decided January 28, 1999.

Mary A. Hurley, Deputy Attorney General, for appellants (Peter Verniero, Attorney General, attorney; Joseph L. Yannotti, Assistant Attorney General, of counsel; Ms. Hurley, on the brief).

William C. Slattery, Short Hills, for the Candia respondents (Slattery, McElwee & Jespersen, attorneys; Mr. Slattery, on the brief).

Bruce D. Vargo, Short Hills, for the Morris respondents/cross-appellants (Budd Larner Gross Rosenbaum Greenberg & Sade, attorneys; Cynthia A. Walters, on the brief).

Before Judges KESTIN, WEFING and CARCHMAN.

The opinion of the court was delivered by KESTIN, J.A.D.

These appeals, consolidated for the purpose of decision, raise the question whether, and to what extent, Medicaid payments made on behalf of two disabled young women must be reimbursed to the State after damages were recovered in settlements with tortfeasors for injuries associated with the disabilities. Both cases involve interpretations of federal Medicaid legislation, 42 U.S.C. §§ 1396a-1396u,¹ and State counterpart provisions, N.J.S.A. 30:4D-1 to -19.1, including questions concerning State Medicaid liens and the funding of special needs trusts (SNT).² We hold that each trial court, in a different way, incorrectly applied the governing federal and state statutes. Accordingly, in Candia, we reverse; in Morris, we affirm in part and reverse in part. In both cases we remand for modification of the trial courts' orders distributing the proceeds of the settlements.

I.

Lisa Ann Candia, twenty-two years of age when the State filed its complaint for reimbursement in 1996, is an adjudicated incompetent and thus disabled within the meaning of federal Medicaid legislation. 42 U.S.C. § 1396d(g) (1992). She had received medical benefits paid for by the State since 1986. Her parents, Rose Mary and Michael Candia, brought a medical malpractice action against several defendants on behalf of their daughter and themselves. The Division of Medical Assistance and Health Services (DMAHS), the State's Medicaid agency, informed the Candias of their duty to contact DMAHS prior to settlement of their claim in order to establish the amount of DMAHS's Medicaid lien.

The malpractice claim was settled for $700,000, approved by an order filed on April 24, 1996, which provided, inter alia, that $28,112.94, the amount of the State's lien, was to be held by the Candias' attorneys in an interest bearing account subject to further order. The Candias were to notify DMAHS about the existence of these funds with a copy of the order, and DMAHS was to commence a Superior Court action within ninety days for a determination of its entitlement to these funds. If no such action was filed, the funds with accrued interest were to be turned over to Rose Mary and Michael Candia in further satisfaction of their claims.

The order also distributed the balance of the settlement. $400,000 funded an SNT, to be used for Lisa Ann Candia's benefit during her life or thirty years, whichever would be longer. The remainder paid attorneys' fees and expenses as well as Rose Mary and Michael Candia's damage claims.

When DMAHS was notified of the entry of the order, it moved to intervene in the malpractice litigation, arguing that N.J.S.A. 30:4D-7.1(b) obligated the Candias, upon settlement of the litigation, to fully reimburse the State for moneys expended on Lisa Ann Candia's medical care. DMAHS further argued that, according to N.J.S.A. 30:4D-7.1(c), Lisa Ann Candia was deemed to have assigned to the Commissioner of the Department of Human Services (DHS) any rights to support for the purpose of medical care and to payment for medical care from any third party.

After the Candias consented to DMAHS's intervention, the trial court granted summary judgment to the Candias, declining to apply the State's Medicaid lien to the settlement proceeds. The motion judge, in a comprehensive order disposing of the matter, held that 42 U.S.C. § 1396p(a)(1) and (b)(1) preempt state law pursuant to 42 U.S.C. § 1396a(a)(18), and that under these provisions a State may neither recover funds nor impose a lien against the property of an individual prior to her death on account of medical assistance correctly paid on her behalf. In addition, the judge held that the funding of a trust established by a court for the benefit of a disabled person under 65 years of age results in neither temporary nor permanent Medicaid ineligibility, according to 42 U.S.C. § 1396p(c)(2)(B)(iv) and (c)(4). The judge also held on the basis of 42 U.S.C. § 1396p(d)(4), however, that the State is entitled to all of the funds that remain in the trust upon the death of the Medicaid recipient, up to an amount equal to the total medical assistance paid on her behalf. He directed that the $28,112.94 was to be distributed to Rose Mary and Michael Candia instead of to the State, and otherwise approved the distribution of the settlement. It is from this ruling that the State appeals.

II.

Ayana Morris had received medical benefits paid for by the State since her birth in 1982. Her mother, Jodi Morris, instituted a medical malpractice action against several defendants on behalf of her daughter and herself. DMAHS informed the Morrises that they were required to contact the Division prior to settlement of the claim in order to establish DMAHS's lien amount.

The claim against one defendant was settled for one million dollars prior to a no cause of action jury verdict. The trial judge, in an order approving the terms of the settlement, provided that $121,560.60, the amount of the State's Medicaid lien, was to be held in an interest bearing account until resolution of separate litigation over reimbursement of the Medicaid benefits. The remainder of the settlement was distributed to the Morris attorneys for fees and costs; to Jodi Morris individually for the purchase of a home in which Ayana Morris would be able to reside; and to an SNT established for the benefit of Ayana Morris.

The State's motion to intervene was granted. The judge ruled that the State was entitled to immediate satisfaction of its Medicaid lien in an amount to be determined by the court, after a plenary hearing. Apparently, the judge considered a hearing necessary because the settlement agreement did not specify how the proceeds were to be allocated in respect of the particular claims embraced in the suit. After the hearing, the judge awarded the State two-thirds of its lien, and directed that the remainder be added to the SNT. The judge reached this result by finding a part of the settlement attributable to "recovery for medical expenses," and the remainder related to "the child's future needs." Based on this distinction and on "the equities of the case," he held that DMAHS's lien attached only to the medical-expenses recovery, and that the remainder was to be reserved for Ayana Morris, subject to reimbursement to the State upon her death from any balance in the SNT then remaining. Thus, while the State's lien was enforced, it was only partially paid. The State appeals from the order to the extent it denied full reimbursement; the Morrises cross-appeal from the order to the extent it required any reimbursement exceeding two percent.

III.

Medicaid is a medical assistance program for eligible low-income individuals, established by Subchapter XIX of the federal Social Security Act, 42 U.S.C. §§ 1396a-1396u. The program is administered jointly by the federal and state governments. While the Act gives state governments broad discretion to determine the extent of medical assistance provided, state programs must comply with federal criteria. 42 U.S.C. § 1396a(a); Schweiker v. Gray Panthers, 453 U.S. 34, 37, 101 S.Ct. 2633, 2636, 69 L. Ed.2d 460, 465 (1981). State programs must also be approved by the federal government. Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L. Ed.2d 784, 794 (1980); County of Camden v. Waldman, 292 N.J.Super. 268, 278, 678 A.2d 1101 (App.Div.), certif. denied, 149 N.J. 139, 693 A.2d 109 (1996).

Mandatory federal criteria include: (1) A state shall, by using reasonable measures, ascertain the liability of third parties to pay for care arising out of injury or disease and, where appropriate, seek reimbursement to the extent of such liability, 42 U.S.C. § 1396a(a)(25)(A); and (2) A Medicaid recipient, as a condition of eligibility, must assign to the state any rights to support for the purpose of medical care and any rights to payment for medical care from any third party, 42 U.S.C. § 1396a(a)(45). Subsequently,

[s]uch part of any amount collected by the State under an assignment made under the provisions of this section shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of an individual with respect to whom such assignment was executed (with appropriate reimbursement of the federal government to the extent of its participation in the financing of such medical

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