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Jody Burtsell v. Nicholas A. Toumpas

May 10, 2012


The opinion of the court was delivered by: Joseph N. Laplante United States District Judge


This controversy concerns the proper allocation of a personal injury settlement between an injured Medicaid beneficiary and a state Medicaid payor in light of the Supreme Court's decision in Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006), and the New Hampshire statute that establishes a Medicaid payor's claim against such a settlement as well as a procedure for apportioning it, N.H. Rev. Stat. Ann. §§ 167:14-a, II-IV.*fn1 After settling his medical malpractice claim against third parties, the plaintiff, Jody Burtsell, filed this action for declaratory and injunctive relief, asserting that the defendant, the New Hampshire Department of Health and Human Services ("HHS"), has demanded recovery from the settlement for Medicaid expenditures it made on his behalf in excess of that permitted under federal Medicaid law or the New Hampshire statute.

As this court has already determined, it has subject-matter jurisdiction under 28 U.S.C. § 1331 (federal question). See Burtsell v. Toumpas, 2009 DNH 069. After the parties cross-moved for summary judgment, see Fed. R. Civ. P. 56, the court conducted oral argument, together with an evidentiary hearing, on the issues raised in the motions, as well as in requests for findings of fact and rulings of law submitted at the court's direction. In a subsequent margin order, the court denied the cross-motions without prejudice, explaining that it would address the parties' arguments in a comprehensive order resolving all of the issues in the case.*fn2

For the reasons explained fully infra, the court rejects Burtsell's argument that federal law preempts the New Hampshire statute giving HHS a claim against his settlement, and also rejects HHS's arguments that it is entitled to reimbursement of its Medicaid expenditures in full. Instead, based on those rulings and the evidence presented at the hearing, the court makes an equitable apportionment to HHS in the sum of $53,124.61 in accordance with N.H. Rev. Stat. Ann. § 167:14-a, IV.

The court also concludes that Burtsell is entitled to recover his reasonable attorneys' fees in this matter under 42 U.S.C. § 1988.

I. Background

A. Factual background

This case arises from a medical malpractice action Burtsell filed in New Hampshire Superior Court in January 2007. In that action, Burtsell claimed to have suffered severe injuries and permanent disability from botched ulcer surgery at a New Hampshire hospital in November 2004. In June 2007, after the suit was filed, HHS received a fax from a paralegal working for Burtsell, stating that he "was the victim of medical malpractice" and asking whether HHS held any "liens for medical benefits paid on behalf of [] Burtsell which are directly related to the medical malpractice." The paralegal then had a series of telephone conversations with an HHS representative about the amount of Medicaid expenditures made on Burtsell's behalf.

On June 3, 2008, the parties to the malpractice action participated in a mediation session. It is undisputed that HHS received no prior notice of this session. Prior to the session, Burtsell, through counsel, submitted a summary to the mediator, claiming medical expenses (up until that time) in the amount of $628,548.07, as well as future medical expenses in the amount of $148,614. The summary also claimed lost wages in the amount of $1.327 million, asserting, in essence, that Burtsell's medical injury had permanently disabled him from any meaningful employment. Based on these figures, Burtsell's mediation summary demanded $2.6 million.

While the mediation session ended without a settlement, counsel for both parties continued to negotiate. On June 10, 2008, counsel for Burtsell in the malpractice action sent a letter to HHS, stating that "current records indicate that the amount of the Medicaid lien is $75,892.30" but asking HHS to "accept 30% of [this] outstanding balance to resolve [its] interest in the case." The letter noted that counsel was "doing [his] best to put together [a] settlement."

By mid-June--and before Burtsell's counsel received any response from HHS--the parties to the medical malpractice action agreed to a settlement in the lump sum of $850,000. On June 23, 2008, Burtsell's counsel sent a letter to HHS informing it of this development, and also that counsel had reduced his fees by $25,000 "[t]o facilitate this settlement." This letter asked HHS to reduce its lien by 50 percent.

Burtsell's counsel subsequently sent a letter to his client explaining that only $419,507.32 of the $850,000 "gross settlement" was being disbursed to him. The letter explained that one-third of the gross settlement--less the $25,000 reduction--i.e., $258,050, was being used to pay counsel's fees, while approximately $32,000 was being used to reimburse counsel for costs. The letter further explained that another $140,641.41 would be held in escrow pending resolution of various third-party liens on the settlement, some of which counsel was still "try[ing] to negotiate downward."

In the meantime, on July 3, 2008, HHS sent Burtsell's counsel a "counteroffer" to settle its Medicaid lien for $70,000, as opposed to the full amount of $75,892.30. This small reduction, the letter explained, reflected the fact that counsel for Burtsell had reduced his own fees, as well as "the litigation costs involved if this matter reached the 'Petition for Equitable Apportionment' stage." The letter further explained that there "was not much room for compromise" on HHS's lien because, among other things, the portion of the settlement "reasonably attributable to past medical expenses . . . is sufficient to discharge the lien in full." The letter also noted that HHS had not received the "required notice" of "any scheduled trial, alternative dispute resolution hearing, or settlement," and, therefore, "reserve[d] the right to claim prejudice. For example, because notice was not provided, [HHS] was not able to participate in the mediation."

Burtsell eventually resolved the liens against the settlement held by the other third parties who had paid for or furnished him the medical care necessitated by the alleged malpractice, including a private insurer, Medicare, and a third-party hospital. Each of these parties accepted substantially less than the amount of its lien. Specifically:

*the private insurer accepted $62,256.75 in settlement of its lien of $88,938.12 (a discount of 30 percent);

*Medicare accepted $60.34 in settlement of its lien of $202.12 (a discount of 70 percent); and

*the third-party hospital accepted $1,955.02 in settlement of its lien of $3,910.33 (a discount of 50 percent).

HHS, however, continued to demand payment of the entire amount it had paid, through its Medicaid program, as a result of Burtsell's injury--again, $75,892.30.

That prompted Burtsell to file this action. He asserts that HHS's "failure and refusal to limit the recovery of Medicaid benefits to that part of the third-party settlement attributable to the recovery of medical costs violates" the anti-assignment and anti-lien provisions of the federal Medicaid statute, 42 U.S.C. §§ 1396k(a)(1)(A), 1396p(a)(1), as construed by the Court in Ahlborn. Burtsell also now argues (though he did not at the outset) that these provisions pre-empt the New Hampshire statute entitling HHS to recover its Medicaid expenditures from third-party settlement proceeds, N.H. Rev. Stat. Ann. § 167:14-a, III-a. In the alternative, he invokes that statute as the basis for an equitable apportionment of the settlement between himself and HHS, see id. § 167:14-a, IV, that would result in HHS's recovery of significantly less than the full amount of its Medicaid expenditures. HHS, for its part, advances a variety of arguments in support of its position that it is entitled to recover the full amount of its Medicaid expenditures on Burtsell's behalf.

B. Legal framework

1. Federal and state Medicaid law

The Medicaid program, established by Title XIX of the Social Security Act, see 42 U.S.C. § 1396 et seq., is a cooperative federal and state program providing payment for medical services to eligible individuals and families. Ahlborn, 547 U.S. at 275. States that participate in the Medicaid program are reimbursed by the federal government for a portion of the payments they make to recipients, provided the states meet certain statutory eligibility requirements. See id. at 275-76.

Among other things, each participating state's plan must require that recipients, as a condition of their own eligibility for Medicaid, assign to the state their rights "to payment for medical care from any third party." 42 U.S.C. § 1396k(a)(1)(A). This is generally known as the "assignment provision." In accordance with this requirement, the New Hampshire Medicaid statute provides that any recipient, "by his acceptance of such assistance, shall be deemed to have assigned any claim or right of action against any person or party to the commissioner or [HHS], to the extent that such assistance is furnished." N.H. Rev. Stat. Ann. § 167:14-a, I.

The federal Medicaid statute requires each participating state to have a plan enabling it to identify any third parties liable for medical expenses funded through its Medicaid program and to "seek reimbursement for such assistance to the extent of such legal liability." 42 U.S.C. § 1396a(a)(25)(B). This is generally known as the "recovery provision." In accordance with this requirement, the New Hampshire Medicaid statute authorizes the state to bring its own action against any "person or party against whom the recipient has a legally cognizable claim for expenses or support" to recover the amount of assistance the state has furnished to the recipient. N.H. Rev. Stat. Ann. § 167:14-a, II.

The federal Medicaid statute, however, also imposes limits on a state's ability to recover funds from Medicaid recipients. The so-called "anti-lien" provision states that "[n]o lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan," subject to certain exceptions not relevant here. 42 U.S.C. § 1396p(a). To similar effect, an "anti-recovery provision" 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, again, under circumstances not relevant here. 42 U.S.C. § 1396p(b)(1).

2. Ahlborn

In Ahlborn, supra, the United States Supreme Court reviewed an Arkansas statute that imposed state liens on settlement payments by third parties to Medicaid recipients without regard to the proportion of the settlement representing medical costs. 547 U.S. at 274. The Court held that this statute was pre-empted by the anti-lien provision of the federal Medicaid statute, explaining:

There is no question that [the state] can require an assignment of the right, or chose in action, to receive payments for medical care. So much is expressly provided for by §§ 1396a(a)(25) and 1396k(a). And we assume . . . that [the state] can also demand as a condition of Medicaid eligibility that the recipient "assign" in advance any payments that may constitute reimbursement for medical costs. To the extent that the forced assignment is expressly authorized by the terms of §§ 1396a(a)(25) and 1396k(a), it is an exception to the anti-lien provision. But that does not mean that [the state] can force an assignment of, or place a lien on, any other portion of [a recipient's] property . . . . [T]he exception carved out by §§ 1396a(a)(25) and 1396k(a) is limited to payments for medical care. Beyond that, the anti-lien provision applies.

Id. at 284-85 (emphasis added). After Ahlborn, then, a state's recovery from a third-party personal injury settlement to a Medicaid recipient is limited to that portion of the settlement representing medical expenses. See, e.g., Lima v. Vous, 94 Cal. Rptr. 3d 183, 194 (Cal. Ct. App. 2009); Rathbun v. Health Net of Ne., Inc., No. 01CV085012640S, 2009 WL 3086289, at *11 (Conn. Super. Ct. Aug. 21, 2009); Idaho Dep't of Health & Welfare v. Hudelson, 196 P.3d 905, 910-11 (Idaho 2008); Lugo v. Beth Israel Med. Ctr., 13 Misc. 3d 681, 684-85 (N.Y. Sup. Ct. 2006).

This aspect of Ahlborn forced many states to overhaul their approach to collecting Medicaid payouts from recipients' personal injury settlements. See, e.g., Doran v. Mo. Dep't of Soc. Servs., No. 07-cv-04158-NKL, 2008 WL 4151617, at *10 (W.D. Mo. Sept. 2, 2008); Bolanos v. Superior Court, 87 Cal. Rptr. 3d 174, 176 (Cal. Ct. App. 2009); Harris v. City of N.Y., 16 Misc. 3d 674, 678-79 (N.Y. Sup. Ct. 2007). As one court observed, the fundamental consequence of Ahlborn is that a settlement that does not distinguish between past medical expenses and other damages must be allocated between these two classes of recoveries. Without such an allocation, the principle set forth in Ahlborn, that the state cannot recover for anything other than past medical expenses cannot be carried into effect . . . . In other words, an allocation between past medical and other expenses or damages may be made by the judgment itself. If there is no such allocation, as in settlement, the parties must attempt to allocate; if they cannot agree, they must turn to the court.*fn3 Bolanos, 87 Cal. Rptr. 3d at 180.

How a court should go about allocating a personal injury settlement between the recipient and the state, however, was not addressed in Ahlborn. There, the parties had stipulated that:

(1) if the federal Medicaid statute limited the state's recovery to only medical expenses, that recovery would be reduced in proportion to the value of the settlement to the claim, and (2) the value of the settlement was ...

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