Cricchio v. Pennisi, 90 N.Y.2d 296 (1997)
Medicaid liens on personal injury settlements must be satisfied before the remaining funds are transferred to a supplemental needs trust, ensuring Medicaid remains the payer of last resort.
Summary
This case addresses whether a Medicaid lien on the proceeds of a personal injury settlement must be satisfied before those funds are transferred to a supplemental needs trust (SNT). The New York Court of Appeals held that the Department of Social Services (DSS) is entitled to first satisfy the lien, aligning with federal Medicaid statutes prioritizing recoupment from responsible third parties. The court reasoned that Medicaid, as the payer of last resort, has priority in recovering funds from liable third parties before the injured party can place the remaining funds into a trust. This ensures that the assignment and subrogation rights of DSS are not circumvented.
Facts
Plaintiffs, injured due to third-party negligence, received Medicaid benefits. As a condition of eligibility, they assigned their rights to recover from responsible third parties to DSS. Subsequently, they commenced personal injury actions and reached settlement agreements. The parties proposed transferring the net settlement proceeds, after attorney’s fees, into supplemental needs trusts (SNTs), designed to enhance the quality of life without affecting Medicaid eligibility. DSS objected, asserting its right to satisfy Medicaid liens from the settlement proceeds before funding the trusts.
Procedural History
The Supreme Court approved the settlements and directed the creation of SNTs with the net proceeds, denying DSS’s request for immediate lien payment. The Appellate Division affirmed, reasoning the State’s reimbursement interest was protected by its right to recoup from remaining trust assets upon the recipient’s death. The New York Court of Appeals granted DSS leave to appeal and reversed the lower courts’ decisions.
Issue(s)
Whether a Medicaid lien placed on the proceeds of a personal injury settlement pursuant to Social Services Law § 104-b must be satisfied before those funds may be transferred to a supplemental needs trust that complies with EPTL 7-1.12.
Holding
Yes, because Federal and State Medicaid laws mandate that the Department of Social Services is entitled to first satisfy the lien from the proceeds of a personal injury settlement before any remaining funds can be used to fund a supplemental needs trust. This ensures that Medicaid remains the payer of last resort and that the State’s right to recover from responsible third parties is protected.
Court’s Reasoning
The court reasoned that federal law (42 USC § 1396k) mandates states to “retain” amounts collected from third parties to reimburse Medicaid payments before any remainder is paid to the individual. DSS, as the Medicaid recipient’s assignee, obtains all rights to recover medical expenses from the third party. The settlement proceeds, therefore, belong to the third-party tortfeasor and are owed to DSS. The court emphasized the distinction between assets of a responsible third party and assets belonging to the Medicaid recipient, stating that the lien attaches to the property of the third party, not the beneficiary. The court stated that “the government has priority in recouping funds from third parties who are liable for a Medicaid recipient’s medical expenses, and that only the remainder of those funds becomes available to the Medicaid recipient for placement in a trust or other uses” (42 USC § 1396k [b]).
The court rejected the argument that immediate lien satisfaction conflicts with provisions protecting SNT assets, clarifying those provisions concern eligibility determination, not recoupment from third parties. The court reasoned allowing funds to be sheltered in a trust would defeat the reimbursement obligation. The court referenced the legislative history, showing the intention was to encourage long-term financial planning with funds *not* earmarked for government reimbursement, stating supplemental needs trusts would be created with “funds the State would not obtain to reimburse itself for public assistance in any event.”
The court also noted that the Health Care Financing Administration (HCFA) concurs with this interpretation, and such agency interpretations are entitled to deference. Finally, the court remanded to determine what portion of the personal injury settlement should satisfy the lien, i.e., that portion attributable to past medical expenses.