89 N.Y.2d 101 (1996)

A government agency is not estopped from recovering Medicaid benefits incorrectly paid to an ineligible person, even if the overpayment resulted from the agency’s own error and not from fraud or misrepresentation by the recipient.

Summary

The Commissioner of Social Services sought to recover Medicaid benefits paid to Marion Judson, the beneficiary of a self-settled trust. The Department initially denied Judson’s application but later approved it without including the trust principal as an available resource, an error that made Judson eligible when she should not have been. The Department argued that the payments were “incorrectly paid” and recoverable under Social Services Law § 369(3), even absent fraud or misrepresentation. The Court of Appeals held that the benefits were indeed incorrectly paid and were recoverable, reversing the Appellate Division’s order. The court emphasized that the statutory scheme requires the Department to correct any overpayment, including payments to ineligible persons, and that a government entity is not estopped from correcting its own errors.

Facts

Marion Judson resided in a nursing home and initially paid privately. Her son applied for Medicaid benefits on her behalf, disclosing that Judson was the beneficiary of a self-settled, irrevocable trust. The trust instrument gave the trustee discretion to apply the principal for Judson’s support. The initial application was denied, but a subsequent application was approved. In determining eligibility, the Department included the trust income but not the trust principal, which was an error. Had the trust principal been considered, Judson would have been ineligible for Medicaid. From October 1991 until her death in December 1995, Judson received $121,302.97 in Medicaid benefits. At the time of her death, the trust principal was approximately $150,000.

Procedural History

The Department commenced an action against the trustee and Judson’s sons (as co-executors and beneficiaries) to recover the Medicaid payments. Supreme Court granted partial summary judgment to the Department, holding that the Medicaid payments were incorrectly paid and recoverable. The co-executors appealed, and the Appellate Division reversed, holding that the benefits were “correctly paid” because there was no fraud or misrepresentation in the application process. The Court of Appeals granted leave to appeal.

Issue(s)

Whether Medicaid benefits paid to a recipient who was deemed eligible due to the Department of Social Services’ error in calculating eligibility are considered “correctly paid” under Social Services Law § 369(2)(b)(i), thereby precluding recovery of those benefits in the absence of fraud or misrepresentation.

Holding

No, because overpayment includes payments made to ineligible persons, regardless of whether the ineligibility was due to recipient fraud or agency error. The limitations of Social Services Law § 369 (2) (b) (i) on an agency’s ability to recover benefits “correctly paid” are not applicable where benefits were paid to an ineligible recipient due to the agency’s error.

Court’s Reasoning

The Court of Appeals held that the Appellate Division erred by importing a condition of fraud or misrepresentation into the statute, which has no basis in the statutory language. The Court relied on Social Services Law § 106-b, which requires the Department to correct any overpayment, including payments made to ineligible persons. The Court stated, “[o]verpayment shall include payments made to an eligible person in excess of his needs as defined in this chapter and payments made to ineligible persons.” Because the Department failed to include the trust principal in its eligibility calculation, it paid benefits to an ineligible individual. The court also emphasized that a mistake does not estop a government entity from correcting errors. Citing previous cases, the court stated, “[o]ne employee’s mistake cannot irreversibly chart the course of the Department’s responsibilities in this regard.” The Court distinguished this case from Matter of Akullian, which the Appellate Division had relied on, stating that Akullian improperly created a condition for the recovery of Medicaid benefits that is not found in the statute. The Court also noted that the federal Medicaid statute does not limit the right to recover benefits to those paid only as a result of fraud or misrepresentation, suggesting that Congress intended to permit recovery even from those who mistakenly received them. The court emphasized that the policy underlying the Medicaid program is to provide funds to indigent individuals as the “payor of last resort” and that allowing the defendants to retain the benefits would circumvent this policy.