Tristani Ex Rel. Karnes v. Richman

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

___________

No. 09-3537

No. 09-3538

___________

RITA L. TRISTANI,

by and through her Attorney in Fact, MARIA C. KARNES;

JOSHUA C. VALENTA, individually, and on behalf of

others similarly situated;

A. H., individually and as parents and natural guardian

of A.H., a minor

v.

ESTELLE RICHMAN,

in both her individual and official capacity;

FEATHER O. HOUSTON, in her individual capacity,

Estelle Richman, in both her individual and official capacity;

Feather O. Houston, in her individual capacity,

Appellants in 09-3537

Rita L. Tristani, by and through her Attorney in Fact, Maria C.

Karnes; Joshua C. Valenta, individually, and on behalf of others

similarly situated,

Appellants in 09-3538

___________

On Appeal from the United States District Court

for the Western District of Pennsylvania

(D.C. No. 06-cv-00694)

District Judge: Honorable Joy Flowers Conti

___________

Argued April 15, 2010

Before: SLOVITER, and HARDIMAN, Circuit Judges and

POLLAK*, District Judge.

(Filed: June 29, 2011)

Patrick J. Loughren [ARGUED]

Loughren, Loughren & Loughren

3204 Grant Building

Pittsburgh, PA 15219-0000

Robert F. Daley

D. Aaron Rihn

Robert Peirce & Associates

707 Grant Street

2500 Gulf Tower

Pittsburgh, PA 15219-0000

Veronica A. Richards

Richards & Richards

16020 Perry Highway

*

The Honorable Louis H. Pollak, Senior District Judge

for the United States District Court for the Eastern District of

Pennsylvania, sitting by designation.

2

614 Penn Street

Warrendale, PA 15086

Attorneys for Appellees/Cross-Appellants

Jason W. Manne [ARGUED]

Office of General Counsel

Department of Public Welfare

300 Liberty Avenue

303 State Office Building

Pittsburgh, PA 15222-0000

Attorneys for Appellants/Cross-Appellees

____________

OPINION OF THE COURT

____________

HARDIMAN, Circuit Judge.

In 1965, Congress amended the Social Security Act to

create a program for states to assist the poor with their medical

expenses. Through this program, known as Medicaid, the fifty

states pay medical expenses on behalf of qualified beneficiaries.

For more than thirty years, in circumstances where third parties are

liable for such medical expenses, the Pennsylvania Department of

Public Welfare (DPW) has recouped its expenditures by asserting

liens against future settlements or judgments. In Arkansas

Department of Health and Human Services v. Ahlborn, 547 U.S.

268, 280 n.9, 291-92 (2006), the Supreme Court assumed without

deciding that such liens, when limited to the portion of a settlement

or judgment constituting reimbursement for medical costs, are an

implied exception to the federal law prohibiting states from

imposing liens on the property of Medicaid beneficiaries. We now

3

must decide whether these liens in fact constitute such an

exception.

I

This appeal involves a putative class action filed by three

Pennsylvania Medicaid beneficiaries subject to DPW liens. The

District Court certified a question for interlocutory review pursuant

to 28 U.S.C. § 1292(b), asking us to determine whether state

agencies responsible for administering the Medicaid program have

the authority to assert such liens and, if so, whether Pennsylvania‘s

statutory framework is consistent with the Supreme Court‘s

decision in Ahlborn.

We begin by reviewing the facts of the state court cases

filed by each of the three plaintiffs (collectively, the Beneficiaries).

A

1

Rita L. Tristani underwent a bunionectomy in 1999 that

resulted in pain and discoloration in her leg. Her surgeon

suspected that she was suffering from deep venous thrombosis, and

immediately referred her to the hospital. Upon her arrival, Tristani

was examined by a medical resident who misdiagnosed her

condition as superficial thrombophlebitis. Roughly one week after

the misdiagnosis, Tristani suffered a massive pulmonary embolism

and stroke, which left her partially paralyzed, disfigured, and

brain-damaged. Consequently, Tristani resides in a facility where

she receives full-time medical care.

Tristani was eligible for assistance under Pennsylvania‘s

Medicaid program, and the DPW—the state agency responsible for

administering Medicaid—paid for her medical care. In September

2001, Tristani filed a medical malpractice action in which she

sought, inter alia, the costs of medical expenses that had been paid

4

on her behalf by the DPW. Approximately two months after the

complaint was filed, the DPW wrote Tristani‘s counsel that, as a

recipient of medical assistance, Tristani had assigned her right to

recover medical expenses to the DPW. In May 2002, Tristani

preliminarily settled her malpractice claim for $5.2 million.

Thereafter, seeking to recoup funds it had expended for Tristani‘s

medical care, the DPW sent Tristani‘s counsel another letter

asserting a lien of $247,514.98 against her settlement. The agency

later reduced this lien by 40% to $148,508.99 to bear its

proportionate share of Tristani‘s contingency fee obligation to her

counsel. On June 2, 2005, the state trial court issued an order

directing payment of the DPW‘s lien in full.

2

In January 2005, Joshua Valenta was injured in a traffic

accident and suffered relatively minor, but permanent injuries.

Valenta was eligible for government assistance, and the DPW paid

$15,539.61 for his medical expenses.1 Following his accident,

Valenta sued the tortfeasor, whose insurance carrier settled the

case for $130,000. In April 2005, the DPW sent Valenta‘s attorney

a letter informing him that, as counsel for a Medicaid recipient in a

1

Unlike Tristani, Valenta was enrolled in a managed

care organization (MCO) that contracts with Pennsylvania to

provide medical assistance. Pursuant to that contractual

arrangement, the MCO receives a monthly capitation fee for

each enrolled member, in exchange for which the MCO pays

health service providers for the cost of the member‘s medical

care. Although Valenta was enrolled in an MCO, the DPW

paid the bulk of his medical fees directly. In addition to these

direct payments, the DPW also paid the MCO $1,001.90 in

capitation fees on Valenta‘s behalf, and the MCO ultimately

disbursed $42.35 in connection with his injuries.

5

third-party liability tort action, Pennsylvania law required him to

satisfy the DPW‘s claim prior to making a distribution to his client.

In August 2005, the DPW sent another letter asserting a lien for

$15,581.56 against Valenta‘s settlement, which it reduced to

$10,000 to account for attorneys‘ fees. Valenta‘s attorney

promptly mailed the DPW a check for $10,000 to satisfy the lien.

3

A.H. is a young girl who suffered brain injuries following

surgery to correct a congenital heart defect. The DPW enrolled

A.H. in an MCO and paid capitation fees totaling $25,095.91 on

her behalf. The MCO‘s payments to A.H.‘s health care providers

totaled $171,617.18. The DPW also paid $1,458.10 on a fee-for-

service basis for A.H.‘s benefit. In June 2005, A.H. filed a medical

malpractice claim against her doctors, which was settled in April

2007 for an undisclosed amount. After the settlement, the DPW

asserted a lien for $106,306.88 to reflect the cost of her medical

care, less attorneys‘ fees and pro-rata costs. A.H. challenged the

validity of the DPW‘s lien, and, instead of paying the lien directly,

A.H.‘s mother obtained court approval to place the disputed funds

in an escrow account pending the outcome of this litigation.2

2

In addition to challenging the validity of the DPW‘s

liens generally, A.H. asserts that the DPW‘s practice of

recouping the cost of medical care exceeding the capitation

fees it paid is impermissible. The District Court order did not

address whether the DPW is limited to recouping the amount

it paid in capitation fees, or if it could instead seek

reimbursement for the full amount of medical payments

expended by the MCO. Because this issue was not addressed

below, we decline to address it in this interlocutory appeal.

6

B

In May 2006, Tristani and Valenta commenced a putative

class action in the District Court against: Estelle B. Richman,

Pennsylvania‘s Secretary of Public Welfare; Feather Houston,

Richman‘s predecessor; and the DPW. Tristani and Valenta

sought a refund of their payments to the DPW, as well as

declaratory and injunctive relief invalidating Medicaid liens

generally. They argued that the DPW‘s claims were prohibited by

the anti-lien and anti-recovery provisions of the Social Security

Act. See 42 U.S.C. § 1396p(a)-(b). Alternatively, they asserted

that Pennsylvania‘s scheme for recouping medical expenses from

Medicaid recipients was impermissible under the Supreme Court‘s

holding in Ahlborn.3

3

In Ahlborn, the Supreme Court reviewed an

Arkansas law that permitted the imposition of liens on

recoveries made by Medicaid beneficiaries against third

parties. Pursuant to the Arkansas statute, the state could

impose a lien in an amount equal to the medical assistance

payments made on behalf of Medicaid beneficiaries, without

regard to what portion of the settlement related to medical

costs. The Court assumed without deciding that liens limited

to medical costs are an implied exception to the federal law

prohibiting liens on the property of Medicaid beneficiaries.

Ahlborn, 547 U.S. at 284-85 (―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. . . . [T]he exception carved out by §§ 1396a(a)(25)

and 1396k(a) is limited to payments for medical care.‖)

(internal citation omitted). The Court held that, because the

Arkansas statute permitted the State to lien portions of the

recovery not relating to medical costs, it was preempted by

7

Several months after Tristani and Valenta commenced their

action, Richman and Houston (collectively, the Secretaries) filed a

motion to dismiss. Following two amendments to the complaint,

the Secretaries again filed a motion to dismiss and, after oral

argument, the District Court denied their motion without prejudice.

In April 2008, Richman and Houston filed a motion for

summary judgment. The next day, Tristani and Valenta filed a

motion for partial summary judgment in which they sought a

declaration that: (1) Pennsylvania‘s practice of asserting Medicaid

liens is invalid; (2) the DPW‘s ability to recover medical payments

made by MCOs is limited to the capitation payments made by the

State; and (3) Pennsylvania‘s current method of determining the

portion of a settlement that constitutes medical costs violates the

Supreme Court‘s holding in Ahlborn.

The District Court issued a comprehensive opinion denying

Tristani and Valenta‘s motion for partial summary judgment and

granting in part and denying in part the Secretaries‘ motion. The

District Court determined that federal law prohibits the DPW from

asserting liens against third-party recoveries obtained by Medicaid

beneficiaries. Nevertheless, the District Court denied Tristani‘s

and Valenta‘s claims for monetary damages, holding that the

Secretaries were entitled to qualified immunity. The District Court

also held that Pennsylvania‘s practice of apportioning settlements

between medical costs and other portions of the recovery was

permissible under Ahlborn. The Court denied the Secretaries‘

motion for summary judgment as to Tristani‘s and Valenta‘s

claims for declaratory and injunctive relief, but noted an

unresolved issue regarding their standing to seek equitable relief.

After the District Court issued its order, the parties filed a

joint motion to add a party to cure the potential standing problem.

the federal ban on placing liens on the property of Medicaid

beneficiaries.

8

The Court permitted the parties to add A.H. who, both parties

agreed, had standing with respect to the remaining issues. The

District Court thus amended its prior order to deny the Secretaries‘

motion for summary judgment with regard to the validity of 62 PA.

STAT. ANN. § 1409(b)(7)—Pennsylvania‘s statutory mechanism

for attaching liens to recoveries made by Medicaid beneficiaries—

and granted the parties‘ motion to certify an interlocutory appeal

pursuant to 28 U.S.C. § 1292(b).

II

Although the parties agree that we have jurisdiction over

this interlocutory appeal, we ―have an independent obligation to

determine whether subject-matter jurisdiction exists, even in the

absence of a challenge from any party.‖ Arbaugh v. Y&H Corp.,

546 U.S. 500, 514 (2006) (internal citation omitted). The District

Court had jurisdiction over the Beneficiaries‘ federal claims

pursuant to 28 U.S.C. § 1331, and exercised supplemental

jurisdiction over their state law claims pursuant to 28 U.S.C. §

1367(a).

The District Court certified an interlocutory appeal to this

Court pursuant to 28 U.S.C. § 1292(b), which provides:

[w]hen a district judge, in making in a civil action

an order not otherwise appealable under this

section, shall be of the opinion that such order

involves a controlling question of law as to which

there is substantial ground for difference of opinion

and that an immediate appeal from the order may

materially advance the ultimate termination of the

litigation, he shall so state in writing in such order.

The Court of Appeals which would have

jurisdiction of an appeal of such action may

thereupon, in its discretion, permit an appeal to be

9

taken from such order, if application is made to it

within ten days after the entry of the order . . . .

Consistent with the requirements of § 1292(b), the Secretaries

timely petitioned this Court for leave to appeal. After we granted

the Secretaries‘ petition for interlocutory appeal, the Beneficiaries

filed a notice of cross-appeal in the District Court.

The first issue we must confront with respect to our

jurisdiction is whether the Secretaries have standing to appeal the

order of the District Court. ―The general rule is that a party may

not appeal a favorable decision.‖ Ryan v. C.I.R., 680 F.2d 324,

325 (3d Cir. 1982) (citing Elec. Fittings Corp. v. Thomas & Betts

Co., 307 U.S. 241, 242 (1939)). Here, although the District Court

held that the Medicaid liens asserted by the DPW were

impermissible, it ultimately concluded that Richman and Houston

were entitled to qualified immunity. Thus, the Secretaries

prevailed on this issue in the District Court. Cf. Horne v.

Coughlin, 191 F.3d 244, 247-48 (2d Cir. 1999) (noting that when a

District Court makes an adverse constitutional holding followed by

a determination that qualified immunity exists, appellate review of

the constitutional decision may be precluded for lack of standing).

After issuing its opinion, however, the District Court

permitted the parties to add A.H. to the litigation to ensure that the

Beneficiaries would have standing to pursue declaratory and

injunctive relief. Following the addition of A.H., and prior to

certifying this interlocutory appeal, the District Court amended its

order to deny the Secretaries‘ motion for summary judgment with

respect to the validity of the Pennsylvania law permitting Medicaid

liens. This issue was included in the District Court‘s certification

for interlocutory appeal, and constitutes an adverse judgment from

which the Secretaries may properly seek appellate review.4

4

We also note that the Supreme Court has held that

―[i]n an appropriate case, appeal may be permitted from an

10

Having decided that we possess jurisdiction over the

Secretaries‘ appeal, we must now determine whether we have

jurisdiction over the Beneficiaries‘ cross-appeal. Although they

filed a notice of cross-appeal in the District Court, the

Beneficiaries failed to petition for leave to appeal in this Court.

We must decide whether this omission deprives us of jurisdiction

over the issues raised in their cross-appeal. Stated differently,

when an appellant has timely sought and received leave to appeal,

is a cross-appellant obligated to separately seek permission to

appeal?5

adverse ruling collateral to the judgment on the merits at the

behest of the party who has prevailed on the merits, so long as

that party retains a stake in the appeal satisfying the

requirements of Art[icle] III.‖ Deposit Guar. Nat’l Bank,

Jackson, Miss. v. Roper, 445 U.S. 326, 334 (1980). To the

extent the Secretaries otherwise lack standing, we hold that

their continuing interest in the outcome of this litigation,

combined with the importance of the District Court‘s

collateral determination regarding the validity of the

Pennsylvania law, makes this an appropriate case for

appellate review.

5

The Courts of Appeals for the Second and Tenth

Circuits have held that § 1292(b) requires a separate cross-

application for leave to file a cross-appeal. See Tranello v.

Frey, 962 F.2d 244, 247-48 (2d Cir. 1992); United Transp.

Union Local 1745 v. City of Albuquerque, 178 F.3d 1109,

1114 (10th Cir. 1999) (finding no jurisdiction under §

1292(b), but exercising pendent appellate jurisdiction); cf.

Roth v. King, 449 F.3d 1272, 1282-83 (D.C. Cir. 2006)

(recognizing the tension between the filing requirements of

Rule 5 and the jurisdiction granted by § 1292(b), but avoiding

the problem by declining to engage in discretionary review).

11

In Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199,

205 (1996), the Supreme Court explained: ―[a]s the text of §

1292(b) indicates, appellate jurisdiction applies to the order

certified to the court of appeals . . . . [Therefore,] the appellate

court may address any issue fairly included within the certified

order.‖ Accordingly, when we granted the Secretaries‘ petition for

leave to appeal pursuant to § 1292(b), we obtained jurisdiction

over the entire certified order of the District Court, including any

portions that were decided in the appellant‘s favor. See United

Transp. Union Local 1745 v. City of Albuquerque, 178 F.3d 1109,

1122 (10th Cir. 1999) (Briscoe, J., concurring and dissenting).

Thus, to the extent that the issues raised in the Beneficiaries‘ cross-

appeal were included in the certified order of the District Court,

they are properly before us on appeal.6

We note that both the Second and Tenth Circuits based

their analyses in part on Federal Rule of Appellate Procedure

5(b), which governs appeals by permission, and provides that

a cross-petition for leave to file a cross-appeal may be filed

within 10 days after the initial petition is served. At the time

these cases were decided, it was understood that Rule 5 was

jurisdictional. More recently, however, the Supreme Court

has clarified that non-statutory rules of procedure cannot be

regarded as jurisdictional because ―[o]nly Congress may

determine a lower federal court‘s subject-matter jurisdiction.‖

Kontrick v. Ryan, 540 U.S. 443, 452-56 (2004).

6

Our holding with respect to our jurisdiction under §

1292(b) should not be understood to imply that cross-appeals may

be omitted with impunity. Federal Rule of Appellate Procedure

5(b)(2) requires a putative § 1292(b) cross-appellant to file a cross

application ―within 10 days after the [initial] petition is served.‖

Because Rule 5(b)(2) is not jurisdictional, however, it must be

raised by a party. See Kontrick v. Ryan, 540 U.S. 443, 452-56

12

III

We exercise plenary review over an order resolving cross-

motions for summary judgment. Cantor v. Perelman, 414 F.3d

430, 435 n.2 (3d Cir. 2005). In determining whether summary

judgment is appropriate, we apply the same standard as the District

Court. Bucks Cnty. Dep’t of Mental Health/Mental Retardation v.

Pennsylvania, 379 F.3d 61, 65 (3d Cir. 2004). Summary judgment

should be granted when ―the movant shows that there is no

genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.‖ FED. R. CIV. P. 56(a).

IV

A

Having established that jurisdiction lies, we proceed to the

principal substantive issue, namely, the lawfulness of the DPW‘s

practice of imposing liens on judgments or settlements that

Medicaid beneficiaries obtain from third parties. We begin with an

overview of the applicable statutory provisions.

The Social Security Act provides that, as a condition to

receiving Medicaid assistance, states must require individuals ―to

assign [to] the State any rights . . . to support . . . and to payment

for medical care [the individual has] from any third party.‖ 42

(holding that court-adopted claim processing rule ―can . . . be

forfeited if the party asserting the rule waits too long to raise the

point‖). In this appeal, the Secretaries have forfeited their Rule

5(b)(2) argument. Although they make a one-line reference to the

impropriety of the Beneficiaries‘ cross appeal in a footnote to their

opening brief, and again in a footnote to their reply brief, they also

concede that we have ―discretion‖ to consider issues presented by

the Beneficiaries in their cross-appeal.

13

U.S.C. § 1396k(a)(1)(A). The Act also requires states to ―ascertain

the legal liability of third parties . . . to pay for care and services

under the plan‖ and, ―in any case where such a legal liability is

found to exist after medical assistance has been made . . . [, to]

seek reimbursement . . . to the extent of such legal liability.‖ Id. §

1396a(a)(25)(A)-(B).

However, and of significance to this appeal, the Act also

provides:

No 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, except–

(A) pursuant to the judgment of a court on

account of benefits incorrectly paid on

behalf of such individual, or

(B) in the case of the real property of an

individual–[who is in a nursing home and

required by law to spend his own income on

those expenses, and who cannot reasonably

be expected to return home.]

Id. at § 1396p(a)(1). This is known as the ―anti-lien‖ provision.

Of equal importance, the Act provides 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

[in limited circumstances not at issue in this case].‖ Id. at §

1396p(b)(1). This is known as the ―anti-recovery‖ provision.

B

14

Pennsylvania has enacted a detailed statutory framework in

an attempt to comply with the requirements of the Social Security

Act. Consistent with the federal mandate, 62 PA. STAT. ANN. §

1404(b) provides that ―[t]he acceptance of medical assistance

benefits shall operate as an assignment to [the DPW], by operation

of law, of the assistance recipient‘s rights . . . to payment for

medical care from any third party.‖

Although a Medicaid beneficiary must assign the portion of

her recovery relating to medical costs to the State, Pennsylvania‘s

statutory framework provides the beneficiary with a number of

options for prosecuting the remainder of her claim against a third

party. For example, after providing notice to the DPW, a Medicaid

beneficiary may elect not to include medical costs as damages in

her lawsuit against a third party. See 62 PA. STAT. ANN. §

1409(b)(5).7 If the beneficiary chooses not to include medical

costs as part of her damages, the State will not be involved in the

prosecution of her claim.

When a Medicaid beneficiary chooses to pursue damages

for medical costs, however, the method of transferring this portion

of the recovery to the State will vary depending on whether the

State is involved in the lawsuit. If the action is prosecuted by the

Medicaid beneficiary alone, after the payment of litigation

expenses and attorneys‘ fees, ―the court or agency shall allocate

the judgment or award between the medical portion and other

damages and shall allow [the DPW] a first lien against the medical

portion of the judgment or award, [in the] amount of [the DPW‘s]

expenditures for the benefit of the beneficiary under the medical

7

Although § 1409(b)(5) was not enacted until 2008, it

is relevant because the Beneficiaries seek declaratory and

injunctive relief.

15

assistance program.‖ Id. § 1409.1(b)(1).8 By contrast, if the claim

is prosecuted jointly by the beneficiary and the DPW, after

payment of litigation expenses and attorneys‘ fees, ―the court or

agency shall allocate the judgment or award between the medical

portion and other damages and shall make an award to [the DPW]

out of the medical portion of the judgment or award [in] the

amount of [the] benefits paid on behalf of the beneficiary under the

medical assistance program.‖ Id. § 1409.1(b)(2).

C

The Beneficiaries claim the DPW‘s practice of asserting

liens on recoveries made by Medicaid recipients violates the anti-

lien and anti-recovery provisions of the Social Security Act.

Despite having assigned to Pennsylvania the portion of their

recovery relating to medical costs, the Beneficiaries claim they

retain a property interest in their choses in action, including their

claims for medical expenses. Thus, they claim that §

1409.1(b)(1)—which permits Pennsylvania to take a lien on the

portion of a settlement that constitutes medical costs—effectively

authorizes the imposition of a lien on a Medicaid beneficiary‘s

property in violation of federal law. The DPW counters that its

liens fall within an exception to the federal prohibitions on

8

Section 1409.1 was enacted in response to the Supreme

Court‘s decision in Ahlborn, to permit settlements or judgments

that include Medicaid and non-Medicaid components to be

apportioned between the two items of recovery. In all respects

relevant to the imposition of liens at issue here, it is identical to §

1409(b)(7), which was in force before Ahlborn and which remains

valid law except as modified by § 1409.1‘s apportionment

provisions. See 62 PA. STAT. ANN. § 1409(b)(7) (―[T]he court . . .

shall . . . allow as a first lien against the amount of such judgment

or award, the amount of the expenditures for the benefit of the

beneficiary under the medical assistance program.‖).

16

imposing liens on the property of Medicaid beneficiaries and on

recovering medical assistance payments made on their behalf. The

DPW further asserts that the Supreme Court‘s decision in Ahlborn,

in which the Court assumed without deciding that such an

exception exists, demonstrates that its liens are valid.

The District Court held that the Pennsylvania statute

authorizing Medicaid liens was preempted by federal law. The

District Court recognized the tension between the plain language

of the anti-lien and anti-recovery provisions of the Social Security

Act, which prohibit states from recouping medical assistance

payments made on behalf of Medicaid beneficiaries, and the forced

assignment and reimbursement provisions of the Act, which

require states to recover medical assistance payments made on

behalf of beneficiaries. Relying on dicta in the Ahlborn decision,

the District Court determined that Medicaid beneficiaries, despite

having assigned their recovery of medical costs to the State, retain

an enduring property interest in this portion of their recovery. See

Tristani v. Richman, 609 F. Supp. 2d 423, 480 (W.D. Pa. 2009)

(―Since Pennsylvania law permitted Tristani and Valenta to

recover the entire amounts of their damages (including the

amounts of payments made by the DPW to provide them with

medical assistance), the entire settlement awards were their

‗property.‘‖ (citing Ahlborn, 547 U.S. at 285)). The District Court

then attempted to harmonize the conflicting provisions of the

Social Security Act by interpreting them to require Pennsylvania to

take an active role in the recovery of medical costs, either by

intervening in lawsuits initiated by Medicaid beneficiaries or by

directly pursuing liable third parties.9 Based on this approach, the

9

Like the District Court, our dissenting colleague

suggests that the language of the Social Security Act implies

that ―Congress wanted states to initiate suits against or

intervene in actions against liable third parties, and wanted

Medicaid recipients to cooperate in those efforts by providing

state agencies with any information they might require.‖

17

District Court held that § 1409.1(b)(1) is preempted by the anti-

lien provision. As we shall explain, we are unpersuaded by the

District Court‘s analysis.10

Dissent Typescript at 7. Although it is true that §

1396a(a)(25)(A) speaks of ―pursuing claims against . . . third

parties,‖ we note that § 1396a(a)(25)(A) addresses only the

duty of the state or local agency ―to ascertain the legal

liability of third parties‖ whereas § 1396a(a)(25)(B), which

discusses what must be done once a third party is deemed

liable, provides only that ―the State or local agency will seek

reimbursement . . . to the extent of such legal liability.‖ The

absence of the phrase ―against . . . third parties‖ from the

portion of the statute that directs states to seek reimbursement

is telling.

10

To date, no federal appellate court has ruled on the

validity of Medicaid liens limited to medical costs.

Numerous district courts and state appellate courts, however,

have assumed that such liens are valid in the wake of

Ahlborn. See, e.g., Armstrong v. Cansler, --- F. Supp. 2d ---,

2010 WL 2629740 (W.D.N.C. 2010) (endorsing the use of

Medicaid liens limited to the portion of a settlement

attributable to medical costs as consistent with Ahlborn);

State v. Peters, 946 A.2d 1231 (Conn. 2008) (concluding that

federal law does not prohibit the use of liens for recouping

medical expenses); see also In re Zyprexa Prods. Liab. Litig.,

452 F. Supp. 2d 458 (E.D.N.Y. 2006) (permitting the use of

Medicaid liens limited to the portion of a recovery

attributable to medical costs); Lima v. Vouis, 94 Cal. Rptr. 3d

183 (Cal. Ct. App. 2009) (upholding the use of Medicaid liens

to recover medical expenses after Ahlborn, but requiring the

trial court to determine what portion of a settlement

18

constitutes payment for medical expenses); Russell v. Agency

for Health Care Admin., 23 So. 3d 1266 (Fla. Dist. Ct. App.

2010) (permitting the use of Medicaid liens to reimburse the

State for medical costs); Dep’t of Health and Welfare v.

Hudelson, 196 P.3d 905 (Idaho 2008) (holding that liens on

medical costs are an exception to the anti-lien provision);

Weaver v. Malinda, 980 So. 2d 55 (La. Ct. App. 2008)

(permitting the State to take a Medicaid lien limited to the

portion of a settlement allocated to medical expenses);

Andrews v. Haygood, 669 S.E. 2d 310 (N.C. 2008)

(permitting the use of liens to recover Medicaid expenses

limited to medical costs); Edwards v. Ardent Health Servs., --

- P.3d ---, 2010 WL 4276067 (Okla. Civ. App. 2010)

(upholding the use of Medicaid liens limited to the portion of

a recovery attributable to medical costs); E.D.B. v. Clair, 987

A.2d 681 (Pa. 2009) (acknowledging that Ahlborn‘s holding

invalidated the Arkansas law while permitting Pennsylvania‘s

DPW to place liens on the medical expenses of Medicaid

recipients).

Although these decisions have permitted the use of

Medicaid liens limited to medical costs, the majority of them

have not clearly articulated their rationale for doing so.

Indeed, some courts appear to be under the misapprehension

that the Supreme Court held such liens to be permissible in

Ahlborn. See, e.g., In re Matey, 213 P.3d 389, 394 (Idaho

2009) (―[A] state may not seek reimbursement from damages

awarded for lost earnings, lost household services, non-

economic injury and the like because, according to the

Supreme Court, those damages are the property of the

Medicaid recipient. However, the Supreme Court specifically

stated that damages received for medical care did not

19

D

―Our task is to give effect to the will of Congress, and

where its will has been expressed in reasonably plain terms, ‗that

language must ordinarily be regarded as conclusive.‘‖ Griffin v.

Oceanic Contractors, Inc., 458 U.S. 564, 570 (1982) (quoting

Consumer Prod. Safety Comm’n v. GTE Sylvania, Inc., 447 U.S.

102, 108 (1980)). As outlined above, the Social Security Act

requires states to ―seek reimbursement‖ for medical assistance

payments made on behalf of Medicaid beneficiaries whenever

―legal liability [of a third party] is found to exist.‖ 42 U.S.C. §

1396a(a)(25)(B). Notably, this provision is silent regarding the

method by which reimbursement must be sought. The Act also

states that, as a condition to eligibility, Medicaid beneficiaries

must assign to the state any right they may have to recover medical

costs from a third party. The difficulty we perceive in this case is

that the plain language of these provisions conflicts with the

equally plain prohibition against states imposing ―liens . . . against

the property of‖ Medicaid beneficiaries, 42 U.S.C. §

1396p(a)(1)(A), or ―recover[ing] . . . any medical assistance

correctly paid on behalf of an individual,‖ id. § 1396p(b)(1). The

initial question, therefore, is whether the plain language of these

provisions can be reconciled.

The District Court attempted to resolve the apparent

conflict by interpreting the Act to require intervention by the

states. However, the Court did not adequately explain, nor is it

apparent to us, how its holding is consistent with the anti-recovery

provision, which prohibits states from seeking ―adjustment or

recovery of any medical assistance correctly paid on behalf of an

individual under the State [medical assistance] plan.‖ Id. By its

terms, the anti-recovery provision limits the ability of states to

recover medical assistance payments made on behalf of Medicaid

constitute property subject to the anti-lien provisions.‖)

(citing Ahlborn, 547 U.S. at 284).

20

beneficiaries, regardless of the specific collection method utilized.

Thus, the District Court‘s conclusion that Pennsylvania must

intervene in tort actions filed by Medicaid beneficiaries cannot be

reconciled with the anti-recovery provision.

E

The Supreme Court has stated that ―[w]hen ‗interpreting a

statute, the court will not look merely to a particular clause in

which general words may be used, but will take in connection with

it the whole statute . . . and the objects and policy of the law, as

indicated by its various provisions, and give to it such a

construction as will carry into execution the will of the

legislature.‘‖ Kokoszka v. Belford, 417 U.S. 642, 650 (1974)

(quoting Brown v. Duchesne, 19 How. 183, 194 (1857)). When we

consider the Social Security Act as a whole, including its text,

structure, purpose, and legislative history, we conclude that the

DPW‘s practice of asserting liens against that portion of a

Medicaid beneficiary‘s recovery relating to medical costs must be

viewed as an exception to the anti-lien and anti-recovery

provisions.

The anti-lien and anti-recovery provisions significantly

predate the reimbursement and forced assignment provisions. As

we shall explain, Congress was pursuing different goals in enacting

these two sets of provisions. While the anti-lien and anti-recovery

provisions were intended to ensure that Medicaid beneficiaries

were not forced to directly bear the costs of their medical care, the

reimbursement and forced assignment provisions were intended to

allow states to recoup their expenditures for medical assistance

payments when third parties are held liable. By allowing states to

recover these expenditures, Congress both protected the public fisc

and ensured that beneficiaries did not receive a windfall by

recovering medical expenses they did not pay. In order to

effectuate the goals animating these conflicting provisions, we

21

must view the reimbursement and forced assignment provisions as

exceptions to the anti-lien and anti-recovery provisions.11

1

An examination of the Social Security Act reveals that

Congress has consistently pursued the dual goals of protecting the

personal property of Medicaid beneficiaries while ensuring that

liable third parties reimburse states for Medicaid expenditures. As

we shall describe below, the Act‘s evolution over time reveals that

Congress has not viewed these objectives to be in conflict. Rather,

the available evidence indicates that Congress did not intend that

liens for medical costs would fall within the scope of the anti-lien

and anti-recovery provisions.

The anti-lien and anti-recovery provisions were first

incorporated into the Social Security Act in 1960, some five years

before Medicaid came into being. They required state medical

assistance plans for the aged to:

11

This analysis is entirely consistent with the

Supreme Court‘s holding in Ahlborn. The purpose of the

anti-lien and anti-recovery provisions was to ensure that

Medicaid beneficiaries would not bear the burden of their

medical costs during their lifetimes. Consequently, to the

extent that a settlement or judgment paid by a third party does

not pertain to medical costs, the state has no recourse to those

funds. As the reimbursement and forced assignment

provisions make clear, however, the portion of a settlement or

judgment that does relate to medical costs properly belongs to

the state. To hold to the contrary would be to provide

Medicaid beneficiaries with a windfall in direct contravention

of the congressional mandate that states recoup the costs of

medical assistance from liable third parties.

22

provide that no lien may be imposed against the

property of any individual prior to his death on

account of medical assistance for the aged paid or to

be paid on his behalf under the plan (except

pursuant to the judgment of a court on account of

benefits incorrectly paid on behalf of such

individual), and that there shall be no adjustment or

recovery (except, after the death of such individual

and his surviving spouse, if any, from such

individual‘s estate) of any medical assistance for the

aged correctly paid on behalf of such individual

under the plan.

42 U.S.C. § 302(a)(11)(E) (Supp. II 1959-1961).12 By its terms,

this provision creates a system in which elderly recipients of

12

In 1962, the language of § 302 was duplicated in 42

U.S.C. § 1382(a)(15)(D), a provision governing state plans

for aid to the aged, blind, or disabled. See Pub. L. 87-543, tit.

I, § 141(a), 76 Stat. 172, 197 (1962). Discussion during

hearings before the Senate indicates that the purpose of the

provision was to protect the homes of blind recipients of aid.

See An Act to Extend and Improve the Public Assistance and

Child Welfare Services Programs of the Social Security Act,

and for Other Purposes: Hearings Before the Comm. on

Finance of the S., 87th Cong. 362 (1962) (statement of John

F. Nagle, Chief, Washington Office, National Federation of

the Blind) (―State laws which require an applicant for blind

aid to accept a lien on his property before he will be granted

assistance, serve to convince the applicant–as nothing else

can–of the full extent of his pauperized state. . . . A lien is

such a restriction upon property and its free use that, although

a home may represent a lifetime of thrift and denial, it is not

available for use to the blind owner who wishes to make a

23

new start in life.‖). In 1965, largely the same language was

included in 42 U.S.C. § 1396a(a)(18), a provision governing

federal grants to states for medical assistance programs. See

Pub. L. 89-97, tit. I, § 121(a), 79 Stat. 286, 344 (1965); cf. S.

REP. No. 89-404, at 80 (1965) reprinted in 1965

U.S.C.C.A.N. 1943, 2020 (stating that pursuant to § 1396a

―adjustment or recovery would be made only at a time when

there is no surviving child who is under the age of 21 or who

is blind or permanently disabled‖).

These three anti-lien and anti-recovery provisions

remained in place until 1982, when Congress consolidated

them into 42 U.S.C. § 1396p. See Pub. L. 97-248, tit. I. §

132(b), 96 Stat. 324, 370 (1982). Section 1396p actually

broadened the authority of states to seek reimbursement from

Medicaid beneficiaries by allowing them, in certain

circumstances, to impose liens on the homes of beneficiaries

during their lifetimes. See S. REP. No. 97-530, at 437 (1982)

(―States are allowed to impose liens on real property

including the home, of institutionalized [M]edicaid

beneficiaries who the State determines, after notice and

opportunity for a hearing, are reasonably likely to remain in a

nursing home for the remainder of their lives.‖). Section

1396p remains in force today, and has undergone numerous

amendments adjusting the exact circumstances under which

states may recover from Medicaid beneficiaries. For

purposes of our analysis, however, the various iterations of

the anti-lien and anti-recovery provisions are irrelevant. Our

focus is on the fact that the provisions have been in force

since 1960, have been repeatedly re-enacted, and have

consistently been animated by a legislative intent to insulate

24

medical assistance are insulated from paying the costs of their care

during their lifetimes and the lifetimes of their surviving spouses.

Nevertheless, this system, which ultimately allows a state to

recoup its medical assistance expenditures directly from the estate

of a deceased beneficiary, in no way entitles beneficiaries to retain

monies paid to them by liable third parties in compensation for

their medical costs.

The legislative history of the anti-lien and anti-recovery

provisions confirms this understanding.13 As a Senate Report

discussing the provision stated, pursuant to the congressional

framework ―[a] State would not be permitted as a condition of

medical assistance to impose a lien on the property of a recipient

during [her] lifetime. . . . However, the bill would permit the

recovery from an individual‘s estate after the death of [her] spouse

if one survives [her].‖ S. REP. No. 86-1856, at 6 (1960), reprinted

in 1960 U.S.C.C.A.N. 3608, 3615. The report then explains that

―[t]his provision was inserted in order to protect the individual and

[her] spouse from the loss of their property, usually the home,

during their lifetime.‖ Id. Congress‘s concern for protecting a

Medicaid beneficiaries from the costs of their medical

expenses, and, in particular, to protect the family home.

13

The Supreme Court has instructed that ―where . . .

resolution of a question of federal law turns on a statute and

the intention of Congress, we look first to the statutory

language and then to the legislative history if the statutory

language is unclear.‖ Blum v. Stenson, 465 U.S. 886, 896

(1984). As we explained supra, the plain language of the

forced assignment and reimbursement provisions of the

Social Security Act irreconcilably conflicts with that of the

anti-lien and anti-recovery provisions. Accordingly, recourse

to legislative history is necessary here.

25

Medicaid beneficiary‘s personal assets—not her interest in

recovering medical costs paid on her behalf—clearly animated the

enactment of the anti-lien and anti-recovery provisions. Moreover,

a beneficiary‘s property interest in her home is readily

distinguishable from the inchoate interest that she retains in her

chose in action, particularly since Congress has mandated

assignment of that chose to the state.14 We cannot agree that

Congress intended these provisions to prohibit states from placing

liens on recoveries from liable third parties, especially in light of

the reimbursement and forced assignment provisions it later added

to the Social Security Act.

The reimbursement provision of the Act was first enacted

in 1967, and required state medical assistance plans to provide:

(A) that the State or local agency administering

such plan will take all reasonable measures to

ascertain the legal liability of third parties to pay for

care and services (available under the plan) arising

out of injury, disease, or disability, (B) that where

the State or local agency knows that a third party

has such a legal liability such agency will treat such

legal liability as a resource of the individual on

whose behalf the care and services are made

available for [purposes of determining a potential

recipient‘s eligibility for medical assistance] . . .

[and] that in any case where such a legal liability is

14

We need not decide whether Medicaid beneficiaries

have more than a nominal property interest in the portion of

recoveries from third parties attributable to medical costs.

Whatever the extent of that property interest, it is sharply

curtailed by the forced assignment provision, which requires

potential Medicaid beneficiaries to assign this interest to the

state as a condition of eligibility.

26

found to exist after medical assistance has been

made available on behalf of the individual, the State

or local agency will seek reimbursement for such

assistance to the extent of such legal liability.

42 U.S.C. § 1396a(a)(25) (Supp. III v.2 1965-1968). The plain

language of this provision requires states to consider third-party

liability when making Medicaid eligibility determinations, and to

seek reimbursement of sums expended when third-party liability is

unknown at the time payments are made. In this way, the

reimbursement provision protects the public fisc while preventing

Medicaid beneficiaries from receiving a windfall. Although the

anti-lien and anti-recovery provisions were in force when the

reimbursement provision was enacted, Congress made no attempt

to reconcile this new requirement with the prohibition against

states recovering medical assistance payments made on behalf of

Medicaid beneficiaries. Instead, the statute simply requires states

to consider any known third-party liability as an asset of the

individual in determining eligibility, and to seek reimbursement

when liability is discovered after medical assistance payments have

been made.15

The legislative history of the reimbursement provision

confirms that Congress intended to ensure that states recover

15

The reimbursement provision permits states to deny

Medicaid benefits outright when third-party liability is known

at the time Medicaid eligibility is determined and to recover

their outlays when third-party liability is later discovered.

Thus, although the anti-lien and anti-recovery provisions

protect the assets of the Medicaid beneficiary, the

reimbursement provision demonstrates that Congress did not

believe that individuals should be entitled to have their

medical expenses paid twice.

27

medical assistance payments made on behalf of Medicaid

beneficiaries whenever third parties are found liable for medical

expenses. As stated during a Senate hearing:

Unquestionably, many beneficiaries will be paid

twice through receipt of benefits under the

[M]edicaid program, and from obligations imposed

upon the insurance industry by the liability system.

To the extent that the [Medicaid] program is

intended to assist the medically indigent, it is not

consistent to apply [M]edicaid benefits to those

whose needs are being met by a third party under a

legal or contractual obligation. To the extent that

health care protection is being provided from

sources other than under the social security

program, the resulting duplication is discriminatory

and a wasteful, inefficient use[] of public funds.

Social Security Amendments of 1967: Hearing Before the S.

Comm. On Finance, 90th Cong. 1572 (1967) (statement of Wallace

M. Smith).

The forced assignment provision of the Social Security Act

was first enacted in 1977. As a condition of receiving Medicaid

benefits, the forced assignment provision obligates states to require

individuals

to assign the State any rights, of the individual or of

any other person who is eligible for medical

assistance under this title and on whose behalf the

individual has the legal authority to execute an

assignment of such rights, to support (specified as

support for the purpose of medical care by a court

or administrative order) and to payment for medical

care from any third party.

28

42 U.S.C. § 1396k(a)(1)(A). By its terms, this provision requires

individuals, as a condition of receiving Medicaid benefits, to

confer upon the state their right to recover the costs of their

medical care. This is further evidence of congressional intent to

ensure that Medicaid beneficiaries do not receive a windfall by

recovering medical costs they did not pay.

Our review of the evolution of the various provisions of the

Social Security Act reveals that the only way to harmonize the

conflicting language of the anti-lien and anti-recovery provisions

with the later-enacted reimbursement and forced assignment

provisions is to conclude that the anti-lien and anti-recovery

provisions do not apply to medical costs recoverable from liable

third parties. The anti-lien and anti-recovery provisions evince

congressional intent to protect the assets of Medicaid recipients,

and to ensure that beneficiaries are not forced to personally bear

the costs of their medical care. Meanwhile, the reimbursement and

forced assignment provisions require states to recover the costs of

medical assistance payments despite the apparent prohibition

against seeking recovery of medical assistance payments. It defies

common sense to conclude that Congress intended to protect the

rights of Medicaid beneficiaries to recover medical costs that they

never paid in the first place. Indeed, federal law requires

beneficiaries to assign their right to recover such medical costs to

the state, because it is the state—not the beneficiaries—that pays

these costs.

2

Our conclusion that liens on medical costs are excepted

from the anti-lien and anti-recovery provisions is bolstered by the

forced assignment provision. The District Court viewed the forced

assignment provision as evidence of congressional intent to require

states to intervene in lawsuits initiated by Medicaid beneficiaries

against third parties. We see it differently.

29

As the Secretaries correctly point out, a partial assignment

typically creates a lien on a portion of the recovery in favor of the

assignee. See, e.g., Matchett v. Wold, 818 F.2d 574, 576 (7th Cir.

1987) (―An ordinary lien attaches to property in being; the

statutory attorney‘s lien attaches to an expectation [of recovery],

the court thought the statute better described therefore as making

the attorney in effect a partial assignee of his client‘s interest in the

lawsuit . . . .‖); Angeles Real Estate Co. v. Kerxton, 737 F.2d 416,

419 (4th Cir. 1984) (―[U]nder general common law principles, a

partial assignment creates an equitable lien in favor of the

assignee.‖); Law Research Serv., Inc. v. Martin Lutz Appellate

Printers, Inc., 498 F.2d 836, 837 (2d Cir. 1974) (―[T]he

assignment of [part of] an existing right [under a judgment] creates

an immediate lien in favor of the assignee that is valid against later

lien creditors of the assignor.‖). We do not believe that Congress

would prohibit states from imposing liens to recoup medical costs

while at the same time imposing a requirement that has the legal

effect of creating such liens. The more logical conclusion is that

Congress understood that the legal effect of the forced assignment

provision would be to provide the states with a lien on recoveries

of medical costs. Thus, in our view, the forced assignment

provision is evidence of Congress‘s intent to except recoveries of

medical assistance payments whenever third parties are found

liable for them.

Unlike the District Court, we do not believe that Congress

intended to require states to intervene in Medicaid beneficiaries‘

lawsuits in order to recoup medical costs from third parties.

Congress enacted the forced assignment provision more than a

decade after it began requiring states to ―seek reimbursement‖ for

medical costs from liable third parties. The purpose of the

provision was to ensure that states were able to recoup their

outlays. Thus, far from restricting the state‘s ability to recoup

medical expenses, the forced assignment provision was intended to

facilitate the state‘s recovery of those funds.

30

Finally, practical considerations weigh in favor of our

holding today. At present, over thirty states use liens to recoup

medical expenses paid on behalf of Medicaid beneficiaries from

liable third parties. See State v. Peters, 946 A.2d 1231, 1239 n.19

(Conn. 2008). And disparate federal and state courts have

overwhelmingly endorsed this practice. See supra note 9. In

Pennsylvania, the authority for imposing such liens dates back to

1980. See 1980 Pa. Laws 510 (―After payment of . . . expenses

and attorneys‘ fees the court or agency shall, on the application of

the department, allow as a first lien against the amount of such

judgment or award, the amount of the department‘s expenditures

for the benefit of the beneficiary under the medical assistance

program . . . .‖). Since then, Congress has had occasion to amend

the anti-lien and anti-recovery provisions, and has chosen not to

prohibit this widespread and pervasive practice. Its failure to do so

further supports our holding that Medicaid medical expense liens

are excepted from the anti-lien and anti-recovery provisions. See

Lorillard v. Pons, 434 U.S. 575, 580 (1978) (―Congress is

presumed to be aware of an administrative or judicial interpretation

of a statute and to adopt that interpretation when it reenacts a

statute without change.‖).

3

The text of the Social Security Act, when combined with its

structure, purpose, and legislative history, reveals that Congress

sought to accomplish different goals in enacting the anti-lien and

anti-recovery provisions on the one hand, and the reimbursement

and forced assignment provisions on the other hand. While the

anti-lien and anti-recovery provisions were intended to protect the

assets of Medicaid recipients, the subsequently-enacted forced

assignment and reimbursement provisions were intended to limit

the financial burden of Medicaid on the states and ensure that

Medicaid beneficiaries did not receive a windfall by recovering

31

medical costs they did not pay.16 In this context, the forced

assignment and reimbursement provisions are best viewed as

creating an implied exception to the anti-lien and anti-recovery

provisions of the Act. Our conclusion is bolstered by the fact that

the statutory mechanism created by Congress for beneficiaries to

relinquish their right to recover medical assistance payments to the

state—a partial assignment—itself creates a lien. Consequently,

we hold that liens on settlements or judgments limited to medical

costs are not prohibited by the anti-lien and anti-recovery

provisions of the Social Security Act.

IV

A

Having determined that liens limited to recoveries for

medical costs are not prohibited by the anti-lien and anti-recovery

provisions, we now turn to Pennsylvania‘s method of apportioning

settlements between medical costs and the remainder of a

beneficiary‘s recovery. Typically, a Medicaid beneficiary‘s

recovery from a third party will compensate her for a variety of

damages, including medical costs, lost wages and pain and

suffering. Pursuant to the Supreme Court‘s holding in Ahlborn,

states may be reimbursed only for the portion of the recovery

constituting compensation for medical expenses. Many

settlements, however—including those at issue in this appeal—are

not specifically apportioned between medical costs and other types

of damages. The question before us is how, in the absence of

16

Although the Dissent shares our concern in this

respect, it argues that any windfall to Medicaid beneficiaries

can be avoided by precluding beneficiaries from claiming

amounts paid by Medicaid in their suits against third parties.

We are unpersuaded by this approach because it would result

in a windfall to tortfeasors.

32

explicit allocation, one may ascertain what portion of a settlement

is allocable to medical expenses recoverable by the state.

Pennsylvania has addressed this allocation problem by

providing:

Except as otherwise provided in this act,

notwithstanding any other provision of law, the

entire amount of any settlement of the injured

beneficiary‘s action or claim, with or without suit, is

subject to the department‘s claim for reimbursement

of the benefits provided any lien filed pursuant

thereto, but in no event shall the department‘s claim

exceed one-half of the beneficiary‘s recovery after

deducting for attorney‘s fees, litigation costs, and

medical expenses relating to the injury paid for by

the beneficiary.

62 PA. STAT. ANN. § 1409(b)(11). As the District Court noted, the

DPW has construed this provision as ―‗establish[ing] a statutory

default rule of allocation for tort recoveries consistent with

Ahlborn.‘‖ Tristani v. Richman, 609 F. Supp. 2d 423, 464 (W.D.

Pa. 2009) (quoting 37 Pa. Bull. 4881, 4228 (Sept. 8, 2007)).

Pursuant to the DPW‘s construction of section 1409(b)(11), in the

absence of a judicial allocation of damages, the DPW is entitled to

recover the lesser of its actual expenditures on medical costs or one

half of the beneficiary‘s recovery after expenses.

In this appeal, the Beneficiaries‘ medical costs constitute

less than one-half of their recoveries; therefore, the DPW has

recovered (or, in A.H.‘s case, seeks to recover) the full amount of

its Medicaid expenditures, less a pro rata reduction for attorneys‘

fees and costs. The Beneficiaries argue, however, that they settled

their claims for less than full value, and that the DPW‘s recovery

for medical costs should be reduced correspondingly. Because no

such reduction occurred, the Beneficiaries claim that the DPW‘s

33

liens exceed the scope of the interests they assigned to the agency

in violation of Ahlborn.

B

The District Court rejected the Beneficiaries‘ argument,

concluding that Pennsylvania law validly adopted a default

apportionment mechanism to divide settlements between medical

costs and other expenses. The District Court noted that although

section 1409(b)(11) predates Ahlborn, thereafter the DPW has

interpreted it as establishing a default apportionment between non-

medical and medical expenses. This interpretation has since been

codified in 55 PA. CODE § 259.2, which states:

(b) In determining the portion of a tort recovery

that represents payment for medical care by a third

party, the Department will apply the following

interpretations:

....

(2) In the absence of a court order

allocating tort proceeds among categories of

damages, ½ of the net proceeds are allocated

by law to be available to repay injury-related

[Medicaid] expenses. The amount of net

proceeds is computed by deducting from the

gross proceeds the attorney‘s fees, litigation

costs and medical expenses relating to the

injury that were paid for by the beneficiary

prior to the settlement of the injured

beneficiary‘s action or claim.

....

(5) The Department is not bound by a

private agreement between the parties to a

34

tort claim regarding allocation of the

proceeds.

(d) If a court does not adjudicate the amount of the

Department‘s claim against a settlement, the Bureau

of Hearings and Appeals has jurisdiction to hear and

determine an appeal by a beneficiary contesting the

amount of the Department‘s claim.

This regulation explains section 1409(b)(11)‘s relationship to the

rule of Ahlborn, and formally establishes a default method for

establishing the portion of a recovery relating to medical costs.17

The District Court found this scheme to be consistent with

federal law. The Court noted that Ahlborn recognized the

possibility that plaintiffs would manipulate settlement agreements

to artificially depress the portion attributable to medical expenses.

In Ahlborn, the Supreme Court suggested that this risk could ―be

avoided either by obtaining the State‘s advance agreement to an

allocation or, if necessary, by submitting the matter to a court for

decision.‖ Ahlborn, 547 U.S. at 288. In a footnote, the Court

stated:

[s]ome States have adopted special rules and

procedures for allocating tort settlements in

17

We note that, with the exception of subsection (d),

which permits a beneficiary to appeal the default allocation of

his recovery, this regulation is identical to the law in force

prior to the Ahlborn decision. Because the Beneficiaries‘

claims predate the regulation, there is some uncertainty as to

whether they may avail themselves of the regulatory appeal

process. The parties agree, however, that to date the DPW

has not engaged in any individualized apportionment of the

Beneficiaries‘ settlements.

35

circumstances where, for example, private insurers‘

rights to recovery are at issue. Although we express

no view on the matter, we leave open the possibility

that such rules and procedures might be employed

to meet concerns about settlement manipulation.

Id. at n.18. The District Court held that Pennsylvania‘s 50%

allocation and agency appeal provisions are ―special rules and

procedures‖ of this kind that are consistent with the federal

requirement that the State‘s recovery not exceed the portion of the

third-party recovery attributable to Medicaid-paid expenses. The

Supreme Courts of North Carolina and Idaho have reached similar

conclusions with respect to analogous state laws. See State Dep’t

of Health & Welfare v. Hudelson, 196 P.3d 905, 911 (Idaho 2008);

Andrews ex rel. Andrews v. Haygood, 669 S.E. 2d 310, 314 (N.C.

2008).

Alternatively, the District Court held that Pennsylvania‘s

apportionment scheme is valid because, under Pennsylvania law, a

settlement represents full compensation for an individual‘s

damages, which implies that the Beneficiaries cannot, after

settling, claim that they were not made whole. Under

Pennsylvania law, ―when a subrogor settles a claim, he essentially

waives his right to a judicial determination of his losses, and

therefore conclusively establishes the settlement amount as full

compensation for his damages.‖ Goldman v. Workers’ Comp.

Appeal Bd. (Girard Provision Co.), 620 A.2d 550, 552 (Pa.

Commw. Ct. 1993). ―Hence, in effect, [Pennsylvania] law

indicates that when an individual settles his suit he is later

estopped from claiming that his damages exceed the amount

settled for.‖ Allstate Ins. Co. v. Clarke, 527 A.2d 1021, 1025 n.4

(Pa. Super. Ct. 1987). The Pennsylvania Supreme Court has never

explicitly adopted this rule, but as the cases quoted above

demonstrate, it has gained some traction in the lower courts.

Accordingly, the District Court held that, even in the absence of

the statutory default allocation, the ―made whole‖ doctrine would

36

fix the portion of the Beneficiaries‘ settlement attributable to

Medicaid expenses at an amount equal to the DPW‘s actual

expenditures.

We agree with the District Court‘s conclusion that

Pennsylvania‘s apportionment scheme is valid. Pursuant to the

current statutory framework, beneficiaries unhappy with its results

may appeal the default allocation. This mechanism is consistent

with the Supreme Court‘s holding in Ahlborn, and comports with

the practice of other states. Therefore, we will affirm this portion

of the District Court‘s order.18

C

Despite the validity of Pennsylvania‘s current

apportionment scheme, the question remains whether the prior

scheme, which did not provide a right of appeal from the default

allocation, is valid under Ahlborn.19 The District Court upheld the

scheme, but we find it problematic.

18

Because we uphold Pennsylvania‘s framework, we

do not reach the merits of the District Court‘s alternative

holding premised on the ―made whole‖ doctrine.

19

Tristani‘s and Valenta‘s claims regarding the

validity of the apportionment scheme are moot because the

District Court correctly determined that any recovery on their

part is barred by the Eleventh Amendment and the doctrine of

qualified immunity. A.H., however, challenged the validity

of the DPW‘s lien prior to making a payment. Moreover, the

DPW asserted its lien before section 1409 was amended.

A.H. therefore has a viable claim for declaratory and

injunctive relief.

37

Although the Ahlborn Court acknowledged the existence in

state law of ―special rules and procedures‖ for allocating

settlements, and left open the possibility that such rules may be

employed to address concerns about settlement manipulation, 547

U.S. at 288 n.18, it did not give states unfettered discretion to

allocate settlements without regard to the actual portion

attributable to medical expenses. Indeed, Ahlborn expressed a

preference for resolving allocation disputes ―either by obtaining

the State‘s advance agreement to an allocation or, if necessary, by

submitting the matter to a court for decision.‖ Id. at 288.

We express no view as to whether allocation disputes of

this type must be adjudicated by a court, or may instead be

resolved through other ―special rules and procedures.‖ Id. at 288

n.18. We hold merely that in determining what portion of a

Medicaid beneficiary‘s third-party recovery it may claim in

reimbursement for Medicaid expenses, the state must have in place

procedures that allow a dissatisfied beneficiary to challenge the

default allocation. As the Beneficiaries point out, without such a

rule nothing would prevent states from allocating 75%, 90% or

even 100% of a settlement to medical expenses, thereby

eviscerating the rule promulgated by Ahlborn. Because the District

Court concluded otherwise, we will reverse its order in this respect

and remand for further proceedings consistent with this opinion.

V

In Ahlborn, the Supreme Court assumed without deciding

that liens on recoveries made by Medicaid beneficiaries for

medical costs constitute an exception to the anti-lien and anti-

recovery provisions of the Social Security Act. Medicaid

beneficiaries in Pennsylvania have questioned this assumption by

challenging the State‘s practice of utilizing such liens. Our

examination of the text, structure, history and purpose of the Social

Security Act leads us to conclude that liens limited to medical

costs are not prohibited by the anti-lien and anti-recovery

38

provisions of the Act. Accordingly, we uphold Pennsylvania‘s

longstanding practice of imposing such liens.

The Beneficiaries have also challenged Pennsylvania‘s

practice of disaggregating medical costs to comport with the

requirements of Ahlborn. We hold that Pennsylvania‘s current

statutory framework, which affords Medicaid recipients a right of

appeal from the default allocation, is a permissible default

apportionment scheme. The prior framework, which did not afford

beneficiaries a right of appeal, is invalid under Ahlborn.

For the foregoing reasons, we will affirm in part, vacate in

part, and remand the case for further proceedings consistent with

this opinion.

39

Tristani v. Richman, Nos. 09-3537, 09-3538, Consolidated

POLLAK, District Judge, dissenting.

I.

I agree with the majority that we possess jurisdiction

over the defendants‘ appeal, and that we possess jurisdiction

over the issues raised in the plaintiffs‘ cross-appeal to the

extent those issues were included in the certified order of the

District Court. However, like the District Court, I do not

believe Congress intended to permit state Medicaid agencies,

such as the Pennsylvania Department of Public Welfare

(―DPW‖), to impose liens on judgments and settlements

obtained by Medicaid beneficiaries from third parties.1 I

therefore respectfully dissent.

1

As the majority recognizes, the Supreme Court‘s

decision in Arkansas Department of Health and Human

Services v. Ahlborn, 547 U.S. 268, 280 n.9 (2006), assumed

without deciding that ―a State can . . . requir[e] an

‗assignment‘ of part of, or plac[e] a lien on, the settlement

that a Medicaid recipient procures on her own.‖ After

making this assumption, the Court cited to §§

1396k(a)(1)(B)–(C) with a ―cf.‖ signal, noting in a

parenthesis that under those provisions a Medicaid ―recipient

has a duty to identify liable third parties and to ‗provid[e]

information to assist the State in pursuing‘ those parties.‖ Id.

(emphasis and alteration in original). As will be discussed

below, the language emphasized by the Court undercuts the

majority‘s construction of the Social Security Act.

1

II.

A.

As a condition of participating in Medicaid, states

must prepare a state Medicaid plan to comply with various

requirements set out in the Social Security Act. See generally

42 U.S.C. § 1396a. As relevant here, a state Medicaid plan

must permit the state to seek ―reimbursement‖ when third

parties are liable for medical services provided by Medicaid.

Specifically, the plan must provide:

(A) that the State or local agency

administering such plan will take all

reasonable measures to ascertain the

legal liability of third parties . . . to pay

for care and services available under the

plan, including

(i) the collection of sufficient

information . . . to enable the

State to pursue claims against

such third parties, . . .

(ii) the submission to the Secretary of

a plan (subject to approval by the

Secretary) for pursuing claims

against such third parties . . . ;

(B) that in any case where such a legal

liability is found to exist after medical

assistance has been made available on

behalf of the individual and where the

amount of reimbursement the State can

2

reasonably expect to recover exceeds the

costs of such recovery, the State or local

agency will seek reimbursement for such

assistance to the extent of such legal

liability; . . . .

Id. §1396a(a)(25)(A)-(B) (emphasis added) (―reimbursement‖

provision).

A state‘s Medicaid plan must also require individuals

enrolled in Medicaid to assign to the state their right to

payment for medical care from third parties, and to cooperate

with the state‘s efforts to recover those payments. In

relevant part, this ―assignment/cooperation‖ provision states

that:

(a) For the purpose of assisting in the

collection of medical support payments

and other payments for medical care

owed to recipients of medical assistance

under the State plan approved under this

subchapter, a State plan for medical

assistance shall

(1) provide that, as a condition of

eligibility for medical assistance

under the State plan to an

individual who has the legal

capacity to execute an assignment

for himself, the individual is

required

(A) to assign the State any

rights . . . to support

3

(specified as support for

the purpose of medical care

by a court or administrative

order) and to payment for

medical care from any

third party;

(B) to cooperate with the State

. . . in obtaining support

and payments (described in

subparagraph (A)) for

himself . . . ; and

(C) to 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 . .

(b) Such 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 . . . and the

remainder of such amount collected

shall be paid to such individual.

4

Id. § 1396k(a)-(b) (emphasis added).2

In addition to the reimbursement and

assignment/cooperation provisions, the Social Security Act

contains an ―anti-lien‖ provision, which states that:

No 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, except

2

Similarly, a state‘s Medicaid plan must ensure that

the state has in place a legal framework by which the state

acquires the right to payment from third parties for medical

expenditures made by Medicaid. That is, the plan must

provide:

that to the extent that payment has been made

under the State plan for medical assistance in

any case where a third party has a legal liability

to make payment for such assistance, the State

has in effect laws under which, to the extent that

payment has been made under the State plan for

medical assistance 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 . . . .

Id. § 1396a(a)(25)(H).

5

(A) pursuant to the judgment of a

court on account of benefits

incorrectly paid on behalf of such

individual, or

(B) in the case of the real property of

an individual [when the individual

is an inpatient in a medical

institution, is required to spend

her own income as a condition of

receiving services in the

institution, and is unlikely to ever

be discharged from the institution

and to return home].

Id. at § 1396p(a)(1). The Act also contains an ―anti-

recovery‖ provision, which 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 [in

limited circumstances not at issue in this case].‖ Id. at §

1396p(b)(1).

To comply with the foregoing provisions of the Social

Security Act, Pennsylvania has enacted 62 Pa. Stat. Ann. §

1404(b), which provides that the ―acceptance of medical

assistance benefits shall operate as an assignment to the

[DPW], by operation of law, of the assistance recipient's

rights to recover . . . payment for medical care from any third

party.‖ Pennsylvania has also enacted 62 Pa. Stat. Ann. §

1409, which governs third party liability in the context of

Medicaid. Under Section 1409, when Medicaid benefits are

provided to a beneficiary because of an injury for which a

third-party (including an insurer) is liable, both the DPW and

the beneficiary may bring an independent cause of action

6

against the third-party. If the DPW institutes suit, it has ―the

right to recover from such person or insurer the reasonable

value of benefits so provided.‖ Id. § 1409(b)(1). If a

beneficiary brings an action against a liable third party, the

beneficiary may, if he so desires, ―include as part of his claim

the amount of [Medicaid] benefits that have been or will be

provided‖ by the DPW. Id. § 1409(b)(5)(vi).

If the beneficiary institutes an action against such a

third party, the beneficiary must notify the DPW of the suit

within thirty days, id. § 1409(b)(5), and the DPW may

intervene in the suit at any time before trial, id. §

1409(b)(5)(v). However, the DPW is not required to

intervene in a beneficiary‘s suit, and may instead wait until

the suit has proceeded to a judgment or settlement. In such

cases, the resulting judgment or settlement must first be used

to pay the reasonable litigation expenses and attorneys‘ fees

incurred by the beneficiary. Id. § 1409.1(b)(1). Then, in

cases that proceed to a judgment, ―the court or agency shall

allocate the judgment or award between the medical portion

and other damages,‖ and the DPW may assert a ―lien against

the medical portion of the judgment or award,‖ in ―the

amount of the expenditures for the benefit of the beneficiary‖

made by the DPW. Id.3 In cases that settle, and which

therefore lack a judicial allocation of damages, the DPW may

impose a lien upon the settlement to recover its medical

3

As the majority notes, see Slip Op. at 15 n.8,

Pennsylvania enacted the judicial allocation provision in §

1409.1 to comply with the Supreme Court‘s decision in

Ahlborn, which held that a state Medicaid agency may not

seek ―payment for anything other than medical expenses.‖

547 U.S. at 281.

7

expenditures in an amount not exceeding ―one-half of the

beneficiary‘s recovery after deducting for attorney‘s fees,

litigation costs, and medical expenses relating to the injury

paid for by the beneficiary.‖ Id. § 1409(b)(11).

B.

The majority concludes that the various provisions of

the Social Security Act set forth in the preceding section

should be construed to permit state Medicaid agencies, such

as the DPW, to impose liens on future judgments and

settlements obtained by Medicaid beneficiaries from third

parties. The majority opinion derives much of its force from

its argument that this construction prevents Medicaid

recipients from obtaining windfall recoveries, because ―[i]t

defies common sense to conclude that Congress intended to

protect the rights of Medicaid beneficiaries to recover

medical costs that they never paid in the first place.‖ Slip op.

at 29.

I disagree with the majority opinion‘s construction of

the Social Security Act for three primary reasons. First, the

opinion ignores language in the reimbursement and

assignment/cooperation provisions which indicates that

Congress intended states to directly litigate claims against

liable third parties. Second, the opinion erroneously

concludes that because Congress intended to create a limited

implicit exception to the anti-recovery provision, this court

must read an even broader implied exception into the anti-

recovery provision and an additional implied exception into

the anti-lien provision. Third, the opinion fails to recognize

that § 1409(b)(5)(vi), which allows a Medicaid beneficiary to

―include as part of his claim [against a third party] the amount

8

of benefits that have been or will be provided‖ by the DPW,

is preempted by the Social Security Act.

The last of these three reasons deserves particular

emphasis: because § 1409(b)(5)(vi) is preempted by the plain

language of the Social Security Act, Medicaid beneficiaries

will not be able to obtain windfall recoveries. As a result, it is

not necessary to devise textually tenuous implicit exceptions

in order to read the Act in a way that prevents such

recoveries.

1.

Turning to the first reason, the District Court held that

the reimbursement and assignment/cooperation provisions,

taken together, indicate that Congress did not intend to permit

state Medicaid agencies to free-ride on the efforts of plaintiffs

by asserting liens after a judgment or settlement has been

obtained. Rather, Congress wanted states to either initiate

suit against or intervene in actions against liable third parties,

and wanted Medicaid recipients to cooperate in those efforts

by providing state agencies with any information they might

require. As the District Court explained:

Section 1396a(a)(25)(A)(i)-(ii) requires a state

plan for medical assistance to take all

reasonable measures to provide for ―the

collection of sufficient information (as specified

by the Secretary in regulations) to enable the

State to pursue claims against ... third parties,‖

and to further provide for ―the submission to the

Secretary of a plan (subject to approval by the

Secretary) for pursuing claims against such

third parties.‖ This statutory language

9

unambiguously refers to direct actions by state

entities against liable third parties. Section

1396a(a)(25)(B) requires a state to ―seek

reimbursement‖ from liable third parties for the

cost of medical assistance provided to an

individual ―in any case where such a legal

liability is found to exist after medical

assistance has been made available on behalf of

the individual and where the amount of

reimbursement the State can reasonably expect

to recover exceeds the cost of such recovery.‖

The plain language of this statutory provision

reveals that Congress believed that participating

states would not only pursue liable third parties

directly, but that they would also incur costs in

seeking to recover their expenditures.

Under § 1396k(a)(1)(C), a state plan for

medical assistance must provide that, as a

condition of eligibility for medical assistance,

an ―individual is required . . . to 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.‖ This

statutory language indicates that Congress

expected participating states to need assistance

in pursuing liable third parties. The

reimbursement provision contained in §

1396k(b) likewise evinces a legislative intent

that state entities directly pursue liable third

parties. That provision requires a state entity

which has collected money under an assignment

10

to retain only those proceeds necessary to

reimburse it and the federal government for the

cost of a given Medicaid recipient‘s medical

care, and to pay the remainder of the money to

the recipient. The reimbursement provision

envisions an active role in litigation by state

entities, not the passive role played by the DPW

in the cases involving Tristani and Valenta.

Tristani v. Richman, 609 F. Supp. 2d 423, 469 (W.D. Pa.

2009) (emphasis in original) (citations omitted).4

4

I recognize that the construction of the Social

Security Act defended in this opinion would, by requiring the

DPW to litigate claims itself, render it cost-prohibitive for the

DPW to pursue certain claims. However, as the District

Court noted, the reimbursement provision explicitly

recognizes that there will be circumstances under which it

will be too expensive for states to recover from third parties,

and exempts states from any obligation to pursue claims in

such circumstances. See 42 U.S.C. § 1396a(a)(25)(B) (―in

any case where such a legal liability is found to exist after

medical assistance has been made available on behalf of the

individual and where the amount of reimbursement the State

can reasonably expect to recover exceeds the costs of such

recovery, the State or local agency will seek reimbursement

for such assistance to the extent of such legal liability‖

(emphasis added)).

In addition, it should be noted that other public policy

concerns aside from efficiency are at issue in this case,

notably the attorney-client relationship. Pursuant to §

1409(b)(5)(vi), a plaintiff may pursue claims against third

11

parties for Medicaid expenditures made by the DPW. If her

case settles, then the DPW is entitled to recover its medical

expenditures in an amount of up to one-half of the

beneficiary‘s recovery after deducting for attorney‘s fees and

litigation expenses, regardless of how a court would have

actually allocated the plaintiff‘s medical and non-medical

damages. Id. § 1409(b)(11). As a result of this essentially

arbitrary default rule, a plaintiff whose medical damages were

relatively small in comparison to her non-medical damages is

likely to be under-compensated by the settlement (which was

made in light of the risks that always attend going to trial),

while the DPW will be over-compensated (because the DPW

does not have to factor such risks into its recovery). If the

plaintiff wishes to challenge this default allocation, she must

pursue a potentially expensive administrative appeal. See 55

Pa. Code § 259.2(d).

The plaintiff‘s attorney, however, is in a quite different

position. Because the attorney‘s fees are deducted before the

DPW takes its cut of the settlement, the attorney will always

be fully compensated for her efforts. Thus, under

Pennsylvania‘s statutory scheme, the plaintiff‘s attorney has

an incentive to include the plaintiff‘s Medicaid damages in

the complaint—which is likely to increase the amount of time

the attorney will spend on the case and therefore her fees—

even if that would not be advantageous for her client. While I

am confident that most attorneys in Pennsylvania would (like

plaintiffs‘ counsel in this action) do what is in the best

interests of their clients regardless of what is in their own best

interests, I nonetheless suspect that Congress did not intend to

create such temptations.

12

The majority opinion rejects the District Court‘s

conclusion that states may only seek reimbursement for care

and services provided by Medicaid by bringing their own

lawsuits against third parties or by intervening in suits

brought by Medicaid recipients, suggesting that §

1396a(a)(25)(B) ―is silent regarding the method by which

reimbursement must be sought‖ by the state. Slip op. at 19–

20. This statement is, in a strict sense, accurate: §

1396a(a)(25)(B) does not itself specify whether the state must

seek reimbursement directly from third parties.

However, like the Supreme Court, ―[w]e do not . . .

construe statutory phrases in isolation; we read statutes as a

whole.‖ United States v. Morton, 467 U.S. 822, 828 (1984);

see also United Sav. Assn. of Tex. v. Timbers of Inwood

Forest Associates, Ltd., 484 U.S. 365, 371 (1988) (―A

provision that may seem ambiguous in isolation is often

clarified by the remainder of the statutory scheme . . . .‖).

The majority opinion does not quote or otherwise address the

immediately preceding subsection, which indicates that

Congress wanted ―the State to pursue claims against such

third parties.‖ 42 U.S.C. § 1396a(a)(25)(A) (emphasis

added). The opinion also ignores § 1396k(a)(1)(C), which

states that individuals must provide information ―to assist the

State in pursuing‖ liable third parties. And it does not address

§ 1396k(b), which envisions that the state will seek

reimbursement for medical assistance payments directly from

a liable third party, and will pay any ―remainder‖ (i.e.,

amount recovered in excess of the state‘s medical

expenditures) to the individual Medicaid recipient.5 Thus, the

5

This last provision is particularly noteworthy: By

providing for payment by the state Medicaid agency to the

beneficiary of any remainder, § 1396k(b) indicates that

13

majority errs by ignoring language in the reimbursement and

assignment/cooperation provisions indicating that Congress

wants states to initiate or intervene in lawsuits against third

parties.

2.

My second reason for disagreement with the majority

opinion arises from its construction of the anti-lien and anti-

recovery provisions. The District Court found that the anti-

lien and anti-recovery provisions can be rendered consistent

with Section 1396a(a)(25), the reimbursement provision, and

Section 1396k, the assignment/cooperation provision, by

construing the latter provisions ―to require an assignment for

the purpose of enabling a participating state to directly pursue

claims against third parties liable for the costs of providing

medical assistance to Medicaid recipients.‖ Tristani, 609 F.

Supp. 2d at 470. The majority opinion rejects this

construction on the ground that ―the District Court‘s

conclusion that Pennsylvania must intervene in tort actions

filed by Medicaid beneficiaries cannot be reconciled with the

anti-recovery provision‖ because ―[b]y its terms, the anti-

recovery provision limits the ability of states to recover

medical assistance payments made on behalf of Medicaid

beneficiaries, regardless of the specific method.‖ Slip op. at

20.

Congress was aware of the problem that a state‘s lawsuit

against a liable third party might obtain an excessive

recovery. It is striking, then, that Congress did not include a

similar provision to address the situation of excessive

recovery by Medicaid beneficiaries.

14

I agree with the majority that the anti-recovery

provision would, if read in isolation, seem to prohibit the state

from using any method from seeking to recover medical

assistance payments expended on behalf of Medicaid

recipients. From this, it follows that the reimbursement and

assignment/cooperation provisions, which expressly state that

states must pursue assigned claims directly against third

parties, must constitute an implicit exception to the anti-

recovery provision permitting states to recover from liable

third parties.

However, it does not follow that the reimbursement

and assignment/cooperation provisions create an exception to

the anti-recovery provision permitting states to recover from

Medicaid beneficiaries. Nor does it follow that the

reimbursement and assignment/cooperation provisions must

be read to impliedly repeal the anti-lien provision. See 42

U.S.C. § 1396p(a)(1) (―No lien may be imposed against the

property of any individual . . . on account of medical

assistance paid . . . under the State plan . . . .‖ (emphasis

added)).6 Our precedents recognize that ―‗[r]epeals by

implication are not favored and will not be presumed unless

the intention of the legislature to repeal is clear and

6

I agree with the District Court that, under the

reasoning of Ahlborn, the liens imposed by the DPW upon

beneficiaries‘ recoveries of Medicaid expenditures from third

parties are ―imposed on their ‗property‘ for purposes of the

anti-lien provision.‖ Tristani, 609 F. Supp. 2d at 472; see

also id. (―[T]he mere fact that the DPW needed to assert liens

in the first place indicates that the liens were imposed on the

‗property‘ of [plaintiffs].‖); Ahlborn, 547 U.S. at 286 (―Why,

after all, would ADHS need a lien on its own property?‖).

15

manifest.‘‖ Hagan v. Rogers, 570 F.3d 146, 154-55 (3d Cir.

2009) (quoting National Ass’n of Home Builders v. Defenders

of Wildlife, 551 U.S. 644, 662 (2007)).7 Nowhere in the

majority opinion‘s extended discussion of the various

amendments to and the legislative history of the

reimbursement and assignment/cooperation provisions does

the majority point to any ―clear and manifest‖ Congressional

intent to create an implicit exception to the anti-lien provision

or to permit recoveries directly from Medicaid beneficiaries.8

7

The earliest versions of the anti-lien and anti-

recovery provisions date to 1960, when they were first

incorporated into the Social Security Act. Slip op. at 22. The

earliest versions of the reimbursement and

assignment/cooperation provisions were first enacted in 1967

and 1977, respectively. Id. at 26, 28. As the majority

recognizes, the anti-lien and anti-recovery provisions have

―undergone numerous amendments‖ clarifying and in some

cases expanding the circumstances under which states may

seek to recover from Medicaid beneficiaries. Id. at 24 n.12.

Despite these many amendments, Congress has never added

an express exception to the anti-lien provision permitting

state Medicaid agencies to impose liens upon judgments and

settlements obtained by beneficiaries against third parties.

8

Indeed, the one piece of legislative history quoted by

the majority—a statement by a single senator during a

committee hearing—does not use the word ―lien‖ or

otherwise suggest that recoveries may be made directly from

Medicaid beneficiaries. Slip op. at 27–28 (quoting Social

Security Amendments of 1967: Hearing Before the S. Comm.

On Finance, 90th Cong. 1572 (1967) (statement of Wallace

M. Smith)). Far from evincing a clear intention to permit the

16

Such exceptions are not required by the language of the

former provisions, which, as explained above, suggest on

their face that Congress wanted states to directly initiate or

intervene in lawsuits against third parties. As the District

Court recognized, the anti-lien provision can best be

reconciled with the reimbursement and the

assignment/cooperation provisions by construing the latter

according to their plain meaning.

In short, while a limited implied exception must be

read into the anti-recovery provision to permit recoveries

from liable third parties, that fact alone does not require—

much less justify—reading an even broader implied exception

into the anti-recovery provision or an additional implied

exception into the anti-lien provision. Accordingly, I would

affirm the District Court‘s holding that ―[t]o the extent that

sections 1409(b)(7)(i) and 1409.1(b)(1) permit the DPW to

impose liens on the awards obtained by Medicaid recipients

from liable third parties during the lifetimes of the recipients,

they are preempted by § 1396p(a)(1) [the anti-lien

provision].‖ Tristani, 609 F. Supp. at 473. In addition, to the

extent that sections 1409(b)(7)(i) and 1409.1(b)(1) permit the

DPW to seek recoveries of ―medical assistance correctly

paid‖ from Medicaid beneficiaries‘ settlements and

use of liens by states agencies, the statement by Senator

Smith evinces only a more general intent to reduce ―wasteful‖

double recoveries by beneficiaries—a goal accomplished by

requiring states to initiate or intervene in suits against third

parties. Id.

17

judgments, rather than directly from third parties, they are

preempted by § 1396p(b)(1), the anti-recovery provision.9

3.

I would go a step further than the District Court, and

also hold that § 1409(b)(5)(vi)—which permits a Medicaid

beneficiary suing a third-party to ―include as part of his claim

the amount of [Medicaid] benefits that have been or will be

provided‖ by the DPW—conflicts with the Social Security

Act and is therefore preempted. As discussed above, the

reimbursement and assignment/cooperation provisions

indicate that Congress wanted state agencies to pursue claims

9

The majority also notes that under traditional

―common law principles, a partial assignment creates an

equitable lien of favor of the assignee,‖ Angeles Real Estate

Co. v. Kerxton, 737 F.2d 416, 419 (4th Cir. 1984), and

therefore concludes that ―Congress understood that the legal

effect of the [assignment/cooperation] provision would be to

provide the states with a lien on recoveries of medical costs.‖

Slip op. at 29–30. The difficulty with relying on such

common law principles when interpreting the Social Security

Act is that the anti-lien provision expressly prohibits the

imposition of liens against Medicaid beneficiaries for the

recovery of medical expenditures, except in circumstances

not present in this case. See Norfolk Southern Ry. Co. v.

Sorrell, 549 U.S. 158, 168 (2007) (noting, in the context of

the Federal Employers‘ Liability Act (―FELA‖), that

―although common-law principles are not necessarily

dispositive of questions arising under FELA, unless they are

expressly rejected in the text of the statute, they are entitled to

great weight in our analysis‖ (internal quotation omitted)

(emphasis added)).

18

against third parties for reimbursement of Medicaid

expenditures, and imposed upon individual Medicaid

recipients only the obligation that they cooperate with state

agencies by providing them with any information necessary

to pursue their claims. See 42 U.S.C. § 1396a(a)(25)(A)(i)

(requiring state plan to provide for ―the collection of

sufficient information . . . to enable the State to pursue claims

against ... third parties‖ (emphasis added)); id. §

1396k(a)(1)(C) (requiring state plan to direct individuals to

―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‖ (emphasis added)).

The natural reading of these provisions is that

Congress wanted the states, and the states alone, to be able to

pursue claims against third parties for reimbursement of

Medicaid expenditures. Congress did not intend to authorize

Medicaid recipients to include in their suits claims that

properly belong to the states. Such a reading of the Social

Security Act would, because of the anti-lien and anti-recovery

provisions discussed above, permit Medicaid recipients to

obtain a windfall recovery—which, as the majority

recognizes, is an absurd result that Congress cannot have

intended. Thus, I would hold that § 1409(b)(5)(vi) is also

preempted by the third party liability provisions of the Social

Security Act.

I come to this conclusion notwithstanding the fact that

neither party to this litigation has argued that § 1409(b)(5)(vi)

is preempted. The parties‘ positions are perhaps unsurprising,

because both have self-interested reasons for seeking to rely

upon this provision of Pennsylvania law: the plaintiffs hope

to recover (or keep their recoveries of) Medicaid expenditures

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from third parties, and then shield themselves from the DPW

using the anti-lien and anti-recovery provisions, while the

DPW hopes to free-ride on the efforts of plaintiffs and their

counsel in order to avoid the expenses of actually litigating

claims against third parties. The parties, of course, are

entitled to their litigation positions, but the judiciary‘s duty is

to ―say what the law is.‖ Marbury v. Madison, 5 U.S. (1

Cranch) 137, 177 (1803). Because § 1409(b)(5)(vi) permits

Medicaid recipients to assert claims belonging to the DPW,

and is therefore the underlying source of the difficulties in

this case, I would reach the question of whether it is

preempted, and would answer that question in the affirmative.

III.

The construction of the Social Security Act defended

in this dissent remains faithful to the plain language of the

Act, while also eliminating the possibility that Medicaid

recipients will be able to obtain windfall recoveries. For the

reasons outlined above, I respectfully dissent.

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