Medicaid and Department of Public Welfare Liens

October 29, 2010
by: Kevin C. Cottone, Esq.

OVERVIEW

Act 44 of 2008, 62 P.S. §§ 1409, et seq.,[1] applies to matters involving persons who have received medical assistance (MA benefits) through Pennsylvania’s Department of Public Welfare (DPW).  The Act applies to claims and causes of action asserted on or after September 2, 2008.  Under the Act, DPW can now sue third parties and insurers directly, or petition to intervene in an existing lawsuit, for reimbursement.   DPW has seven years from the date a cause of action arises to assert a claim.2

Act 44 places obligations upon third parties and insurers similar to those found under the new Medicare requirements.  Liability insurers must now establish a direct relationship with DPW’s Division of Third-Party Liability, and, in any case where the third party or insurer has information indicating a claimant received MA benefits, provide DPW with notice of the suit or claim, notice of any motion to limit or exclude medical benefits paid by DPW from a claim, and notice of a settlement.  Under the Act, a third party or insurer is deemed to have knowledge that a claimant is a MA recipient if the information comes from the claimant’s counsel or is set forth in the records reviewed as part of the claim process.  Third parties and insurers are subject to civil money penalties if they fail to comply with the notice requirements or make disbursement of settlement proceeds in matters where DPW has an interest without insuring payment of DPW’s claim.  DPW has promulgated safe harbor provisions which enumerate certain actions that a third party or insurer can take to shield themselves from potential liability to DPW.

NOTICE REQUIREMENTS UNDER ACT 44

Act 44 requires that third parties and insurers exercise diligence in identifying claimants who have received medical assistance from DPW.  Under the Act, a third party or insurer must notify DPW once the third party or insurer learns from the claimant’s counsel, or from information contained in records received in investigating a claim, that a claimant is a MA beneficiary.3  The Act also requires a third party or insurer to notify DPW if it intends to seek a court order limiting or precluding MA reimbursement, or, prior to any settlement.

Notice that a Claimant is a MA beneficiary:  once you receive information that a claimant is a MA beneficiary, you must give written notice by personal service or certified or registered mail to the Division of Third-Party Liability, Department of Public Welfare, P.O. Box 8486, Harrisburg, PA  17105.   The notice should set forth: 

  • the name of the beneficiary;
  • the beneficiary’s MA identification number, if known;
  • the beneficiary’s date of birth;
  • the name of the beneficiary’s attorney, if applicable;
  • the date and specific injuries giving rise to the claim;
  • the court and docket number in which the claim is pending;
  • the filing date of the lawsuit or claim; and
  • the close of discovery date. 

Proof of the notice must be filed in the action or claim.  DPW may impose a $5,000 civil money penalty if the third party or insurer fails to provide proper notice of the claim. 

Notice to Limit or Exclude Medical Benefits from the Claim:  if a beneficiary or other party seeks a court order limiting or excluding medical benefits, the moving party must provide the Department with 30 days notice and an opportunity to be heard prior to adjudication of the motion.  This notice requirement applies to all claims and actions, whether filed prior to or after September 2, 2008.4 

Notice of Settlement:  notice of any settlement involving a MA beneficiary must be provided to DPW within 30 days of the settlement.  If judicial approval is necessary, “reasonable” notice to DPW must be provided.  Notice is reasonable if it allows the DPW sufficient time to intervene in the action and prosecute its claim.

NEGATIVE ELECTION

Under the Act, a beneficiary may elect to exclude reimbursement of MA benefits from their action or claim.  If the beneficiary files an action or claim but does not seek recovery of MA benefits, the beneficiary must notify DPW, in writing, that the action or claim does not seek recovery of MA benefits.  If a beneficiary files an action or a claim which seeks to recover MA benefits, but then later elects to exclude such recovery, the beneficiary must then give DPW written notice of the change. 

In addition to notifying DPW, a beneficiary must notify the third party or insurer that the beneficiary has elected not to recover MA expenses, and that the third party or insurer will remain liable to the DPW on the claim. 

The purpose of the notifying DPW of the negative election by the claimant is to allow DPW sufficient time to petition to intervene and prosecute its claim.  A beneficiary’s notice of election to not include MA benefits is not reasonable if given after the close of discovery, or, less than 30 days prior to the date a settlement agreement is fully executed.  If the beneficiary makes a negative election, the Act requires the beneficiary to cooperate with DPW in its efforts to sue the third party or insurer separately or to intervene.  The plaintiff/beneficiary cannot release or agree to indemnify the defendant or insurer from the DPW claim. 

SAFE HARBOR

DPW’s statement of policy, 55 Pa. Code §259.3, sets forth “safe harbor” provisions, i.e., actions that a third party or insurer can take to address DPW’s interest in an action or claim.  Under the safe harbor provisions, DPW will not pursue liability for distribution of a settlement against a third party or insurer if:

  • the insurer resolves DPW’s claim with the DPW directly;
  • the insurer or third party requires the beneficiary to satisfy the DPW’s claim and makes the Department a payee on the settlement draft so that the Department’s endorsement is required to negotiate the draft; or
  • the insurer obtains a statement from the Division of Third-Party Liability that the DPW has no claim against the settlement.

MISCELLANEOUS

  • Act 44 vests DPW with the power to sue for reimbursement even if the beneficiary has not yet stated a claim or action. When this occurs, DPW will provide the beneficiary with written notice advising them of their right to intervene in the proceeding and recover the reasonable value of the benefits provided.
  • Act 44 extends the statute of limitations for claims related to reimbursement of MA benefits paid to a minor plaintiff.  The statute of limitations for any claim in which a minor’s medical expenses may be sought are tolled until the child/beneficiary reaches the age of 18.   
  • DPW will pursue its claim directly against a third party or insurer if cost effective to do so.  DPW has the statutory authority under Act 44 to compromise, settle and release any claim for reimbursement, or, to waive any such claim in whole or in part if it would cause an undue hardship on the beneficiary or their heirs. 

·    The entire amount of a settlement is subject to DPW’s claim for reimbursement.  However, DPW can only assert a claim on the portion of the tort recovery which represents payment for medical care from third parties.  The beneficiary bears the burden of informing the DPW that its claim must be limited because not all medical expenses paid by MA were recovered.   DPW’s claim cannot exceed more than ½ of the net recovery (the gross recovery minus attorney’s fees, costs and the beneficiary’s out of pocket medical expenses.)5

CONCLUSION

Under Act 44, if the claim or matter arises after September 2, 2008, you must notify DPW of the action or claim once you receive information indicating that the claimant is a MA recipient.  You must then identify and confirm whether there has been a negative election taken by the claimant/beneficiary, and consider, strategically, which of the safe harbor provisions work best for you  While the diligence and notice requirements arising from Act 44 are burdensome, it should be looked at as opportunity to address and deal directly with DPW to satisfy DPW’s interests in a claim or lawsuit, and the associated impact it could have on the damages claimed. 

THE BOTTOM LINE - you must ensure that proper notice is given to DPW under the Act, and that DPW’s interests are addressed before you settle or satisfy a judgment in any matter.

[1] See also 55 Pa. Code §§ 259.2 – 259.6 for the regulations governing third-party liability under Act 44.

2 If DPW has not been provided proper notice, then DPW has two years from the date that it learns of a settlement or judgment to assert a claim.

3 Accordingly, we recommend that a written inquiry to the claimant or their counsel, including written discovery if the matter is in suit, be made at the outset of the claim.  The records of the claimant must also be carefully reviewed as they are received for any information indicating the claimant is a MA beneficiary.

4 While Act 44 applies to matters after September 2, 2008, a third party or insurer must provide DPW with notice and an opportunity to be heard if they are seeking a court order to limit the portion of the MA benefits to an amount less than ½ of the net proceeds or have filed a motion to eliminate medical expenses, even if the matter was filed prior to September 2, 2008.  See 55 Pa. Code §259.2.

5 This limitation on DPW’s recovery does not apply where there has been a negative election and DPW sues the third party or insurer directly or intervenes in the existing suit to enforce its claim. 

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation with any specific legal question you may have.