Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Washington State Department of Social and Health Services
DATE: February 7, 1996
Docket No. A-95-159
Control No. A-10-93-00017
Decision No. 1561
DECISION
The Washington State Department of Social and Health
Services (Washington or State) appealed a determination
by the Health Care Financing Administration (HCFA)
disallowing $75,395 in federal financial participation
(FFP) claimed under title XIX (Medicaid) of the Social
Security Act (Act). The disallowance represents the
federal share of amounts which HCFA determined Washington
should have collected from third party liability (TPL)
settlements and awards received by Medicaid recipients
from June 1, 1992 through August 31, 1993. HCFA
determined that these amounts should have been credited
against the State's previous claims for its expenditures
on behalf of these recipients.
Under Washington law, when the State provides medical
assistance to a Medicaid recipient because of an injury
for which a third party is liable, Washington is
subrogated to the recipient's rights against the recovery
from any liable party and has a lien to the extent of the
value of the medical assistance provided. This lien is
subject to reduction for a proportionate share of
attorney's fees, and may be compromised by the State.
This disallowance was based on an audit by the Office of
Inspector General (OIG) of ten judgmentally-selected
casualty cases closed by the State. The OIG found that
$137,032 ($75,395 in FFP) in available settlement monies
were distributed by Washington to recipients rather than
being retained for full reimbursement to the Medicaid
program for its costs of medical assistance under the
State's application of its compromise provision (five
cases) or its attorney's fees provision (five cases).
HCFA determined that, under the Act, HCFA must be fully
reimbursed for the federal share before the recipient may
receive any money from a TPL settlement or award. HCFA
therefore disallowed the federal share of TPL payments
that Washington allowed the recipients to retain.
The Board has previously addressed a similar state TPL
recovery system in California Dept. of Health Services,
DAB No. 1504 (1995) (California). In that decision, the
Board concluded that the Act requires states to fully
reimburse HCFA for the federal share of medical
assistance expenditures resulting from the acts of a
liable third party before allowing a recipient to receive
money from a TPL settlement or award. HCFA contended
that the Board's rationale in that case was controlling
here. Washington maintained that its compromise system
was materially different from California's, and that its
system was consistent with Medicaid TPL requirements.
Washington also contended that its attorney's fees
provision properly allocated to Medicaid its share of the
cost of recovery.
Below we set forth the relevant federal authority and
Washington's statutory authority, and we summarize the
California decision. We then analyze the parties'
arguments in this case and determine that Washington's
compromise provision is inconsistent with the Act's TPL
recovery provisions, but its attorney's fees provision is
consistent. Accordingly, we conclude that the
disallowance of the amounts related to the compromise
cases should be upheld and the disallowance of the
amounts related to attorney's fees should be reversed.
Relevant Federal Authority
The Act requires a state to take "all reasonable measures
to ascertain the legal liability of third parties . . .
to pay for care and services available under the
[Medicaid state] plan . . . ." Section 1902(a)(25)(A).
In cases where liability is found to exist after medical
assistance is provided, "the State . . . will seek
reimbursement for such assistance to the extent of such
legal liability." Section 1902(a)(25)(B). A state is
not required to seek such reimbursement if "the amount of
reimbursement the State can reasonably expect to recover
exceeds the costs of such recovery . . . ." Id.
Applicants for Medicaid are required to assign to the
state their rights to "payment for medical care from any
third party" and to cooperate with the state's pursuit of
third party payment. Section 1912(a). The amount
collected under such an assignment--
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 (with appropriate
reimbursement of the Federal Government to the
extent of its participation in the financing of such
medical assistance), and the remainder of such
amount collected shall be paid to such individual.
Section 1912(b).
Legitimate costs of obtaining the settlement or award,
such as attorney's fees, may be deducted prior to
reimbursement of the Medicaid program. HCFA's State
Medicaid Manual (SMM) 3907, HCFA Exhibit (ex.) A.
Relevant Washington Statutory Authority
Under Washington state law, if Washington provides
Medicaid benefits to a recipient because of an injury or
illness for which a third party tortfeasor may be liable,
the State is subrogated to the recipient's rights against
the tortfeasor or the tortfeasor's insurer, or both, and
has a lien to the extent of the value of the Medicaid
benefits provided. Wash. Rev. Code 74.09.180. 1/ This
lien is "upon any claim, right of action, settlement
proceeds, money or benefits arising from an insurance
program to which the recipient might be entitled . . . ."
Wash. Rev. Code 43.20B.060(3). 2/ The lien is subject
to Wash. Rev. Code 43.20B.050(1), referred to by the
OIG as Washington's compromise provision, which provides
that:
No settlement made by and between the recipient and
tort feasor and/or insurer shall discharge or
otherwise compromise the lien created in RCW
43.20B.060 without the express written consent of
the secretary [of Social and Health Services] . . .
or the secretary's designee. Discretion to
compromise such liens rests solely with the
secretary or the secretary's designee.
The lien is also subject to Washington's attorney's fees
provision:
If recovery is made by the department under this
section and the subrogation is fully or partially
satisfied through an action brought by or on behalf
of the recipient, the amount paid to the department
shall bear its proportionate share of attorneys'
fees and costs.
Wash Rev. Code 43.20B.060(4). 3/
The State provided an affidavit from the chief of the
unit responsible for TPL recoveries explaining how these
statutory provisions are implemented. See State ex. 12.
She stated that, in casualty cases where a third party
tortfeasor is alleged to be liable, the State initially
asserts a lien in the full amount of medical expenses
related to the injuries. The unit later makes a case-by-
case analysis of each settlement. Washington may reduce
the amount of the lien to less than Medicaid expenditures
when the settlement amount is not sufficient to pay all
medical expenses and other types of damages. Id. at 2.
The unit determines the reduction of the lien for
attorney's fees and costs by taking the total lien amount
divided by the total settlement amount to obtain the
percentage the State will allow of the attorney's fees
and costs as a deduction from the lien amount. Id. at 2-
3.
The California Decision
In California, HCFA disallowed the federal share of TPL
payments that California allowed recipients to retain
even though Medicaid was not fully reimbursed. The Board
upheld HCFA's position that the Act requires states to
fully reimburse HCFA for the federal share of medical
assistance expenditures resulting from the acts of a
liable third party before allowing a recipient to receive
money from a TPL settlement or award. Specifically, the
Board found that three provisions of the Act supported
this result:
o Section 1912(a)(1)(A), which requires all
recipients to execute an assignment of rights "to
payment for medical care from any third party;"
o Section 1902(a)(25)(B), which requires states to
seek TPL reimbursement to the extent of a third
party's liability; and
o Section 1912(b), which provides that any amount a
state collects under a recipient's assignment to
payment for medical care must be used first to
reimburse the Medicaid program for medical
assistance payments and that the recipient is
entitled only to the remainder.
The Board determined that HCFA's position was directly
supported by these provisions of the Act. Recipients, as
a condition of eligibility, must assign their rights to
payment for medical care. States are then charged with
the responsibility of seeking third party recovery
pursuant to such assignments. States are further
required to seek as much reimbursement as possible, i.e.,
to the extent of the third party's liability. Finally,
when a recovery is made, the Act sets forth a
distribution scheme which requires the Medicaid program
to be reimbursed prior to distributing any funds to the
recipient. While section 1912(a) refers to assignment
only of "payment for medical care," the statutory scheme
as a whole contemplates that the actual recovery might be
greater and, if it is, that Medicaid should be paid
first.
The Board determined further that HCFA's position is also
consistent with the purposes behind Medicaid TPL
requirements: to make Medicaid the payor of last resort
where there is a liable third party, so as to reduce
Medicaid expenditures. In 1985, when Congress amended
the Act to strengthen TPL recovery requirements, the
accompanying legislative history provided: "Medicaid is
intended to be the payor of last resort; that is, other
available resources must be used before Medicaid pays for
the care of an individual enrolled in the Medicaid
program." Consolidated Omnibus Budget Reconciliation Act
of 1985, H.R. Conf. Rep. No. 453, 99th Cong., 1st Sess.
542 (1985), reprinted in Legislative History of Titles I-
XX of the Social Security Act, Vol. XXII, 99th Congress
1985-1986, Part 1. DAB No. 1504, at 7. The Board found
that the language clearly indicates that Congress
intended for the Medicaid program to be reimbursed from
available third party sources to the fullest extent
possible.
The Board noted that it had repeatedly held that it will
not substitute its judgment for, or overturn, a
reasonable interpretation of the agency charged with
administering a statute merely because there may be an
alternative interpretation which arguably is also
permissible. DAB No. 1504, at 8, citing Georgia Dept. of
Human Resources, DAB No. 995 (1988); Missouri Dept. of
Social Services, DAB No. 468 (1983).
Analysis
Washington argued that HCFA had misapplied the Act, that
Washington's TPL process was distinguishable from
California's, and that HCFA had approved Washington's TPL
process or alternatively, had failed to give it adequate
notice that the process violated the Act. In the first
section of analysis we discuss Washington's arguments and
explain why we conclude that HCFA is entitled to impose a
disallowance as to the compromise cases. In the second
section of the analysis we discuss Washington's
attorney's fees provision and why the disallowance of
costs for payment of attorney's fees should be reversed.
A. The Compromise Provision
1. Whether a state must assert a priority over the
recipient's casualty award to the full extent of the
state's expenses
Washington argued there was no legal basis in the Act for
HCFA's insistence that a recipient "transfer ownership to
the state of an entire tort settlement that is
insufficient to compensate the recipient for medical and
other injuries for which the tortfeasor is liable" or for
HCFA's insistence that recipient's assignment of medical
damages gives a state a priority over the award to the
extent of its costs. Washington Opening Brief (Br.) at
6-7. Washington relied on section 1912(a), which
requires a Medicaid recipient to assign his or her rights
to payment for medical support and other medical care; on
section 1902(a)(25)(A), which requires a state to take
reasonable measures to ascertain the legal liability of
third parties to pay for Medicaid care and services; and
on section 1912(b), which sets forth the priority for
distribution of the amount "collected by the State under
an assignment."
The Board dealt with these arguments in California.
Below, we restate our reasoning in that case.
First, HCFA has not taken the position that a recipient
assigns or loses his/her right to seek compensation for
injuries beyond the cost of medical care, nor does HCFA
assume that the recipient's recovery represents only
payment for medical care. Rather, HCFA's position is
that, where there is a third party that is responsible
for paying a recipient's medical expenses, the recipient
may not recover money for him/herself until the federal
government is reimbursed for its expenditures for the
recipient's medical care.
Second, for the following reasons, HCFA may require a
state to assert a collection priority over funds obtained
by Medicaid recipients in TPL suits even though the
distribution methodology set forth in section 1912(b)
refers only to payments collected pursuant to assignments
for medical care.
o In cases where a third party has caused the need
for medical care and is liable for its payment,
the Act looks to that third party to reimburse
the public. Section 1902(a)(25)(B) requires that
"the State . . . will seek reimbursement for such
assistance to the extent of such legal
liability." HCFA reasonably construed this
provision to require states to pursue the full
claim against a third party.
o HCFA reasonably read the Act to condition the
availability of Medicaid funds on the recipient's
agreement to reimburse Medicaid to the extent of
a third party's liability. Therefore, Medicaid
has superior status to the recipient in relation
to the tortfeasor to recover costs Medicaid
incurred on behalf of the recipient on the
condition that it would be reimbursed if there
was a liable third party from whom a recovery was
collected.
o HCFA has reasonably insisted on its right to
characterize recoveries from third parties first
as payments for medical care. This
characterization prevents manipulation of tort
awards by recipients who seek to prevent the
public from being reimbursed for the funds it has
advanced for their medical care (e.g., by suing
for pain and suffering or lost wages rather than
for medical costs). Without it, TPL recoveries
would be subject to a wide range of
interpretations about what was appropriately
considered payment for medical care.
Therefore, we reject Washington's position that HCFA has
misinterpreted the meaning of sections 1902(a)(25)(A) and
1912(a) and (b) of the Act.
2. Whether Washington's TPL system is
distinguishable from California's TPL system
Washington argued that its TPL program was
distinguishable from California's because, rather than
reserving a statutorily set percentage recovery for
Medicaid recipients, Washington reviews the circumstances
in each individual settlement. According to Washington,
it only approves a compromise which would allow the
Medicaid recipient to retain a portion of a settlement
when it determines that recovery to the State would be
less if it forced the recipient to litigate the question
of liability. Washington stated that its goal "in every
case is to maximize reimbursement to the Medicaid
program" and that "[a] reduction in the State's recovery
from a settlement or judgment is only considered when the
settlement amount is not sufficient to pay all [medical
and non-medical] expenses." Washington Br. at 5.
We do not find Washington's system different from
California's in any material way. While Washington
asserted that its case-by-case determinations maximize
its TPL recoveries, California made similar claims about
its system. DAB No. 1504, at 13. Therefore, even though
California's system relied on a formula for determining
the amount of its recovery, the reason California
professed to use the formula (maximizing TPL recoveries)
and the result of California's system were the same as in
Washington. Under both systems, Medicaid recipients were
allowed to retain portions of casualty awards even though
the Medicaid program had not been reimbursed to the full
extent of its participation in the recipient's costs.
3. Whether HCFA approved Washington's TPL system or
failed to give it adequate notice that its TPL
system was contrary to the Act
Washington also asserted that HCFA approved Washington's
Medicaid state plan with "full knowledge and
understanding of the manner and methods employed in
casualty recoveries, including compromises, settlement,
and attorney fee sharing." Washington Br. at 2.
Washington concluded that HCFA should be estopped from
imposing this disallowance given its alleged approval of
Washington's practices. Id. at 6. We note initially
that it is not clear that estoppel will ever lie against
the federal government, Office of Personnel Management v.
Richmond, 496 U.S. 414, 423-34 (1990), and if available
at all, is probably not available absent affirmative
misconduct by the federal government. Schweiker v.
Hansen, 450 U.S. 785 (1981); see also Wisconsin Dept. of
Health and Social Services, DAB No. 1493 (1994). But
even if estoppel could lie against HCFA, Washington did
not prove the elements of estoppel in this case. A party
seeking to assert estoppel must prove that: 1) the party
against whom estoppel is sought made false
representations; 2) the party claiming estoppel relied on
the false representations to the party's detriment; and
3) the reliance was reasonable, in that the party
claiming the estoppel neither knew nor should have known
that its adversary's conduct was misleading. Heckler v.
Community Health Services, 467 U.S. 51, 59 (1984).
Further, erroneous oral advice is inadequate, as a matter
of law, to estop the government from enforcing federal
law. Heckler v. Community Health Services, 467 U.S. at
65; see also Wisconsin at 15. The Supreme Court reasoned
in the Community Health Services case:
The necessity for ensuring that governmental agents
stay within the lawful scope of their authority, and
that those who seek public funds act with scrupulous
exactitude, argues strongly for the conclusion that
an estoppel cannot be erected on the basis of the
oral advice that underlay respondent's cost reports.
That is especially true when a complex program such
as Medicare is involved, in which the need for
written records is manifest.
467 U.S. at 65.
For the following reasons, Washington has failed to
establish that any HCFA official represented to the State
in writing that its TPL compromise practice was
consistent with the Act.
o Washington argued that by approving its Medicaid
state plan, HCFA approved its TPL practices.
Washington Br. at 2. However, the provisions of
Washington's Medicaid state plan submitted by the
State as Exhibit 1 comport with the Act's
statutory scheme on their face and do not even
allude to Washington's compromise policy. See
State ex. 1. Thus, we disagree that HCFA's
approval of the state plan provisions somehow
equates to HCFA's ratification of the State's
practice of compromising TPL recovery on a case-
by-case basis.
o Washington also provided an affidavit of a senior
program manager of its state TPL system. State
ex. 11. That manager claims that HCFA's approval
of the Washington State Medicaid plan "was done
with full knowledge and understanding of the
manner and methods employed in casualty
recoveries, including compromises, settlements
and attorney fee sharing by the State of
Washington. In addition, prior interpretations
of policy and law, also provided through HCFA,
affirmed the aforementioned as consistent with
acceptable practices." State ex. 11 at 2. This
affidavit is unpersuasive because it does not
identify the manner in which HCFA obtained
knowledge of Washington's system, nor
specifically assert that HCFA was informed, prior
to the OIG audit, that the State was actually
allowing Medicaid recipients to retain part of
the recovery before Medicaid was reimbursed in
situations where this reduced reimbursement of
the federal share of medical assistance. The
affidavit also does not identify to which "prior
interpretations of policy and law, also provided
by HCFA, . . ." the affiant is referring.
o Moreover, HCFA presented an affidavit of a HCFA
reviewer that stated that his office informed
Washington in 1989 that it should ensure that all
possible TPL monies were recovered "in accordance
with Federal Regulations which makes [sic]
provisions for only the payment of reasonable
attorney fees and court costs." HCFA ex. B at
13. Included as an attachment to the affidavits
is a 1989 letter from the Associate Regional
Administrator, HCFA, directing Washington to
submit a corrective action plan.
Washington also contended that it did not have adequate
notice that HCFA considered its TPL system to be contrary
to the Act. We do not find this contention persuasive.
As noted above, HCFA asserted that it informed Washington
in 1989 in the course of a program review that it should
modify its TPL procedures. Further, in 1990, HCFA
amended the State Medicaid Manual (SMM) to provide that
"[i]n liability situations, the Medicaid program must be
fully reimbursed before the recipient can receive any
money from the settlement or award." SMM 3907. 4/
This revision put Washington on notice that a compromise
of individual settlements permitting a recipient to keep
settlement money before the Medicaid program was fully
reimbursed was contrary to HCFA's interpretation of the
requirements of the Act.
Thus, Washington's contentions that it did not have
notice of HCFA's interpretation of the TPL provisions of
the Act and that HCFA should be estopped from taking this
disallowance fail. Moreover, in light of our conclusion
that Washington was on notice of HCFA's interpretation of
the Act's TPL provisions, Washington's argument that HCFA
should now be prevented from applying its interpretation
of the Act "retroactively" also fails.
4. Whether Washington exercised its compromise
authority consistent with federal regulations
Washington argued that it exercised its compromise
authority pursuant to 42 C.F.R. 433.139(f), which
grants states a measure of discretion in deciding when to
pursue third party reimbursement. Washington explained
that in each of the disallowed compromise cases the
amount of the settlement was not sufficient to compensate
the recipient both for the damages suffered for medical
injuries, which were assigned to the State, and for other
damages to the recipient like wage loss and pain and
suffering. 5/ Washington Br. at 8. It represented that
if it had not compromised its claim, the cases would not
have settled and the State would have assumed the risk of
an even greater reduction to its claim resulting from an
adverse judgment or an unfavorable judicial apportionment
of damages. Washington Br. at 9. Therefore, Washington
argued, its decision to compromise these claims was
within the discretion granted to it by 42 C.F.R.
433.139(f). That section provides:
(1) An agency must seek reimbursement from a liable
third party on all claims for which it determines
that the amount it reasonably expects to recover
will be greater than the cost of recovery. Recovery
efforts may be suspended or terminated only if they
are not cost effective.
(2) The State plan must specify the threshold
amount or other guideline that the agency uses in
determining whether to seek recovery of
reimbursement from a liable third party, or describe
the process by which the agency determines that
seeking recovery of reimbursement would not be cost
effective.
(3) The State plan must also specify the dollar
amount or period of time for which it will
accumulate billings with respect to a particular
liable third party in making the decision whether to
seek recovery of reimbursement.
The State plan provisions submitted by Washington in this
case provide for a threshold amount of $20.00. State ex.
1 at sixth unnumbered page ("Attachment 4.22-B").
Washington's statutory compromise provisions are not
referenced. The State's TPL recovery unit chief stated
that, in the cases involved here --
it was determined, after investigation of the
relevant facts and circumstances and discussions
with the attorneys involved, that the cost to the
Department would be less to compromise the claim,
allowing the client to retain some funds, than to
force a lawsuit against the responsible party. The
costs plus the probability of a defense verdict made
it a prudent decision to compromise the Department's
lien.
State ex. 12, at 2.
Section 433.139(f) does not give Washington the
discretion to allow a recipient to retain funds that are
due Medicaid. Rather, it requires the State to set forth
in its State plan how it determines that the amount it
reasonably expects to recover will be greater than the
cost of recovery. Here, the State did not set forth the
guidelines it uses in determining that pursuit of
reimbursement in a particular case is not cost-effective,
either in its state plan or in the affidavit of its TPL
recovery unit chief. Instead, Washington relied upon its
own subjective policy determination that permitting
compromise of its liens will maximize TPL recoveries.
We note that California also argued that its system was
in full compliance with federal law and regulations on
the grounds that it "balance[d] expectant costs with the
potential recovery." California at 13. Specifically,
California argued that, by allowing victims to share in
awards, it created an incentive to seek out and pursue
liable third parties, thereby maximizing pursuit and
shifting initial costs from California to the victim, and
that its program was cost effective.
As in California, we do not find arguments concerning the
cost-benefit aspects of Washington's TPL system
persuasive for the following reasons:
o The alleged effectiveness of Washington's
statutory scheme is not the criterion by which we
must evaluate this disallowance. Rather, we must
apply the Act, as reasonably interpreted by HCFA.
We have explained why, under that criterion,
Washington's system does not comply with federal
law.
o The role of evaluating the practical
considerations that Washington advanced in
support of its system belongs to HCFA, not the
Board. As the administering agency, HCFA has the
expertise and knowledge to weigh the benefits of
Washington's system against the adverse effects
of such a system on the operation of the Medicaid
program. Moreover, half of the Medicaid funds the
State is allowing the victim to keep came from
the federal treasury. Consequently, HCFA is the
entity which is logically charged with the
responsibility of deciding what constitutes a
fair balance for this aspect of the Medicaid
program. To allow the many jurisdictions which
participate in the Medicaid program the
discretion to set that balance for third party
casualty claims could undermine the TPL system
and lead to divergent treatment of similarly
situated recipients. Further, as HCFA has said
previously, a state is free to allow recipients
to retain the state's share of the recovery if
the state believes that is an equitable result.
California at 14.
o While Washington maintained that its compromise
practice was necessary to make its TPL recovery
system work, HCFA could reasonably conclude
otherwise. For example, even if Washington
asserted a complete priority over the recoveries,
private attorneys would continue to have a
financial incentive to take these cases because
they would continue to be compensated first.
Further, recipients are obligated under section
1912(a)(1)(C) of the Act to cooperate with
Washington's pursuit of third party payment as a
condition of eligibility, regardless of whether
they retain any third party payment.
o It is not unfair to completely or substantially
deny Medicaid recipients access to their
settlements. If Medicaid had not paid their
medical expenses, these recipients would have
both unrestricted access to their settlements and
enormous medical debts to be paid from those
settlements. As Medicaid recipients, they do not
have such debts because the public has paid their
medical expenses. Therefore, in cases where
Medicaid has incurred the "debt" for recipients,
it is not unfair for HCFA to require complete
reimbursement from these liability funds.
In summary, HCFA has the authority and the expertise to
interpret the Act and to evaluate the practical
considerations involved with seeking third party
reimbursement from personal injury settlements and
awards. In this case, HCFA has reasonably interpreted
the Act to preclude systems which allow recipients to
retain TPL payments from which the federal share of
Medicaid expenditures has not been deducted. For the
preceding reasons, we uphold the disallowance of the
amounts associated with the five cases in which
Washington applied its compromise provision to permit
recipients to receive moneys due Medicaid.
B. The Attorney's Fees Provision
Washington contended that its method of calculating
attorney's fees properly allocated to Medicaid its
appropriate share of the cost of recovery. Washington
maintained that the OIG's method imposed all of these
costs on the recipient.
Washington offered the following example of how the two
systems operated:
Assume a $10,000 settlement where attorney's fees (and
costs) were $3,000 and Medicaid's outlay for medical
expenses was $5,000.
OIG's Method
Washington's Method
$10,000 settlement amt.
- 3,000 attorney's fees
7,000
- 5,000 Medicaid outlay
$ 2,000 recipient's
recovery
$ 5,000 Medicaid outlay
$10,000 settlement amount
50% ($3,000) Medicaid's
atty's fees
% of recovery costs
= 50% Medicaid's share of
recovery costs
= $1,5000 Medicaid's share
of recovery costs
$10,000 settlement amt. - 1,500 Medicaid's share of
recovery costs - 5,000 Medicaid's outlay
$ 3,500 recipients recovery
Under the OIG's method, both the attorney's fees and
Medicaid's share are deducted before the recipient shares
in the recovery. According to Washington, this example
shows that the OIG's method results in Medicaid bearing
none of the costs of recovery. Under Washington's
method, Medicaid is assessed a share of the attorney's
fees proportionate with its share of the settlement
proceeds -- one-half, in the example displayed above --
and the recipient also pays his or her proportionate
share of the costs of recovery. Washington contended
that its method fairly allocates the costs between the
recipient and Medicaid, and comports with SMM 3907,
cited by HCFA, which states, "Legitimate costs of
obtaining the settlement or award, such as attorney fees,
may be deducted prior to reimbursement to the Medicaid
program."
We conclude that Washington's proportional assessment of
attorney's fees against the Medicaid program is
appropriate. Washington's assessment of attorney's fees
is consistent with SMM 3907, which authorizes deduction
of attorney's fees prior to reimbursement of the Medicaid
program. 6/ The OIG method used in this case results in
Medicaid bearing none of the legitimate costs of
obtaining the settlement and is patently unfair.
Moreover, we note that in the California case, California
used, without objection from the OIG, a method of
deducting attorney's fees from the settlements similar to
Washington's.
HCFA's only response to Washington's contention was that
the allegedly unfair result was due to the State relying
on private attorneys rather than going after the TPL
amount itself, and that Washington cannot abrogate its
responsibility in this manner. HCFA's response to
Washington's arguments was not persuasive for at least
two reasons. First, nothing in the Act or regulations
indicates that reliance on private attorneys for pursuit
of third party recoveries is impermissible. Second, if
the State pursued TPL recovery itself, the same problem
would result: the Medicaid program would incur costs for
the work of attorneys.
Based on the reasons above, we reverse the portion of the
disallowance relating to apportionment of attorney's
fees.
Conclusion
Based on the above analysis, we uphold HCFA's
disallowance of $69,687 FFP for Washington's compromise
cases and reverse HCFA's disallowance of $5,708 for
Washington's attorney's fees cases. 7/
_________________________
Judith A. Ballard
__________________________
Cecilia Sparks Ford
__________________________
M. Terry Johnson
Presiding Board Member
1. RCW 74.09.180 reads -- Chapter does not apply
where another party liable -- Exception --
Subrogation -- Lien -- Reimbursement. The
provisions of this chapter shall not apply to
recipients whose personal injuries are occasioned by
negligence or wrong of another: PROVIDED, HOWEVER,
That the secretary may furnish assistance, under the
provisions of this chapter, for the results of
injuries to or illness of a recipient, and the
department shall thereby be subrogated to the
recipient's rights against the recovery had from any
tort feasor or the tort feasor's insurer, or both,
and shall have a lien thereupon to the extent of the
value of the assistance furnished by the department.
To secure reimbursement for assistance provided
under this section, the department may pursue its
remedies under RCW 43.20B.060.
2. RCW 43.20B.060 provides, in pertinent part --
Reimbursement for medical care or residential
care -- Lien -- Subrogation. (1) To secure
reimbursement of any assistance paid under
chapter 74.09 RCW or reimbursement for any
residential care provided by the department at a
hospital for the mentally ill or habilitative
care center for the developmentally disabled, as
a result of injuries to or illness of a recipient
caused by the negligence or wrong of another, the
department shall be subrogated to the recipient's
rights against the tort feasor or the tort
feasor's insurer, or both. (2) The department
shall have a lien upon any recovery by or on
behalf of the recipient from such tort feasor or
the tort feasor's insurer, or both to the extent
of the value of the assistance paid or
residential care provided by the
department, . . . .
* * *
(3) The lien of the department shall be upon any
claim, right of action, settlement proceeds,
money, or benefits arising from an insurance
program to which the recipient might be entitled
(a) against the tort feasor or insurer of the
tort feasor, or both, and (b) under any contract
of insurance purchased by the recipient or by any
other person providing coverage for the illness
or injuries for which the assistance or
residential care is paid or provided by the
department.
3. RCW 43.20B.060(4) further provides --
The determination of the proportionate share to
be borne by the department shall be based upon:
(a) The fees and costs approved by the court in
which the action was initiated; or (b) The
written agreement between the attorney and client
which establishes fees and costs when fees and
costs are not addressed by the court. (c) When
fees and costs have been approved by a court,
after notice to the department, the department
shall have the right to be heard on the matter of
attorneys' fees and costs or its proportionate
share. (d) When fees and costs have not been
addressed by the court, the department shall
receive at the time of settlement a copy of the
written agreement between the attorney and client
which establishes fees and costs and may request
and examine documentation of fees and costs
associated with the case. The department may
bring an action in superior court to void a
settlement if it believes the attorneys'
calculation of its proportionate share of fees
and costs is inconsistent with the written
agreement between the attorney and client which
establishes fees and costs or if the fees and
costs associated with the case are exorbitant in
relation to cases of a similar nature.
4. Amendments to the SMM are routinely provided to
states, and Washington did not deny receiving the
amendment in a timely manner.
5. For example, in case number 1, the Medicaid
payment was $204,055, while the total settlement
available was $35,000. In case number 2, the Medicaid
payment was $28,320 and the total settlement was $25,000.
6. We note that Washington has included provisions in
its statute which prevent attorney's fees from being
manipulated to impose on the State more than its fair
share of a reasonable fee. See text of footnote 3.
7. In its disallowance letter, HCFA instructed
Washington to "recalculate the distribution of
settlements and awards made after August 31, 1993, where
your department has applied the state's compromise and
attorney fees provisions to casualty cases" and to "make
a decreasing adjustment in the amount determined that
should have been retained by your department to fully
reimburse Medicaid." Disallowance Letter of June 9,
1995, at 4. In its Notice of Appeal, Washington referred
to this "recalculated amount" as being in dispute in this
case. Notice of Appeal at 1. In its Reply Brief,
Washington argued that, since HCFA's brief had addressed
only the $75,395 disallowance, the Board should find that
HCFA has acquiesced to the State's position on the issue
of recalculation of settlements after August 31, 1993.
Reply Brief at 2. To the contrary, it is clear from
HCFA's brief that it did not acquiesce to Washington's
position that its settlement policy was permissible so
that no decreasing adjustment is needed. Consequently,
HCFA's direction stands; the effect of this decision,
however, is that the State need not recalculate
recoveries of attorney's fees. Washington may appeal any
future disallowances resulting from its recalculation.