Doe v. Vermont Office of Health Access (2011-045)

2012 VT 15A

[Filed 14-Jun-2012]

NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal

revision before publication in the Vermont Reports. Readers are requested to notify the Reporter

of Decisions by email at: [email protected] or by first class mail at: Vermont Supreme

Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections

Plaintiff-Appellee/Cross-Appellant.

William H. Sorrell, Attorney General, and Mark J. Di Stefano, Assistant Attorney General,

Montpelier, for Defendant-Appellant/Cross-Appellee.

PRESENT: Reiber, C.J., Dooley, Skoglund and Burgess, JJ., and Cook, Supr. J. (Ret.)[1],

Specially Assigned

¶ 1. REIBER, C.J. John Doe, a Medicaid recipient, and the State appeal the trial court’s

decision allowing the State to partially recover the amount of its lien against Doe’s settlement

with a third party. The trial court calculated the State’s reimbursement pursuant to Arkansas

Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006). We affirm in part,

and reverse and remand in part.

years old, he was catastrophically injured and paralyzed in an automobile accident. He was

tortfeasors. He also sued NYSTA in the New York Court of Claims. The State of Vermont

notified Doe in January 2001 that it claimed a lien against any award, judgment, or settlement

stemming from the accident.

¶ 3. In July 2001, Doe settled the lawsuit against the third parties for $8.75 million. The

State had spent $894,893.11 in medical expenses for Doe at that point, and at the time of

settlement the State and Doe communicated about Doe’s obligation to reimburse the State. The

parties came to agreement, and Doe paid the State $594,209.03 from the proceeds of the 2001

settlement.

¶ 4. The substance of Ahlborn and the structure of federal Medicaid law are important to

understand before proceeding. The Medicaid program provides joint federal and state funding of

§ 1910. At the relevant time, this statute provided that the Office of Vermont Health Access

(OVHA) “shall have a lien against a third party, to the extent of the amount paid by the agency,

on any recovery for that claim, whether by judgment, compromise or settlement.” Id. §

1910(a).[2]

¶ 5. Both the states and the federal government pay a portion of Medicaid costs, with the

federal government paying between fifty and eighty-three percent of costs incurred for patient

care. Ahlborn, 547 U.S. at 275. Each state must comply with federal requirements. One of

these requirements is that the state in charge of Medicaid must “take all reasonable measures to

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

plan,” 42 U.S.C. § 1396a(a)(25)(A), and if liability is found, the state must “seek reimbursement

Karnes v. Richman, 652 F.3d 360, 370 (3d Cir. 2011). Also of significance is the anti-lien

requirement, which provides that “[n]o 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.” 42 U.S.C. § 1396p(a)(1). The anti-lien provision was incorporated into

the Social Security Act in 1960, in order to insulate the personal assets of Medicaid recipients

during their lifetimes. Richman, 652 F.3d at 371-72.

¶ 6. In Ahlborn, the U.S. Supreme Court addressed the interplay between the reimbursement

and assignment provisions and the anti-lien provision. The Court held that states may claim a

lien only on that portion of settlement proceeds that represents payment for medical

expenses. 547 U.S. at 284-85. The plaintiff in Ahlborn was injured in a car accident and became

settled with a third party for damages totaling $550,000, the Arkansas state agency administering

recover its lien against all damages for which recovery was paid on behalf of the plaintiff, which

suffering, and mental anguish, past loss of earnings, and permanent impairment of the ability to

amount equal to the state’s Medicaid costs. Id. at 272. The parties stipulated that the plaintiff’s

Court held that the state could not recover more than the portion of the settlement representing

payments for medical care. Id. at 280-81.

automatic lien on settlements in an amount equal to all Medicaid costs. 547 U.S. at 292.

¶ 8. In this case, Doe’s suit against NYSTA went to trial, and the court concluded that

NYSTA was negligent and that its negligence caused Doe’s injuries. The Court of Claims

engaged in a two-step process, through successive hearings, to determine damages. First, in

2004, the Court of Claims awarded Doe approximately $42 million and allocated approximately

$2.9 million to Doe’s past medical expenses from the date of injury to the date of trial. Then, in

2005, the Court of Claims held a New York Civil Practice Law and Rules (C.P.L.R.) Article 50-

B hearing to convert the damages award into payments for Doe and his attorney. See N.Y.

C.P.L.R. § 5041 (setting forth procedure for structuring payments to plaintiffs in personal injury

cases). NYSTA appealed, and in 2006, while the appeal was pending, the parties reached a

of litigation expenses.

¶ 9. Doe sued the State of Vermont, seeking a declaratory judgment that he satisfied the

State’s lien by partial payment. Doe argued that the State recovered approximately $70,000

above the amount of its legally permissible lien out of the 2001 settlement for which he claimed

a set-off. Doe urged the court to treat the 2001 and 2006 settlements together and to use the

Court of Claims’ 2004 opinion and allocations of the various elements of damage to determine

the portion of the settlement that was for medical expenses. The State argued that it was entitled

to recover an additional $506,810 out of the 2006 settlement, the full amount of its asserted

lien. It contended that the court could not reexamine the 2001 settlement and that, with regard to

the 2006 settlement, the court should have held a new hearing to determine which portion of the

parties also disagreed as to how to use the Court of Claims’ findings regarding damages, if the

allocation hearing was unnecessary. In making the allocation, the court thus used the Court of

Claims’ judgment—its findings on Doe’s damage claims—and calculated the lien as follows. It

approximated the ratio between the amount of medical expenses the State paid between the 2001

million award. The court applied 3.17% to the $12 million sum from the 2006 settlement, and

concluded that the State was owed $380,758.14 on its lien. That number was smaller than the

amount the State sought, and the court concluded that the State could not recover the excess. In

deciding a motion to amend its judgment, the court deducted $3,586.68 from the award, the

State’s share of reasonably necessary costs and expenses, and entered judgment for the State in

the amount of $377,171.46.

¶ 11. The State argues that the trial court should have reduced the Court of Claims’ findings of

future economic damages to present value before making its lien allocation. In essence, the State

complains that the trial court’s allocation percentage of 3.17% was unfair because the numerator

represented actual expenses, but the denominator included future expenses not discounted to

¶ 12. We review questions of law de novo without deference to the trial court. Vt. Alliance of

Nonprofit Orgs. v. City of Burlington, 2004 VT 57, ¶ 5, 177 Vt. 47, 857 A.2d 305. We review

the trial court’s decision de novo on appeal from summary judgment. Nordlund v. Van

Nostrand, 2011 VT 79, ¶ 9, ___ Vt. ___, 27 A.3d 340.

I.

¶ 13. The State contends that, “[a]s a matter of law, future economic damages in tort cases

must be reduced to present value.” The State notes that it presented “specific evidence” that the

majority of damages found by the New York court were not discounted and that, under New

York law, future damages awards are often reduced to present value after damages findings are

argues that the trial court abused its discretion by declining to do so in this instance.

value of approximately $10.5 million, rather than approximately $34 million.

motion for summary judgment. The court went on to conclude that it would not perform a

present value calculation anyhow, reasoning that, although post-Ahlborn authorities require the

trial court to make a fair allocation, no court has held that all allocations must include a reduction

of damages to their present value. Thus, because we conclude that the trial court ruled on the

issue below, we will review whether reduction to present value is appropriate, regardless of when

the issue was raised. See In re Barry, 2011 VT 7, ¶ 29, 189 Vt. 183, 16 A.3d 613.[4]

¶ 16. Although Ahlborn held that states are limited to the portion of a settlement that

represents medical costs paid by Medicaid, it did not provide concrete guidance on how those

allocations should be made. The State cites a U.S. Court of Appeals case to support its claim

that future damages must be reduced to present value. In Price v. Wolford, 608 F.3d 698 (10th

Cir. 2010), the plaintiffs sued their doctor, alleging negligence during the delivery of their

child. Id. at 700. Plaintiffs’ expert estimated that total damages were $12 million, and the

supported by the evidence. Id. The State argues that Price held that “an Ahlborn allocation

calculation will not be fair if the future economic damages components have not been converted

to present value.”

¶ 17. Price indicates that discounting to present value may be appropriate in some instances,

but it does not go so far as to say that discounting is required. We find no support for the

proposition that, as a matter of law, future damages must be reduced to present value in Medicaid

lien cases. We do agree with the State that a reduction to present value is generally appropriate

for economic damages, but not noneconomic damages. See Levine v. Wyeth, 2006 VT 107,

¶ 42, 183 Vt. 76, 944 A.2d 179. This is, however, not the appropriate case for discounting. To

begin, the differential between the parties’ figures is colossal. Doe presents a damages figure of

approximately $18 million. The State simply did not prove that the $18 million figure is more

allocation using “fair and equitable methodology”), nor did it carry its burden in demonstrating

unwarranted, and that the trial court did not err.

¶ 18. The next issue is whether the trial court erred in allowing the State to assert its lien

against all medical expenses beyond those which were paid by Medicaid. Doe illustrates the

¶ 19. Doe acknowledges in his cross-appeal that post-Ahlborn, there has been some

controversy over whether a state can recover against sums awarded for all past medicals, or

which was the medical expenses paid by Medicaid between the first and second

settlements. This calculation would have resulted in the State recovering a smaller

judgment. The State contests Doe’s interpretation of federal law, and where Doe relies on state

law, it contends that such arguments are waived because Doe relied exclusively on Ahlborn and

federal law in the trial court.

contained in the anti-lien provision, which prohibits liens from being imposed against a

recipient’s property “on account of medical assistance paid or to be paid on his behalf under the

State plan.” 42 U.S.C. § 1396p(a); Ahlborn, 547 U.S. at 284-85.[6] Ahlborn did not directly

address the present issue. The Court did not give specific guidance on what happens when total

his own medical bills. It did, however, interpret the requirement that states “seek reimbursement

parties . . . to pay for care and services available under the plan.” 547 U.S. at 280 (citing 42

“the [s]tate be paid first out of any damages representing payments for medical care before the

§ 1396k(b)).

¶ 22. Although it appears at first blush that § 1396k settles the matter because it requires that

the State be paid first before the recipient recovers any of her own costs for medical care, we

doubt its applicability because by its plain terms it governs assignments only, a situation not

¶ 23. Based on the pre-revision Vermont statute, we conclude that Doe’s argument is the

better of the two.[7] Vermont’s reimbursement statute—now amended—provided at the time of

the suit that “[t]he agency shall have a lien against a third party, to the extent of the amount paid

by the agency, on any recovery for that claim, whether by judgment, compromise, or

settlement.” 33 V.S.A. § 1910(a) (2001) (amended 2008). Thus, section 1910 allows the State

to assert its lien only insofar as the State has made payments to the recipient. 33 V.S.A.

§ 1910(a) (2001) (amended 2008). After a settlement, the State is limited to the portion of the

settlement representing “the amount paid by the agency.” Id. By its plain language, the pre-

2008 statute does not allow the State to assert a lien against any recovery for money not paid by

Medicaid, as the State did here.[8] We express no opinion on the meaning of the statute

following the 2008 revisions and additions.

subtract attorney’s fees from the State’s lien because it concluded that the relevant statute in

effect when the case arose provided that only a pro rata share of costs and expenses could be

withheld from recovery. The court noted that, as to attorney’s fees, the statute provided only that

the recipient’s attorney “may negotiate an attorney fee” with the State. 33 V.S.A. § 1910(j)

attorney “may withhold the agency’s pro rata share of reasonably necessary attorneys’ fees,

change, not a clarification, and therefore inapplicable to the present case. Id. § 1910(k). Doe

trial courts have wide discretion in awarding attorney’s fees. L’Esperance v. Benware, 2003 VT

43, ¶ 21, 175 Vt. 292, 830 A.2d 675. Parties typically must bear their own costs of litigation,

absent authority that provides otherwise. Id.

with the agency,” indicated that where the recipient and the State independently made an

allocation to recover medical expenses, the parties could discuss deducting attorney’s fees from

the State’s lien. See 33 V.S.A. § 1910(j) (2001) (amended 2008). The statute did not, however,

put limits on a court’s authority to reduce the State’s lien by subtracting attorney’s fees where the

court is making an allocation. Here, the State was not involved with the litigation in the New

York Court of Claims, nor with obtaining the settlement against the NYSTA. Instead, the State

asserted a lien against the “fruits of the suit once they materialized,” but did not expend its own

resources in pursuing litigation or settlement. Ahlborn, 547 U.S. at 286.[9]

¶ 28. The record reflects that it was the State’s practice to reduce its lien claims by a

proportionate share of attorney’s fees. The State’s motion for summary judgment references

Medicare regulations, and asserts that OVHA, like Medicare, is authorized to “absorb a

proportionate share of the necessary procurement costs incurred in obtaining the injured person’s

failed to take into account the State’s practice, and therefore abused its discretion in denying

Doe’s request to reduce the State’s judgment in the amount of reasonable attorney’s fees.

State’s combined expenditures to the combined value of the 2001 and 2006 settlements. In doing

so, Doe reaches a figure that is less than the State received from the first settlement alone. Doe

thus agues that the State should receive nothing more from the second settlement, and should in