The Payback

By Daniel Richardson

Doe v. Vermont Office of Health Access, 2012 VT 15.

For anyone new to reading appellate court decisions, the most striking feature is often the difference between the facts of the case and the actual issues under consideration.   Wild and tragic facts may belie a rather dry, abstract discussion of statutory insurance law.  First year law students often rail against the cold and heartless analysis of the court, which parses out the economic formulas in the dense, cold language that we associate with actuaries instead of expressing the outrage and mercy the students feel upon hearing the plaintiff’s story.

This response, of course, is neither fair nor reflective of what is going on in such cases.  The fact of the matter is that when a person suffers a catastrophic event in their lives the fallout is both severe and complicated.  To paraphrase Cormac McCarthy, calamitous events divide lives forever into the then and now.   Sorting out responsibility, indemnity, future medical expenses, and other collateral issues takes time, objectivity, and the application of regulatory systems designed if not for fairness, precisely, then consistency.

In other words, this is the heavy lifting where the SCOV earns its big bucks. 

The facts of today’s case concern a tragedy.  In 1992 when Plaintiff was nine years old, his family’s car went off the road on the New York Thruway in an area where guardrails should have been installed.  Paralyzed for the rest of his life, Plaintiff’s family sought relief on two fronts.  First, they sought compensation from the parties who were responsible for the guardrail.  Second, they sought Medicaid coverage for Plaintiff whose medical needs were likely extensive and on-going.

After ten years of negotiations and litigation in New York, Plaintiff received approximately $20 million, through a mixture of settlement and judgment, from the New York Thruway Authority and various third parties.  This effectively resolved the first front for the family and gave a substantial award for Plaintiff’s likely future needs.

How much of that award was intended to cover future medical needs and how much was for his previous medical needs is the question that concerns the SCOV today. 

Medicaid assistance is intended for those individuals without other means to pay their medical bills.  Under this system though, a recipient, particularly one like Plaintiff, who has recourse and is likely to recover a judgment against a third-party, is obligated to pay the State back when he or she receives a judgment.  These provisions (and there are several) are known as the reimbursement and assignment provisions.  Such provisions are limited to solely recovering what a court or settlement awards to a recipient for medical expenses.  This is important because unlikely private insurance where the indemnity may be more straightforward, the Medicaid provisions only seek to avoid a windfall where the individual receives reimbursement funds for the benefit he or she has already received through Medicaid.

Here are some additional complicating factors:

Plaintiff received his award in two parts.  The first part was a settlement for $8.75 million from third parties in 2001.  From that settlement, Plaintiff paid the State $594,209.03, which represented about 66% of the State’s actual out-of-pocket Medicaid payments on Plaintiff’s behalf.  This reduction represented its own settlement and likely reflected the fact that the original settlement did not assign any portion of the $8.75 million to medical expenses and that the State would have had to reduce its claim to reflect its share of Plaintiff’s legal costs to obtain the original settlement.

Plaintiff’s second award was a bit more complicated.  In 2004, the New York Court of Claims initially found that Plaintiff has $42 million in damages, which included present and future medical costs, present and future pain and suffering, and future loss of earnings.  In this finding, the Court of Claims allocated $2.9 million to medical expenses.  Following a payment hearing, the Thruway Authority appealed, and the parties settled out of court in 2006 for $12 million.  Again, no allocation was made in this settlement for medical expenses.  During this time, Vermont Medicaid covered Plaintiff’s medical expenses, which totaled $771,111 (above and beyond the amount settled in 2001). 

This left the parties and the trial court with a mess to sort out.  Plaintiff filed a declaratory judgment action seeking a ruling from the trial court that he owed the State no more reimbursement.  Plaintiff based this position on the following chain of reasoning:  when you applied the settlement percentage between the damage award ($42 million) and the amount actually received in settlement ($20 million) to the amount of medical expenses ($2.9 million) and then factored in the 2001 payment that Plaintiff had made to the State, legal costs, and other factors, then Plaintiff had already over-paid the State $70,000. 

The State took a different position.  It argued that the 2001 settlement was complete and could not be revisited.  It then argued that the $42 million figure had to be reduced because it represented future damages that were not reduced to present value (remember time is money so if someone owes you money and pays you in advance, you have the benefit of that money today and can make it work for you.  This extra benefit usually results in courts reducing present day awards for future needs).  Thus, the comparison needed to be adjusted.  From the State’s calculations, Plaintiff owed an additional $500,000 in reimbursements to Medicaid. 

Not surprisingly, the trial court found a third way to do things.  It agreed with the State that the 2001 settlement was final.  But, it took the 2001–06 medical expense, calculated that they represented 46% of the total medical expenses, then plugged that number into a calculation reflecting the reduced settlement and other reasonable costs and expenses (although not attorney’s fees).  The result was a determination that Plaintiff owed the State $377,171.46.

This result did not satisfy anyone, and both parties appealed to the SCOV.

The first issue that the SCOV takes up is the question of whether the trial court should have reduced the damage figure of $42 million to present day value.  To this end, the State points to the fact that the New York Court had allocated $34 million of the amount to future damages.  According to the State the present value of those future damages should have been reduced to $10.5 million. 

The SCOV rejects this argument with a neat two-step.  First, the SCOV finds no support in the regulatory system or available caselaw that makes such a reduction mandatory.  Second, it finds that the State has failed to meet its burden of proving that the reduced figure was accurate or more equitable than the original $42 million figure.  In fact, the SCOV notes, the New York Court came up with a higher reduced figure, which brings the State’s calculation into question.

The next issue concerns the total amount the State was entitled to go after.  Under the trial court’s reasoning, the State was entitled to put up a lien against 46% of the $2.9 million allocated by the New York Court to medical expenses.  This $1.3 million figure was the base number that the trial court then further reduced to account for the reduction in settlement. 

On appeal, Plaintiff argues that the State only had a right to seek a lien for $771,111, which constituted its actual out-of-pocket expenses.  The rest represented the Plaintiff’s own out-of-pocket expenses paid for care beyond what Medicaid would cover.  The State, in response, points to a statute, which entitles it to receive full payment before anyone else.  The problem for the State is that this statute is only applicable to assignments where the State is seeking payments directly from the tort-feasor and not from the victim.  Because the State is going after the victim, the statute, as written (it has since been amended, presumably to fix this issue) is not applicable.  Therefore, the SCOV concludes that, in light of the general “anti-lien” provisions limiting the State to seek only reimbursement from medical damage awards for actual expenses, the trial court should have started with the lower $771,111 number as the base and reduced from there. 

The conclusion is a bit of a close call, but SCOV is persuaded that the State cannot start its calculation by claiming an amount of medical expenses beyond what it is entitled to recover (the $1.3 million figure), even if that figure is later reduced to below the amount owed.

The third appeal issue concerns attorney’s fees.  The trial court did not deduct a portion of Plaintiff’s attorney’s fees incurred to obtain the New York awards.  This was because the trial court concluded—based on the relevant statutes—that the State’s only obligation was to negotiate such a deduction and that the State was not required to include them.  The SCOV disagrees.  Looking to the negotiation statute and the larger framework created by the State, the SCOV concludes that such negotiations are mandatory, and the State, once such negotiations were initiated by Plaintiff, was obligated to negotiate in good faith and come to a figure.  Moreover, this negotiation system did not take away the trial court’s authority to make such an award.  Given that the State never helped Plaintiff or expended funds to assist in the recovery, it must bear a percentage of such costs at the back-end.  This deduction, concludes the SCOV, is consistent with both the regulatory framework and the State’s normal practices as demonstrated by the State’s own forms, which include a space for such attorney’s fees claims. 

For the final issue, the SCOV rejects Plaintiff’s argument to revisit the 2001 settlement it reached with the State.  This issue concerns accord and satisfaction, a legal concept that dictates finality when parties settle a claim for an amount less than what was demanded in full resolution of that claim. 

In this case, Plaintiff tries to link the 2001 settlement to the 2006 to show that under the calculations discussed above Plaintiff over-paid the State.  The SCOV disagrees.  The 2001 settlement occurred well before the U.S. Supreme Court decision that dictates many of the terms advantaging Plaintiff in his current 2006 settlement with the State.  Therefore, the parties were in a different position.  Since the State accepted less than it believed it was entitled to collect (approximately 46%), and it gave up any claims it might have had against the third parties that had settled with Plaintiff, accord and satisfaction applies.  Plaintiff is not entitled to revisit the settlement or lump it into the 2006 settlement. 

So the SCOV affirms the trial court on this last issue, but because it lowered the total basis available to the State and ordered attorney’s fees, the case is reversed and remanded back to the trial court for additional findings and to recalculate the amounts.  The State can expect significant reductions, which may make this the end of the line for its case. 

All in all, Plaintiff comes out ahead in the numbers here, which of course does nothing to change Plaintiff’s situation or address the underlying physical and medical issues that he must deal with on a daily basis.  But that’s not the name of the game here.  This is the aftermath and untangling that follows, the now that is irrevocably separated from the then