E.D.P. v. Clair presents an interesting tale of statutory interpretation with clear lessons for practitioners. E.D.P. resolved what the Pennsylvania Supreme Court deemed a split between the Superior Court that decided the 2007 underlying case, Bowmaster v. Clair, and the Commonwealth Court’s 2008 decision in Shaffer-Doan v. Department of Public Welfare. Bowmaster and Shaffer-Doan are actually similar in their outcomes, although they take markedly different approaches.
The key to these cases is the different ways in which the courts interpreted the statutory definition of “beneficiary” under the Fraud and Abuse Control Act (FACA), 62 P.S. § 1409(b)(13), and how they limited or expanded this definition by applying the common law, other statutory provisions, and/or the U.S. Supreme Court case Arkansas Department of Health and Human Services v. Ahlborn, which stated that the state’s lien for payment of medical expenses is limited to a portion of settlement designated for medical expenses.
In Ahlborn, the plaintiff settled a claim for personal injuries — including pain and suffering, lost earnings and permanent impairment of future earning capacity — against third parties for $550,000. The settlement designated $35,581.47 for medical expenses. Arkansas asserted a lien for $215,645.30 against the settlement for reimbursement of medical expenses pursuant to Arkansas’ version of the FACA. The plaintiff challenged a state’s ability to collect more on the lien than was attributable to medical expenses. The Supreme Court, unanimously, agreed with plaintiff.
Notably, the plaintiff in Ahlborn was not a minor, and there was no issue as to recovery of expenses paid on behalf of a minor. In response to Ahlborn, the Pennsylvania General Assembly modified the FACA to limit the recovery of the DPW’s lien to that portion of the judgment or award designated as medical expenses.
On Oct. 11, 1985, Emily Bowmaster was born with severe birth defects, including mental retardation. Her parents brought suit on Aug. 14, 2003, against the hospital and physician. The DPW was notified of the lawsuit because medical assistance benefits (MAB) had been paid on Emily’s behalf. The case was settled, and Emily’s parents filed a motion to settle an incapacitated person’s estate, as Emily was now beyond the age of majority. From the settlement, $56,517.81 was escrowed pending a determination by the trial court of the DPW’s lien. The trial court ruled that the entire amount escrowed should be paid to the DPW to satisfy its lien. It was undisputed that the parents did not bring an action to recover medical expenses for the period of Emily’s minority.
On appeal, the parents argued that because Pennsylvania law recognizes that medical expenses incurred by a minor are only recoverable by the parents and no such claim had been brought, the DPW was not entitled to recover on its lien for payments made during Emily’s minority. The Superior Court agreed and remanded for a determination as to whether any of the DPW’s lien was for payments made after Emily reached the age of majority.
The Superior Court’s decision was premised on its finding that Emily’s parents were the true beneficiaries of payments made by the DPW during Emily’s minority because they were solely responsible for supporting Emily and the only parties who could have sought recovery for those expenses, even though Emily also fit within the definition of beneficiary. The Superior Court limited the definition of “beneficiary” to a person who is able to bring a cause of action to recover the benefits in question based on Pennsylvania’s common law history regarding claims by and on behalf of minors. There is no reference to Ahlborn in the Superior Court’s decision, even though the opinion was issued one year after Ahlborn.
Shaffer-Doan presents similar facts as Bowmaster. The primary differences are that in Shaffer-Doan the parents asserted claims for medical expenses that were dismissed because of the statute of limitations and that the trial court had not ruled on the validity of the lien. The Commonwealth Court noted the trial court did not address whether the minor could pursue the medical expense claim in its own right, which is central to the holding, but does not address whether the claims brought on the minor’s behalf could be interpreted to include a claim for past medical expenses.
The parents then filed a declaratory judgment action in the Commonwealth Court seeking a ruling that the FACA did not apply because the parents’ claims for medical expenses were dismissed; therefore there was no recovery for past medical expenses. The parents also sought a ruling establishing a cause of action for minors in their own right for medical expenses incurred during minority.
The Commonwealth Court disagreed with Bowmaster’s analysis of the beneficiary issue. The Shaffer-Doan opinion reviewed the history of the treatment of minors under Pennsylvania law, the obligations of parents/guardians to care for minors and more recent criticism of the evolution of a system that resulted in separate causes of action for a minor and the minor’s parent/guardian, but does not cite to any case finding that a minor has an independent cause of action for medical expenses incurred during minority.
After discussing the purpose behind the FACA (to allow the DPW to recover from tortfeasors payments that would otherwise be borne by taxpayers) the Commonwealth Court held. ” a minor is not prevented from seeking medical expenses incurred while he is a minor, so as to enable DPW to recover its lien for moneys it has expended, as long as such a claim is not duplicated by the parents.” Yet, in a footnote, the Commonwealth Court stated it could not grant a new legal right under Pennsylvania’s Declaratory Judgment Act, only illuminate existing ones, and refused to recognize a new cause of action as requested.
Despite this judicial slight of hand, the Commonwealth Court refused to enforce payment of the lien. The DPW indicated at oral argument that it would not seek to enforce its lien if medical payments made during minority were not part of the settlement negotiations. The Commonwealth Court remanded for determination of this point stating this was consistent with applicable U.S. Supreme Court law (Ahlborn) and Pennsylvania statutory law.
The only practical difference between Bowmaster and Shaffer-Doan is that Shaffer-Doan does not limit a cause of action for a minor’s medical expenses to the parents/guardians, because a determination as to whether any portion of a settlement is attributable to such a claim (whether by the minor or the parents/guardians) must be made. This makes sense from a practical standpoint in that even a questionable claim may have settlement value.
The real difference between Bowmaster and Shaffer-Doan is how to determine if there is a valid cause of action for medical expenses incurred during a person’s minority. The Superior Court took a bright-line approach, focusing on whether such a cause of action was available under the common law in the underlying action. The Commonwealth Court took a more measured approach, looking at what was actually negotiated between the parties.
While the Commonwealth Court took a roundabout way to get there, it reached a better result because it wanted the determination of the enforceability of the lien to depend on what was actually negotiated between the parties and included in the settlement rather than draw a bright line based on the cause of action asserted.
The Pennsylvania Supreme Court in E.D.P. did not address this difference between Bowmaster and Shaffer-Doan head-on; rather, the court focused on the definition of “beneficiary” under the FACA as applied through the FACA’s lien collection provisions, which the court interpreted broadly. The Superior Court and Commonwealth Court clearly split on how to define a beneficiary; however, both courts ended up in nearly the same place regarding the collectability of the DPW’s lien because of the Commonwealth Court’s interpretation of Ahlborn. The Commonwealth Court felt that in the case of a minor it was necessary to determine whether any amount of an award or settlement was attributable to claims for medical expenses paid during a child’s minority, before the DPW could collect on a lien for MAB paid on behalf of a minor.
The court avoids this issue by stating nothing in Ahlborn is contradictory to its interpretation of beneficiary with respect to benefits paid to a minor. This is true to a point, because Ahlborn dealt only with benefits paid to an adult. Yet, in Shaffer-Doan the Commonwealth Court believed Ahlborn limited the FACA’s definition of beneficiary by remanding to determine whether a portion of the settlement was for MAB paid on behalf of a minor.
The Pennsylvania Supreme Court brushed this aside in a footnote, stating that the allegations in the complaint could be read as Emily asserting a claim for the cost of medical expenses incurred during her minority, as well as those to be incurred during her majority. The court states this issue was waived because it was not asserted below.
This is puzzling, because Emily’s parents appealed the trial court’s ruling that the DPW could collect on its lien in whole, arguing there was no cause of action to support a finding that the settlement was attributable to past payments. From Bowmaster, it appears that the DPW argued that Emily was a beneficiary, Emily recovered, therefore the DPW could enforce its lien in whole regardless of how the settlement was attributed, which clearly runs afoul of Ahlborn.
The Pennsylvania Supreme Court instead points to the settlement carve-out of the DPW’s lien subject to determination by the trial court as evidence that some portion of the settlement was attributable to past medical expenses, rather than looking at what was actually discussed in negotiations or what the parties actually argued to the trial court regarding disposition of the lien. The record is devoid of evidence on these issues and it is not clear why the majority did not remand for a determination on this issue as the Commonwealth Court did in Shaffer-Doan. Indeed, the majority in E.D.P. does not address this aspect of the Commonwealth Court’s opinion.
Ironically, in E.D.P. the court cites to the fact that effective Sept. 2, 2008, 62 P.S. § 1409(b)(4)(iii)(D) tolled the statute of limitations on a claim for a minor’s medical expenses until the minor reaches majority as evidence that the General Assembly disagreed with the Superior Court in Bowmaster. Quite to the contrary, I see this as the General Assembly recognizing a shortcoming in the statutory scheme and incongruity between the fact that the minor’s cause of action arising out of an incident is tolled until the minor reaches majority while the parents/guardians’ cause of action for the minor’s medical expenses arising out of the same incident/operative facts is subject to a two-year statute of limitations.
Thus, the General Assembly has rendered much of the court’s opinion moot, as the claims of a parent/guardian are now tolled to the same extent as the minor’s claims and there is little likelihood of seeing this same factual scenario play out in the future. But don’t despair — there are still important lessons to be gleaned from this saga.
What are those lessons? First, when dealing with a case involving medical assistance benefits, whether or not a minor is involved, it is imperative to notify the DPW early and keep them informed of the progress of the case so as to avoid unnecessary complications in its resolution.
Second, when settling a case involving medical assistance benefits and a DPW lien, it is incumbent on a plaintiff that the settlement expressly quantify what amounts are attributable to different claims or causes of action to avoid protracted and unnecessary litigation over settlement of the lien.
Third, Pennsylvania courts will go to great lengths to protect the DPW’s ability to collect for medical assistance benefits, so remember lessons one and two. The cases also strongly suggest that Pennsylvania appellate courts are receptive to recognizing a cause of action by an individual for medical expenses incurred while the individual was a minor.
Christopher Brubaker is a member of Thorp Reed & Armstrong’s insurance and reinsurance practice group and concentrates his practice in complex commercial and general litigation. He also advises companies on regulatory matters involving insurance and environmental laws, rules and regulations. He can be reached at firstname.lastname@example.org.