DHCS may recover from special needs trust after a beneficiary’s death where trust’s purpose was to preserve Medi-Cal eligibility

Herting v. Calif. Dept. of Health Care Services, (6th Dist. Ct. of App.), 2015 DJDAR 3521 (March 27, 2015)

Alexandria Pomianowski was severely injured in a auto accident at age 19.  For the next four years, until her death, she required constant nursing and personal care. A personal injury lawsuit related to the accident resulted in a large damages award for Ms. Pomianowski and that award was placed in a special needs trust for her care to facilitate her continued eligibility for Medi-Cal. Her mother, appellant, was named trustee.

Relying upon federal and state law that bars Medi-Cal from seeking reimbursement from a decedent’s estate for care provided to  via Medi-Cal to him or her while younger than 55, appellant sought to terminate the trust in which more than $1 million remained and deny Medi-Cal’s claim for reimbursement for more than $400,000 in health care costs it paid for the woman’s care. Department of Health Care Services (DHCS) pursued its claim, citing state and federal regulations that special needs trusts must provide for reimbursement to the state upon death. Ms. Pomianowski’s trust included such a provision.

Finding that the Ms. Pomianowski’s trust was established for the “specific and exclusive” purpose of maintaining the her eligibility for Medi-Cal and to pay for her additional needs not covered by Medi-Cal during her life rather than as an instrument to preserve and distribute estate property, the court held that DHCS may recover its expenses for her care prior to her death.  Appellant should have paid DHCS’s claim for its expenses for Ms. Pomianowski’s care in accordance with the terms of the trust, which specifically provided for such reimbursement.

Supreme Court refuses to allow enforcement of State’s violation of Medicaid provision

Armstrong v. Exceptional Child Center, __U.S.__, S.Ct. No. 14-15 (March 31, 2015)

The fears of advocates across the country were realized with the publication of this widely anticipated decision on March 31st. The plaintiffs in this case are providers of habilitative services who sued Idaho’s Department of Health and Welfare to compel the agency, under the Supremacy Clause and the Medicaid Act, to raise Medicaid reimbursement rates to comply with the mandate in section 30(a) of the Act [42 U.S.C. § 1396a(a)(30)] to “assure that payments … are sufficient to enlist enough providers so that care and services are available under the plan [to the same extent as in the general population].”

The Idaho district court and the Ninth Circuit concluded that the Supremacy Clause and the Medicaid statutory scheme gave the providers an implied federal right of action to enforce section 30(a) of the Act, and ordered the state to raise reimbursement rates in compliance with the statutory standard. In a 5-4 decision authored by Justice Scalia, with Justice Breyer incongruously aligned with the four conservative justices, and Justice Kennedy joining Justice Sotomayor’s dissent for the liberals, the majority ruled that neither the Supremacy Clause nor section 30(a) provides an implied private right of action to enforce the reimbursement rate standards.

The majority first dismissed the plaintiffs’ invocation of the Supremacy Clause as neither creating a cause of action nor providing a source of any substantive law. Justice Scalia then blithely overruled several decades of lower federal court decisions by holding that the availability of an “administrative remedy” from the federal Secretary of Health and Human Services, for a state’s non-compliance with section 30(a), indicated congressional intent to preclude a private right of action to enforce the statute directly in federal court.

Justice Sotomayor’s dissent mocked the so-called administrative “remedy” — the potential for the federal agency to withhold Medicaid funds from the state for non-compliance with section 30(a) — not only as completely inadequate but as “self-defeating” and “counterproductive,” because “a state’s non-compliance creates a damned-if-you-do, damned-if-you-don’t scenario [for the federal agency], where the withholding of state funds will only lead to depriving the poor of essential medical assistance.”

Jane Perkins, Legal Director of the National Health Law Program, who authored an amicus brief on behalf of many public interest advocacy organizations, stated that the decision “ignores hundreds of Supreme Court decisions, dating back to the early 1800s, which have recognized the ability of private parties to bring Supremacy Clause suits in federal courts to stop state officials from implementing state laws that violate a federal law or the Constitution.” While this ruling applies to medical providers, advocates fear that the majority’s analysis will soon be used to knock Medicaid recipients out of federal court as well.