Information for Attorneys about Tristani v. Richman

Tristani is a federal class action that challenges various aspects of the Department of Human Services’s (DHS) Medical Assistance (MA) third party liability collection process.

On March 25, 2009, the District Court issued an interlocutory opinion saying that: (1) DHS could only collect managed care capitation payments prior to the enactment of Act 2005-42, (2) the "50% of the net" rule for settlements is consistent with the United States Supreme Court’s decision in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006); and (3) state Medicaid agencies were required to actively intervene into recipient personal injury actions and could not assert liens on personal injury proceeds. On August 21, 2009, the United States Court of Appeals for the Third Circuit agreed to hear an interlocutory appeal from this decision.

This does not mean that the lien provisions of 62 P.S. §1409 are now unenforceable. There is a court opinion to that effect, but no injunction, declaratory judgment, or other order invalidating the statute. The opinion is interlocutory, and there are conflicting precedents and authorities. It will likely take several years to fully resolve the Tristani litigation through the appellate courts. In the interim, DHS will continue to assert and enforce its liens under 62 P.S. §1409.

The Connecticut Supreme Court squarely rejected the argument adopted by the Tristani court in Connecticut v. Peters, 946 A.2d 1231 (Conn. 2008). A New York District Court adopted a contrary interpretation in In re Zyprexa Prod.Liab. Litig., 451 F.Supp.2d 458, 470 (E.D.N.Y. 2006). The Tristani court’s decision also conflicts with the interpretation of the federal government. We believe that, ultimately, the Third Circuit will reject the District Court’s reasoning, adopt that of the other two courts and the federal government and uphold the statutory lien provision at issue in the case.

You have two options in handling DHS claims. One option is to voluntarily negotiate claims with DHS the same as always. The other option is to assert any rights you think your client may have under Tristani. In order to do so, you must strictly comply with the notice and other requirements of 62 P.S. §1409(b) and 55 Pa. Code 259 from the outset of the case. DHS will impose civil money penalties and other sanctions if required notices are not given and a client asserts potential Tristani rights after the case is settled.
DHS will intervene on cases and has outside counsel on contract to do so. If we do not have your agreement to protect DHS' claim notwithstanding Tristani, the case will be screened for intervention and, if appropriate, referred to outside counsel. If DHS intervenes, then the law provides for no sharing in plaintiff’s attorney fee. See 62 P.S. §1409(b)(7)(ii). Under Pennsylvania law, DHS has a right to intervene at any time up to the point of trial, and if required notices are not properly given, DHS can vacate a settlement and intervene.
If your client receives a recovery, DHS' claim is disputed within the meaning of the Rules of Professional Conduct, unless you followed the procedures for excluding medical expenses paid by MA from your client’s case. See Rule of Professional Conduct 1.15.(f). You can negotiate a resolution with the Division of Third Party Liability or you must deposit an amount equal to the gross amount of DHS' claim (up to ½ of the net) into an interest bearing escrow account pending resolution of the Tristani case. DHS should receive periodic statements for this account. Funds should not be deposited into your IOLTA account.

To handle settlements of cases without litigation, the Department’s claim is disputed within the meaning of the Rules of Professional Conduct, unless you followed the procedures for excluding medical expenses paid by MA from your client’s case. Again, your options are to negotiate a resolution with the Division of Third Party Liability or to deposit the amount of DHS' claim into escrow as explained above.

Unless the plaintiff voluntarily resolves the claim with DHS, tort defendants and their insurers remain exposed to liability to DHS. Under 55 Pa. Code §259.4(d), plaintiffs have no authority to release claims for medical expenses paid by MA without DHS' consent. DHS has a seven year statute of limitations to sue, which is extended if all notices required by law are not given.

DHS will not follow the Tristani opinion on the capitation fee issue. The Court held that the plaintiffs lacked standing to pursue the capitation fee issue, so the discussion of that issue in the opinion is probably dicta. The Court also grounded its opinion solely on state law. DHS will await an adverse precedential decision from the state appellate courts before changing its claim computation practice.