Information for Insurers 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 Medicaid liens on personal injury proceeds 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.

Insurers have three options for settling cases that have DHS claims. Option One: Negotiate resolution of DHS' MA reimbursement claim directly with the Division of Third Party Liability. They can be reached at (717) 772 -6604. Option Two: Require claimant to resolve and pay DHS' claim as part of the settlement. Option Three: Settle with the claimant subject to potential insurer liability to DHS. Be aware that under 62 P.S. §1409 insurers are prohibited from distributing the proceeds of any action, claim or settlement where DHS has an interest, without first satisfying the interest of DHS.

Insurers will not be protected from liability to DHS if they allow claimant’s counsel to escrow the amount of DHS' claim pending resolution of Tristani. 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 intervene on cases and has outside counsel on contract to do so. DHS will offer claimant’s lawyer an opportunity to voluntarily agree to protect DHS' claim notwithstanding Tristani. If the claimant’s lawyer declines to voluntarily protect DHS, the case will be screened for intervention and, if appropriate, referred to outside counsel. 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.

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 therefore require an adverse precedential decision from the state appellate courts before changing its claim computation practice.