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Hedgebeth v. Medford

Decided: September 21, 1977.


For reversal -- Chief Justice Hughes and Justices Sullivan, Pashman, Clifford and Handler. For affirmance -- Justices Mountain and Schreiber. The opinion of the court was delivered by Pashman, J. Schreiber, J., dissenting. Justice Mountain joins in this opinion.


The single question in this case is whether the State's right of subrogation under the New Jersey Medical Assistance and Health Services Program (Medicaid), pursuant to N.J.S.A. 30:4D-7(j), is governed by equitable principles. The State asserts that principles of equitable subrogation normally applied to private insurance carriers are inapplicable under the instant statute. Accordingly, it argues that in seeking reimbursement from a Medicaid recipient who has been successful in obtaining a recovery from a third party tortfeasor, it need not pay its pro rata share of that person's counsel fees.


The New Jersey Medicaid statute is an outgrowth of Title XIX of the Federal Social Security Act, which provides grants to states for such medical assistance programs. 42 U.S.C.A. § 1396 et seq. As such, the state plan is designed to provide "all benefits for medical assistance provided by the [federal act]" to persons who would otherwise be without sufficient resources to obtain such funds. N.J.S.A. 30:4D-2. It is also required by the federal legislation to contain certain mandatory provisions, among which is 42 U.S.C.A. § 1396a(a)(25), which provides in pertinent part, "[that] a state plan for medical assistance must"

provide (A) that the State or local agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties to pay for care and services (available under the plan)

arising out of injury, disease, or disability, * * * and (C) that in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual, the State or local agency will seek reimbursement for such assistance to the extent of such legal liability;

N.J.S.A. 30:4D-7(j) repeats the language of the federal provision, adding that "[i]n any case where such a legal liability is found the department [of institutions and agencies, now human services] shall be subrogated to the rights of the individual for whom medical assistance was made available."

As we interpret the act, the State has two avenues by which it may seek reimbursement for Medicaid payments: it may either institute an action directly against the tortfeasor who is liable for the medical expenses or seek recovery by way of the Medicaid recipient through a right of subrogation. This conclusion is in harmony with the rights accorded the federal government under the parallel federal provision.*fn1 See United States v. Merrigan, 389 F.2d 21, 24 (3 Cir. 1968); Maddux v. Cox, 382 F.2d 119, 124 (8 Cir. 1967); United States v. Greene, 266 F. Supp. 976, 978-79 (N.D. Ill. 1967); Tolliver v. Shumate, 151 W. Va. 105, 150 S.E. 2d 579, 582 (1966). See generally Long, "The Federal Medical Care Recovery Act: A Case Study in the Creation of Federal Common Law," 18 Vill. L. Rev. 353, 372 (1973); Bernzweig, "Public Law 87-693: An Analysis and Interpretation of the Federal Medical Care Recovery Act," 64 Colum. L. Rev. 1257, 1265 (1974).

Although the state statute contains no provision expressly referring to an independent right of recovery, as does 42 U.S.C.A. § 2651 in establishing such a federal right, we conclude that the existence of such a right is evident from the language of that section and the legislative history surrounding the passage of N.J.S.A. 30:4D-7(j). The mandate in 42 U.S.C.A. § 1396a(a)(25)(C), directing the states to "seek reimbursement," is expressly embodied in our own provision. This language must be read in pari materia with the rights existing under the federal scheme for seeking reimbursement, and more specifically, with the independent right of recovery specified in 42 U.S.C.A. § 2651.

This interpretation of our act comports with the Senate report accompanying the original version of 42 U.S.C.A. § 1396, which stated that "if medical assistance is granted and legal liability of a third party is established later, the State or local agency must seek reimbursement from such party." The Report of the Committee on Finance to the United States Senate, on the Social Security Amendments of 1967, 90 Cong., 1 Sess., S.R. No. 744 at 184, U.S. Code Cong. & Admin. News 1967, pp. 2834, 3022. The House report contained similar language. Report on Committee of Ways and Means on H.R. 12080, 90 Cong., 1 Sess. H.R. No. 544 at 123. The legislative history of our own statute contains no reference to this independent right of recovery, but the concern for costs of the program voiced by many legislators suggests an unmistakable intent to afford the State every opportunity to recoup its payments from third parties. Public Hearing before Senate and Assembly Committees on Institutions and Welfare on Concurrent Resolution No. 26 (Medicaid) (April 11, April 19 and April 26, 1969) (hereafter "Public Hearing"). Thus we interpret the additional reference to a right of subrogation in N.J.S.A. 30:4D-7(j) as a precautionary measure by the Legislature to clearly define these two routes of recovery by the State.


In the instant case payments amounting to $481.40 were made under the Medicaid scheme to William Hedgebeth, an infant-pedestrian who was injured on September 10, 1970 when he was struck by a car. The infant's mother, suing both individually and as guardian ad litem for the child, sought compensation for loss of services and future earnings and for medical expenses resulting from his injuries. Following a jury verdict finding liability by the defendant tortfeasor, Medford, the parties reached a settlement. The trial court's order embodying the terms of the settlement awarded $3,000 to the infant and $4,500 to the mother, with medical bills, costs and the $1,875 counsel fee to be paid out of the latter amount.

The Division of Medical Assistance and Health Services first learned of the recovery when plaintiffs requested payment of the judgment from the Unsatisfied Claim and Judgment Fund. N.J.S.A. 39:6-61 et seq. Acting on behalf of the Division, the Attorney General filed a cross-motion with the trial court asking for $481.40 out of the judgment as reimbursement for Medicaid payments to Hedgebeth. Although the trial judge initially considered reopening the judgment on the ground that the parties had not been given timely notice of the State's claim,*fn2 he held that the State's right to be reimbursed for Medicaid payments under the act was subject to payment of its pro rata share of attorneys' fees on the amount recovered. 130 N.J. Super. 1, 4 (Law Div. 1974). Accordingly, he ordered plaintiffs to pay the State

$361.05, the amount of Medicaid payments less the State's pro rata share of counsel fees, $120.35.

The Appellate Division reversed in a unanimous per curiam decision. 139 N.J. Super. 41 (1976). In rejecting the trial court's application of the rule governing private insurance contracts, the court emphasized the legislative aim of conserving public funds and the "absence of any specific legislative authorization, federal or state, to deduct a pro rata share of counsel fees from third-party liability recoveries." Id. at 46. It found support for its result in Fireman's Fund Indemn. Co. v. Batts, 11 N.J. Super. 242 (App. Div. 1951), which held that a pro rata share of counsel fees need not be deducted where reimbursement was sought pursuant to the workers' compensation provisions. Additionally, it noted that the infant had technically not incurred any costs in the action because the trial court had ordered his mother to pay counsel fees out of her award; therefore, it concluded, the State would not be obligated to pay a share of counsel fees even if equitable principles were applied.

We granted plaintiffs' petition for certification nunc pro tunc, 71 N.J. 519 (1976), and allowed the case to be argued solely by the Trial Attorneys of New Jersey and the New Jersey State Bar Association in their capacity as amici curiae. For the reasons discussed below, we reverse the judgment of the Appellate Division and hold that the State's right to recovery under the Medicaid Act is subject to equitable principles. Accordingly, we find that the State, in seeking to benefit from a Medicaid recipient's judgment against a third-party tortfeasor, must pay its pro rata share of counsel fees incurred in obtaining that recovery.


Initially, we note that this dispute would have been resolved under settled principles if the same language employed in the Medicaid provision in question had appeared instead in a ...

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