Before Judges Kestin, Wefing and Carchman.
The opinion of the court was delivered by: Kestin, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
On appeal from the Superior Court of New Jersey, Law Division, Civil Part, Essex and Ocean Counties.
These appeals, consolidated for the purpose of decision, raise the question whether, and to what extent, Medicaid payments made on behalf of two disabled young women must be reimbursed to the State after damages were recovered in settlements with tortfeasors for injuries associated with the disabilities. Both cases involve interpretations of federal Medicaid legislation, 42 U.S.C. §§ 1396a-1396u *fn1 , and State counterpart provisions, N.J.S.A. 30:4D-1 to -19.1, including questions concerning State Medicaid liens and the funding of special needs trusts (SNT). *fn2 We hold that each trial court, in a different way, incorrectly applied the governing federal and state statutes. Accordingly, in Candia, we reverse; in Morris, we affirm in part and reverse in part. In both cases we remand for modification of the trial courts' orders distributing the proceeds of the settlements.
Lisa Ann Candia, twenty-two years of age when the State filed its complaint for reimbursement in 1996, is an adjudicated incompetent and thus disabled within the meaning of federal Medicaid legislation. 42 U.S.C. § 1396d(g) (1992). She had received medical benefits paid for by the State since 1986. Her parents, Rose Mary and Michael Candia, brought a medical malpractice action against several defendants on behalf of their daughter and themselves. The Division of Medical Assistance and Health Services (DMAHS), the State's Medicaid agency, informed the Candias of their duty to contact DMAHS prior to settlement of their claim in order to establish the amount of DMAHS's Medicaid lien.
The malpractice claim was settled for $700,000, approved by an order filed on April 24, 1996, which provided, inter alia, that $28,112.94, the amount of the State's lien, was to be held by the Candias' attorneys in an interest bearing account subject to further order. The Candias were to notify DMAHS about the existence of these funds with a copy of the order, and DMAHS was to commence a Superior Court action within ninety days for a determination of its entitlement to these funds. If no such action was filed, the funds with accrued interest were to be turned over to Rose Mary and Michael Candia in further satisfaction of their claims.
The order also distributed the balance of the settlement. $400,000 funded an SNT, to be used for Lisa Ann Candia's benefit during her life or thirty years, whichever would be longer. The remainder paid attorneys' fees and expenses as well as Rose Mary and Michael Candia's damage claims.
When DMAHS was notified of the entry of the order, it moved to intervene in the malpractice litigation, arguing that N.J.S.A. 30:4D-7.1(b) obligated the Candias, upon settlement of the litigation, to fully reimburse the State for moneys expended on Lisa Ann Candia's medical care. DMAHS further argued that, according to N.J.S.A. 30:4D-7.1(c), Lisa Ann Candia was deemed to have assigned to the Commissioner of the Department of Human Services (DHS) any rights to support for the purpose of medical care and to payment for medical care from any third party.
After the Candias consented to DMAHS's intervention, the trial court granted summary judgment to the Candias, declining to apply the State's Medicaid lien to the settlement proceeds. The motion Judge, in a comprehensive order disposing of the matter, held that 42 U.S.C. §1396p(a)(1) and (b)(1) preempt state law pursuant to 42 U.S.C. §1396a(a)(18), and that under these provisions a State may neither recover funds nor impose a lien against the property of an individual prior to her death on account of medical assistance correctly paid on her behalf. In addition, the Judge held that the funding of a trust established by a court for the benefit of a disabled person under 65 years of age results in neither temporary nor permanent Medicaid ineligibility, according to 42 U.S.C. §1396p(c)(2)(B)(iv) and (c)(4). The Judge also held on the basis of 42 U.S.C. §1396p(d)(4), however, that the State is entitled to all of the funds that remain in the trust upon the death of the Medicaid recipient, up to an amount equal to the total medical assistance paid on her behalf. He directed that the $28,112.94 was to be distributed to Rose Mary and Michael Candia instead of to the State, and otherwise approved the distribution of the settlement. It is from this ruling that the State appeals.
Ayana Morris had received medical benefits paid for by the State since her birth in 1982. Her mother, Jodi Morris, instituted a medical malpractice action against several defendants on behalf of her daughter and herself. DMAHS informed the Morrises that they were required to contact the Division prior to settlement of the claim in order to establish DMAHS's lien amount.
The claim against one defendant was settled for one million dollars prior to a no cause of action jury verdict. The trial Judge, in an order approving the terms of the settlement, provided that $121,560.60, the amount of the State's Medicaid lien, was to be held in an interest bearing account until resolution of separate litigation over reimbursement of the Medicaid benefits. The remainder of the settlement was distributed to the Morris attorneys for fees and costs; to Jodi Morris individually for ...