Opinion ID: 1350648
Heading Depth: 1
Heading Rank: 1

Heading: Alternative Interpretation

Text: As noted earlier, we are under an obligation to interpret our statutes to avoid constitutional defects. Hince, 632 N.W.2d at 582. Therefore, if the state assignment provision is susceptible to an alternative interpretation that allows it to operate in harmony with the federal Medicaid scheme and not be preempted, we must apply that interpretation. Here, the state medical assistance assignment provision differs from the federal mandate in one important respectthe all proceeds sentence. It reads, [t]o be eligible for medical assistance a person must have applied or must agree to apply all proceeds received or receivable by the person or the person's spouse from any third person liable for the costs of medical care for the person, the spouse, and children. Minn.Stat. § 256B.056, subd. 6. The all proceeds sentence is apparently a state innovation and not required by the federal law. [20] Our first interpretation of this statute would give the state the right to all proceeds received from liable third parties. Recovery under this interpretation is not limited to proceeds for medical care. But this section is susceptible to an alternative interpretation. The clause for the costs of medical care can be read to modify either all proceeds or from any third person liable. If we interpret the statute such that for the costs of medical care modifies all proceeds, we can avoid an interpretation that necessitates preempting part of the state statute. When we read the statute in this way, it gives the state no more rights against the recipient than the federal requirement. [21] Under this interpretation of the statute's language, the state has assignment rights to all proceeds for medical care, but does not have rights in any other part of a recovery. Because our canons of interpretation instruct us to interpret statutes to avoid constitutional problems, we conclude that for the costs of medical care modifies all proceeds. Therefore, we hold that when a medical assistance recipient has a cause or causes of action against potentially liable third parties for his injuries, the medical assistance assignment statute grants to the state an assignment right to all claims for medical care, but it does not grant an assignment right to any other claims or the recovery therefrom. This limited interpretation of the statute allows the federal scheme to function appropriately. The state assignment provision is now functionally equivalent to the federal assignment provision. The state has an assignment of rights limited to the right to medical expenses and may no longer pursue all proceeds from third parties. Effectively, the state is entitled to an assignment of the recipient's right to recover for medical expenses against all third parties that are potentially liable for the injuries that necessitated medical assistance.
The next question before this court is whether the statute granting the state a subrogation right is preempted by federal law. [22] In addition to asserting statutory lien rights, the state also asserts a subrogation right to the settlement proceeds under Minn.Stat. § 256B.37, subd. 1. [23] This provision gives the state a subrogation right to the extent of the cost of medical care furnished to any rights the medical assistance recipient may have under the cause of action arising out of an occurrence that necessitated the payment of medical assistance. Id. The scope of the subrogation right is broader than the rights given to the state in the federal medical assistance assignment provision. The subrogation right is not limited to claims for medical expenses. In fact, the subrogation right specifically includes all portions of the cause of action, notwithstanding any settlement allocation. Id. As we interpret the subrogation provision, it allows the state a subrogation right for the cost of care against any recovery on a cause of action arising out of the incident that necessitated medical assistance, even if the recovery also included claims other than for medical expenses. The federal anti-lien provision does not explicitly prohibit states from asserting subrogation rights with respect to a medical assistance recipient's cause of action arising out of an occurrence that necessitated the payment of medical assistance. Therefore, the same is true here as with the assignment provisioncompliance with both federal and state laws is not impossible per se. But as with the assignment provision, we have to determine whether allowing a subrogation right outside of the state's assigned right to medical expenses would be an obstacle to the purposes of the federal Medicaid scheme. See Fla. Lime & Avocado Growers, 373 U.S. at 142-43, 83 S.Ct. 1210; Hines, 312 U.S. at 67, 61 S.Ct. 399 (stating that state law is preempted if it is an obstacle to accomplishment of federal purpose). Our preemption analysis of the state's subrogation right will be very similar to the analysis of the state's assignment provision because a subrogation right has the same practical effect as an assignmentit puts the state in the shoes of the medical assistance recipient with respect to the recipient's rights against third parties for medical expenses. See Hermeling v. Minn. Fire & Cas. Co., 548 N.W.2d 270, 273 (Minn.1996) (explaining the distinction between subrogation and indemnity) (overruled on other grounds). We have already concluded that the anti-lien provision prohibits a state from attempting to recover its medical assistance costs from the property of the recipient through a lien and that the state cannot require an assignment of more than the recipient's right to receive third-party payments for medical care. The federal scheme does permit a state to recover medical expenses paid by authorizing an assignment of those rights, but the antilien provision effectively prevents the state from recovering the costs of care directly from the recipient. Allowing the state to assert a subrogation right and thus get indirectly what it is prohibited from attaining directly would defeat the purpose of the federal anti-lien provision in the same manner as the broad assignment of rights discussed above. Pursuing a subrogation right allows an end-run around the protections of the anti-lien provision by using a subrogation right instead of a lien to take part of the recipient's personal property that is protected by the anti-lien provision. Essentially, for purposes of our preemption analysis, an assignment of rights to the state and the state's subrogation right are the same. Therefore, we hold that the state subrogation provision is preempted to the extent that it allows the state to assert a subrogation right against causes of action or settlements for other than medical expenses. When the state actually obtains the assignment of rights to third-party payments for medical expenses, subrogation is no longer appropriate because the state is now the owner of the medical assistance recipient's claim and no longer needs to be subrogated. See, e.g., Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493 (Minn.1998) (explaining that subrogation does not give a subrogee any independent rights, but merely allows a subrogee to step into the shoes of the subrogor). But subrogation may be appropriate in situations where medical assistance payments have begun before the assignment is made, [24] when a medical assistance recipient refuses to make an assignment, or when an assignment is not properly made. In those circumstances, the state will still be able to assert a subrogation right to the extent of medical assistance payments made, but only as to the recipient's right to recover on a claim for medical expenses.
The state makes three additional arguments to supplement its main argument that the plain language of Minnesota's lien, assignment, and subrogation statutes does not conflict with federal law or the purposes behind the Medicaid provisions. These arguments are that the state's position is supported by (1) deference to HCFA's interpretation of the federal antilien provision, (2) decisions from other jurisdictions, specifically Washington and Utah, and (3) equitable considerations. None of these arguments are persuasive, and we will address each in turn.
The state argues that we must defer to HCFA's interpretation of the federal anti-lien provision. The state asserts that HCFA has decided that the antilien provision does not bar a state from imposing a lien on a medical assistance recipient's rights to recover for other than medical care. Deference to agency interpretation is called for, however, only when there is an ambiguity in the expression of congressional intent. Chevron, 467 U.S. at 842, 104 S.Ct. 2778 (If the intent of Congress is clear, that is the end of the matter.); see also United States v. LaBonte, 520 U.S. 751, 762 n. 6, 117 S.Ct. 1673, 137 L.Ed.2d 1001 (1997) (concluding no ambiguity, and thus no need to decide whether Sentencing Guidelines Commission is owed deference). We have already concluded that there is no ambiguity in the statement that [n]o lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan   . 42 U.S.C. § 1396p(a)(1). Similarly, the federal assignment requirement and the third-party recovery provision are not ambiguous and interact smoothly with our interpretation of the anti-lien provision. Because the intent of Congress is clear, there is no need for deference to an agency interpretation on the grounds that the statute is ambiguous. Even if we were to conclude that the federal assignment requirement and third-party recovery provision inject some ambiguity into federal law, agency deference is still not appropriate here. When an agency statement does not reflect formal rules or agency adjudications, yet attempts to address an ambiguity in the law, deference to the agency under Chevron is not appropriate. See Christensen v. Harris County, 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000) (concluding that opinion letters, policy statements, agency manuals, and enforcement guidelines are not warranted Chevronstyle deference). Such agency interpretations are only entitled to respect    to the extent that those interpretations have the power to persuade. Id. (internal quotation marks omitted); see also Wis. Dep't of Health and Family Servs. v. Blumer, 534 U.S. 473, 122 S.Ct. 962, 976 (2002) (The Secretary [of Health and Human Services'] position [regarding Medicaid law] warrants respectful consideration.). The state urges us to defer to various agency letters, directives, and approvals demonstrating the agency's interpretation of the anti-lien provision as not prohibiting a state from recovering on third-party actions for other than medical care. These materials include a Best Practices Guide that cites Minnesota's subrogation statute as model legislation and various letters from HCFA's administrators to state administrators and others stating that medical assistance liens are not prohibited under federal law. These agency materials are not accorded deference because they do not reflect formal rules or adjudications. Christensen, 529 U.S. at 587, 120 S.Ct. 1655. And, although these materials are entitled to some respect and may be used to persuade this court, we are not persuaded by the interpretations contained in these materials. The state has referenced two agency adjudications that, if relevant, would be entitled to deference under a Chevron analysis. The two adjudications were made by the Department of Health and Human Services Appeals Board (Board). [25] Cal. Dep't of Health Servs., DAB No. 1504 (Dep't of Health & Human Servs. Jan. 5, 1995); Wash. State Dep't of Soc. and Health Services, DAB No. 1561 (Dep't of Health & Human Servs. Feb. 7, 1996). Both adjudications addressed whether HCFA properly withheld federal funds from a state program based on the state's failure to recover a sufficient amount from settlements between recipients and third-party tortfeasors. In both the California and Washington adjudications, the Board stated that HCFA properly characterized recoveries from third parties first as payments for medical care. The Board reasoned that [t]his characterization prevents manipulation of tort awards by recipients who seek to prevent the public from being reimbursed for the funds it has advanced for their medical care (e.g., by suing for pain and suffering or lost wages rather than for medical costs). DAB No. 1561, p. 5. We need not defer to these agency adjudications because they do not address the central issue presented here, which is whether the federal anti-lien provision preempts state laws that purport to allow states to impose liens on recovery of amounts not designated as payment for medical expenses. Indeed, the agency adjudications do not mention the federal antilien provision. [26] We are nonetheless mindful of the concern expressed in the agency adjudications that Medicaid recipients could fashion a settlement to exclude payment for costs of medical care so as to avoid any obligation to reimburse the state and federal governments. But the state has options other than to ignore a clear provision in federal law that prohibits a lien from being imposed against the property of any individual on account of medical assistance paid. The state can protect its right to reimbursement by participating in the litigation so as to ensure recovery of medical costs paid. In this case, the state did not actively participate in the litigation until settlement, despite being a plaintiff on impleader. But the state did participate at the settlement and did release each defendant from any liability to the state for medical expenses. At this time, the state did establish its claim to part of the settlement proceedsbut in a dispute solely with Martin.
The state asserts its position is supported by decisions from Washington and Utah. However, in reaching their respective holdings, neither Washington nor Utah addressed the issue of preemption. In Wilson v. State , the Washington Supreme Court concluded that the federal anti-lien provision was irrelevant because the state placed a lien on the recovery itself, and therefore not on the property of the recipient. 142 Wash.2d 40, 10 P.3d 1061, 1065-66 (2000). Similarly, in two companion cases, the Utah Supreme Court concluded that the anti-lien provision was not implicated when a state lien was placed on a settlement recovery. S.S. v. State, 972 P.2d 439, 442 (Utah 1998); Wallace v. Estate of Jackson, 972 P.2d 446, 448 (Utah 1998). The Utah court concluded that payments made by a third party do not legally become the property of the recipient until after a valid settlement which must include reimbursement to the State for Medicaid benefits. Wallace, 972 P.2d at 448 (citing S.S., 972 P.2d at 442). Washington relied on Utah, which in turn relied on the New York case, Cricchio v. Pennisi , which also concluded that the lien on settlement proceeds attaches to the property of a third party. 90 N.Y.2d 296, 660 N.Y.S.2d 679, 683 N.E.2d 301, 306 (1997). The New York court, and later the Washington and Utah courts, reached the conclusion that settlement proceeds were not the property of the medical assistance recipient. But when they reached this conclusion, they failed to unbundle the sticks that make up a personal injury action. These courts correctly recognize that the federally-required assignment of rights to third-party medical expense recoveries gives a state the right, up to the amount of the state's expenditures, to any recovery or settlement for that right to recover. To the extent that a settlement is for medical expenses, those proceeds are the property of the state by virtue of the required assignment. But these courts failed to recognize that a personal injury tort action against potentially liable third parties comprises more than a right to recover for medical expenses. The tort action includes claims for pain and suffering, emotional distress, loss of earnings, and other familiar tort claims. The part of any settlement attributable to these unassigned claims is the property of the medical assistance recipient during his life, and the state has no right to these claims under the assignment. So while the other states' courts are correct in their conclusions that a recovery for medical expenses is not the property of a medical assistance recipient, they ignore the part of the recovery or settlement for claims other than medical expenses. We are therefore unpersuaded by the analysis of the Washington and Utah courts on this issue. Additionally, the cases from New York, Utah, and Washington cannot be relied upon because of other problems in their analysis. In Cricchio, the New York court apparently concluded that New York's statutory analogue to the federal anti-lien provision was not violated by the imposition of a state lien because the state statute created an exception for the lien, yet the court did not explain how this statecreated exception could trump the federal anti-lien provision. Cricchio, 660 N.Y.S.2d 679, 683 N.E.2d at 304. But the state exception was not the basis for the court's holding; rather, the court relied upon the conclusion that the anti-lien provision was not violated because the lien attaches to the settlement proceeds which the court deemed to be the property of the third party. Id., 660 N.Y.S.2d 679, 683 N.E.2d at 305. The dissent and the aforementioned cases implicitly acknowledge that whether the cause of action or settlement proceeds are the property of the recipient determines the applicability and relevance of the anti-lien provision. Each determines that the federal anti-lien provision is irrelevant by concluding that the settlement proceeds are no longer the property of the recipient. But, by doing so, they fail to grapple with the key issue that underlies our analysis. This key issue, in fact, is the property issue. Specifically, both the dissent and the cases cited gloss over why these causes of action are no longer the property of the medical assistance recipient. On the other hand, our analysis recognizes the limited nature of the required assignment. Therefore, after a full analysis, we conclude that the causes of action and claims for other than medical expensesand settlement proceeds therefromare the property of the recipient and therefore the federal anti-lien provision is relevant.
We are also mindful of the state's equitable argument that it needs to preserve and recover Medicaid assets. But our resolution of the issue before us does not eliminate the state's ability to recover medical expenses when third parties are liable. Rather, our conclusion leaves the federal scheme intact and the state retains the assignment of a medical assistance recipient's right to recover for medical expenses against potentially liable third parties. Indisputably, the state's rights are limitedthey only extend to a recipient's right to recover for medical expenses. The state has no interest under the assignment in any of the recipient's recoveries from third parties for claims other than for medical expenses. But the state does not have to wait for the recipient to initiate an action. Under harmonized federal and state law, medical assistance recipients are required to assign to the state their rights to receive payment for medical expenses from any potentially liable third parties. This assignment enables the state to acquire the recipient's property rights to this particular claim and to take independent legal action, or, as in this case, to be joined as a party to the recipient's action. Thus, the state can take an active role as a plaintiff in its own right and does not have to rely on the efforts of others to ensure a recovery of medical assistance expenses. [28] Therefore, even though the method of obtaining medical assistance reimbursement that the state seeks in this litigation is not available to it, the state has other alternatives available to recover medical expenses. [29] The state uses Minnesota's guaranteed one-third recovery scheme to support its position. But the same rationale that would allow a medical assistance recipient to receive a guaranteed one-third recovery also would allow the state to take away that guarantee and leave the recipient with nothing until the state had been paid back in full. Thus, by emphasizing the reasonableness of its position, the state fails to acknowledge the logical consequences of its argument. We also note that the dissent fails to consider that as a logical consequence of its reasoning, Minnesota's participation in the Medicaid program may be jeopardized. The current mechanism in section 256B.042, subd. 5, allowing a one-third guaranteed recovery to a plaintiff/recipient is much the same as the systems in California and Washington that were criticized by the Department of Health and Human Services' Departmental Appeals Board (Board) because specified percentages or amounts of third-party recoveries were given back to recipients. See Part IV, A, supra. Under a pure application of the Board's analysis as adopted by the dissent, Minnesota would be unable to guarantee any recovery to the recipient, because the Medicaid expenses must first be taken from any recovery, regardless of its label. Thus, even under the dissent's analysis, Minnesota's third-party recovery system is in jeopardy. Our decision also does justice to Hoff and other medical assistance recipients. The state has paid for Hoff's medical expenses and should be entitled to reimbursement when a third party is liable for those expenses. But, in the words of now Chief Justice Gerry L. Alexander of the Washington Supreme Court, the fund should be replenished only from amounts that a Medicaid recipient receives as reimbursement for elements of damage for which the State has assumed responsibility. Wilson, 10 P.3d at 1070 (Alexander, J., dissenting). Here, the state attempts to recover for medical expenses from a settlement for a cause of action that included pain and suffering, loss of earnings, loss of earning potential, and disfigurementnone of which is compensated by the state through medical assistance. These claims belong to Hoff alone, and may provide some relief or an increase in quality of life that is not possible through medical care.
We must now apply these holdings to the specific facts of this case. At the time of the accident, Hoff acquired a bundle of sticks, which represented all of his potential rights to recover against those responsible for his injuries. As a condition of receiving medical assistance from the state, Martin, on Hoff's behalf, assigned to the state one stick from that bundleHoff's specific right to recover medical expenses from those responsible for Hoff's injuries. [30] At that point, the state became the sole owner of Hoff's right to recover against any third parties for medical expenses. But Hoff retained ownership of the remaining sticks in the bundlethat is to say, his right to recover for pain and suffering, emotional distress, disability, disfigurement, loss of earnings, and loss of earning capacity. To the extent that Martin's settlement with the defendants was for this larger bundle of sticks (the original tort action minus the right to recover for medical care), the proceeds are Hoff's personal property, and as such are protected by the federal anti-lien provision. [31] It is unclear from the record what claims or rights to recover were part of the settlements. Martin, in her memoranda of law to the district court and in her briefing on appeal, erroneously characterizes the nature of the settlements as only for Hoff's claims and not for the state's claim pleaded by Martin for the state as plaintiff on impleader (i.e., the state's assigned claim for medical expenses). The settlement agreement with the city specifically incorporated the amended complaint by reference and purported to encompass all claims stated in the amended complaint, which included Hoff's claim for medical expenses and the separately pleaded claim for medical expenses paid by the state. The settlement agreements with the township and Tlougan's estate were not as comprehensive as the agreement with the city and did not contain similar language that clearly encompassed all claims in the amended complaint. This omission calls into question whether the state's claim pleaded by Martin was included in the settlement with the township and Tlougan's estate. But these settlement agreements do contain sufficient language indicating that the settlement was in satisfaction of the state's claims, although this language is not as straightforward as that in the settlement agreement with the city. Therefore, based upon our reading of the record below, we conclude that the settlements with defendants included and released all claims in the amended complaint, including the state's claim for medical expenses. The state initially received an assignment of Hoff's rights to recover for medical expenses against any potentially liable third parties, including defendants, but as part of the settlements the state released defendants from all further liability. Because of the assignment made in the medical assistance application and by virtue of the state's claim pleaded by Martin on impleader, the state's assigned claim for medical expenses was necessarily a part of the settlements. The result of the settlements and the releases is that the state's recovery of expenses from the defendants for Hoff's medical care is now limited to the settlement proceeds. Therefore, the state is entitled to that part of the settlements that represents a recovery on its claim for medical expenses. We are not able to determine from the record what part of the settlement proceeds is attributable to Hoff's nonassigned personal injury claims and what part is attributable to the state's separately owned right to recover medical expenses. In fact, it appears that the district court did not make such a determination. Accordingly, the district court's grant of Martin's motion to dismiss the state's claim to any of the settlement proceeds was in error. The court's conclusion that the settlement proceeds were Hoff's sole and exclusive property is not supported by the record, and therefore we must remand to the district court for further proceedings and clarification on the distribution of the settlement proceeds between Hoff's claims and the state's claim. Ultimately, that part of the settlement proceeds attributable to payment for medical expenses belongs to the state under the assignment; the remainder of the proceeds belongs to Hoff. On remand, the district court must specifically consider that the state's claim was part of the settlements and must specifically allocate the settlement proceeds among Hoff's nonassigned personal injury claims (excluding any recovery for medical care or expenses) and the state's separately owned claim for medical expenses. Here, it is important to remember that this case involves a settlement, and as with all settlements, represents a compromise of the parties' claims and damages. Had this case gone to trial, a jury would have been required to allocate the damages among the component claims. This courtapproved settlement is no different and should be similarly allocated by the court in recognition of the nature of the settlement as a compromise. Once the court has made that allocation, that part of the settlement proceeds which represents payment for Hoff's medical expenses paid by the state must be awarded to the state; all other settlement proceeds belong to Hoff. Reversed and remanded.