The opinion of the court was delivered by: GEORGE DANIELS, District Judge
Plaintiffs, by their mothers, bring suit against defendant
alleging violations of their federal rights under
42 U.S.C. §§ 1396k and 1396a(a)(25) and of their constitutional rights under
the New York State Constitution and the Fourteenth and Fifth
Amendments. Defendants move to dismiss pursuant to Fed.R. Civ.
P. 12(b)(6) for failure to state a claim and under Fed.R. Civ.
P. 12(b)(1) for lack of subject matter jurisdiction. For the
reasons stated below, defendant's motion to dismiss is granted in
part and denied in part.
Plaintiffs Noel Mejia, Daniel Benitez and Anthony Pena are
infant recipients of Medicaid assistance from defendant New York
City. Medicaid, a jointly funded federal and state medical
assistance program, pays the medical costs of qualifying indigent
individuals whose income and resources are insufficient to meet
the costs of their medical care. Established under Title XIX of
the Social Security Act, 42 U.S.C. § 1396 et seq. and
implemented in New York State by the Social Services Law § 267
et seq., Medicaid is administered in New York City by the Human Resources Administration ("HRA") under the supervision of the New
York State Department of Health.
Under Title XIX, New York State is obligated to develop its own
Medicaid plan and establish a rates-and-methods schedule. The
State must also "take all reasonable measures to ascertain the
legal liability of third parties . . . to pay for care and
services available under the plan" and must seek reimbursement
from such third parties. 42 U.S.C. § 1396a(a)(25)(A) and (B).
This requirement furthers the ultimate goal that Medicaid "be the
payer of last resort." Sen. Rep. No. 146, 99th Cong., 2d Sess.,
312, reprinted in 1986 U.S. Code Cong. & Admin.News 42, 279; see
Matter of Steuben County Dept. of Social Servs. v. Deats,
76 N.Y.2d 451, 455, 560 N.Y.S.2d 404, 560 N.E.2d 760 (N.Y. 1990).
Pursuant to this goal, Medicaid recipients are required to assign
to New York State the right to seek reimbursement from any third
party up to the amount of medical assistance paid.
42 U.S.C. § 1396k(a)(1)(A); N.Y.S. Social Services Law § 366(4)(h)(1);
18 NYCRR 360-7.4(a)(4).
In New York State, therefore, the local social services
district is subrogated, to the extent of its expenditures for
medical care furnished, to any rights a Medicaid recipient may
have to third party reimbursement. N.Y.S. Social Services Law §
367-a (2)(b); 18 NYCRR 360-7.4(a)(6). Pursuant to this assignment
and subrogation scheme, New York State "obtains all of the rights
that the recipient has as against the third party to recover for
medical expenses, including the ability to immediately pursue
those claims against the third party." Cricchio v. Pennisi,
supra, 90 N.Y.2d 296, 307, 660 N.Y.S.2d 679, 683 N.E.2d 301
As an alternative to suing the responsible third party
directly, the State, through the appropriate agency, may pursue
reimbursement by placing a lien on personal injury suits brought by a Medicaid recipient against the responsible party. See
N.Y.S. Social Services Law § 104-b. Under N.Y.S. Social Services
Law § 104-b(3) and (7), a Medicaid lien "shall attach to any
verdict, decision, decree, judgment, award or final order in any
suit, action or proceeding in any court or administrative
tribunal of this state respecting such injuries, as well as the
proceeds of any settlement thereof," and continues until
discharged by the public welfare official.*fn1
In the present case, plaintiffs suffer from long term physical
and mental disabilities for which they received Medicaid
assistance that covered the costs of their medical care. In
individual state court actions, plaintiffs brought medical
malpractice lawsuits that resulted in settlement offers.
Subsequent to these settlements, HRA, pursuant to N.Y.S. Social
Services Law § 104-b, asserted liens against the settlement
amounts received by each plaintiff. In their complaint,
plaintiffs do not contest the assignment of their right to third
party reimbursement to the Social Services agency. Nor do they
question the propriety of Medicaid's lien against their
settlement recovery. Plaintiffs challenge, however, the amount
that the City alleges is owed to them for the cost of medical
care. Specifically, plaintiffs claim that when the City
reimburses certain health care providers, the City also pays
these providers additional amounts, called allowances and/or
surcharges, in excess of the actual cost of the medical care
pursuant to N.Y.S. Public Health Law §§ 2807-c et seq.,
including a Graduate Medical Education ("GME") Surcharge, a Bad
Debt and Charity Care ("BDCC") Surcharge, and charges for
educational services including "assistive technology services"
and "related services."*fn2 Plaintiffs argue that the GME and BDCC surcharges are not medical care expenditures
and, therefore, should not be included in the amount sought by
HRA in their lien. Plaintiffs further argue that defendant
wrongly includes in their lien the cost of educational services.
Plaintiff claims that this cost must be provided free of charge
under the Individuals with Disabilities Education Act ("IDEA").
Plaintiffs allege that after Benitez recovered $2,250,000 in
settlement proceeds before the Justice Joseph Levine of the New
York State Supreme Court, HRA placed a lien against Benitez's
settlement in the amount of $443, 437.68. Complaint at 7, ¶ 36.
Plaintiffs dispute this amount, alleging that it includes a GME
surcharge, a BDCC surcharge and charges for educational and
related services that are not "medical care" and, therefore,
should be exempt from HRA's asserted lien. See Complaint at
4-8, ¶¶ 18, 35-41. "On February 16, 2001, Justice Joseph Levine
of the Supreme Court of the State of New York entered an order
directing that, inter alia, a portion of the Benitez Settlement
funds, equal to the amount of the disputed lien asserted by HRA,
be paid into an escrow account pending final adjudication of the
lien dispute." Id. at 8, ¶ 42.*fn3 Benitez seeks a
determination of the amounts asserted by HRA for the GME
surcharge, the BDCC surcharge and the cost of the educational and
related services. Id. at 19, ¶¶ 1, m.
Plaintiff Pena recovered $3,000,000 in his medical malpractice
lawsuit from which HRA claimed a lien in the amount of
$358,271.63. Id. at 8, ¶ 35. On December 6, 2000, Justice Gerald Esposito of the Supreme Court of the State of New York
signed an Order directing that $225,000.00 be paid to HRA in full
payment of its claim for Medicaid. Justice Esposito further
ordered that the "amount of $139,407.79 was to be held in trust
and invested in United States Treasury Bonds for a three-year
period, to be paid to HRA, if, within the said three-year period
(i) a Supplemental Needs Trust were established or (ii) an
application for Medicaid benefits were filed on behalf of Anthony
Pena; otherwise, the amount would be added to the corpus of the
"Anthony Pena Structured Settlement Pour Over Trust." Id. at 9,
¶ 46.*fn4 Pena seeks a rescission of the portion of this
agreement that includes amounts asserted by HRA for the GME
surcharge, the BDCC surcharge and the cost of the educational and
related services. Id. at 19, ¶¶ l-o.
Plaintiff Mejia settled his lawsuit for $3,000,000 from which
HRA asserted a lien in the amount of $311,424.89. Complaint at 6,
¶¶ 28-29.*fn5 Mejia also seeks a determination of the amount
of the GME surcharge, the BDCC surcharge and the cost of
educational and related services that is included in HRA's
Plaintiffs allege that by asserting these liens in the amounts
in question, defendant violated their federal and constitutional
rights under 42 U.S.C. § 1983. Plaintiffs claim that "[t]he
defendant's collection of the Surcharges from class members'
recoveries deprives class members of property without due process
of law, in violation of the Fourteenth Amendment to the
Constitution of the United States and in violation of
42 U.S.C. §§ 1396a(a)(25) & 1396k." Id. at 14, ¶ 68. Plaintiffs maintain
that the "defendant's collection of the Surcharges from class
members' recoveries takes class members' property for public use
without just compensation, in violation of the Fifth and Fourteenth Amendments to the
Constitution of the Unites States." Id. at 14, ¶ 69. Plaintiffs
further allege that the defendant's collection of the cost of
educational services, including related services, from the
plaintiffs' recoveries violates the Individuals with Disabilities
Education Act, 20 U.S.C. § 1400(c), the Rehabilitation Act,
29 U.S.C. § 794, as well as the Fifth and Fourteenth Amendments.
Plaintiffs also claim that the defendant's actions deprive them
of state constitutional rights guaranteed under Article I, §§ 6,
7 and Article XVII, § 1 of the New York State Constitution.
Furthermore, plaintiffs allege that the defendant has "been
unjustly enriched" and "[i]n equity and good conscience,
defendant should not be allowed to retain or seek that money."
Complaint at 17, ¶¶ 88-89. Lastly, plaintiffs claim that in
making representations that the amounts claimed are the actual
cost of the health care provided, defendant committed fraud
because "the amounts claimed include the Surcharges and the cost
of educational services, including related services, to which
children with disabilities are entitled under the IDEA." Id. at
17, ¶ 92.
Plaintiffs seek: (1) a determination of the amount of
Surcharges included in defendant's subrogation claims; (2) a
determination of the amounts included in the subrogation claims
which defendant asserts against the representative plaintiffs
which represent the cost of educational services, related
services, assistive devices or any other goods or services to
which they are entitled under the provisions of the IDEA; (3) a
determination of the amount the defendant is entitled to collect;
(4) rescission of that ...