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MEJIA v. CITY OF NEW YORK

December 10, 2004.

NOEL MEJIA, An Infant, by his Mother and Natural Guardian, EUFEMIA RAMIREZ, DANIEL BENITEZ, An Infant, by his Mother and Natural Guardian, TERESA BENITEZ, and ANTHONY PENA, An Infant, by his Mother and Natural Guardian, OFELIA PENA, Plaintiffs,
v.
THE CITY OF NEW YORK, by its Human Resources Administration Defendant.



The opinion of the court was delivered by: GEORGE DANIELS, District Judge

OPINION

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.

I. Background

  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 (N.Y. 1997).

  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 asserted lien.

  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 ...


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