In a case argued by ASNP Advisory Board Member A. Frank Johns, a federal district court rules that the special needs trust of a now-deceased Medicaid beneficiary may owe the state only for monies spent following the trust’s creation, not over the beneficiary’s lifetime.  Although the court dismisses the trust’s constitutional claims it declines to issue a ruling interpreting the Medicaid payback requirements of 42 U.S.C. § 1396p(d)(4)(A) until there is a resolution of whether the state’s cashing of trust’s check constituted anaccord and satisfaction of the disputed debt.  Corporation for Guardianship, Inc. v. Brajer (M.D.N.C., No. 1:15CV245, March 21, 2016).

Hillary Winfree participated in a class action lawsuit related to the toxic drug E-Ferol.  As part of the settlement of that action, the parties established a protocol that allowed third-party lien claimants an opportunity to submit claims for reimbursement from the settlement funds.  The North Carolina Department of Health and Human Services did not file any claims for medical expenses through this process.  Therefore, the court ordered that “no E-Ferol class member has any reimbursement obligation . . . under the Third-Party Reimbursement and Recovery Provisions of the Medicaid statues of the fifty states, or . . . any other . . . state statute, regulations, and various state laws governing Medicaid Third-Party liability claims recovery.”  Ms. Winfree’s settlement was deposited into a first-party special needs trust approved by the court.

After Ms. Winfree died in 2014, DHHS asserted a claim for $695,910.83 against the trust, representing the total Medicaid services provided to Ms. Winfree over the course of her lifetime.  The trust disagreed, claiming that, due to the court’s order, Ms. Winfree owed the state only $77,587.91, the amount the state spent on her care after the establishment of the trust.  The trust sent a check for this amount to the state, marked as “Full Payment in Satisfaction of Disputed Claim.”  The state replied with a letter claiming that it was not accepting payment as complete satisfaction of the claim, but it did cash the check.  Ms. Winfree’s family and her trust filed suit in 2015 seeking a declaratory judgment absolving them of further responsibility for the Medicaid claim.  They made several due process arguments and also claimed that 42 U.S.C. § 1396p(d)(4)(A) prevents the state from recovering money spent prior to the settlement from the trust.  The state filed a motion to dismiss.

The U.S. District Court for the Middle District of North Carolina throws out the due process claims but refuses to rule on the statutory claim because it finds that an accord and satisfaction claim against the state may be successful.  The court finds that “[w]hile Plaintiffs allege that the process followed by the Defendants in attempting to garner greater payout from the SNT at issue here was constitutionally problematic, the basic issue remains that Plaintiffs have not alleged sufficiently their entitlement to the trust proceeds.”  However, when it comes to the statutory claims, the court says that “if Plaintiffs have alleged facts sufficient to establish an accord and satisfaction such that no further money is due from the SNT, then there is no need for this court to construe the statute.”