Lewis v. Rendell

501 F.Supp.2d 671

Zackery D. LEWIS by his next friends; Richard Young; Lynn G. Hainer, Administratrix of the Estate of Addie Smith; Susan W. Coleman; Kathy A. Burger, Tracy Palmer, Kenny Atkinson by his next friend; Bernice Tate by her next friend; The Arc Community Trust of Pennsylvania; and The Family Trust, on their own behalf and on behalf of all other persons similarly situated, Plaintiffs v. Edward G. RENDELL, in his official capacity as Governor of the Commonwealth of Pennsylvania; Estelle B. Richman, in her official capacity as Secretary of the Department of Public Welfare of the Commonwealth of Pennsylvania; Nora Dowd Eisenhower, in her official capacity as Secretary of the Department of Aging of the Commonwealth of Pennsylvania; Stephen M. Schmerin, in his official capacity as Secretary of the Department of Labor and Industry of the Commonwealth of Pennsylvania Calvin B. Johnson, in his official capacity as Secretary of the Department of Health of the Commonwealth of Pennsylvania; Gregory C. Fajt, in his official capacity as Secretary of the Department of Revenue of the Commonwealth of Pennsylvania; Thomas Corbett, in his official capacity as Attorney General of the Commonwealth of Pennsylvania; Alvania Miller, in her official capacity as Executive Director of the Montgomery County Assistance Office; Chuck Phillips, in his official capacity as Executive Director of Erie County Assistance Office, Defendants.

Civil Action No. 06-3963.

United States District Court, E.D. Pennsylvania.

August 3, 2007.

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Stephen A. Feldman, Feldman & Feldman, Jenkintown, PA, for Plaintiffs.

Doris M. Leisch, Office of General Counsel, Dept. of Public Welfare, Barry N. Kramer, Office of General Counsel, Philadelphia, PA, for Defendants.

MEMORANDUM

DuBOIS, District Judge.

I. INTRODUCTION

"The Medicaid. Act is an enormously complicated program. The system is a web; a tug at one strand pulls on every other. Given this complexity, there are untold ways in which a state plan might fail to comply with the Act and the governing regulations." West Virginia v. United States Dept. of Health and Human Services, 289 F.3d 281, 294 (4th Cir.2002) (quotations and brackets omitted). In this putative class action brought pursuant to 42 U.S.C. § 1983, plaintiffs seek declaratory and injunctive relief to enjoin enforcement of Section 9 of Pennsylvania Act 42 of 2005, 62 P.S. § 1414 ("Section 1414"). Plaintiffs challenge Section 1414 as inconsistent with the Medicaid Act, Title XIX of the Social Security Act, 42 U.S.C. §§ 1396-1396v ("Title XIX"), and violative of the Supremacy and Due Process clauses of the United States Constitution. The issue in the case is this: does Section 1414 establish improper eligibility criteria for a special needs trust, a type of trust excluded in determining whether an individual's income and resources are sufficiently low to qualify for Medicaid?

Plaintiffs name the following defendants in their Amended Complaint: (1) Edward G. Rendell, in his official capacity as. Governor of the Commonwealth of Pennsylvania; (2) Estelle B. Richman, in her official capacity as Secretary of the Department of Public Welfare of the Commonwealth of Pennsylvania; (3) Nora Dowd Eisenhower in her official capacity as Secretary of the Department of Aging of the Commonwealth of Pennsylvania; (4) Stephen M. Schmerin, in his official capacity as Secretary of the Department of Labor and Industry of the Commonwealth of Pennsylvania; (5) Calvin B. Johnson, in his official capacity as Secretary of the Department of Health of the Commonwealth of Pennsylvania; (6) Gregory C. Fajt, in his official capacity as Secretary of the Department of Revenue of the Commonwealth of Pennsylvania; (7) Thomas Corbett, in his official capacity as Attorney General of the Commonwealth of Pennsylvania; (8) Alavania Miller, in her official capacity as Executive Director of the Montgomery County Assistance Office; and (9) Chuck Phillips, in his official capacity as Executive Director of Erie County Assistance Office.

Currently before the Court are Attorney General Corbett's Motion to Dismiss Amended Complaint ("Attorney General's Motion to Dismiss") and the Motion to Dismiss Amended Complaint filed on behalf of every defendant except Attorney General Corbett ("Defendants' Motion to Dismiss"). The Court grants in part and denies in part the Attorney General's Motion to Dismiss, and grants in part and denies in part Defendants' Motion to Dismiss. Specifically, the Court: (1) dismisses the Amended Complaint with prejudice as to all defendants other than defendants Richman and Phillips; (2) dismisses Counts XI and XII of the Amended Complaint, which allege substantive due process violations, with prejudice; and (3) dismisses plaintiffs' procedural due process claim pertaining to deprivation of Medicaid benefits as alleged in Count IX of the Amended Complaint with prejudice. The Court denies the Attorney General's Motion to Dismiss and Defendants' Motion to Dismiss in all other respects.

II. BACKGROUND

A. Overview of Medicaid and Pennsylvania's Medical Assistance Program

The Medicaid Program, established by Title XIX, "is a cooperative federal-state program under which the federal government furnishes funding to states for the purpose of providing medical assistance to eligible low-income persons." Pennsylvania Pharmacists Ass'n v. Houstoun, 283 F.3d 531, 533 (3d Cir.2002) (citing 42 U.S.C. § 1396; Rite Aid of Pennsylvania, Inc. v. Houstoun, 171 F.3d 842, 845 (3d Cir.1999)). Although states are not required to participate in the. Medicaid program, "[i]f a state chooses to participate in the program, it must comply with the Medicaid Act and implementing regulations promulgated by the Secretary of Health and Human Services (`HHS')." Id. (citing Wilder v. Virginia Hosp. Ass'n., 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990)). "Consequently, Medicaid is `basically administered by each state within certain broad requirements and guidelines.'" Johnson v. Guhl, 166 F.Supp.2d 42, 46, aff'd 357 F.3d 403, 410 (3d Cir.2004) (citing West Virginia Univ. Hosps. Inc. v. Casey, 885 F.2d 11, 15 (3d Cir.1989)). "Participating states must devise and implement a State Medical Assistance Plan (SMAP) that is approved by the Secretary of HHS." Clark v. Richman, 339 F.Supp.2d 631, 637 (M.D.Pa.2004) (citing 42 U.S.C. § 1396; 42 C.F.R. § 430.10).

"Pennsylvania participates under Title XIX through its plan, thee Medical Assistance (MA) program." Clark, 339 F.Supp.2d at 631. "Under this program, the state and federal governments finance Medical Assistance to individuals whose resources are insufficient to cover the costs of their medical care." Frederick L. v. Department of Public Welfare, 157 F.Supp.2d 509, 513 n. 4 (E.D.Pa.2001) (citing Anderson v. Dept. of Pub. Welfare, 1 F.Supp.2d 456, 459 n. 1 (E.D.Pa.1998)). "Pennsylvania's Medical Assistance Program is administered by the" Department of Public Welfare ("DPW"). Id.

B. Special or Supplemental Needs Trusts ("SNTs")

In order to be financially eligible for Medical Assistance, a person must have income and resources below a threshold set forth by the Secretary of HHS. 42 U.S.C. § 1386a(a)(17). "As background, § 1396p(d)(3) instructs states how to treat trusts for Medicaid eligibility purposes." Johnson, 357 F.3d at 410. Under § 1396p(d)(3), income and resources from trusts must generally be included in determining eligibility for medical assistance.

However, "property in a Supplemental Needs Trust is not considered in evaluating an applicant's resources...." Horowitz ex rel. Horowitz v. Apfel, 143 F.Supp.2d 240, 242 (E.D.N.Y.2001), aff'd 29 Fed.Appx. 749 (2d Cir.2002). "A supplemental needs trust is a `discretionary trust established for the benefit of a person with severe and chronic or persistent disability' and is intended to provide for expenses that assistance programs such as Medicaid do not cover." Horowitz v. Barnhart, 29 Fed.Appx. 749, 751 (2d Cir. 2002) (citing Sullivan v. County of Suffolk, 174 F.3d 282, 284 (2d Cir.1999)). Section § 1396p(d)(4)(A) sets forth the requirements for a special needs trust.

This section provides that disabled persons under the age of 65 remain eligible for ongoing Medicaid assistance (MA) in spite of funds or other property held in an SNT, and can use SNT funds as a supplement to enhance the quality of their lives. The disabled person remains eligible for. MA so long as the SNT contains a pay-back trust provision, i.e., a provision specifying that the total MA provided ... will be paid back to the state after the beneficiaries' death from any funds remaining in the trust.

Norwest Bank of North Dakota, N.A. v. Doth, 159 F.3d 328, 330 (8th Cir.1998). Importantly, "§ 1396p(d)(4)(A) refers to the eligibility for Medicaid and provides that eligibility will not be affected by the existence of a supplemental needs trust." Sullivan, 1 F.Supp.2d at 190.

C. Section 1414

Section 1414, the Pennsylvania state statute that plaintiffs challenge as unconstitutional and violative of the Medicaid Act, was enacted on July 7, 2005. The statute provides, in relevant part, as follows:

(b) A special needs trust shall comply with all of the following:

(1) The beneficiary shall be an individual under the age of sixty-five who is disabled, as that term is defined in Title XVI of the Social Security Act.

(2) The beneficiary shall have special needs that will not be met without the trust.

(3) The trust shall provide:

(i) That all distributions from the trust must be for the sole benefit of the beneficiary.

(ii) That any expenditure from the trust must have a reasonable relationship to the needs of the beneficiary.

(iii) That, upon the death of the beneficiary or upon the earlier termination of the trust, the department and any other state that provided medical assistance to the beneficiary must be reimbursed from the funds remaining in the...