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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE FIRST CAPITAL SURETY & TRUST COMPANY, f/k/a MORGAN CHASE TRUST COMPANY, Petitioner, v. REESE BARNES ELLIOTT, III, TRAVIS ALAN ELLIOTT, STEPHANIE ELLIOTT, DELAWARE HEALTH AND SOCIAL SERVICES, DIVISION OF MEDICAID AND MEDICAL ASSISTANCE, PENINSULA SURGICAL GROUP, P.A., BEEBE MEDICAL CENTER, INC., THE DOVER POST COMPANY, PENINSULA REGIONAL MEDICAL CENTER P/O PENINSULA REGIONAL HEALTH SYSTEM, HEALTHSOUTH CHESAPEAKE, A DIVISION HEALTHSOUTH CORPORATION, ABILITY REHAB ASSOCIATES, and UNKNOWN OCCUPANTS, Respondents. ) ) ) ) ) ) ) Civil Action No. 4194 -VCG ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

MEMORANDUM OPINION Date Submitted: June 29, 2012 Date Decided: September 27, 2012 Jason C. Powell, of FERRY, JOSEPH & PEARCE, P.A., Wilmington, Delaware Attorney for Respondents Reese Barnes, III and Travis Alan Elliott. Peter S. Feliceangeli, of STATE OF DELAWARE DEPARTMENT OF JUSTICE, Attorney for Respondents Rita M. Landgraf and Roseanne Mahaney.

James E. Deakyne, Jr. and Susan Huesman Mitchell, of TUNNELL & RAYSOR, P.A., Lewes, Delaware, Attorneys for Petitioner First Capital Surety & Trust Company.

GLASSCOCK, Vice Chancellor

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This case involves a question of first impression: to what extent may the State of Delaware recover correctly paid Medicaid payments from a Supplemental Needs Trust upon the death of the beneficiary? Specifically, may the State seek to recoup Medicaid payments made to the beneficiary before the trust was established? I conclude that Congress' intent, as expressed by statute, is that a state may recoup those Medicaid payments which would not have been made absent establishment of the trust, but not those properly made before the trust was created. Medicaid is a program designed to provide funds for the medical treatment of the poor.1 The Medicaid program is funded by both the federal and state governments.2 The federal government pays the majority of the costs that "the State incurs for patient care, and in return the State pays its portion of the costs and complies with certain statutory requirements for making eligibility determinations, collecting and maintaining information, and administering the program."3 If an individual has assets available to him above a statutory limit, he is ineligible to receive Medicaid assistance.4 Congress, however, has authorized that certain

substantially disabled individuals may establish a Supplemental Needs Trust

Ark. Dep't of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 275 (U.S. 2006) Id. 3 Id. 4 See Lewis v. Alexander, 685 F.3d 325, 332 (3d. Cir. 2012) ("As with many government programs, eligibility for Medicaid is partially dependent on the claimant's income and assets.").
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("SNT") whereby funds available to an individual, that would otherwise exclude him from receiving Medicaid, may be shielded from counting as income or assets when determining Medicaid eligibility.5 This arrangement ensures that a qualified individual can receive assets and use them for his own benefit, to supplement Medicaid payments and improve his quality of life, yet remain eligible to receive Medicaid payments.6 Congress, however, has mandated that when such a

Medicaid recipient has set up an SNT, upon that individual's death, the State must recover from the SNT the "total" Medicaid expenditures paid to that individual.7 In other words, the statute mandates that the State relax its Medicaid eligibility requirements through the use of SNTs, but then directs it to recoup its expenditures from the trust upon the recipients death.8 Here, the recipient became disabled through medical malpractice. He

received substantial assistance from the State Medicaid program--over $350,000--before receiving a tort award of over $500,000.9 The State could have, but failed to, assert subrogation rights against this recovery. The recipient created an SNT, and placed the funds in that trust. As a result, his Medicaid eligibility,

See 42 U.S.C.

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