Supreme Court eyes state's Medicaid recovery formula

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February 21, 2013

Supreme Court eyes state's Medicaid recovery formula 

Steven M. Sellers

How should states calculate Medicaid recovery after a settlement or trial? The Supreme Court heard oral argument on a North Carolina case that asks this question, and the answer could indicate whether states may arbitrarily and unilaterally decree that settlements include full reimbursement for Medicaid expenses paid, regardless of the facts of a particular case.

The Supreme Court heard oral argument in a North Carolina case that questions the way the state calculated its share of recoveries from a third party after a settlement or trial. The case may change the Medicaid recovery methods of at least 34 states that apply similar statutory recovery formulas without regard for the actual medical damages plaintiffs incurred. (Delia v. E.M.A., No. 12-98 (U.S. argued Jan. 8, 2013).)

The plaintiff, a 13-year-old North Carolina girl who suffered profound mental and physical disabilities at birth as the result of medical negligence, agreed to a discounted $2.8 million settlement in part because of the physician’s limited insurance coverage. Her lawyers claimed that the girl’s total damages exceed $42 million.

When the girl’s guardian ad litem filed a medical malpractice suit in state court, North Carolina filed a lien to recover 30 percent of any payment for medical expenses pursuant to a state statute that allocates that percent of recovery for medical expenses paid by Medicaid. A state judge granted the state one-third of the settlement ($933,333.33) under the statute, and the plaintiff sought a declaratory judgment in federal court that the anti-lien provision of the federal Medicaid Act preempted the state’s interest. That provision states that “no lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan.”

The federal district court stayed its decision pending the outcome of a similar case before the North Carolina Supreme Court. The state supreme court ultimately concluded that North Carolina’s medical expense recovery statute was not preempted by federal law. The court also distinguished Arkansas Department of Health & Human Services v. Ahlborn, the controlling Supreme Court case on the issue, because the parties in Ahlborn had stipulated to the reasonable value of the plaintiff’s total claim for damages. The federal district court concurred, but the Fourth Circuit reversed on appeal, holding that the irrebuttable presumption of the North Carolina statute was preempted by the anti-lien statute in the Medicaid Act.

“In Ahlborn, the Supreme Court ruled that federal law only permitted state Medicaid agencies to obtain reimbursement for Medicaid expenses out of that portion of a tort settlement that represented compensation for past medical expenses; the anti-lien provision of the Medicaid Act prohibited them from seeking reimbursement out of other portions of a settlement that compensated the Medicaid recipient for other ‘heads of damages,’ such as lost wages, future medical expenses, or pain and suffering,” said Louis Bograd, senior litigation counsel with the Center for Constitutional Litigation in Washington, D.C.

Bograd said Delia is significant because it concerns whether states may arbitrarily and unilaterally decree that settlements include full reimbursement for Medicaid expenses paid, regardless of the facts of a particular case. “If the Court were to uphold North Carolina’s arbitrary allocation law,” Bograd said, “it would completely undermine the valuable ruling in Ahlborn.”

Sixteen states and the District of Columbia have statutes that apply a more flexible, rebuttable presumption to the percentage of a state’s Medicaid recovery. But at oral argument of Delia, the justices questioned whether any method—including those specific to a case—was capable of accurately calculating medical expenses. They also voiced concern over the burden placed on states to conduct separate hearings to determine Medicaid recovery percentages in each case.

Arguing for the plaintiff, Christopher Browning of Raleigh, N.C., characterized the North Carolina statute as taking “one-third of a settlement or judgment regardless of the facts of the case.” Justice Sonia Sotomayor asked North Carolina Solicitor General John Maddrey whether he had “any evidence that in those states where it’s only a presumption and not a fixed amount that they are falling apart because of it.”

The Department of Justice supported the plaintiff in the case. Chief Justice John Roberts queried Ginger Anders, assistant to the U.S. solicitor general, whether imposing a burden on states to conduct separate judicial or administrative hearings on Medicaid recovery percentages is “unreasonable” and, in any event, could be as inaccurate as a bright-line allocation rule like that in used in North Carolina.

A decision in the case, which is expected by June, may shed light on the vitality of Ahlborn, the anti-lien provision, and states’ flexibility to determine their own methods to recover Medicaid costs after a civil judgment.

“North Carolina officials attempted to portray the Ahlborn allocation process as unprecedented, unworkable, and standardless,” said Bograd. “But courts—and litigants—are regularly called upon to allocate settlements that fail to fully compensate injured parties. Examples include dividing settlements between multiple plaintiffs, allocating settlements for tax purposes, and interpleader actions. Indeed, North Carolina law employs a nearly identical procedure for reimbursing employers out of tort settlements in workers' compensation cases,” he said.

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