State Medicaid Liens Limited by US Supreme Court in Wos v. E.M.A.

States are required to seek reimbursement from tortfeasors for amounts expended by the states' Medicaid programs for healthcare treatment of tort plaintiffs. Calculating what amount the state Medicaid programs are entitled to out of a tort plaintiff's judgment or settlement has presented challenging issues for plaintiffs' attorneys, including:

1. What happens when a settlement is reduced due to insurance policy limits or liability issues, such that recovery of future economic damages, wage loss, or some other type of damage, eats up the entire recovery?

2. Should the state Medicaid program be able to assert its full lien despite the fact that it could potentially leave the tort plaintiff with very little?

3. Even if the Medicaid lien was limited by state statute to a certain percentage of the recovery, should the state Medicaid program be able to recover that amount, when the tort plaintiff had not recovered all of the medical expenses claimed by the Medicaid program?

4. Can a state designate a percentage of the tort recovery from which it can recover?

The Ahlborn Case

In Arkansas Dept. of Health and Human Services v. Ahlborn, 126 S. Ct. 1752 (2006), the U.S. Supreme Court held that the federal Medicaid statute's anti-lien provision preempts a State's effort to take any portion of a Medicaid beneficiary's tort judgment or settlement not "designated as payments for medical care." See, 42 U.S.C. section 1396p(a)(1).

Ahlborn had suffered severe injuries as a result of a car accident that left her with permanent brain damage. She claimed damages not only for past medical costs, but also for permanent physical injury, future medical expenses, past and future pain, suffering, and mental anguish, past loss of earnings and working time, and permanent impairment of the ability to earn in the future.

Importantly, in Ahlborn, the parties stipulated that Ahlborn's entire claim was reasonably valued at $3,040,708.18 and that the settlement of $550,000 amounted to approximately one-sixth of that sum. They also stipulated that the amount of $35,581.47 constituted reimbursement for medical payments made under the settlement, although the Medicaid program paid $215,645.30.

This seminal case clarified that if the amount recovered for medical expenses has been reduced for some reason, as here, for the tort plaintiff's contributory negligence, such that the full value of medical expenses has not been recovered, the Medicaid agency can only make a claim against the amounts designated as payments for medical care.

The court noted that it was not faced with the issue of how to allocate the amount of medical expenses since the parties had stipulated to the same, and suggested that parties could obtain the State's advance agreement to an allocation or, if necessary, submit the matter to a court for decision.

Wos v. E.M.A.

In Wos v. E.M.A. 568 U. S. ____ (March 20, 2013), the U.S. Supreme Court addressed the question left open by Ahlborn, that is, how to determine what portion of a Medicaid beneficiary's tort recovery is attributable to medical expenses.

E.M.A., a minor, was born with multiple serious birth injuries that require her to receive between 12 and 18 hours of skilled nursing care per day, and that will prevent her from being able to work, live independently, or provide for her basic needs. North Carolina's Medicaid program paid part of the cost of her ongoing medical care.

Her parents sued the doctor who delivered her, and the hospital where she was born for medical malpractice.

Although her damages were estimated to be approximately $42 million, the parties settled for $2.8 million, due to insurance policy limits. Significantly, the parties did not allocate what portion of the settlement was for medical costs, and what portion was for non-medical damages.

North Carolina's statutory scheme set forth an irrebuttable presumption that one-third of a tort recovery was attributable to medical expenses. Thus, under the law, when the state's Medicaid expenditures exceed one-third of a beneficiary's tort recovery, the statute establishes a conclusive presumption that one-third of the recovery represents compensation for medical expenses, even if the settlement or verdict had expressly allocated a lower percentage of the judgment to medical expenses.

The court held that the federal anti-lien provision preempted North Carolina's irrebuttable statutory presumption that one-third of a tort recovery is attributable to medical expenses.

Writing for the majority, Justice Kennedy concluded that North Carolina's presumption was incompatible with the Medicaid Act's clear mandate that a State may not demand any portion of a beneficiary's tort recovery except the share that is attributable to medical expenses.

"If a State could arbitrarily designate one-third of any recovery as payment for medical expenses, it could arbitrarily designate half or all of the recovery in the same way. The State offers no evidence showing that its allocation is reasonable in the mine run of cases, and the law provides no mechanism for determining whether its allocation is reasonable in any particular case."

The court went on to note that a judicial or administrative proceeding may be necessary where a Medicaid beneficiary and the State are unable to agree on what portion of a settlement represents compensation for medical expenses.

Thus, states that attempt to recover the full value of their Medicaid liens when that amount has not been recovered by the tort plaintiff are prohibited from doing so. Further, state statutory schemes purporting to assert a lien over a set percentage of a tort plaintiff's recovery, regardless of what damages are medical and non-medical, do not pass muster.

Enforcing the holdings of these two cases may prove challenging, particularly when it can be difficult to reach a live person at a Medicaid office, and they often simply send a letter indicating the amount they assert should be repaid. Trying to involve the Medicaid program prior to finalization of the settlement should be attempted, and documenting these efforts is a must. As suggested in both Ahlborn and Wos, it may be necessary to resort to a hearing to determine what portion of the settlement proceeds represents medical expenses recovered.

*Update Note: see this discussion of the passage of Section 202 of the Bipartisan Budget Act and its effect on the holdings of these cases. 

For further discussion on liens, please see:
1. The FindLaw Guide to Negotiating Liens in Personal Injury Cases
2. Negotiating Tips for Hospital Liens in Personal Injury Cases
3. Negotiating Tips for "Med Pay" Claims for Reimbursement
4. Tips for Negotiating ERISA Liens in Personal Injury Cases
5. 7 Steps to Approaching Lien Claims in Personal Injury Cases
6. How to Deal with Medicare Liens in Personal Injury Cases
7. Negotiating Tips for Health Insurance Liens in Personal Injury Cases
8. What US Airways v. McCutchen Means for Your Personal Injury Cases