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Though rendered in 2006, we recently received a request to brief and
discuss the practical impact the United States Supreme Court opinion
in Arkansas Department of Health and Human Services, et al. v.
Ahlborn (2006) 547 U.S. ___; 126 S.Ct. 1752 might have on settlement
negotiations in personal injury cases. In Ahlborn, the Court was
asked to determine the enforceability of an Arkansas law that
required a tort plaintiff who received medical care through Medicaid
to fully reimburse the Department of Health Services (ADHS) for all
its costs, even if the amount of the lien for those costs exceeded
the portion of the settlement or judgment that represented the cost
of medical care rendered. The Arkansas law provided that the ADHS
was entitled to full reimbursement, even if the reimbursement monies
came from that portion of the settlement or judgment intended to
compensate the plaintiff for pain and suffering, lost wages, etc.
The Supreme Court ruled unanimously that the Arkansas law was
contrary to federal Medicaid laws and therefore unenforceable.
Because federal law prohibits Medicaid liens on “personal property,”
liens by States to recover Medicaid expenditures may only reach that
portion or percentage of the settlement or judgment that represents
payment for past medical expenses.
Heidi Ahlborn was a 19-year old college student when she was
severely injured in an automobile accident. Though she had a claim
of uncertain value against the parties allegedly responsible for her
injuries, her assets were insufficient to pay for her medical and
rehabilitative care. Petitioner ADHS determined she was eligible for
medical assistance and paid providers $215,645.30 on her behalf
under the State’s Medicaid plan. ADHS required Ahlborn to fill out a
questionnaire about her accident and asked her attorney to provide
updates on any litigation. The letters indicated that ADHS had a
claim to reimbursement for any payments received from a third party
who may be liable for her injuries, and that no settlement shall be
finalized without giving ADHS notice.
Ahlborn’s suit for personal injuries against two alleged tortfeasors
sought compensation for her injuries and included claims for past
and future medical expenses, lost wages, pain and suffering, among
other things. ADHS was neither named as a party nor formally
notified of the suit. Ahlborn’s attorney did keep ADHS informed of
issues regarding insurance coverage as they became known.
About a year after Ahlborn filed her lawsuit, ADHS intervened in the
action to assert a lien on any third-party recovery Ahlborn might
obtain. About 8 months later, ADHS asked Ahlborn’s attorney to
notify the agency if there was a hearing in the matter. The matter
settled before trial or other hearing for $550,000, and the parties
did not allocate the settlement between the various categories of
claimed damages. ADHS did not participate, nor did it ask to
participate in settlement negotiations; it did not ask to re-open
the matter following the finalization of the settlement. It did
assert its lien, though, in the amount of the $215,645.30 spent on
medical care for Ahlborn.
Ahlborn thereafter sought declaratory relief on the grounds that
“the lien violated the federal Medicaid laws insofar as its
satisfaction would require depletion of compensation for injuries
other than past medical expenses.” Interestingly, to help the
District Court with its analysis, the parties (Ahlborn and ADHS)
stipulated that the total cost of Ahlborn’s claims could be
“reasonably valued” at $3,040,708.18 and that the $550,000
settlement represented approximately one-sixth of that amount. The
parties also stipulated that if Ahlborn’s interpretation of federal
law was correct, the percentage of the settlement that could be
allocated to medical costs would be $35,581.47 (approximately
one-sixth of $215,645.30). If the State’s interpretation was
correct, however, and the Arkansas law did not conflict with the
federal Medicaid laws, it would be entitled to reimbursement of the
nearly quarter-million dollar lien.
After both sides filed summary judgment motions, the District Court
agreed with the ADHS and ordered Ahlborn to pay the $215,645.30
lien. Thereafter, Ahlborn appealed and the Eight Circuit court
agreed with her and reversed. Because of a conflict among Circuits,
the Supreme Court granted certiorari and then affirmed. The Supreme
Court held that under federal Medicaid laws, a state cannot seek
reimbursement of more than the portion of a judgment or settlement
that represents payment for medical expenses.
The court went through a detailed analysis of the federal Medicaid
laws and explained why the Arkansas law was inconsistent with them.
It noted the “State, through this statute, claims an entitlement to
more than just that portion of a judgment or settlement that
represents payment for medical expenses. It claims a right to
recover the entirety of the costs it paid on the Medicaid
recipient’s behalf. Accordingly, if, for example, a recipient sues
alone and settles her entire action against a third-party tortfeasor
for $20,000 and ADHS has paid that amount or more to medical
provides on her behalf, ADHS gets the whole settlement and the
recipient is left with nothing. This is so even when the parties to
the settlement allocate damages between medical costs, on the one
hand, and other injuries like lost wages, on the other. The same
rule would also apply, it seems, if the recovery were the result not
of a settlement, but of a jury verdict. In that case, under the
Arkansas statute, ADHS could recover the full $20,000 in the face of
a jury allocation of, say, only $10,000 for medical expenses.”
The court found the State’s law not only has no support in federal
law but, “in fact squarely conflicts with the anti-lien provision of
the federal Medicaid laws” which limits the amount recoupable via a
lien to recovery of payments for medical care. The court held that
ADHS could not lay claim to more than the portion of a settlement or
judgment that represented medical expenses. Federal anti-lien
provisions actually precluded the attachment or encumbrance of the
remainder of plaintiff’s settlement.
ADHS argued, among other things, that there is an “inherent danger
of manipulation in cases where the parties to a tort case settle
without judicial oversight or input from the state,” an argument the
Supreme Court found unpersuasive. In this case, the Court observed
ADHS stipulated that only $35,581.47 of Ahlborn’s settlement
proceeds were properly “designated as payments for medical costs.
Even in the absence of such a post-settlement agreement, though, the
risk that parties to a tort suit will allocate away the State’s
interest can be avoided either by obtaining the State’s advance
agreement to an allocation or, if necessary, by submitting the
matter to a court for decision.”
As a practical matter, the presence of a lien can impair efforts to
settle a case. Given the language of the Supreme Court in Ahlborn
about “allocating away the State’s interest,” it does not seem
prudent to take the position that no settlement money should be
allocated for medical costs in a case where Medi-Cal has actually
paid providers and made a lien for those sums. Ahlborn stands for
the proposition that a state cannot over-reach when trying to seek
reimbursement for Medicaid costs by taking more than the portion of
the damages award or settlement that represents medical costs, not
that the State is not entitled to anything simply because the total
damages may be low and the recovery by plaintiff will be low if he
or she is compelled to pay the lien.
The Supreme Court’s opinion suggests that a workable approach to
reaching a successful settlement in a case where there is a lien
might be to establish what plaintiff’s total damages claims are,
what portion or percentage of those damages is represented by the
proposed settlement (in Ahlborn the settlement was approximately 1/6
of the reasonable value of the total damages claim), what portion of
plaintiff’s total damages are made up of past medical expenses (the
total amount paid by Medi-Cal) and then apply the total
damages-to-settlement-amount ratio to reduce the Medi-Cal lien
proportionally. There would seem to be great incentive on the part
of plaintiffs’ attorneys to work with defense counsel to come to
some agreement about 1) the “reasonable value” of the total damages
in the case; 2) the total damages-to-settlement ratio and 3) what
portion of the total damages claim is made up of past medical
expenses and will be reduced by the total
damages-to-settlement-amount ratio.
However, an agreement between the plaintiff and alleged tortfeasor
may not be enough to form the basis of a finding that the case has
been “reasonably valued” from the State’s perspective. Given the
Court’s language in Ahlborn, parties may want to either involve the
state in the stipulation process or obtain a court order that
affirms the appropriateness of their stipulation to the “reasonable
value” of the entire claim and/or what portion or percentage of that
claim can be attributed to past medical expenses. In Ahlborn, the
ADHS stipulated to the “reasonable value” of the claimed damages and
what portion of damages could be allocated to past medical care
(1/6th); if Medi-Cal can be involved in the stipulation process
about the “reasonable value” of the case and the portion of claimed
damages represented by medical costs, then a judicial determination
of the “reasonableness” would probably be unnecessary.
Of course, having said all of that, there is nothing in Ahlborn that
precludes a plaintiff’s attorney from trying to convince Medi-Cal to
waive its lien entirely, or take a few cents on the dollar in
satisfaction. A request for a waiver might get some traction with
the State in a case where past medical expenses are substantial, but
the settlement value on the case is relatively small (perhaps
because the bulk of the plaintiff’s non-past medical damages are
general in nature and limited by MICRA, and/or the other specials in
the case are nominal). Again, stipulating to a total “reasonable
value” of the case and the proportional amount of past medical costs
with plaintiff’s counsel would be useful to illustrate to the State
how pursuit of a lien for the full amount of past medical costs will
defeat any chance of settlement and would cause the plaintiff to
incur the additional costs of trial with no guarantee of any
recovery for plaintiff or Medi-Cal.
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