Frank C. Kilcoyne, CSSC

Alborn Upended

It’s amazing what can sneak in the back door when there’s a crowd banging on the front door. Last December 18, we all breathed a sigh of relief that Congress passed a budget without another (stupid) government shutdown. Little did we know, however, that some evil gnomes had been busy in the wee hours slipping language into the budget bill which effectively overturns a landmark Supreme Court decision relating to the resolution of Medicaid liens in personal injury cases. This is a big deal if it can’t be dialed back in some fashion.

To appreciate the gravity and potential impact of this development, it helps to know the background of the original decision. Heidi Ahlborn was a 19-year-old college student who suffered severe and permanent injuries as a result of a car accident. Although she possessed a claim of uncertain value against the alleged tortfeasors, Ahlborn’s assets were insufficient to pay for her medical care. In applying for Medicaid benefits, Arkansas law required Ahlborn to assign to the Arkansas Department of Health Services (ADHS) her "right to any settlement, judgment, or award" she may receive from third parties, "to the full extent of any amount which may be paid by Medicaid for the benefit of the applicant." In total, Ahlborn received approximately $215,645 for her medical care from Arkansas Medicaid. She ultimately settled her case for a total of $550,000. ADHS then asserted a lien against Ahlborn‘s settlement proceeds for the full amount of medical care.

Ahlborn filed an action in the United States District Court for the Eastern District of Arkansas seeking a declaration that the lien violated federal Medicaid laws insofar as its satisfaction would require depletion of compensation for injuries other than past medical expenses. The District Court held that under Arkansas law, Ahlborn had assigned to ADHS her right to any recovery from the third-party tortfeasors to the full extent of Medicaid’s payments for her benefit. Accordingly, ADHS was entitled to a lien in the full amount.

On appeal, the Court of Appeals reversed the District Court’s ruling. It held that ADHS was entitled only to that portion of the judgment which represented payments for past medical care. On May 1, 2006, the U.S. Supreme Court affirmed unanimously that federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn‘s entire settlement but only that portion which represented medical expenses. In this case that would have amounted to $35,581.

The new law, Section 202(b) of the Bipartisan Budget Act of 2013 (BBA), modifies the federal Medicaid third party liability statute and effectively overturns the Supreme Court’s ruling in Arkansas v. Ahlborn.(1) Under the new law, the language of the Medicaid third party liability statute is amended to allow Medicaid to recover funds from a judgment or settlement beyond the costs of medical items or services, such as lost wages and non-economic damages, so that Medicaid is essentially allowed first dollar recovery of any undifferentiated settlement with a Medicaid beneficiary.

Under this law, Medicaid can now claim ALL of a settlement or judgment in its lien recovery not just the portion of the settlement or award allocated to cover health care items or services. “This will significantly complicate settlements involving Medicaid beneficiaries .... by making them more expensive to settle or by disrupting settlements altogether", according to an analysis published by the King & Spalding law firm.(2) The article goes on to say:"Medicaid can now recover 100% of its payment 'off the top' of any settlement proceeds, which unfairly reduces the beneficiaries’ recoveries for non-medical expenses and creates barriers to settling cases in the first instance."

The consequences of the BBA may make some cases virtually unsettleable. Consider the Ahlborn case itself: after the U.S. Supreme Court’s decision, the ADHS was entitled to a lien in the amount of $35,581 against a settlement of $550,000 leaving Ms. Ahlborn and her attorneys with a balance of $514,418. Under the BBA, Ms. Ahlborn and her attorneys would be left with only $334,355.

Would Ms. Ahlborn have actually agreed to a settlement where her netrecovery would be less than $200,000 after liens and attorney fees? Who knows? The point is: either claimants with Medicaid liens are going to have to accept lower recoveries or defendants of cases with Medicaid liens are going to have to pay more. Neither scenario presents a very satisfactory outcome for parties in tort actions.

We can hope for some relief on the horizon. The law does not take effect until October 1, 2014 and it will almost assuredly face legislative attack before then with legal challenges to follow, if it survives. Application of the Affordable Care Act (ACA) throws another variable into the mix, perhaps eliminating the need for many to receive Medicaid benefits in the first place, as the private health insurance provided under the ACA would be primary and Medicaid secondary.

The important thing to remember is that you must have a strong grasp of the current state of affairs in resolving personal injury cases. Knowing about the new rules under the BBA and how they impact your case is just one aspect of modern settlement planning that your experts must keep up with. It will take a legitimate expert to help you navigate the myriad and ever-changing components of future damages that may arise.

Do you have a case with a Medicaid lien? Would you like to find a way to resolve that claim by using the most up-to-date settlement tools and techniques? Call Frank C. Kilcoyne, CSSC at 800-544-5533 I am here to help.

 

(1) http://budget.house.gov/uploadedfiles/bba2013summary.pdf

(2) David Farber and Jennifer S. Lewin, King & Spalding, “ Medicaid Secondary Payer Provision in Bipartisan Budget Act of 2013 Undercuts Supreme Court Decisions on Allocation of Medicaid Secondary Payer Recoveries”, JDSupra Business Advisor, accessed February 19, 2014, http://www.jdsupra.com/legalnews/medicaid-secondary-payer-provision-in-bi-76648/