New Leverage on Medicaid Liens
On May 1, 2006 the United States Supreme Court ruled in Arkansas v. Ahlborn that if a personal injury plaintiff settles a claim for twenty cents on the dollar (perhaps due to liability issues, policy limits, or other factors) then the local Medicaid Agency likewise recovers twenty cents on the dollar for the medical benefits it paid on behalf of the recipient.
On January 2, 1996, Heidi Ahlborn, then a 19-year-old college student and aspiring teacher, suffered severe and permanent injuries as a result of a car accident. She was left brain damaged, unable to complete her college education, and incapable of pursuing her chosen career. Although she possessed a claim of uncertain value against the alleged tortfeasors who caused her injuries, Ahlborn’s liquid 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 Medicaid.
ADHS required Ahlborn to complete a questionnaire about her accident, and sent her attorney periodic letters advising him about Medicaid outlays. These letters noted that, under Arkansas law, ADHS had a claim to reimbursement from “any settlement, judgment, or award” obtained by Ahlborn from “a third party who may be liable for” her injuries, and that no settlement “shall be satisfied without first giving [ADHS] notice and a reasonable opportunity to establish its interest.”1 ADHS had never asserted, however, that Ahlborn had a duty to reimburse it out of any other subsequently acquired assets or earnings.
On April 11, 1997, Ahlborn filed suit against two alleged tortfeasors in Arkansas state court seeking compensation for the injuries she sustained in the January 1996 car accident. 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 permanent impairment of the ability to earn in the future.
ADHS was neither named as a party nor formally notified of the suit. Ahlborn’s counsel did, however, keep ADHS informed of details concerning insurance coverage as they became known during the litigation. In February 1998, ADHS intervened in Ahlborn’s lawsuit to assert a lien on the proceeds of any third-party recovery Ahlborn might obtain. In October 1998, ADHS asked Ahlborn’s counsel to notify the agency if there was a hearing in the case. No hearing apparently occurred, and the case was settled out of court in 2002 for a total of $550,000. The parties did not allocate the settlement between categories of damages. Though ADHS did not participate or ask to participate in settlement negotiations it did, however, assert a lien against the settlement proceeds in the amount of $215,645.30 the total cost of payments made by ADHS for Ahlborn’s care.
On September 30, 2002, Ahlborn filed an action in the United States District Court for the Eastern District of Arkansas seeking a declaration that the lien violated the federal Medicaid laws insofar as its satisfaction would require depletion of compensation for injuries other than past medical expenses. To facilitate the District Court’s resolution of the legal questions presented, the parties stipulated that Ahlborn’s entire claim was reasonably valued at $3,040,708.18, that the settlement amounted to approximately one-sixth of that sum, and that, if Ahlborn’s construction of federal law was correct, ADHS would be entitled to only the portion of the settlement that constituted reimbursement for medical payments made that being one-sixth or $35,581.47.
Ruling on cross-motions for summary judgment, 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 amount of $215,645.30. The Eighth Circuit reversed. It held that ADHS was entitled only to that portion of the judgment that represented payments for medical care.
The U.S. Supreme Court affirmed the judgment of the Eighth Circuit Court of Appeals that Federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn’s settlement in an amount exceeding $35,581.47, and the federal anti-lien provision affirmatively prohibits it from doing so.
This ruling provides substantial leverage in negotiating Medicaid liens as now, if you allocate the amount of past medical payments as a percentage of the total value of the claim, then Medicaid can only recover that percentage of the claim settlement to satisfy their lien. The difficult part is how to establish the benchmark of the total value of the claim. The Court cautioned that States retain the right to challenge the reasonableness of the settlement allocation to past medical expenses either by participating in the settlement negotiations or by seeking relief in state court to modify or approve the settlement allocations. Most everyone I have spoken with regarding this issue agrees that this point will be litigated in State courts in short order.
This U.S. Supreme Court ruling has already been helpful in our efforts to settle cases. We have reopened negotiations regarding Medicaid liens on several cases and found that the Counties are willing to talk. If we are able to resolve the Medicaid lien for a percentage of its gross value, we can free up a greater portion of settlement proceeds for injured plaintiffs and their families. This can only help make the settlement more attractive, thus moving everyone closer to an amicable settlement.
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.
