Arkansas Department of Health and Human Services, et al. v. Ahlborn
126 S. Ct. 1752 (2006)
Charlotte E. Glinka is a partner with the law firm of Keches & Mallen PC. Glinka concentrates her practice in the areas of medical negligence and personal injury litigation.
David W. White-Lief is a principal in the law firm of Breakstone, White-Lief & Gluck PC in Boston, practicing in all aspects of plaintiffs’ personal injury law. White-Lief is president-elect of the MBA.
In what may cautiously be considered a landmark victory for injured plaintiffs, a unanimous United States Supreme Court ruled on May 1, 2006, that any Medicaid claim for reimbursement from a personal injury settlement is limited to that portion of the settlement allocated for past medical expenses. Arkansas Department of Health and Human Services, et al. v. Ahlborn, 126 S. Ct. 1752 (2006). Before this decision, the state courts had been split on whether Medicaid could assert a lien against the entirety of any third party recovery, regardless of the type of claim or the damages alleged. With Ahlborn, the Supreme Court has definitively ruled on this issue, lending clarification to a previously murky issue. While we should be heartened by the Court’s decision in favor of injury victims, it would be prudent to proceed carefully when applying the Ahlborn ruling to future settlements here in Massachusetts.
Heidi Ahlborn was a 19-year-old college student in Arkansas who suffered severe brain damage and other serious injuries in a car accident in 1996. Because she did not have assets sufficient to cover her medical costs, she applied for and received medical assistance benefits from the state’s Medicaid program through the Arkansas Department of Human Services (ADHS). The cost of her medical expenses under the Medicaid program totaled about $215,000.00. Ahlborn subsequently filed a personal injury action in state court to recover for her injuries and other damages arising from the motor vehicle accident, including her permanent physical injuries and impairments, pain and suffering, mental anguish, past and future medical costs, and past and future lost earnings.
Medicaid asserted a right to recover the amounts it had expended for her medical expenses from any subsequent recovery Heidi Ahlborn might receive in the tort action, and periodically notified Ahlborn’s attorney of its claim. Arkansas state law required that before reaching any settlement, Medicaid was to be given “notice and a reasonable opportunity to establish its interest” in the expected proceeds. State law also mandated that as a condition to receiving Medicaid benefits, the individual was required to assign his or her right to recover the full amount of those expenses from any responsible third party.1 Although not named as a party in the original suit, Arkansas’ Medicaid department subsequently intervened in the lawsuit with respect to its lien.
In 2002, Ahlborn settled her lawsuit against the tortfeasors for the sum of $550,000.2 There was no allocation of this sum among the various categories of damages, and the state’s Medicaid department had not participated in the settlement negotiations. After the settlement, Ahlborn filed a declaratory judgment in federal District Court action seeking to establish that full repayment of the state’s Medicaid’s lien would be a violation of federal Medicaid law, since it would require repayment to Medicaid from amounts that were intended to compensate her for damages other than medical expenses. As part of the declaratory judgment action, it was determined and stipulated that the reasonable value of Ahlborn’s damages was in excess of $3,000,000, or nearly six times the settlement figure. It was also stipulated that the portion of the settlement amount that constituted medical costs in the settlement was a pro rata one-sixth share of the Medicaid expenses, or $35,581. Ahlborn argued that, under federal law, it was only this portion of the settlement proceeds that was subject to repayment to Medicaid. The District Court found that Medicaid was entitled to be repaid the full amount of its medical expenditures. The decision was reversed by the 8th Circuit Court of Appeals, which held that Medicaid was entitled only to the reduced pro rata amount.3 The Supreme Court then unanimously affirmed the judgment of the 8th Circuit.
The issue before the Court was whether Arkansas law, which ADHS argued allowed a lien for the entirety of the Medicaid benefits paid, was enforceable under federal law. The Court looked to the federal “anti-lien statute,” which prohibits the placement of a lien on “the property of any individual prior to his death on account of medical assistance paid . . . on his behalf under the state plan.” 42 U.S.C. § 1396p(a)(1). The Arkansas Medicaid department attempted to argue, however, that Ahlborn’s settlement was, in effect, the property of the state to the extent of its lien. The Court rejected this argument and ruled that the anti-lien statute precludes a state from attaching or encumbering any portions of a settlement from third party liability claims that are not designated as medical payments. In doing so, the Court focused on the explicit language of the statute, which states that Medicaid was entitled only to recovery of payments for medical care. 42 U.S.C. § 1396a(25)(H); 42 U.S.C. §1396k (a). The Supreme Court thus found that a state may have an assignment of rights only to the extent that a portion of the settlement proceeds is actually allocated as payment for medical expenses. Any payment beyond that amount from the recipient’s pain and suffering or lost earnings damages would violate the anti-lien provision of the Medicaid Act.
Significantly, the Supreme Court seems to have rejected the presumption that the state may be entitled to any greater priority in the division of settlement proceeds than the injured plaintiff; monies allocated to other aspects of an injured party’s damages are to be given the same consideration.
The Court also dealt with the issue raised by the state of Arkansas that any ruling that would limit the state’s right to recover the full amount of its lien would potentially lead to “settlement manipulation,” that is, the risk that parties could construct a settlement that would “allocate away” the state’s interest. The Court said that this scenario can easily be avoided by securing the state’s agreement to any proposed settlement in advance, or by submitting the proposal to the local court for a determination of an appropriate division of the settlement assets. The Court reasoned that the risk of underestimating the value of the medical damages was counter-balanced by the risk that allowing “absolute priority” to the state may inhibit the settlement of cases or unfairly compensate injured victim in others.
The Massachusetts Medicaid lien statute
While Ahlborn is a significant decision affecting the rights of injured plaintiffs, the implications of the decision in Massachusetts are still being tested. On the one hand, it would seem that the decision may encourage earlier settlements of cases involving Medicaid liens, because the settlement amounts can be allocated among various items of damages with only a portion of the total amount designated for medical costs. On the other hand, it may prove difficult to arrive at an agreement on a division of the settlement proceeds in cases involving substantial Medicaid payments. Either way, it will be important to involve the commonwealth in the process as early on as possible, and to keep it apprised of developments in the case as it moves forward.
The state’s Medicaid statute provides, in part, that:
When any claimant receives payment from a liability or workers’ compensation insurer or any other third party, the claimant shall repay to the department and the division of medical assistance the total of all public assistance benefits, both financial and medical, provided by said agencies on or after the date of the loss to or on behalf of the claimant, the claimant’s spouse or children, and any other individual the claimant is required by law to support; provided, however, that on the date of the loss the claimant was already eligible for medical assistance benefits, the claimant shall repay only medical assistance required and any increase in financial assistance that occurred as a result of the accident, illness, injury or other incident.
Any person receiving public assistance benefits recoverable under this section shall assign to the commonwealth an amount equal to the benefits so provided from the proceeds of any such claim against the third party.
The commonwealth shall be subrogated to a claimant’s entire cause of action or right to proceed against any third party and to a claimant’s claim for monies to the extent of assistance provided . . . .
G.L. c. 18, § 5G.
The Medicaid statute also provides that the state may have “a separate and independent cause of action to recover from any third party” the benefits it has paid on behalf of a recipient or may intervene in any civil action brought by a claimant.
Guidance for the plaintiffs’ personal injury attorney
In any case in which Medicaid has made or will be making payments for medical expenses, consider the following strategies:
! Promptly notify the commonwealth, in writing, as required by G.L. c. 18, § 5G, “upon commencement of a civil action or other proceeding to establish the liability of any third party . . . .”
! Request a complete itemization of the commonwealth’s lien at the outset of the case, and if treatment is continuing, update your lien information periodically.
! If liability is contested, or there is limited insurance, and the ultimate settlement will likely be less than the full value of the case for the claimant, inform the state that any reimbursement from the settlement proceeds for medical expenses will need to be apportioned based on the holding in Ahlborn.
! Begin a dialog with the commonwealth as soon as practical before entering into any settlement discussions, and continue to confer with the commonwealth throughout the negotiation process. To the extent you can reach an agreement over the division or apportionment of any settlement proceeds early in the process, the more likely it is that you will reach a compromise that is satisfactory to all parties. In addition, this allows the commonwealth the opportunity to understand and appreciate the factors that go into any settlement – i.e., the strengths and/or weaknesses of liability, comparative negligence, if any, the extent of the plaintiff’s non-medical damages and other factors.
! To the extent an agreement as to the equitable allocation of the settlement cannot be reached, consider seeking the intervention of the court to approve a division of the settlement proceeds, much in the same way third-party settlement petitions are routinely handled in cases of workers’ compensation liens. Although this is still an untested option, certainly notice should be given to the commonwealth’s Casualty Recovery Unit, and it should have an opportunity to be heard.
The Casualty Recovery Unit is in the process of developing guidelines and forms for consideration of Ahlborn requests. Keep in mind that successful negotiations under the Ahlborn decision will require reasonableness and candor. One should expect to provide detailed information on special damages, detailed descriptions of injuries, fair analysis of liability, and full disclosure of available insurance coverages and other assets. One cannot expect to arbitrarily allocate a disproportionately small portion of the settlement to medical expenses in an attempt to avoid the reimbursement of the Medicaid lien. A fair allocation should mirror the pro rata share of what one might reasonably expect in a full-value settlement or jury verdict. Also, unlike the state in Ahlborn, it is unlikely the commonwealth will readily stipulate to the value of your case, which is why you should be prepared to justify what you feel is a fair full value of the case.
Understand that the commonwealth will owe the federal government reimbursement for the federal portion of Medicaid pay-out if there is a recovery, and any reduction in that reimbursement has to be justified. Offering a solid basis for a reduction of the lien will be the key to prompt and reasonable compromise.
Further application of Ahlborn
The Medicare program affords the government similar liens pursuant to 42 U.S.C. § 1395y, the Secondary Medicare Payer Program. Although it does not appear that any case has yet tested the application of Ahlborn to Medicare, Medicare liens may also be limited when the claimant is not made whole by the settlement of the case. Ahlborn will not have any effect on liens by insurers or hospitals on personal injury claims under the Massachusetts lien statute, G.L. c. 111, § 70 et seq. It is clear, after the decision in Pierce v. Christmas Tree Shops, Inc., 429 Mass. 21 (1999), that the ability to force an insurer or hospital to contribute to attorney’s fees or to accept an equitable reduction in the lien will have to await legislative action.
In Massachusetts, resolution of liens under Ahlborn is still largely untested. Every circumstance will vary, and questionable liability and inadequate insurance will complicate resolution of Medicaid liens. The decision in Ahlborn, however, clearly provides relief for litigants when full recovery cannot be achieved, and it is the duty of every practitioner resolving such a case to seek an appropriate reduction in the Medicaid lien.
Center for Medicare and Medicaid Services, www.cms.hhs.gov/home/medicaid.asp
National Association of State Medicaid Directors, www.nasmd.org
1 Ark. Code Ann. §20-77-307 (a).
2 The case was settled for a compromised amount because of Ahlborn’s own contributory negligence.
3 Ahlborn v. Arkansas Department of Human Services, 397 F.3d 620 (8th Cir. 2005).