It’s getting tougher out there.

On December 26, 2013, President Obama signed the Bipartisan Budget Act of 2013. Section 202 of the Act is entitled “Strengthening Medicaid Third-Party Liability.” The new law amends portions of the federal Medicaid Act in an attempt to override the application of the allocation theory derived from Arkansas Dept. of Health & Human Srvs. v. Ahlborn, 547 U.S. 268 (2006). There are three main amendments to the statutes which take effect on October 1, 2014.

First, 42 U.S.C. § 1396a(a)(25)(H) has been amended, which now provides that “to the extent that payment has been made under the State plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance * * * the State is considered to have acquired the rights of such individual to any payments by such third party.” Previously, the State had acquired the rights of the individual to “payment by any other party for such healthcare items or services.”

Second, 42 U.S.C. § 1396k(a)(1)(A) has been amended, which now provides that, as a condition of Medicaid eligibility, the individual assigns to the State any rights to “any payment from a third party that has a legal liability to pay for care and services available under the plan.” Previously, the individual only assigned the rights to “payment for medical care from any third party.”

Clearly, these new amendments attempt to override the application of the allocation theory derived from Ahlborn, which presumed that the state Medicaid agencies could assert a lien only upon that portion of a plaintiff’s settlement that represented “payment for medical care” as the old statute specified. Under the new laws, the State acquires the rights of, and the individual assigns the rights to,“any payments,” not just those that represent payment for medical expenses.

Third, and the most disturbing, the Federal Anti-Lien Statute (42 U.S.C. § 1396p) has been amended to read:

(a)(1) No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except-

(A) pursuant to-

(i) the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or

(ii) rights acquired by or assigned to the State in accordance with section 1902(a)(25)(H) [42 USC 1396a(a)(25)(H)] or section 1912(a)(1)(A) [42 USC 1396k(a)(1)(A), or * * *. (Emphasis added).

I have long argued that the Anti-Lien Statute prevents the Medicaid agency from asserting a lien against the proceeds of a living beneficiary-period. Now though, the emphasized portion of 42 U.S.C. § 1396p has specifically added the first two amended provisions as an exception to the Federal Anti-Lien Statute.

This amendment would appear to create the possibility of a lien against the property (settlement proceeds) of a live individual for medical assistance paid.

By including these exceptions to the Anti-Lien mandate, it is implied that a lien may be utilized to protect the Medicaid agency’s acquisition of rights and forced assignment provisions cited above.

This aggressive expansion will likely do away with Ahlborn allocations and could leave Medicaid beneficiaries and, arguably, their attorneys without any recovery in some cases.

Several important takeaways from our early review of this recently enacted law are as follows:

1.     Effective October 14, 2014, states with correcting legislation will be empowered to pursue 100% of their cost for care against liable third parties, without regard  to whether actual medical expenses have been recovered as part of the settlement, or whether any reasonable allocation for  medical expenses were provided  in a settlement.

2.     It would appear that the threshold test, in order for the assignment to be effective, is “legal liability” to pay for care and services available under the plan. Does this require a judgment of legal liability? Does a settlement establish a “legal liability” to pay for care and services, or is it only a judgment that establishes a legal liability? What if no claim is made for past medical expenses? This would appear to be consistent with our past arguments that state agencies must pursue their assignment and establish this connection. However, as a practical matter, even when this connection has not been established and counsel feels confident that Medicaid has no viable claim against the proceeds, this issue may nonetheless need to be addressed prior to any settlement. Good luck in getting the proceeds from the defendant or its insurer where Medicaid’s rights have not been addressed with certainty. Remember that this expansion made to the forced assignment provisions of 42 USC 1396k are often described as the subrogationprovisions. Note, however, that the subheading of the new bill is entitled “Recovery of Medicaid Expenditures from Beneficiary Liability Settlements.”

3.     No changes appear to have been made to the Anti-Recovery provision of the federal Medicaid laws (42 U.S.C. § 1396p(b), which restricts the Medicaid agency’s rights as follows:

“No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except that the State shall seek adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan in the case of the following individuals: [there are no exceptions applicable to plaintiffs involved in personal injury cases].

4.     Does this mean that there can be no recovery from the plaintiff’s portion of the proceeds if the state agency has taken no action to enforce its “rights acquired by or assigned to the state?” I would argue “yes” if the plaintiff had commenced litigation, making no claim for care and services available under the state plan, and the respective statute of limitations within which the state agency must have taken action to enforce its assigned rights, had expired. Time and future litigation will tell.

Even with the argument set forth above paragraph 4, it would seem to me that in states where the statutes are amended to comport with the new forced assignment and lien provisions, that it would be too dangerous a dance to take a chance on representing a Medicaid beneficiary without first addressing and analyzing the consequences of Medicaid’s expanded recovery rights against any recovery on their claim.

The law’s effective date, October 1, 2014, is no doubt intended to give the states time to amend their Medicaid laws. In New York State, our equivalent laws are in the Social Services Law, Sections 366(4)(h), 367-a(2)(b), and 369. All of these will have to be amended. We shall also see if Section 104-b of the Social Services Law, our Medicaid lien statute, is also amended in any way. As it stands, our position is that § 104-b is directed at liable third parties, i.e., it “may be enforced by actionagainst those alleged to be liable for such injuries. . . .” N.Y. Social Services Law § 104-b(6).

All existing claims made by the state Medicaid agency should be resolved under current law until such time as the amendments become effective and the state laws are amended.