In 2006, the United States Supreme Court upheld the Eight Circuit’s decision in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006), which has shaped the way State Medicaid programs are able to recover against Medicaid beneficiaries in third party lawsuits. As a result of Ahlborn, Medicaid’s recovery of third party settlement proceeds, at most, is limited to the amount of the settlement attributable to past medical expenses.

Precision Resolution, LLC and our staff of attorneys have had great success over the past several years significantly reducing or, even eliminating, Medicaid liens in New York State. Since 2011, Precision Resolution has put over $38 million back into the pockets of plaintiffs by negotiating and eliminating Medicaid, Medicare, self-funded ERISA plans, and other types of liens against the settlement in single claimant actions.  Most importantly however, is that during this time period, hundreds of plaintiffs’ counsels, by deferring these complicated issues to Precision’s legal experts, have been able to focus on what gets them paid:  their personal injury practices.

Unfortunately, and as will be explained herein, with the enactment of the Bipartisan Budget Act of 2013, Congress has responded to the limitation created by Ahlborn, and has amended the Medicaid recovery laws to expand Medicaid’s recovery rights.  In March of this year, Congress passed the Medicare Access and CHIP Reauthorization Act of 2015.  Section 220 of this act delays the effective date of the Medicaid recovery amendments to October 1, 2017.

  1. A. MEDICAID LAWS AS THEY STAND NOW.

Every state currently participates in the Medicaid program, though it is not required.  Funding for State Medicaid programs are provided by both the federal and state governments.  As a condition to receiving federal funding, the Federal Medicaid laws mandate:

  1. (A) That the State or local agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties…to pay for care and services available under the plan.

42 U.S.C.S. §1396a(a)(25)(A) (emphasis added). Going further:

  1. (B) that in any case where such legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State or local agency will seek reimbursement for such assistance to the extent of such legal liability.

42 U.S.C.S. §1396a(a)(25)(B) (emphasis added).

In order to enable the State programs to recover third party liability proceeds, federal law requires states to have their own laws in place that force the assignment of the right to recovery for medical costs incurred:

To the extent that payment has been made under the State plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services.

42 U.S.C.S. §1396a(a)(25)(H). In fact, as a condition of the individual’s Medicaid eligibility:

As a condition of eligibility for medical assistance under the State plan to an individual who has the legal capacity to execute an assignment for himself, the individual is required—

(A) to assign the State any rights . . . to support (specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party;

(B) to cooperate with the State . . . in obtaining support and payments (described in paragraph (A)) for himself . . . ; and

(C) to cooperate with the State in identifying, and providing information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan…

42 U.S.C. §1396k(a). This statute forces Medicaid recipients to assign their rights to recovery against a third party to the State Medicaid program as a condition of receiving those benefits.

  1. B. THE AHLBORN DECSION.

For those unfamiliar with Ahlborn, the case arose when a 19 year old college student was involved in a motor vehicle accident resulting in significant brain injuries. The Arkansas Medicaid program paid $215,645.30 in medical expenses for Ms. Ahlborn’s injuries. Ms. Ahlborn sued the alleged tortfeasors in the motor vehicle accident for past and future medical expenses, permanent physical injury, past and future pain and suffering, and past and future lost earnings.  Medicaid was not a named party in the lawsuit, but did intervene a year after the suit was initiated to assert a lien on any recovery Ms. Ahlborn obtained.  Ms. Ahlborn settled with the tortfeasor for $550,000.00, with no allocation for specific damages. Medicaid was not involved in any of the settlement negotiations, but did assert a lien against the settlement proceeds.

Ms. Ahlborn then filed suit in District Court seeking a determination that Medicaid’s lien was in violation of the Federal Medicaid laws because it asserted a lien on the entire recovery, not just that portion attributable to past medical expenses. The Arkansas Medicaid lien statute “shall be considered a statutory lien on any settlement, judgment, or award received…from a third party.” A.C.A. §20-77-307(c).

At the District Court, the parties stipulated that the full value of Ms. Ahlborn’s case was $3,040,708.12, thus the $550,000.00 settlement represented one-sixth of the full value of the case. The parties essentially presented the U.S. Supreme Court with a choice. Either the Medicaid agency was entitled to the full value of its lien; or the Medicaid agency was entitled to one-sixth of its lien (i.e., the amount of the settlement that the parties stipulated represented compensation for past medical expenses).

With this in mind, the Supreme Court dissected the language of the federal statutes noting that the federal forced assignment statute only assigns the states a right to “payment for medical care from third parties”  Ahlborn, at 280 (emphasis included).  The Court rejected the government’s argument that the “legal liability” language in §1396a(a)(25)(B) created a right to the entire award from the responsible third party; the court noted that it was “the legal liability of third parties…to pay for care and services available under the plan,” not the entire settlement award.  Id (emphasis included).

The Court briefly turned to the Federal Anti-Lien statute, 42 U.S.C.S. §1396p.  The Federal Anti-Lien statute states in relevant part:

  1. (a) Imposition of lien against the property of an individual on account of medical assistance rendered to him under State Plan.
  1. (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—
  1. (A) Pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual.

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  1. (b) Adjustment or recovery of medical assistance correctly paid under a State plan
  1. (1) No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made.

Section 1396p. Justice Stevens in his opinion acknowledged that neither party addressed this potential obstacle to Medicaid’s recovery. The court therefore accepted the parties’ assumption that §§ 1396a(a)(25) and 1396k(a) worked as an exception to this anti-lien statute. However, this exception did not afford Medicaid the right to be reimbursed, or place a lien, on any other portion of Ahlborn’s recovery except for that amount representing past payment for medical care.

Importantly, the Court commented in a footnote that “subsection (b) would appear to forestall any attempt by the State to recover benefits paid, at least from the “individual.” . . . Accordingly we leave for another day the question of its impact on the analysis.” Id. at fn. 13.

It has always been our position that, had that argument been made, the state of Medicaid liens would be much different than it is today. We believe that because of the Federal Anti-Lien Statute, no Medicaid lien may be imposed on a recipient, PERIOD.

However, we are left with the basic acknowledgement in Ahlborn that Arkansas was entitled only to that portion of a settlement representing payment for past medical expenses.

  1. C. IN LIGHT OF AHLBORN.

In light of the unanimous Ahlborn decision, courts across the country are now faced with determining how to correctly adjust Medicaid recoveries when the plaintiff does not recover the full value of his or her case (i.e., virtually all settlements), or when no portion of a settlement is specifically designated to past medicals. Because the proportionate reduction of Medicaid’s lien in Ahlborn was the result of the party’s stipulation, this can be a contested issue in court. While it is not mandated, Precision Resolution frequently utilizes valuations based on extensive research into past jury verdicts and settlements in order to maximize any type of Ahlborn allocation scenario.    

Because Ahlborn has had such a monumental effect on Medicaid recoveries, the Centers for Medicare and Medicaid Services (CMS), the federal agency designated to administer Medicaid, issued a memorandum from their Director to all regional Medicaid administrators and State operations. This 2006 memo acknowledged “that if the State attempted to recover from more than the portion of a settlement that the parties allocated to medical items and services, it was in violation of the federal anti-lien statute.”  CMS further explained that “a State’s lien laws may only operate to recover from that portion of a settlement that is allocated to healthcare items and services, even if it means that Medicaid must forego full recovery of its claim.” The Memorandum suggested ways to mitigate Ahlborn’s effect, one of which stated, “in order to protect the Medicaid program’s interest in the allocation of settlement monies to medical items and services, it is extremely important for States to be involved in the litigation and settlement process.”  CMS, and by extension the federal government, has acknowledged the limitation of Ahlborn and accepts the possibility that Medicaid will lose its opportunity for recovery in settlement situations that do not expressly account for past medical expenses.

In the wake of Ahlborn, courts have rejected state statutes that broaden Medicaid’s recovery rights. These statutes have attempted to create a mandatory allocation for medical expenses, or create a presumption that a certain portion of a settlement or award is attributable to past medicals. In these cases, the courts emphasized that an individual hearing, and not a forced statutory allocation, was required to determine the proper amount of Medicaid’s recovery. See, e.g., Wos v. E.M.A., 133 S. Ct. 1391 (2013).

In New York State, we witness violations of the Federal Anti-Lien Statute and the Ahlborn limitation EVERY single DAY by the outside collection agents hired by the majority of the counties in New York State to handle Medicaid recoveries. You may have witnessed this if you have ever received the letter from that agency stating: “In response to your letter that was received requesting a lien compromise and after a careful review of the facts in this case as you have presented, there appears to be sufficient funds to pay our lien in full. Therefore, your request for compromise is denied.”

  1. D. The Medicaid Collection World Is About to Change: Enter the Bipartisan Budget Act of 2013 Amendments.

The amendments to the federal Medicaid laws effectively overturn the holding in Ahlborn and its progeny by expanding Medicaid’s recovery rights. These amendments, which have been pushed back to October 1, 2017, make the following changes:

42 U.S.C.S. §1396a(a)(25), which establishes Medicaid’s recovery rights when a third party is found legally liable for payment of medical expenses, is changed as follows:

  1. (B) That in any case where such legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State or local agency will seek reimbursement for such assistance.

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(H) To the extent that payment has been made under the State plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to any payment by such third party.

42 U.S.C.S. §§1396a(a)(25)(B) and (H) (emphasis added).

Importantly, “to the extent of legal liability” has been stricken from subsection (B), and “payment by any other party for such healthcare items or services” has been changed in subsection (H) to read “any payment by such third party.” These changes eliminate the limiting language in the statute and will allow Medicaid to recover against the entire settlement proceeds, not just to the extent of liability for medical costs.

The federal forced assignment statutes have also been changed to reflect the broadened recovery right.

As a condition of eligibility for medical assistance under the State plan to an individual who has the legal capacity to execute an assignment for himself, the individual is required—

  1. (A) to assign the State any rights . . . to support (specified as support for the purpose of medical care by a court or administrative order) and to any payment from a third party that has a legal liability to pay for care and services available under the plan.

42 U.S.C. 1396k(a)(1)(A) (emphasis added). Again, by elimination the language specifying recovery from that portion of the settlement attributable to payment for medical expenses, Medicaid is able to recover against the entire settlement proceeds once legal liability has been established.

Perhaps the most significant change to the federal Medicaid recovery laws is the explicit exception carved out in the anti-lien statute:

  1. (a) Imposition of lien against the property of an individual on account of medical assistance rendered to him under State Plan.
  1. (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—
  1. (A) Pursuant to—
  1. (i) The judgment of a court on account of benefits incorrectly paid on behalf of such individual, or
  2. (ii) Rights acquired by or assigned to the State in accordance with section 1902(a)(25)(H) or section 1912(a)(1)(A), or

42 U.S.C.S §1396p(a)(1)(A) (emphasis added).

In Ahlborn, the Supreme Court merely assumed, though did not necessarily agree, that §§1936(a)(25)(H) and 1396k(a)(1)(A) were an exception to the federal anti-lien statute because the issue was conceded and not challenged by either party. With the enactment of the Medicaid amendments, Congress has now explicitly created this exception.

  1. E. Conclusion

Plaintiffs and their attorneys are now “on the clock” in terms of maximizing the amount of settlement proceeds retained by the plaintiff. The importance of securing a settlement prior to the effective date of the Medicaid recovery amendments cannot be stressed enough.

Precision Resolution is a lien resolution company that was built for attorneys, by attorneys. We have represented plaintiffs and their counsel in the battle against Medicaid agencies and their collection agents countless times and have had great success. Using our case-specific legal arguments, and the principles set forth in Ahlborn and its progeny, Precision Resolution has helped injured claimants to retain a greater portion of their settlement proceeds. We have done so to the tune of nearly $40 million dollars, and fight every day to increase that amount.

If you have case specific questions, I encourage you to call Precision and consult with one of our attorneys. No matter if the question relates to Medicaid, or self-funded ERISA plans, Medicare, Medicare Advantage or Medicare Set-Asides, let our experience be a resource for your practice.

When you are looking to ensure a swift and complete resolution to your client’s lien claims, always demand Precision.