This article has been published in "The Advocate", a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, June 2006 issue, @2006 by Steven J. Bruzonsky, Esq.
New U.S. Supreme Court decision restricts AHCCCS/Medicaid Liens
On May 1, 2006, the U.S. Supreme Court issued a landmark decision, Arkansas Dept. of Health and Human Services v. Ahlborn, No. 04-1506 (to be shortly assigned citation at 547 U.S. ___, which restricts AHCCCS/Medicaid liens:
FACTS: Ahlborn was a 19 year old college student and aspiring teacher. She 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. 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 working time; and permanent impairment of the ability to earn in the future.
The case was settled out of court sometime in 2002 for a total of $550,000. The parties did not allocate the settlement between categories of damages. The Arkansas Dept. of Health Services (ADHS) did not participate in the settlement negotiations or litigation. Arkansas has passed laws imposing a lien for payment of medical costs by ADHS/Medicaid against the claimant's entire personal injury settlement, not just the portion representing recovery of medical care costs. ADHS asserted a lien against Ahlborn's settlement proceeds in the amount of $215,645.30â€”the total cost of payments made by ADHS under the state's Medicaid plan for Ahlborn's care.
ADHS and Ahlborn stipulated that the full value of Alhorn's personal injury claim was $3,040,708.18; that the settlement of $550,000.00 amounted to approximately one-sixth of the claim's full value; and that, if Ahlborn's construction of federal law was correct, ADHS would be entitled to only the (pro-rated) portion of the settlement ($35,581.47) that constituted reimbursement for medical payments made.
HELD: The U.S. Supreme Court affirmed the holding of the Eighth Circuit, which held that ADHS was entitled only to that portion of the judgment that represented payments for medical care. In summary, the Court further stated that Federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn's settlement in an amount exceeding $35,581.47; that the federal anti-lien provision affirmatively prohibits it from doing so; and that Arkansas' third party liability provisions are unenforceable insofar as they compel a different conclusion.
The Court discussed the following provisions of Federal Medicaid law supporting their holding that ADHS cannot claim more than the portion of the Ahlborn's settlement ($35,581.47) that represents medical expenses; and that the "the federal third-party liability provisions require an assignment of no more than the right to recover that portion of a settlement that represents payments for medical care":
1. Medicaid recipients must, as a condition of eligibility, "assign the State any rights . . . to payment for medical care from any third party," 42 U. S. C. §1396k(a) (1)(A) (emphasis added), not rights to payment for, for example, lost wages.
2. States are required to "seek reimbursement for [medical] assistance to the extent of such legal liability" (emphasis added). 42 U.S.C. §1396a(a)(25)(B). As is evident from the context of the emphasized language, "such legal liability"refers to "the legal liability of third parties . . . to pay for care and services available under the plan." §1396a(a)(25)(A) (emphasis added).
3. States must have in effect laws that, "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," give the State the right to recover from liable third parties. The rest of the provision makes clear that the State must be assigned "the rights of [the recipient] to payment by any other party for such health care items or services." §1396a(a)(25)(H) (emphasis added). The statute does not sanction an assignment of rights to payment for anything other than medical expensesâ€”not lost wages, not pain and suffering, not an inheritance.
4. Where the State actively pursues recovery from the third party, Medicaid be reimbursed fully from "any amount collected by the State under an assignment" before "the remainder of such amount collected" is remitted to the recipient. 42 U.S.C. §1396k(b). Even assuming the provision applies in cases where the State does not actively participate in the litigation, The "amount recovered . . . under an assignment" is not, the entire settlement. The State's assigned rights extend only to recovery of payments for medical care under the federal statute. Accordingly, what §1396k(b) requires is that the State be paid first out of any damages representing payments for medical care before the recipient can recover any of her own costs for medical care.
5. The federal Medicaid anti-lien provision prohibits States from imposing liens "against 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. §§ 1396a(a)(18) and 1396p(a)(1). Section 1396a(a)(18) requires that a State Medicaid plan comply with §1396p, which in turn prohibits States (except in circumstances not relevant here) from placing liens against, or seeking recovery of benefits paid from, a Medicaid recipient. This anti-lien provision "precludes attachment or encumbrance of the remainder of the settlement" over and above the proceeds designated as medical payments. There is no question that the State can require an assignment of the right to receive payments for medical care and that the recipient "assign" in advance any payments that may constitute payment for medical costs. 42 U.S.C. §§1396a(a)(25) and 1396k(a). "But that does not mean that the State can force an assignment of, or place a lien on, any other portion of Ahlborn's property. As explained above, the exception carved out by §§1396a(a)(25) and 1396k(a) is limited to payments for medical care. Beyond that, the anti-lien provision applies.
6. "Here, the tortfeasor has accepted liability for only one-sixth of the recipient's overall damages, and ADHS has stipulated that only $35,581.47 of that sum represents compensation for medical expenses. Under the circumstances, the relevant "liability" extends no further than that amount."
WHERE DO WE GO AFTER ALHBORN?
A.R.S. § 12-963(B), states that the AHCCCS lien "shall not operate to deny the injured or diseased person any recovery for that portion of his damage not covered by this article." Although this statute has been on the books for years, AHCCCS has often ignored this statute and has applied its lien to our clients' full recoveries, regardless of policy limits, liability problems, etc.
My educated guess is that AHCCCS will loosen up some in the cases where its clear that the settlement is many times less than the claim value â€“ but otherwise, I wouldn't be so sure. Its more important than ever in such cases to educate AHCCCS early on regarding case value vs limited potential settlement proceeds, because you will need the subrogation claim representative on your side to persuade AHCCCS to apply their lien to only the pro-rated medical expenses portion of the recovery. If AHCCCS continues to wrongfully apply the AHCCCS lien to more than just the pro-rated medical expenses in cases which clearly have settled for a good amount less than their fair and full value, then as plaintiff attorney's we will have to handle AHCCCS the "Tom Hagen" way â€“ Grievance (Per Arizona Administrative Code, R9-34-101 through R9-34-114) and then litigation once our administrative remedy is exhausted. And Alhborn and A.R.S. § 12-963(B) will give us strong tools to hopefully "win" this time around.
It will likely help us in our AHCCCS cases to do what the plaintiff did in Alhborn, that is, to obtain a specific monetary award or written allocation agreed upon by the parties for past medical expenses. This will hopefully leave no room for AHCCCS to disagree regarding the medical expense portion of the award or settlement. AHCCCS/Medicaid and Medicare currently cut off the lien for medical expenses incurred (not paid) as of the date of settlement. However, there is concern that in the future, this practice could change, and they then may attempt to use any specific monetary award or written allocation of future medical expenses as a set aside against future medical benefits to be paid. So it may be best to avoid any specific monetary award or written allocation of future medical expenses.
How about those cases which settle in the ballpark of their "fair value"? Does Ahlborn give us any new tools to reduce the AHCCCS? Ahlborn doesn't expressly discuss the "common fund" doctrine regarding lien reduction for pro-rated attorney's fees and costs because I assume this issue was never raised. AHCCCS has routinely taken the position that reduction for pro-rated attorney's fees and costs is not mandated by the Arizona statutes. The further question surely to be litigated post-Ahlborn is whether the "medical expenses" recovered, upon which the AHCCCS lien is placed, is calculated by damages recovered, or only after deduction of percentage attorney's fees and pro-rated costs from the medical expenses awarded as part of the settlement or verdict. If AHCCCS fails to reduce the medical expenses recovered by percentage attorney's fees and pro-rated costs to determine the lienable amount of the settlement, then isn't AHCCCS in violation of the above federal Medicaid third party liability and anti-lien statutes?
In Eaton v. Arizona Health Care Cost Containment System, 206 Ariz. 430, 79 P.3d 1044 (App. 2003), the Court of Appeals upheld the discretionary determination by the AHCCCS Director not to compromise the Federal share portion of the AHCCCS lien, holding that absent an HCHA compromise, 42 U.S.C. § 1396k(b) requires that the federal portion of that lien amount be fully reimbursed before the recipient can receive any funds from the award. The Court also cited HCFA National Memorandum No. 88-10 (1988) and the State Medicaid Manual (SMM) § 3907 (1990) in this regard. However, Eaton is now overruled by Ahlborn, but only to the extent that the lien is applied to more than just the pro-rated medical expenses recovered in the personal injury settlement.
What about other types of federal liens, such as Medicare, Medical Care Recovery Act, etc.? Or other types of Arizona liens such as Workman's Compensation, A.R.S. § 33-931 statutory and balance billing liens, etc.? Ahlborn may have applicability to other federal and state liens as well, depending upon the express language of the statutes regarding applicability of the liens to only pro-rated "medical care expenses" vs the entire settlement. Stay tuned.