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WOS v. EMA – US Supreme Court Strikes Down North Carolina’s Medicaid Third Party Liability recovery statute and reaffirms Ahlborn

By Jason D. Lazarus, J.D., LL.M, MSCC, CSSC

Since the landmark decision by the US Supreme Court in Arkansas Department of Health and Human Services v. Ahlborn in 2006, state Medicaid agencies have grappled with how to recover monies spent for injury related care through their third party liability statutes without violating the Ahlborn decisions.  Many states, like Florida, have continued to apply third party recover statutes that seemingly violate Ahlborn.  In WOS v. EMA, the Supreme Court was asked to review one such statute from North Carolina.  North Carolina’s statute required that up to one-third of any damages recovered by a beneficiary for their injuries must be paid to Medicaid to reimburse it for payments it made on account of the injury.  The Supreme Court found that this statute was not compatible with the federal anti-lien provision and violated the holding of Ahlborn which “precludes attachment or encumbrance” of any portion of a settlement not “designated as payments for medical care”.

In the EMA decision, the court again went through the tension between the mandate under federal law requiring an assignment to the state of “the right to recover that portion of a settlement that repre­sents payments for medical care,” and the preclusion of “attachment or encumbrance of the remainder of the set­tlement.”  The Ahlborn opinion held that the federal Medicaid statute sets both a floor and a ceiling on a state’s potential share of a beneficiary’s tort recovery.  The EMA court pointed out that an injury victim has a property rig hint he proceeds of a settlement “bringing it within the ambit of the anti-lien provision.”  “That property right is subject to the specific statutory “exception” requiring a State to seek reimbursement for medical expenses paid on the benefi­ciary’s behalf, but the anti-lien provision protects the beneficiary’s interest in the remainder of the settlement.”

North Carolina’s statute as applied ran afoul of the holding in Ahlborn because it set “forth no process for determining what portion of a beneficiary’s tort recovery is attributable to medical expenses.”  Instead, the statute applies an arbitrary figure (one-third) and mandates that amount be the payment for medical care out of the tort recovery.  Because, as applied, this violates the federal anti-lien law it is pre-empted.  The EMA Court pointed out that if “a State arbitrarily may designate one-third of any recovery as payment for medi­cal expenses, there is no logical reason why it could not designate half, three-quarters, or all of a tort recovery in the same way.”  Since North Carolina could provide no evidence to substantiate the claim it made that the one-third allocation was reasonable and provided no mechanism for determining whether it was a reasonable approximation in any particular case, the Court rejected its application.

In a very important part of the decision, in my view, the court discusses when the state may not demand recovery from a portion of the settlement allocated to non-medical damages.  The court stated that when “there has been a judicial finding or approval of an allocation between medical and nonmedical damages—in the form of either a jury verdict, court de­cree, or stipulation binding on all parties—that is the end of the matter.”  “With a stipulation or judgment under this procedure, the anti-lien provision protects from state demand the portion of a beneficiary’s tort recovery that the stipulation or judgment does not attribute to medical expenses.”

In applying all of the foregoing to the facts of EMA, the high Court pointed out the flaws of the NC statute which didn’t allow for an allocation.  The Court found that a substantial share of the damages in EMA must be allocated to skilled home care in the future.  This would not be reachable by the state Medicaid agency to satisfy their lien.  In addition, the Court noted that it may also be necessary to consider how much EMA and her parents could have expected to receive in terms of compensation for the other tort claims made in the suit had it gone to trial.  “An irrebuttable, one-size-fits-all statutory presumption is incompatible with the Medicaid Act’s clear mandate that a State may not demand any portion of a beneficiary’s tort recovery except the share that is attributable to medical expenses.”

The final portion of the opinion addressed and rejected each of the five arguments made by North Carolina in defending its third party recovery statute.  The first argument was that North Carolina was doing what Ahlborn said it could do which was “adop[t] special rules and procedures for allocating tort settlements.”  According to EMA, that “misreads Ahlborn” as the decision did not endorse irrebuttable pre­sumptions that designate some arbitrary fraction of a tort judgment to medical expenses in all cases.”  Second, North Carolina argued that its statute falls within the scope of a state’s traditional authority to regulate tort actions.  The EMA court stated that a “statute that singles out Medicaid beneficiaries in this manner cannot avoid compliance with the federal anti-lien provision merely by relying upon a connection to an area of traditional state regulation.”  Third, North Carolina suggested that even though the one-third allocation might be arbitrary, other methods of allocation would be just as arbitrary.  The EMA opinion’s response is that while no allocation is precise, it need not be arbitrary as trial judges and trial lawyers “can find objective benchmarks to make projec­tions of the damages the plaintiff likely could have proved had the case gone to trial.”

The fourth argument made by North Carolina asserted that it would be “wasteful, time consuming and costly” to hold “mini-trials” to allocation settlements between medical and non-medical expenses.  The Court stated that even if that were true, which it felt it wasn’t, that still “would not relieve the State of its obligation to comply with the terms of the Medicaid anti-lien provision”.    The Court pointed to the sixteen states and the District of Columbia who provide for hearings of this sort with no indication that it is overly burdensome.   “The State thus has ample means available to allocate Medicaid beneficiaries’ tort recoveries in an efficient man­ner that complies with federal law.”  The fifth and final argument contended that CMS had approved North Carolina’s statutory scheme for Medicaid reimbursement.  Citing the Brief for United States as Amicus Curiae, the Court found that was no longer the agency’s position.  Furthermore, the documents North Carolina pointed to were “opinion letters, not regulations with the force of law.”

The question becomes what does this mean for other state Medicaid Third Party Recovery statutes that are similar to North Carolina’s invalidated statute?  If you look at the EMA opinion’s holding and the analysis the US Supreme Court engages in relative to the North Carolina statute, one must conclude that any statute that provides for an arbitrary percentage would be interpreted in the exact same way.  The question is will the state Medicaid agencies capitulate now with the EMA decision.  In the long term I don’t think they will have a choice but to capitulate once the opinion has been digested.

To view the opinion click HERE

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