Federal Law Limits Medicaid Reimbursement in New Hampshire Medical Negligence and Personal Injury Cases

Federal Law Limits Medicaid Reimbursement in New Hampshire Medical Negligence and Personal Injury Cases

By

Mark A. Abramson and Kevin F. Dugan

 

I.          Introduction:

            We have written before about the application of the collateral source rule to medical expense write offs and have noted that most trial judges in New Hampshire believe that plaintiffs may recover the billed amount even if the actual paid amount is much less.[1]  We have also written about the law governing Medicaid reimbursement, and in particular, the United States Supreme Court’s ruling that Medicaid’s rights only apply to the portion of a recipient’s third party recovery that constitutes payment for medical expenses.[2]  In this article, we examine the intersection of these two areas of the law through two recent cases that significantly limit the amount a Medicaid recipient must repay following a third party recovery.

 

II.        Medicaid Reimbursement Under Ahlborn:

            Under state and federal law, New Hampshire’s Department of Health and Human Services has a right to seek reimbursement from a Medicaid recipient’s third party tort recovery for medical expenses that the department has paid.[3]  In Arkansas Department of Health and Human Services v. Ahlborn, the United States Supreme Court held that federal law limits a state’s right to seek reimbursement for Medicaid benefits so that reimbursement may be sought only from that portion of the recipient’s settlement or verdict that represents compensation for medical expenses.[4]  Thus, where a case settles for less than full value because of difficult liability or limited insurance coverage, the portion of the settlement that represents compensation for medical expenses must be determined and that figure constitutes a cap on the state’s right to reimbursement.

            In Ahlborn, for example, the plaintiff settled her personal injury suit for $550,000 although the parties stipulated that the true value of her claims, assuming 100% liability and unlimited coverage, was $3,040,708.  The state asserted a right to reimbursement in the amount of $215,645, representing medical expenses it had paid through the date of settlement.  The Supreme Court held that since the case settled for approximately 1/6 of its total value, the plaintiff had recovered only 1/6 of her medical expenses.  Thus, the state’s right to reimbursement was capped at $35,581 (1/6 of $215,645).[5]

 

III.       Medicaid Reimbursement Where Plaintiff Claims Billed Amount of Medical Expenses:

            In most cases in New Hampshire, a personal injury or medical negligence plaintiff will seek to recover the billed amount of his or her medical expenses even if Medicaid satisfied those charges by paying a reduced amount.[6]  Since the parties in Ahlborn stipulated to the pertinent figures, the Court did not address the question how to determine the portion of a settlement attributable to medical expenses in such a case.  That issue was squarely presented in Southwest Fiduciary v. Arizona Health Care Cost Containment System Administration.[7]

            In Southwest Fiduciary, the Arizona Court of Appeals ruled on two separate consolidated cases.  Both had settled for a fraction of their true value.  In one case, the plaintiff had claimed medical bills in the amount of $920,000 which had been satisfied by Medicaid payments in the amount of $268,080.[8]  In the second case, the plaintiff claimed medical expenses of $138,710 which had been satisfied by Medicaid payments in the amount of $51,760.[9]  The question before the court was whether it was appropriate to use the billed amount or the paid amount when calculating the Medicaid reimbursement cap required by Ahlborn

            In its analysis, the court placed great weight on Ahlborn’s recognition that a personal injury settlement includes various elements of damages and the Supreme Court’s conclusion that the state is only entitled to apply its right to reimbursement against the medical expense component.  Based on Ahlborn’s clear prohibition against the state tapping into a plaintiff’s recovery for things like pain and suffering and lost wages, the Arizona court concluded that “federal law does not allow a state Medicaid plan to enforce its lien against any portion of a tort settlement not attributable to the plan's actual payments.”[10]  Reinforcing this point, the court pointed to the precise language used by the Supreme Court:

 

                        We take Ahlborn's warning that [federal law] bars any

                        lien beyond “proceeds designated as payments for medical

                        care,” to mean that a Medicaid lien may be enforced only

                        against the portion of a settlement attributable to payments

                        the state plan has made on behalf of the victim.[11]

 

The court emphasized that “[t]he Ahlborn court’s decision to limit the lien . . . to that portion of a settlement allocated to medical payments supports our conclusion in these cases that [the state’s] lien may not extend beyond those amounts.”[12]  The court held, accordingly, that the state’s reimbursement rights “are limited to that portion of a tort settlement that represents recovery of medical expenses actually paid by [the state].”[13]

            Almost exactly a year later, the Vermont Supreme Court adopted the reasoning of Southwest Fiduciary in Doe v. Vermont Office of Health Access[14], a case that raised a similar issue.  Doe was catastrophically injured in an automobile collision when he was nine years old.[15] Although the procedural context is slightly more complicated, it suffices to say that he won a verdict against the State of New York in the New York Court of Claims awarding him $42 million and allocating $2.9 million to past medical expenses.[16]  With an appeal pending, he settled the case for $12 million.[17]  Vermont Medicaid had paid $771,111 in medical expenses.  It sought reimbursement in the amount of $506,810, which included a deduction for its share of the plaintiff’s litigation expenses.[18]

            The Medicaid reimbursement issue was presented to a Vermont trial court through motions for summary judgment.  Because of a prior settlement, the trial judge decided that $1.2 of the past medical bills allowed by the Court of Claims was the correct figure to use for Ahblorn purposes.  As a result, it ruled that the past medical expenses represented 3.17% of the Court of Claims’s $42 million verdict.[19]  It then multiplied 3.17% by the $12 million settlement figure and concluded that the state was entitled to apply its right to reimbursement to $380,758.14 of the settlement proceeds.[20]

            Both sides appealed the trial court’s decision.  The state argued that the court undervalued its right to reimbursement because it failed to discount to present value any of the future economic damages awarded by the New York Court of Claims.[21]  Doe argued that the court overvalued the state’s share because it used the $1.2 million figure for past medical expenses, even though Medicaid had only paid $771,111.[22]

            Taking up the state’s appeal first, the court held that discounting of future damages was not necessary.  It explained that the state had failed to satisfy its burden of proving that its discounted figure was more fair or even accurate.[23]

            The court then addressed Doe’s argument that the trial court erred by calculating the state’s share of the settlement using the total amount of his past medical expenses, including expenses that had been paid by sources other than Medicaid.  The court reviewed the applicable federal statutes as construed by the Supreme Court and first noted that Ahlborn held that states are limited to the portion of a settlement that represents medical costs paid by Medicaid . . .”[24]  It also cited as instructive Southwest Fiduciary, which dealt with a similar situation where the recipient’s medical bills were greater than the amount paid by Medicaid.[25]  The court reached the same conclusion as the Arizona Court of Appeals and explained its reasoning as follows: 

 

                        The federal reimbursement provisions allow the State to assert

                        a lien against settlement proceeds to the extent that “care and

                        services [were made] available under the plan,” while the anti-lien

                        provision bars encumbrances beyond “proceeds designated as

                        payments for medical care[.]”  Thus, the reimbursement provisions

                        allow the State to assert a lien against the portion of the settlement

                        representing actual payments made by Medicaid, but the anti-lien

                        provision prohibits the State to go farther.  Because there is simply

                        no principled way to distinguish between non-Medicaid medical

                        expenses and any other economic costs, such as lost wages, the

                        principles espoused in Ahlborn would prohibit encumbrances

                        beyond medical payments made by Medicaid.[26]

 

            Based on this holding, the court determined that the trial judge erred by using the $1.2 million figure in its Ahlborn calculation.  It remanded to the trial court with instructions to recalculate Medicaid’s interest based on $771,111 in past medical expenses, the amount actually paid by Medicaid.[27]

 

IV.       Conclusion:

            The unanimous decisions in Southwest Fiduciary and Doe persuasively demonstrate that federal law limits a state’s Medicaid reimbursement right to the portion of a recipient’s third party recovery that represents compensation for the medical expenses that the state has actually paid, even if the recipient’s third party recovery is based on the billed amount of his or her medical expenses.  Thus, in New Hampshire medical negligence and personal injury cases that settle, the State’s claim is capped by the following two-step equation: First, divide the amount of past medical expenses Medicaid actually paid by the total value of the case assuming unlimited coverage and uncontested liability.  Then, take the resulting figure and multiply it by the amount of the settlement.  This represents the cap on Medicaid’s right to reimbursement.

            To apply this equation, assume a case where the total billed past medical expenses are $250,000 but Medicaid paid only $100,000 to satisfy those expenses.  The case settled for $500,000 due to limited insurance coverage and the total value of the case, but for the limited coverage, was $1,000,000.  To determine Medicaid’s right to reimbursement, the first step is to divide the amount Medicaid paid ($100,000) by the total value of the case ($1,000,000), the result of which is 10%.  This means that the Medicaid’s past medical expenses represents 10% of the total value of the case.  The second step of the equation is to multiply 10% by the amount of the settlement ($500,000), which gives you $50,000.  Under the law as stated in Ahlborn, Southwest Fiduciary, and Doe, Medicaid’s right to reimbursement is capped at $50,000.  Before

Southwest Fiduciary and Doe, the State would argue in such a case that it is entitled to apply its right to reimbursement against 25% of the $500,000 settlement and it would insist on repayment of the full $100,000 that it had paid out.

            The bottom line is that Southwest Fiduciary and Doe clarify federal law in a manner that will help Medicaid recipients retain more of  their third party recoveries.

 

 

                                                                   ENDNOTES

 


[1]See “Recovering Medical Expenses in New Hampshire Personal Injury and Medical Malpractice Cases: Trial Judges Overwhelmingly Favor Billed Amount over Paid Amount,”

37 TBN ___ (Winter, 2012); “Application of the Collateral Source Rule to Medical Expenses Written Off in Medical Negligence and Personal Injury Cases,” 29 TBN 177 (Fall, 2007); “Update: Application of the Collateral Source Rule to Written Off or Reduced Medical Expenses,” 30 TBN 71 (Spring 2008).

[2]. “Medicaid Lien Repayment in Medical Malpractice Cases after Arkansas Department of Health and Human Services v. Ahlborn,”29 TBN 5 (Winter, 2007).

[3].  RSA 167:14-a, III; 42 U.S.C. §1396a(a)(25).

[4].  547 U.S. 268 (2006).

[5]Id., 547 U.S. at 292 (“Federal Medicaid law does not authorize [the state] to assert a lien on Ahlborn's settlement in an amount exceeding $35,581.47, and the federal anti-lien provision affirmatively prohibits it from doing so.”).

[6].  Note 1, supra.

[7].  249 P.3d 1104 (Ariz.App. 2011), rev. denied (August 31, 2011).

[8]Id., 249 P.3d at 1105.

[9]Id.

[10]Id., 249 P.3d at 1108-09.

[11]Id., 249 P.3d at 1109 (citation omitted).

[12]Id., 249 P.3d at 1110 (emphasis in original).

[13]Id., 249 P.3d at 1112.

[14]. ___ A.3d ___, 2012 VT 15 (Decided March 9, 2012).

[15]Id., 2012 VT 15 at ¶2.

[16]Id., 2012 VT 15 at ¶8.

[17]Id.

[18]Id.

[19]Id., 2012 VT 15 at ¶10.

[20]Id.

[21]Id., 2012 VT 15 at ¶11.

[22]Id.

[23]Id., 2012 VT 15 at ¶17.

[24]Id., 2012 VT 15 at ¶16.

[25]Id., 2012 VT 15 at ¶23.

[26]Id., 2012 VT 15 at ¶24 (citations omitted).

[27]Id., 2012 VT 15 at court’s mandate following ¶36.