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In Arkansas Department of Health and Human Services v. Ahlborn, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006), the United States Supreme Court unanimously held that federal Medicaid law affirmatively prohibits States from asserting Medicaid liens on any portion of a plaintiff’s recovery other than the part of the plaintiff’s total recovery that was allocated to medical expenses. The Supreme Court also ruled that any state Medicaid statutes compelling a different conclusion or in conflict with its holding were unenforceable under the federal anti-lien provision of the Medicaid Law.
Certain parts of the New Hampshire Medicaid third-party recovery statute are in direct conflict with the Ahlborn ruling. Thus, these conflicting provisions are no longer valid and New Hampshire Courts have not yet had the opportunity to address how they should be interpreted for appropriate and equitable repayment of state Medicaid liens. Because lien repayment is an issue that arises during the resolution of most medical malpractice cases, we offer the following analysis of the Ahlborn decision, how it applies to New Hampshire law, and what medical malpractice plaintiffs should do to preserve their rights to receive compensation for their injuries and achieve an equitable reduction of their Medicaid liens.
Heidi Ahlborn was a 19-year old college student left permanently brain damaged after a car accident caused by two other negligent parties. Unable to pay for the significant medical care she required after the accident, Heidi applied to the Arkansas Department of Health and Human Services (the Department) for assistance with her medical expenses. The Department paid $215,645 in medical expenses on her behalf.ii
Heidi filed suit against the negligent parties, and claimed damages for “past medical costs; permanent physical injury; future medical expenses; past and future pain, suffering and mental anguish; and past and future lost wages.”iii The Department intervened in Heidi’s suit to assert a lien on the proceeds from any third-party recovery she received, but did not otherwise participate in the case. Heidi settled her case with the defendants out of court for an unallocated total of $550,000. The Department did not participate in the settlement negotiations, but did assert its lien on the settlement proceeds for $215,645, the total amount that it had paid in medical expenses on Heidi’s behalf.iv
Heidi filed a petition for declaratory judgment that the State Medicaid lien violated federal law by depriving her of the compensation for her injuries other than past medical expenses. To expedite the Court in deciding the legal issues involved, the parties stipulated that the total value of Heidi’s case for all items of damages was $3,040,708, that the settlement, $550,000, amounted to approximately one-sixth of that sum, and that, if Heidi were correct in her legal analysis, the Department was only entitled to the portion of the settlement representing repayment for medical payments made, which was approximately one-sixth of the asserted lien, or $35,581.v The District Court ruled that the State Medicaid lien did not conflict with Federal Law and the Department was entitled to its entire lien, or $215,645. The Eighth Circuit Court of Appeals reversed, ruling that the Department was entitled only to the portion of the settlement representing payments for medical care. The United States Supreme Court agreed with the Eighth Circuit.vi
In Ahlborn, the Supreme Court was specifically asked to determine whether a State Medicaid program can recover more of a plaintiff’s settlement proceeds than the portion the plaintiff recovered for medical expenses.vii Applying the plain language of the federal statute, the Supreme Court ruled that the federal third-party liability provisions limit Medicaid programs to recovery of payments made for medical care.viii The Supreme Court agreed that State Medicaid programs have a right to “seek reimbursement for [medical] assistance to the extent of such legal liability,” but found that “such legal liability” means the amount of legal liability that a third party has to pay for medical care and services that have been paid for by MedicaId.ix The Court observed that, in the Ahlborn case, the parties agreed that the defendants had paid only one-sixth of the total value of the plaintiff’s claim. Consequently, the Department was entitled to one-sixth of its asserted lien.x
The Court analogized the applicable settlement and lien allocation to a case involving contributory negligence where a third party is found to be legally liable for only one-sixth of the plaintiff’s damages due to a plaintiff’s contributory negligence.xi It follows, that if the third-party is only legally liable for one-sixth of the total claim, which includes all amounts paid for medical expenses, then a State Medicaid program is entitled to seek reimbursement only to that “extent of legal liability” and can receive only one-sixth of its lien for the medical expenses it has paid. The “relevant liability extends no further than that amount.”xii This is because the Medicaid statute “does not sanction an assignment of rights to payment for anything other than medical expenses — not lost wages, not pain and suffering, not an inheritance.”xiii “[T]he State’s assigned rights extend only to the recovery of payments for medical care.”xiv
The Supreme Court did acknowledge the State’s priority in recovering its Medicaid lien from a settlement before the plaintiff can receive its own payments for medical care.xv The Court also noted, however, that the recipient may have paid expenses out of her own pocket and may have had medical expenses paid by other sources as well. As such, the plaintiff retains the right to payment for any additional medical expenses incurred either before or after its Medicaid eligibility determination, as well as for other damages.xvi
The Court went on to find that the federal anti-lien statute, 42 U.S.C. §1396p, also places express limits on a State when pursuing recovery of Medicaid funds it has expended on a recipient’s behalf.xvii The Court found that to the extent Medicaid is allowed to make a forced assignment of rights to reimbursement for medical costs, it is an exception to the anti-lien provision.xviii The exception, however, does not allow a lien to be placed on any other portion of a plaintiff’s recovery or property other than the payments made for medical care.xix The Medicaid lien does not attach to a plaintiff’s case or cause of action. Rather, it attaches only to a plaintiff’s settlement received for medical payments made.xx Thus, the Court ruled that the Medicaid lien cannot even attach until the settlement proceeds are received and are in the recipient’s possession.xxi
Finally, the Supreme Court rejected the Department’s argument that another exception to the anti-lien provision should apply when a plaintiff violates his or her duty to cooperate with Medicaid or manipulates the settlement proceedings to minimize its lien.xxii The Court found that a plaintiff’s duty to cooperate only applies to proceedings brought by the State to recover from third parties.xxiii In a case like Ahlborn, where the Department intervened in the case but neither asked to be involved nor participated in the settlement, there is no breach of a duty to cooperate when a plaintiff settles her case.xxiv Furthermore, the Court found that the risks of settlement manipulation are slim, and can be avoided entirely by either obtaining an agreement as to damage allocation in advance or by submitting the allocation to the Court for an equitable apportionment as occurs in private insurance disputes.xxv
The New Hampshire Department of Health and Human Services is the agency charged with administering the Medicaid program in New Hampshire.xxvi The Medicaid program provides joint federal and state funding toward the costs of medical care for individuals who cannot afford those costs on their own.xxvii In order to participate in the Medicaid program, States must establish a comprehensive plan for medical assistance, which includes methods for recovery of reimbursement for assistance provided.xxviii
The New Hampshire statute that governs recovery of third-party liability payments for medical care is RSA 167:14-a, I-VI. This statute was enacted to comply with the federal Medicaid laws, and provides a comprehensive outline for the State’s ability to recovery medical payments it has made on a recipient’s behalf.
Section I of the statute creates the statutory lien that is discussed in Ahlborn. In short, by accepting assistance from the State Medicaid program, the recipient assigns its right of action against a third party to the Medicaid office to the extent that Medicaid has provided financial assistance. The Ahlborn Court, however, ruled that the statutory lien allowed is only on the recovery for medical payments after a settlement is received, and not on the cause of action itself.xxix Thus, the validity of paragraph I is now in question under the Ahlborn decision.
Section II of the statute provides that whenever a recipient has a valid third-party claim for medical expenses or support and the department had already made such payments on the recipient’s behalf, the State may bring a separate action against the third-party to recover the payments that it has made, for which the third party is legally liable. This separate action is the one which the Ahlborn Court ruled that a plaintiff has a duty to cooperate with the State in its pursuit of repayment.xxx
Section II-a of the statute provides that when assistance is provided to a dependent child, the State may pursue recovery against the parents responsible for the child’s care. Section III then asserts Medicaid lien priority on a third-party settlement or recovery for reimbursement of medical payments made by the State “to the extent that the amount of the recovery makes repayment possible.”xxxi The interpretation of this provision under Ahlborn, will now limit the State’s priority in reimbursement to the amount of recovery that is limited to medical payments made.xxxii
Likewise, under Ahlborn, it appears that section III-a of the statute is no longer valid because that section allowed the State to recover the full amount of its lien if there are proceeds available after deduction of attorney’s fees, costs, creditor claims and disbursement of 10% of the proceeds to the recipient. The Ahlborn Court was clear when it limited the amount of the State’s recovery of its lien to that portion of settlement allocated to medical payments. Thus, there is no way to validate this provision, which allows for full recovery of the State’s lien if a settlement is large enough, without regard to other damage claims from a plaintiff’s third-party settlement proceeds.
Section IV of the third-party recovery statute lays out the notice provisions that a plaintiff and the State must follow when resolving any lien asserted. The plaintiff must provide at least 30 days notice of its potential third-party claim to the State, prior to any scheduled trial, alternative dispute resolution or settlement, and the State must either provide a written release of its obligation or the amount of the State’s claim within 21 days.xxxiii If the plaintiff and the State dispute the amount due under a settlement of any claim, either the third-party or the plaintiff’s attorney shall withhold from the settlement disbursement “an amount equal to the commissioner’s claim.”xxxiv Then, either the plaintiff or the State may apply to the Court for an equitable apportionment between the parties of the amount withheld.xxxv The Ahlborn Court noted that it would be appropriate for a Court to use a similar equitable apportionment to that used in claims involving private insurance subrogation claims.xxxvi
Sections V and VI of the New Hampshire statute appear to have been invalidated in their entirety by Ahlborn, as they deal with liens on personal property and estates of deceased persons, which expressly violate the federal anti-lien provision laid out in 42 U.S.C. §1396p.
In addition to RSA 167:14-a, IV, which is the statutory provision allowing equitable apportionment of disputed Medicaid liens, RSA 167:16, I also provides that assistance liens under the New Hampshire Medicaid scheme may be enforced by a bill in equity. The validity of all of these statutory provisions will have to be addressed by New Hampshire Courts in the future. For now, however, under Ahlborn, it appears that absent an express agreement as to the allocation of medical malpractice settlement proceeds with the State, all Medicaid liens will require equitable apportionment by the Superior Court.
At least three Courts have analyzed the Ahlborn decision at length, each suggesting that the equitable apportionment considerations when determining the amount of a settlement attributable to past medical expenses are the same as those involved in State subrogation law.xxxvii
The doctrine of subrogation is an equitable one.xxxviii It can arise by statute, contract or the common law.xxxix “The doctrine of subrogation presupposes the payment of a debt by a party secondarily liable therefor, who thereby acquires an equitable right to be reimbursed by the principal debtor.”xl In the case of Medicaid liens, the Medicaid statute allows for State subrogation of the plaintiff’s right to recover damages for past medical expenses that have been paid by the State Medicaid program.xli While the Ahlborn Court does not expressly state that the subrogation right granted is limited to past medical expenses, the rule is implicit in its holding because the Medicaid recipient’s assigned right to recovery is limited to payments already made by a state Medicaid program on a recipient’s behalf for medical care.xlii This rule is also consistent with New Hampshire cases addressing equitable apportionment of insurance contract subrogation claims.xliii Thus, when no agreement exists, the trial court should hold a hearing to determine the appropriate equitable amount of a total settlement that applies to past medical expenses.
The only New Hampshire cases describing the procedures to be applied in an equitable apportionment hearing involve compromised claims brought on behalf of minors injured in car accidents, whose claims were settled for the limits of the applicable automobile insurance policies.xliv In each of those cases, the health insurer who paid for the minor’s medical expenses sought to enforce its contractual subrogation right to reimbursement of payments made. The Supreme Court recognized that the medical insurer was “subrogated to the parent’s, not the minor’s, right to recover medical expenses.”xlv Thus, the Superior Court was required to hold a hearing to make separate findings regarding the full value of the extent of loss sustained by both the minor and the parent; ascertain the amount of funds available for allocation; the attorney’s fees attributable to each claim including the fees attributable to the portion of the claim for medical expenses; and determine the net proceeds to which the insurer is entitled on a pro rata basis proportionate to the parent’s share of the total settlement.xlvi
Medical malpractice cases, in contrast to traditional claims for personal injuries such as those involved in motor vehicle accidents, generally involve multiple defendants with multiple insurance policies and complex issues involving liability and causation. Because of this, medical malpractice cases that settle prior to trial will generally be settled for an amount less than the total value of the available insurance policies. Such a settlement, however, does not mean that the true value of a medical malpractice plaintiff’s claim is less than the applicable insurance policy limits.xlvii Indeed, quite the opposite is true.
The costs of bringing a medical malpractice claim are far higher than those involved in a traditional personal injury claim due to the heightened statutory requirements imposed by the legislature. Thus, the risks to each side of proceeding to trial are far higher, as are the extreme litigation costs that will have to be deducted from a plaintiff’s recovery in a successful claim. Many valid medical malpractice claims are now cost-prohibitive to pursue because the legislatively imposed litigation costs will far exceed the value of the claim. As such, the majority of medical malpractice claims will result in a settlement within the limits of the defendants’ applicable insurance policies.
When this occurs, our Supreme Court has recognized that subrogation claims cannot be treated in the same manner as they are in other compromised personal injury claims.xlviii Indeed, the Supreme Court has found that “when the enforceability of a settlement itself is not in question, there is no reason to assume that a plaintiff who settles for less than a defendant’s policy limits has acted irrationally in choosing not to pursue his claim by litigating his case to verdict.”xlix In such a case, the amount of the plaintiff’s medical expenses are just assumed to be included in the settlement. Indeed, the Supreme Court acknowledged that under New Hampshire law, a plaintiff is not even bound to bring a claim for its medical or out-of-pocket expenses.l If a plaintiff does choose to bring a claim for medical expenses, however, it remains subject to the subrogee’s right to recovery.
Our Supreme Court has also recognized that often a claim will be brought on behalf of a minor and provision may be made for the payment of medical expenses incurred by the parent, although a separate action or allocation on behalf of a parent is not filed.li In such a case, the amount of medical expenses claimed as special damages may be included in a petition for approval of minor’s settlement and a subrogee may still enforce its right to repayment without an allocation to a parent’s claim.lii
Because these cases still limit a subrogee to its legal right to recovery, these cases do not affect the express Medicaid analysis mandated by Ahlborn, which determines the amount of medical expenses recoverable from a settlement based on the extent of the legal liability of the third party. Thus, the total value of the claim must still be determined and compared to the total settlement received, which results in the percentage of liability for which a third party is liable. This percentage is then applied to the asserted Medicaid lien to reduce the lien to reflect the limits of liability imposed.
One Court has implicitly adopted this formula for a medical malpractice claim and ruled that it will be applied in a hearing on the total value of the plaintiff’s claim. In Lugo v. Beth Israel Medical Center, a case involving birth injuries to a minor as a result of medical negligence during labor and delivery, the Court ruled that when the parties cannot reach a stipulation as to the true value of a case and the appropriate percentage reduction to be applied to a Medicaid lien, the Court should hold a hearing to confirm the full value of the case including the value of the other various items of damages and the nature of the plaintiff’s actual injuries and how they compare those involved in verdicts awarded in other cases.liii This type of hearing is far simpler than that required under the New Hampshire health insurance subrogation cases discussed above. Notably, the Lugo case involved a claim on behalf of a minor and parental recovery for medical expenses since a hearing on the Medicaid lien for expenses was required, but the Court did not find it necessary to apportion settlement amounts allocated to damages between the parent and the minor regarding medical expenses due to the liability apportionment formula it applied.
At least one New Hampshire Superior Court applied this formula in an equitable apportionment proceeding for a Medicaid lien under RSA 167:14-a, before the Ahlborn case was decided.liv In that case, our client was a thirty-year old female who suffered a heart attack and multi-system organ failure, and required a kidney transplant due to medical negligence. Because the defendants’ insurer was declared insolvent, the plaintiff was limited in her recovery to $2.1 million, although her medical expenses alone exceeded that amount. The Court ruled that the medical malpractice insurer’s insolvency deprived the plaintiff of approximately one-third of the value of her claim. As such, the State was ordered to reduce its Medicaid lien by one-third to equitably reflect the plaintiff’s compromised settlement. In light of the Ahlborn decision, it is likely that all New Hampshire Courts will be applying this formula to Medicaid liens in the future to comport with federal law.
The Ahlborn Court recognized the fine balance between an injured plaintiff’s right to receive full compensation for his or her injuries and the State’s right to be reimbursed when a third party is liable for medical expenses the State has paid on the plaintiff’s behalf. The decision places the first formal limits on plaintiff liability for repayment of Medicaid liens that are applicable to all 50 states. In doing so, the decision also created a simple formula for Courts to apply when equitably apportioning Medicaid Liens to third-party settlements.
Issues that were not resolved in the Ahlborn decision, however, include whether the State always has absolute priority to repayment of its lien; whether an alternate apportionment formula would apply when a recovery involves claims on behalf of a minor and a parent; whether there is a duty to cooperate in equitable apportionment proceedings; and whether the amount of a State’s Medicaid lien can be recovered for amount allocated to future, as well as past medical expenses.
In order to minimize these issues from arising in the future, we recommend that plaintiffs in medical malpractice cases provide timely written notice of their third-party claim to the State and acknowledge their medical payments made; ask for an itemization of amounts the State has spent on medical expenses and update that itemization on a regular basis; inform the State of any alternative dispute resolution or trial dates; make a tactical decision about whether to include recovery of past medical expenses since it is the government’s duty to enforce its lien; try to reach an agreement as to the value of the claim and amount due; if an agreement cannot be reached, carefully work up and allocate all items of damage for which your client may recover so they can be clearly itemized for the court in an equitable apportionment proceeding; and prepare your clients for the reality that the lien exists and must be repaid. Careful preparation is the key to maximizing your client’s recovery and minimizing any liens they must pay.