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Home / Legal News / Medicaid preemption ruling nixes one-size-fits-all state liens

Medicaid preemption ruling nixes one-size-fits-all state liens

By Kimberly Atkins
Dolan Media Newswires

Several states will have to revisit their Medicaid reimbursement rules after the U.S. Supreme Court struck down a North Carolina law that set an automatic reimbursement rate for third-party tort awards as preempted by the Medicaid Act.

The court’s decision in Wos v. E.M.A (formerly Delia v. E.M.A.) means that states cannot authorize automatic liens on personal injury suits for Medicaid reimbursements without some determination of how much of the award is apportioned for medical expenses.

“Fundamentally, what the court was doing here was reaching a fair and equitable result,” said Louis Bograd, senior litigation counsel for the Center of Constitutional Litigation in Washington. “The court left open a wide variety [of ways] to fairly allocate the amount of the reimbursement. But a state statutory scheme cannot arbitrarily dictate an allocation without negotiation with the injured person.”

The ruling could also cause state lawmakers to take a harder look at their Medicaid laws to avoid similar challenges in the future.

“I think the impact of the case will cause North Carolina lawmakers to write legislation in a careful way to ensure that it complies with federal law,” said Knicole Emanuel, an associate in the Raleigh, N.C. office of Ragsdale Liggett.

No ‘one-size-fits all’ rule

The case was a challenge to a North Carolina law authorizing the state to place a lien on any verdict or settlement award for a tortious injury for which the state’s Medicaid program paid medical or health care expenses. The law provided that the lien could be up to one-third of the award or the actual amount of its Medicaid payments, whichever was less.

The plaintiff was a child with multiple birth injuries who sought damages for medical expenses as well as for pain and suffering, lost wages to the child’s parents, emotional distress and other injuries.

The case ultimately settled for $2.8 million, but there was no judicial determination of how much was allotted for each category of damages. The court ordered that $933,333 of the settlement be paid to the state, which had paid $1.9 million in Medicaid benefits to the child.

The child’s parents sued in federal court to stop the reimbursement, arguing that the state statute was preempted by the Medicaid Act. The court dismissed the claim, but the 4th U.S. Circuit Court of Appeals reversed and remanded. Because there was no requirement that the state reimbursement be based on a determination of medical expenses, the judges ruled, the law conflicted with the federal Medicaid Act and was therefore preempted.

In a 6-3 ruling, the Supreme Court agreed. Relying on the 2006 holding in Arkansas Department of Health and Human Services v. Ahlborn, which prohibited states from taking take any part of a Medicaid beneficiary’s tort judgment or settlement not “designated as payments for medical care,” the justices held that federal law sets both the floor and ceiling for Medicaid reimbursements. By taking a portion of a settlement without knowing how much was deemed for medical expenses, the state stepped beyond its bounds under the Supremacy Clause, the court ruled.

“The facts of the present case demonstrate why Ahlborn anticipated that a judicial or administrative proceeding would be necessary,” wrote Justice Anthony Kennedy for the majority. “Of the damages stemming from the injuries E. M. A. suffered at birth, it is apparent that a quite substantial share must be allocated to the skilled home care she will require for the rest of her life. It also may be necessary to consider how much E. M. A. and her parents could have expected to receive as compensation for their other tort claims had the suit proceeded 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.”

Potentially broad implications

The ruling came despite amicus arguments from a host of states with similar rules, including Michigan, Idaho and South Carolina, urging the court to allow them greater latitude in setting rules in order to mitigate costs associated with administering their Medicaid programs.

Requiring some sort of pre-reimbursement proceeding to determine what portion of a court award or settlement should be designated for Medicaid expenses would be costly and time-consuming — and not necessarily accurate, the states argued.

“Rough cuts and approximations are unavailable in these situations, and a regime that resolves each of these disputes through a case-by-case adversarial process will open the door to arbitrary and inconsistent decision making,” the states’ amicus brief to the court stated.

But attorneys for Medicaid recipients and patient advocates said the ruling is a logical extension of Ahlborn.

“Ahlborn foreshadowed the ruling in this case,” said Bograd, who authored an amicus brief in the case on behalf of the American Association for Justice and the North Carolina Advocates for Justice. Just as Medicaid beneficiaries are required to assign subrogation rights to the state so that it may recoup the cost of benefits from settlement awards, states are required to take only the portion of an award that represents the actual amount paid, Bograd said.

While the states argued that requiring adjudication would be burdensome and encourage plaintiffs to try to game the system by low-balling actual damages claims and seeking higher noneconomic awards, Bograd predicts the opposite result. Under rules like the one in North Carolina, plaintiffs had little incentive to bring personal injury suits, knowing the state would claim portions that would otherwise go to long-term care or pain and suffering, leaving plaintiffs to foot the attorneys’ bill, he said.

“Now plaintiffs will have more of an economic incentive to bring suits [and] settle cases,” Bograd said.

The ruling could also have a broader reach. Emanuel, who represents Medicaid health care providers, said the decision could lead other parts of the law to be deemed preempted as well, such as the one barring health care providers from appealing certain prepayment decisions.

“I think this case isn’t just good news for Medicaid recipients,” Emanuel said. “It also gives my clients more hope that other parts of the law can be challenged.


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