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Adapting To High Court’s Medicaid Recovery Ruling

Source: Law360 (August 25, 2022, 6:13 PM EDT) –Aaron Frishman

The recent term of the U.S. Supreme Court was not devoid of extremely controversial decisions.

Of course, some of the most noticeable cases have continued to fuel national debate — e.g., Dobbs v. Jackson Women’s Health Organization, New York State Rifle & Pistol Association v. Bruen and West Virginia v. U.S. Environmental Protection Agency.

However, these more highly publicized cases appeared to somewhat overshadow another decision that also set the stage to significantly, and possibly negatively, affect millions of Americans, particularly those suffering from severe injuries.

The case in particular is Gallardo v. Marstiller, which was decided on June 6.

In this case, the Florida Medicaid agency was attempting to enforce its rights to recover from a third-party settlement for medical expenses paid for the plaintiff. However, Florida was seeking recovery not only for past medical expenses, but also for future Medicaid expenses that could be incurred by the plaintiff.

The question was whether the exception allowing agencies to recover for medical expenses under the anti-lien provision of the Medicaid Act applied only to past medical expenses or whether it allowed for recovery of future medical expenses as well.

Ultimately, in a 7-to-2 decision, the conservative majority, along with Justice Elena Kagan, deviated from decisions in the prior Supreme Court cases of Arkansas Department of Health and Human Services v. Ahlborn in 2006 and Wos v. E.M.A. in 2013, both of which set limitations to state Medicaid recovery, and instead expanded Florida’s recovery rights to both past and future medical expenses.

It further ruled, unequivocally, that the term “medical care,” as interpreted, did not limit the recovery of Medicaid expenses solely to prior medical care provided.

Justice Clarence Thomas wrote the majority opinion, with Justice Sonia Sotomayor writing a strong dissent, and Justice Stephen Breyer joining and essentially making the case for such term and recovery rights to only apply to prior medical expenses previously paid for by Medicaid.

While this may seem to be a relatively minor interpretation of a federal statute by the Supreme Court, the decision effectively, and nearly immediately, expanded the reach of state Medicaid recovery rights beyond the limitation of prior care and into an unknown realm of future, unknown medical expenses that arguably might never be provided by Medicaid to the plaintiff.

Further, the decision did not place any limitations to the particular facts and circumstances of the case, implying that this decision is now applicable to all 50 states.

Unfortunately, the logical conclusion is that this decision will soon lead to many more states seeking a more aggressive and larger recovery from settlement proceeds. It is also highly predictable that many state Medicaid agencies will begin the rulemaking process to modify their regulations to specifically expand such recovery rights to future medical expenses.

Unfortunately, fewer damages received in a judgment or settlement by plaintiffs will be considered protected property under the Medicaid anti-lien provisions. Individuals and families who rely upon these settlements for support in the face of life-changing injuries will now have to concede significant portions of their settlement proceeds to the state to account for services that they have yet to receive and may never receive.

While this recovery right has been expanded, the Supreme Court left open questions as to how this claim will be calculated and enforced, whether any other limitations exist with such claims, and what alternatives will there be if the future medical care is never paid to the recipient by Medicaid. There are no clear answers and further litigation to settle these issues is inevitable.

The Gallardo decision has now disrupted a long-standing approach to Medicaid liens that was derived from Ahlborn and Wos.

Previously, plaintiffs attorneys or an elder law attorney would calculate a specific, known value for injury-related expenses previously paid by Medicaid. Further, it was understood and accepted that these damages were the only portion of the settlement subject to recovery by Medicaid.

Should any recovery or settlement be less than the full amount of damages demanded by the plaintiff, typically, the prior Medicaid expenses were applied proportionately to all damages estimated by the plaintiff, and only such proportional amount, minus any other statutory reductions to account for attorney fees, would be payable to settle such liens.

With Gallardo now the law of the land, more creative strategies need to be applied and tested to minimize this now expanded reach of Medicaid.

The good news is that the Supreme Court did not overrule the previous decisions in Ahlborn or Wos and those cases should still be applicable.

Using these decisions, Medicaid recovery should still be limited to injury-related medical care and nothing more, and indeterminate and arbitrary claims for such medical care, whether past or future care, should be prohibited. Thus, the burden should still rest with Medicaid to definitively calculate actual past, and now future, injury-related medical care.

Further, Medicaid also appears to carry the burden to show whether future medical care is imminent by evidence that the plaintiff will still be receiving Medicaid services post-settlement. Further, there is nothing in the Gallardo decision that impedes the current Ahlborn strategy of reducing a lien for medical care, proportionally to a reduced settlement.

It will be important for attorneys representing plaintiffs in third-party liability matters to continue to assert these limitations and strategies with any specific Medicaid lien.

That said, it is conceivable that the negotiation and settlement process may soon follow a path similar to negotiation and settlement of Medicare subrogation claims pursuant to the Medicare Secondary Payer Act with the potential consideration of a similar vehicle to a Medicare set-aside.

Questions still remain, however.

Will calculations for medical care be required to be part of plaintiff damages in every proceeding? Will plaintiffs be forced to demand recovery for future medical care, or can they avoid it? And will there be a need or possibility for a Medicaid set-aside account to address future medical care issues? What process and form would this take?

These are all questions that practitioners need to keep in mind.

It is conceivable that attorneys may wish to take the bold approach of not including any allocation for future medical costs in the calculation of damages and only seek recovery for prior medical costs along with damages otherwise protected under the Medicaid anti-lien provisions.

However, this approach seems highly unlikely as it may not be looked upon favorably by a court or Medicaid. It may also run in contradiction with standard rules requiring a portion of settlement funds to be allocated to future medical expenses, and it could result in a lower contingency fee for the plaintiffs attorney by lowering the overall recovery.

Yet, there may be another option. Could a plaintiff instead terminate their Medicaid benefits prior to any judgment or settlement? This strategy could effectively allow for the recovery of estimated future medical care, but restrict Medicaid’s right to these damages by eliminating any imminent likelihood of continuing coverage.

This approach is not without significant risk to the plaintiffs and their families. It will require careful and meticulous planning to ensure alternative care arrangements for the plaintiff.

Further, such planning may still require the use of different trusts, structured annuities or other vehicles to ensure both the protection of the settlement funds and the ability to pay for future medical expenses.

Depending upon the flexibility and approach by each state Medicaid agency, negotiations over claims for future medical expenses could be relatively straightforward or extremely litigious and could prolong the use and enjoyment of the third-party recovery.

Regardless of how any state approaches such matter, both plaintiffs and their attorneys should be mindful of this broadened recovery right by Medicaid with any matter in which Medicaid benefits are involved.

Further, such individuals and their attorneys should consider, at the onset of any negotiation talks, the consequences of the characteristics and amount of damages, how they are allocated, and the effects on the continuing care often needed for the plaintiff.

Aaron D. Frishman is of counsel at Foster Garvey PC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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