The Ahlborn Case and What it Means to Recoveries
By: Amos Goodall, Jr.
Heidi Ahlborn, who had hoped to be a teacher, has taught us a lesson. Despite her horric injuries she is still doing so as we continue to work out the meaning and effect of the Ahlborn case. Ms. Ahlborn's case involved how to allocate the ultimate responsibility of paying for an injured party's damages when there is more than once source available, including the State's Medicaid agency. Medicaid is designed to provide secondary coverage - that is, paying for covered expenses after all other sources are exhausted.
Medicaid (a benefits program funded partly from Federal and partly from State resources) is intended to be the payor of last resort. Other available resources must be used before Medicaid pays for the care of an individual enrolled in the Medicaid program.
On the other hand, no lien may be imposed against any individual prior to death because of Medicaid payments. In Ahlborn, the United State Supreme Court determined the appropriate method of implementing Medicaid's secondary payor status described above consistently with Medicaid's anti-lien Statute.
Heidi Ahlborn was a 19-year-old college studen when she was involved in a serious automobile accident on January 2, 1996, that left her severely and permanently disabled. As a result, her brain was damaged, she was unable to complete her college education and she found herself incapable of pursuing her chosen career. The accident was not her fault, and she eventually filed a State court suit against the driver. In the meantime, she applied for and was given financial assistance under the Arkansas Medicaid program, and Medicaid had paid $216,645.30 for her care as of the date of her personal injury settlement.
In the lawsuit she claimed a number of items of unliquidated damage compensable in a personal injury suit under local law: (a) permanent injury; (b) past and future medical expenses; (c) past and future pain, suffering and mental anguish; (d) past loss of earning and working time; and (e) permanent impairment of ability to earn in the future. The case eventually settled out of court with the defendant insurer paying $525,000 and her own underinsured motorist carrier paying $25,000.00 In the settlement, there was no allocation between the various elements of damage claimed in her suit.
The State's Medicaid program asserted a "lien or claim" on $215,645.30 of the settlement proceeds, "The slight descrepancy in the numbers reflects adjustments made to eliminate Medicaid payments made on Ms. Ahlborn's behalf for medical care unrelated to injuries sustained in the car accident." The position of the State Medicaid agency was that it was entitled to be reimbursed the full amount of its claim from the settlement. Ms. Ahlborn's position was that the settlement was less than the full amount of her damages and that the State's reimbursement should be limited to the proportion based on the value of its claim to the whole recovery.
Both parties confirmed the underinsured carrier's conclustion that Ms. Ahlborn had suffered damages well in excess of the settlement total, stipulating that an estimate of the true value of her claim as liquidated would be roughly $3,040,708.12. Thus, her recovery was approximately one-sixth of her actual damages, and the U.S. Supremem Court held that the State Medicaid agency would be limited to recovering a similar fraction of its claim, or $35,581.47.
The opinions at the trial, appellate and Supreme court levels made no distinction as to the source of her recovery, whether from her own car's underinsured carrier or from the other driver's carrier.
The Court was required to navigate between several apparently conflicting statutory provisions. In the author's opinion, the Court used the twin guide of fendamental fairness and plain language statutory construction to reach the conclusion described here.
Federal Medicaid law required that participating states "ascertain the legal liability of third parties... to pay for [a beneficiary's] care and services available under the [State's] plan," to "seek reimbursement for [medical] assistance to the extent of such legal liability," to enact "laws under which, to the extent that payment has been made... for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services," and to provide that, as a condition of [Medicaid] eligibility..., the individual is required... (A) to assign the State any rights... to payment for medical care from any third party; ... (B) to cooperate with the State ... in obtaining [such] payments ... and... (C) ... in identifying, and providing information to assist the State in pursuing, any third party who may be liable". In an effort to carry out its understanding of this requirement, the state of Arkansas passed legislation providing that a Medicaid recipient's third party recovery was automatically subject to a lien for the full amount of Medicaid benefits paid on account of the injuries giving rise to the recovery, without any adjustment for other items of damage included in the award (or, presumably for any reduction in the award based on comparative negligence).
The statute provided:
(a) As a condition of eligibility, every Medicaid applicant shall automatically assign his or her right to any settlement, judgment, or award which may be obtained against any third party to the Department of Human Services to the full extent of any amount which may be paid by Medicaid for the benefit of the applicant.
(b) The application for Modicaid benefits shall, in itself, constitute an assignment by operation of law.
Thus, under the local law before the courts decision, the Medicaid agency would be entitled to full reimbursement out of any damage award to the detriment of compensating the beneficiary for her other injuries, even though those other injuries might have been a component of the liquidated amount. The Court found that under the facts of Ahlborn, this position conflicted with the Medicaid law's anti-lien provision which prohibits states from imposing liens "against the property of any individual prior to his death on account of medical assistance paid ... on his behalf under the State plan."
The Court held that federal third-party liability provisions require an assignment of no more than the right to recover that portion of a settlement that represents payments for medical care.
There is no question that the State can require an assignment of the right, or chose in action, to receive payments for medical care. So much is expressly provided for by §§ 1396(a)(25) and 1396k(a). And we assume, as do the parties, that the State can also demand as a condition of Medicaid eligibility that the recipient "assign" in advance any payments that may constiture reimbursement for medical costs. To the extent that the forced assignment is expressly authorized by the terms of §§ 1396a(a) and 1396k(a), it is an exception to the anti-lien provision. See Washingto State Dept. of Social and Health Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371, 383-385, and n. 7, 123 S.Ct. 1017, 154 L.Ed.2d 972 (2003). But that does not mean that the State can force an assignment of, or place a lien on , any other portion of Ahlborn's property. As explained above, the exception carved out by §§1396a(a)(25) and 1396k(a) is limited to payments for medical care. Beyond that, the anti-lien provision applies.
The Court thus determined that a Medicaid agency would be entitled to proportional reimbursement for the benefits it paid. The agency's claim for full reimbursement was denied.
The decision in the Ahlborn case, while consistent with at least one State's holding, came as a surprise to the Federal Department of Health and Human Services which had previously interpreted the statute to allow full recovery. Although the Corut generally accords deference to a Federal agency's contruction of a statute which it administers, the Court declined to do so because it found that the Agency's "reasoning couples internal inconsistency with a conscious disregard for the statutory text.
Prior to Ahlborn, the disability Appeals Board of the Department of Health and Human Services had upheld a full reimbursement plan. Since this decision marked a change in current wisdom at least among Medicaid agencies including the Centers for Medicare and Medicaid Services, it should be no surprise to learn that while this decision drew acclaim from some commentators, it drew crticism from others. The titles of three articles, published in 2007, illustrate the divergence of opinions.
Keeping the Government Away From Medicaid Recipients' Pocketbook; Protecting Medicaid Recipients' Rights to proceeds of Third-Party Settlements in Arkansas Department of Health & Human Services v. Ahlborn.
An Accident Waiting to Happen: Arkansas Department of Health & Human Services v. Ahlborn Exposes Inequities in Medical Benefits Legislation.
Supreme Court Redefines Personal Injury Playing Field.
These articles view the decision from different perspectives. Perhaps the most cogent of the three is the third, written by a Maryland attorney practicing on the defense side of product liability and professional malpractice litigation, who pointed out that the effect of Ahlborn was to give Medicaid agencies the same rights that have applied to private parties "under well-established rules of subrogation."
Medical Assistance is limited in its recovery not just by the amount it pays, but by the category of damages for which it has paid....
Following these principles, Medical Assitance can only recoup amounts earmarked or determined to be "past medical expenses," and then only in an amount communsurate with the overall settlement. This is the same result (albeit via slightly different reasoning) as the Court reached in Ahlborn.
How then to establish the "true value" of the case so as to arrive at the proportional reduction via settlemetn as contemplated by Ahlborn? The easiest and most direct route would be by stipulation with Medical Assistance. Given that §15-120 [applicable Maryland law] obligates a recipient's attorney to notify Medical Assistance of the existence of the claim prior to negotiating a settlement and imposes a three-day grace period prior to resoultion of a cause of action for Medical Assistance to "establish its subrogated interest," this wouldl be an ideal opportunity to negotiate such a proportion (especially with Ahlborn in your back pocket). In the absence of that, one might enlist the help of a mediator to give Medical Assistance a higher level of comfort as to the true value of the case and the reasonableness of the settlement number. Failing that, a court hearing on allocation will be necessary. Such hearings are routine in many jurisdictions regarding private insurer subrogatino rights. See, e.g., Henning v. Wineman, 306 N.W.2d 550 (Minn. 1981); Rimes v. State Farm Mut. Auto Ins. Co., 316 N.W.2d 348 (Wisc. 1982).
Evidence to be presented at such a hearing might include reports from the damages experts on both sides of the case to establish the nature and extent of injury (and associated costs), as well as reports of jury verdicts or settlement in similar cases. Allocation agreements simply between the plaintiff's counsel and the alleged tortfeasor's counsel will likely not be sufficient and might very well run afoul of "the risk that parties to a tort suit will allocate away the State's interest. ..." Ahlborn at 1765.
Roughly two months after the Supreme Court's Ahlborn decision was announced, the Centers for Medicare and Medicaid Services published a memorandum "to clarify third party rules and options for States in the context" of Ahlborn. It icharacterized Ahlborn as: "A State's lien laws may only operate to recover from that portion of a settlement that is allocated to healthcare items or servies, even if it means that Medicaid must forego full recovery of its claim."
The memorandum suggested two political strategies to avoid Ahlborn's requirement of proportional reimbursement. First, states could enact laws which provide for a specific allocation among damage items, i.e., pain and suffering, lost wages, and medical claims. Second, "[a]ccording to Ahlborn, federal Medicaid anti-lien law precludes the State from passing lien laws which broaden the recovery rights of the state Medicaid agency. Note however, that the State may pass other laws which give it a priority right of recovery in tort actions.
In addition to advising the States how to avoid the limitations on reimbrusement to their programs under Ahlborn, the Agency also recommended process to mitigate the adverse consequences of Ahlborn. These includes measures designed to involve the State in the litigation process itself, presumably to maximize the "past medical expense" component of any damage award, such as laws which mandate formal joinder of a state when a Medicaid lien is at issue, requiring notice and cooperation from personal injury attorneys, requiring state consent to any compromise involving medical expenses.
Finally, the memorandum ends with a vague but unmistakable threat to the States:
The Federal government is to be made "whole" to the extent of its share of the amount recovered by the State. To the extent that a State wishes to give part or all of its portion of the Medicaid recovery to the beneficiary, nothing prevents the State from doing so as long as it does not impinge upon the Federal share of the amount recovered by Medicaid.
Interestingly, despite commentators' predictions the two years since Ahlborn was handed down have not seen wholesale slaughter of the States' rights of recovery. In a study published to the 2008 National COB/PTL Conference of the National Association of State Medicaid Directors, Andy Renggli, Chief of Coordination of Benefits of the Washington State Departmen of Social and Health Services reported that in his State, the median recovery pre- and post Ahlborn dropped less than $1,400 per case. California actually reported a nearly $3,000 increase. Oregon reported a more significant reduction in its median recovery experience, roughtly $52,000, for the smaller number of cases resolved in Oregon.
In intrepreting Ahlborn, several States have, by statute, determined that full recovery with a "cap" complied with the Supreme Court's requirements, based apparently on a majority footnote in the decision. In the opinion of the Court, Justice Stevens was addressing a danger suggested by full reimbursement proponents that parties would manipulate settlements reducing the allocation to the medical expense component and thereby affect the proportional reimbursement. He pointed out that the risk could be avoided either by obtaining the State's advance consent to the allocation or by requiring that the allocation be submitted to the Court. In footnote 18, Justice Stevens notes that "As one amicus observes, some States have adopted special rules and procedures for allocating tort settlements...", citing to the brief of the Association of Trial Lawyers of America at 20-21 (hereinafter "ATLA brief"). The ATLA brief, however, rather than advocating full recovery subject only to limiting caps, was discussing procedures in several States to have "mini-hearings" to set allocations of damage settlements where there is not agreement among the interested parties. Nevertheless, as discussed infra, at least the Supreme Court of North Carolina has squarely found that this footnote authorizes the States to mandate full recovery up to a legislatively-determined, across-the-board limit or cap.
One wonders what the "cap" States will do in a situation when the "cap" causes them to give up the portion of a recovery that should have gone to the Federal government's share, if the Department of Health and Human Services finds that the "cap" has "impinged" on its share, gen the "threat" discussed, supra.
In Pennsylvania, for example, the statute originally provided for full recovery wtih a cap of 50%: Except as otherwise provided in this act, notwithstanding any other provision of law, the entire amount of any settlement of the injured beneficiary's action or claim, with or without suit, is subject to the department's claim for reimbursement of the benfits provided any lien filed pursuant thereto, but in no event shall the department's slaim exceed one-half of the beneficiary's recovery after deducting for attorney's fees, litigation costs, and medical expenses relating to the injury paid for by the beneficiary.
The Department of Public Welfare issued a memorandum indicating it believed that this complied with Ahlborn's mandate:
In §259.2(b)(2), the Department interprets section 1409(b)(11) of the code to establish a statutory default rule of allocation for tort recoveries consistent with Ahlborn. Section 1409(b)(11) of the code limits the Department's reimbursement to 1/2 of a beneficiary's recovery after deducting attorney's fees, litigation costs and medical expenses regarding the injury paid by the beneficiary. The Department interprets section 1409(b)(11) of the code to mean that the Legislature has by law set aside a portion of a tort recovery for reimbursement of MA and a portion for toher damages and expenses. After payment of the expenses and attorney fees, the court or agency shall allocate the judgment or aware between the medical portion and other damages and shall allow the department a first lien against the medical portion of the judgment or award, the amount of th expenditures for the benefit of the benficiary under the medical assistance program.
Ahlborn does ot affect state laws governing the allocation of tort proceeds.
However since September, 2008, Pennsylvania law has been changed to provide that after payment of expenses and fees of suit, an otherwise unspecified judgment or award should be allocated between the medical portion and other damages, giving the Medicaid agency a first lien against the medical portion up to the amount of its expenditures. This is considered the default rule of allocation for tort recoveries consistent with Ahlborn. In addition, if the injured party intends to obtain a Court order providing for a different allocation, the Commonwealth should be provided with notice and the opportunity to protect its interests.