House Passes Budget and Increases State’s Medicaid Third Party Liability Recovery Rights
Roy Franco
December 16, 2013

Medicare & Medicaid spend represents close to 25% of the U.S. Budget.  Congressional gridlock makes it impossible to reduce entitlement benefits or increase taxes to pay for those benefits previously promised by Congress.  The only acceptable course of action is to improve on existing recovery mechanisms.  Very little negative public sentiment exists from both sides of the political aisle when it comes to whether the Government should be reimbursed from liability and/or workers’ compensation settlements.  The public does not want to pay for entitlement benefits when the accident is the responsibility of another.

On December 12, 2014, the House passed a bi-partisan budget strengthening State’s Third Party Liability (TPL) recovery rights in line with the above premise.  Section 202(b) amends Third Party Liability recovery portions of the Medicaid law to increase the State’s ability to seek recovery.  Once passed by the Senate, Medicaid’s right to recovery will be similar to Medicare’s right to recover conditional payments, perhaps even stronger in this author’s opinion.  Prior court decisions regarding Medicaid would be invalidated.

The two most significant decisions on Medicaid were decided by the U.S. Supreme Court.  Arkansas Department of Health and Social Services v. Ahlborn, 547 U.S. 268 (2006) and Wos v. E.M.A., 133 S. Ct. 1391 (2013).  Ahlborn, radically reshaped the law governing Medicaid liens asserted in personal injury cases.  Based on statutory construction, the Court concluded that the State could only recoup its liens from the proportionate share of the settlement (or verdict) that represents compensation for past medical expenses.  Since plaintiff did not realize the full value of her settlement, Medicaid was legally required to proportionately reduce its lien to maintain the fairness of the other damage elements claimed by Plaintiff.  The Court’s ruling turned on the Medicaid Third Party Liability statute (42 U.S.C. §1396(a)(25)) which limited the State’s right to “health care items or services” acquired by the claimant in the settlement.  Other rights within the settlement, such as pain and suffering, wage loss, etc., were protected by the law’s anti-lien provision and therefore could not be reduced to a proportionate share of the settlement that is below Medicaid.

In Wos, the U.S. Supreme Court went even further.  North Carolina law established an irrebuttable presumption where the Medicaid lien is greater than the settlement (or verdict) to an automatic 1/3.  The Court applied the anti-lien provision to preclude North Carolina from an automatic allocation, ruling that it would require plaintiff’s other damages to be proportionately less in violation of the anti-lien section of the Medicaid law.  The Court concluded that North Carolina would have to create an appeal process to determine its appropriate share in proportion to the full value of the settlement.  From Congress’ standpoint, more expense to secure TPL recoveries that will reduce burden on the Federal budget.

With the implementation of the Affordable Healthcare Act, the Federal Government is responsible for 100% of the Medicaid benefits paid to those beneficiaries added to the rolls because of the law.  Although that period is limited to the next 3 years, it was inevitable that Congress would act to increase the State’s ability to collect TPL recoveries to reduce its exposure.  The decision in Wos was more than likely the catalyst as States would have to spend the next several years legislating new TPL rules with various stakeholders such as the plaintiff’s bar.  The budget changes expedite the State’s process to create new TPL rules.

The Budget modifies the Medicaid law in two ways.  First, it removed the reference to “health care items and services” when it came to what rights the State acquired by providing Medicaid benefits to a claimant.  If passed, the law would read that the State automatically acquires an assignment of “any payment made by such third party” to a liability [workers’ compensation] settlement.  This modification would prevent application of the Courts to the anti-lien portion of the Medicaid law, because the State is no longer limited to the portion of damages related to medical within the settlement or verdict.

Even more important, is the House also striking the language within the Medicaid law regarding the extent of the State’s reach in having an assignment to any payment made by a third party.  No longer does the liability related to the medical expense have to relate to the claim.  The language “to the extent of such legal liability” was stricken, and has made TPL recoveries no fault in nature – essentially stronger than current Medicare recoveries which require medical expenses to be related to the claim.  This change could abrogate an attorney’s right to a fee; or even apply to non-medical cases for the repair of a car or other property.

How this will play out will depend on the States as they amend existing TPL laws to strengthen their recovery rights, and no doubt litigation to temper its reach.  We expect to see a flurry of state activity to increase their rights, similar to what happened when Ahlborn was decided.  In light of such activity, it is important those effected stay vigilant and join organizations such as the Medicare Advocacy Recovery Coalition (MARC) to stay informed and assist in bringing about reasonable change that will not unintentionally hamper the fair administration of claims.

We have time to prepare.   Assuming the Senate passes the Budget this week (and they are poised to do so this coming Wednesday), the provision will not take effect until October 1, 2014.  The House is in recess and a possible modification to the provision is unlikely.  The Senate cannot afford to hold off until the House returns as the Country has no appetite for any budget drama to the likes we saw this past October.

We at Franco Signor plan to monitor all State activity for our clients and share any information with them.  We remain hopeful that if such laws change across the State landscape that it is somewhat consistent if data is being requested about settlements, judgments and awards.  We will monitor this situation throughout next year and report back.  We also plan to look at opportunities to work though the Medicare Advocacy Recovery Coalition to “head off” or respond to any issues that would unnecessarily burden the claim process.

Medicaid is something for us to keep on our radar.  As you pull together your best practices and/or protocols, please feel free to contact us to discuss your approach.