Administrative – Medicaid Lien – Medical Malpractice Settlement – Past Medical Expenses Limit

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E.M.A., a minor v. Cansler, Sec’y DHHS (Lawyers Weekly No. 001-082-12, 48 pp.) (Davis, J.) 4^th Cir. Click here for the full-text opinion.

Holding: North Carolina’s third-party liability statutes, under which it asserts a lien for one-third of an infant Medicaid recipient’s $2.9 million med-mal settlement, do not comply with federal Medicaid law, which limits a state’s recovery to past medical expenses, and the 4^th Circuit vacates judgment for the state and remands for further proceedings consistent with the federal anti-lien provision.

Under federal law, states participating in the Medicaid program are obligated (with some exceptions) to seek reimbursement from third-party tortfeasors for health care expenditures made on behalf of Medicaid beneficiaries who are tort victims. At the same time, however, states generally are prohibited from seeking reimbursement “from the personal property of” Medicaid beneficiaries themselves for health care expenditures made on behalf of those beneficiaries.

But what if the injured Medicaid beneficiary obtains a judgment against (or enters into a settlement agreement with) the tortfeasor? Under such circumstances, what constraints are imposed as to how the state may satisfy its mandatory claim for reimbursement? In Ark. Dep’t of HHS v. Ahlborn, 547 U.S. 268 (2006), the Supreme Court provided considerable guidance in resolving this tension in the Medicaid law. The instant appeal requires us to apply Ahlborn’s teachings to the Medicaid program as it is administered in North Carolina.

The minor appellant, E.M.A., sustained serious injuries at birth due to the negligence of the medical professionals who attended to her delivery. The N.C. Department of Health & Human Services, through the state Medicaid program, paid more than $1.9 million in medical and health care expenses on her behalf. Meanwhile, E.M.A., through the guardian ad litem and her parents, instituted a medical malpractice action in state court. They settled the action for $2.8 million. The settlement agreement did not allocate separate amounts for past medical expenses and other damages.

DHHS asserted a statutory lien on the settlement proceeds pursuant to N.C. Gen. Stat. §§ 108A-57 and -59 (North Carolina third-party liability statutes), which provide that the state has a subrogation right to, and may assert a lien upon, the lesser of its actual medical expenditures or one-third of the Medicaid recipient’s total recovery. Here, the North Carolina third-party liability statutes effect an unrebuttable presumption that the state is entitled to one-third of the total settlement proceeds recovered by E.M.A. and her parents. This amount, $933,333.33, has been paid into the registry of the state court. Appellants seek to forestall payment of the amount claimed by DHHS on the basis of the provision of the federal Medicaid law known as the “anti-lien provision.” The district court granted summary judgment in favor of appellee DHHS, relying in part on the reasoning of a majority opinion in a prior opinion by a divided North Carolina Supreme Court, which distinguished Ahlborn while sustaining the state statutory regime.

We disagree, respectfully, with the analysis of the Supreme Court of North Carolina in Andrews v. Haygood, 669 S.E. 2d 310 (N.C. 2008), as adopted by the district court. Rather, in agreement with our sister circuit courts analyzing an analogous state law, we are persuaded that the unrebuttable presumption inherent in the one-third cap on the state’s recovery imposed by the state’s third-party liability statutes is in fatal conflict with federal law. We vacate the judgment in favor of DHHS and remand this action for further proceedings.

We hold the North Carolina third-party liability statutes, as applied in this case, fail to comply with federal Medicaid law as interpreted by the Supreme Court in Ahlborn. Federal Medicaid law limits a state’s recovery to settlement proceeds that are shown to be properly allocable to past medical expenses. In the event of an unallocated lump-sum settlement exceeding the amount of the state’s Medicaid expenditures, as in this case, the sum certain allocable to medical expenses must be determined by way of a fair and impartial adversarial procedure that affords the Medicaid beneficiary an opportunity to rebut the statutory presumption in favor of the state that allocation of one-third of a lump sum settlement is consistent with the anti-lien provision in federal law.

We vacate the judgment of the district court and remand for an evidentiary hearing at which the district court shall determine the proper amount of DHHS’s Medicaid lien in this case in accordance with Ahlborn and the views expressed in this opinion.

Vacated and remanded.

Concurrence & Dissent

Agee, J.: I join the majority opinion except for Section IV(A) and related references, which concludes the relevant North Carolina Medicaid statutes, the assignment statute and the subrogation statute, abrogate the common law of North Carolina under which a minor has no cause of action for recovery of medical expenses incurred during minority. I respectfully dissent from that portion of the majority opinion and write separately because nothing in either the assignment statute or the abrogation statute suggests the North Carolina legislature intended to extend or create such a cause of action. Further, I find no support in the decided cases of the North Carolina appellate courts holding that state’s legislature abrogated the otherwise applicable common law rule. I would hold the common law rule survives the enactment of North Carolina’s Medicaid statutes. Nevertheless, I would vacate and remand the district court judgment.