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U.S. Supreme Court Rules in Favor of Florida’s Medicaid Program Allowing Reimbursement of Paid Medicals from Settlement Funds (Including Funds Intended as Future Medicals)

We previously wrote about this case Will the U.S. Supreme Court Mandate Protection of Medicaid Futures? when the U.S. Supreme Court agreed to hear the issue.
The issue in Gallardo v. Marstiller was whether Florida’s state-based Medicaid program (Agency for Healthcare Administration or AHCA) could recover its injury related medical payments from the portion of a tort settlement from a third party that compensated for damages other than past medicals. The underlying liability case involved a Florida minor who suffered lifelong catastrophic injuries when she was a passenger in a motor vehicle that was hit by a pickup truck in 2008. The Supreme Court, in a 7-2 vote, upheld Florida Medicaid’s effort to recover its injury related paid medical claims from the portion of the settlement that compensated for past or future medical damages.
As the court opinion detailed, “Gallardo, through her parents, sued the truck’s owner and driver, as well as the Lee County School Board. She sought compensation for past medical expenses, future medical expenses, lost earnings, and other damages. That litigation resulted in a settlement for $800,000, with $35,367.52 expressly designated as compensation for past medical expenses. The settlement did not specifically allocate any amount for future medical expenses.” 
Many states such as Florida have a statutory formula setting forth the framework for when the state Medicaid agency shall reduce its reimbursement.  However, state law in almost all states allows some discretion to the state-based agency directors to allow for waivers or partial waiver of the amounts contemplated by the applicable statute(s), or instead often allow a Medicaid member to petition for exceptions to the statutory formula.
The opinion elaborated that the State of Florida’s “statutory framework entitled the State to $300,000—i.e., 37.5% of $800,000, the percentage that statute sets as presumptively representing the portion of the tort recovery that is for “past and future medical expenses,” absent clear and convincing rebuttal evidence.” (citing Florida Statutes §§409.910(11)(f )(1), (17)(b)). The opinion then explained that Gallardo had “challenged the presumptive allocation in an administrative proceeding.”
In Florida, that type of administrative challenge is pursued under a Chapter 120 Administrative Hearing under the Administrative Procedure Act before the Florida Division of Administrative Hearings (DOAH).  For example, a petitioner may request a declaratory statement which would be an opinion on the application of a particular regulatory statute, agency rule, or agency order to the petitioner’s individual situation. A declaratory statement is a final agency action and is subject to judicial review.  This is how the Gallardo decision began making its way through the court system.  In state court, the applicable state court determined that Florida’s Medicaid lien only applied to that portion of the settlement reserved for past medicals.  On appeal at the 11th Circuit, the Federal Circuit Court upheld Florida Medicaid’s position that its lien extended to any medical damages paid in a settlement including future medicals. The U.S. Supreme Court affirmed the 11th Circuit Court’s decision, holding that Florida’s Medicaid agency could obtain reimbursement of its paid medicals from any portion of a settlement that compensated for medicals including funds slated as future medicals.
The U.S. Supreme Court discussed why Medicaid agencies have an exception to the federal anti-lien law and have been mandated to collect from medical damages of settlements as opposed to the property of the injured party, as announced in the Court’s prior decisions of Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U. S. 268, 284 (2006) and Wos v. E.M.A., 568 U. S. 627, 633 (2013).  The Court explained the distinction in Wos focused on the ability of a state Medicaid agency to obtain its reimbursement from medical damages versus non-medical damages.
The Ahlborn and Wos decisions of the U.S. Supreme Court helped pave the way for what is commonly referred to as equitable distribution or equitable reimbursement based on a Made Whole theory.  In those decisions, if the parties provided evidence of the full value of the case based on damages apart from medical damages and could show that the case settled for an amount lower than the full value because the plaintiff was not Made Whole, that the reimbursement should come from medical compensation only, and implied that a request could be made to reduce the Medicaid recovery accordingly.  If a portion of the settlement was allocated to damages other than past medicals (such as other economic damages including past and/or future wage loss or future medicals, and/or non-economic damages including Pain and Suffering, Loss of Enjoyment of Life, or derivative claims such as Loss of Consortium), it would be argued that the respective Medicaid program would be limited to recovery from those damages allocated to past medicals and if factors like comparative negligence or difficulties of proof of liability existed, further reductions could be requested.
Interestingly, Judge Clarence Thomas, pointed out that the parties had not allocated the amount of the settlement designated as future medical expenses.
Briefs in the case were filed by or on behalf of the National Conference of State Legislatures, the National League of Cities, the U.S. Conference of Mayors, and the Government Finance Office, 14 state Medicaid agencies on the side of Florida Medicaid (UT, OH, AL, AR, GA, KS, LA, MT, NE, ND, OK, SC, SD, TX), as well as the American Justice Association, the Florida Justice Association, the American Academy of Physician Life Care Planners on the side of Gallardo.  At this time, it is unknown how far reaching this decision will be regarding the need for formal allocations of future injury related medicals for Medicaid cases in Florida or other states.

Take Aways and Food for Thought

As it pertains to resolving liens, is it more likely that state Medicaid agencies and their recovery agents will become more aggressive in pursuing their reimbursement/lien recoveries from any and all portions of settlements?
Shouldn’t a showing that a large part of the compensation from a third party liability settlement was intended to compensate for non-medical damages still be taken into consideration to determine whether an exception should be granted by a state Medicaid agency in pursuing its medical reimbursement/lien recovery?
If it is determined that Medicaid is entitled to at least some portion of the expected accident-related Medicaid futures, how might this affect how Medicare Set-Aside (MSA) allocation reports would be prepared and/or funded when beneficiaries are dual enrolled in both Medicare and Medicaid?
For settlements involving injured parties who are duel enrolled, with the complexity of administering funds set aside for protection of Medicare’s future interests heightened, wouldn’t professional administration of those MSA funds seem to be prudent?
Will this decision lead to a higher percentage of liability cases involving Medicaid members going to court for state court allocation determination of the various damages awarded in injury cases?
Will this decision lead to a higher percentage of plaintiff’s counsel petitioning for administrative hearings before the state equivalent of Florida’s Division of Administrative Hearings to resolve difficult and high value liens?
If Florida’s Medicaid agency will be allowed to be reimbursed from funds reserved for future medicals, could it someday request funds to be set aside from settlements to reimburse it for future medicals to be paid by Medicaid after the date of settlement (i.e. a Medicaid Set-Aside)?
Count on Medivest to help you navigate through the complexities of Medicaid liens and questions regarding reimbursement claims and plans for future care out of settlement proceeds.

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01/Dec/2021

On Friday, July 2nd, 2021 the U.S. Supreme Court announced it would take up a legal battle that could have a dramatic effect on settlements in the state of Florida, and potentially the entire country. At question in Gallardo v. Marstiller will be whether Florida’s Medicaid program is only entitled to be reimbursed for the money it spent for a Medicaid beneficiary/Member’s past medicals up to the date of a settlement, judgment, award or other arrangement (“settlement”) or whether it is entitled to recover a portion of the settlement that represents future medical expenses too. Gallardo By & Through Vassallo v. Marstiller, 141 S. Ct. 2884 (2021).

A Brief Summary of Events

In 2008, a Lee County school bus struck and seriously injured 13-year-old Gianinna Gallardo. Florida’s Medicaid agency provided $862,688 in medical payments on Gianinna’s behalf. Her parents sued the responsible parties and ultimately agreed to an $800,000 settlement, of which $35,367 was allocated as past medical expenses.

Florida’s Medicaid agency, using the state’s then-current statutory formula to calculate reimbursement, claimed it was entitled to $323,508 of Gianinna’s settlement. However, the state’s statutory formula did not distinguish between past and future medicals and included money in the settlement that was allocated for future medical expenses.

The Gallardo family sued the state Medicaid agency in federal court, arguing that Florida’s reimbursement formula violates federal law because the state should only be able to recover from that portion of her settlement allocated to past medical expenses. The Medicaid agency countered that it was entitled to satisfy its lien from the portion of the settlement representing compensation for both past and future medical expenses.

Between 2017 and 2020 several courts weighed in on similar cases but decisions at odds with each other. In 2017, U.S. District Judge Mark Walker ruled in favor of the Gallardo family. In a 2020 appeal, the 11th Circuit rejected Walker’s decision and ruled that the Florida Agency for Health Care (“AHCA” or “Florida Medicaid”) was entitled to $200,000 of the settlement (Gallardo v. Dudek, 11th Cir., No. 17-13693, June 26, 2020). However, in a separate 2018 case, Giraldo v. Agency for Health Care Admin., 248 So. 3d 53 (Fla. 2018), the Florida Supreme Court said the federal Medicaid Act preempted a state law that authorized Florida Medicaid to seek reimbursement from “portions of (a settlement) that represents future medical funds.” Therefore, that case seemed to indicate that Florida Medicaid was only entitled to recover the portion of money from a settlement that represented past medical expenses

Potential Far-Reaching Effects of a U.S. Supreme Court Medicaid Lien Recovery Decision

All Medicaid agencies have a duty under Federal law to recover past medical payments and most attorneys know to do a lien search when their clients are enrolled in Medicaid.  However, up to now, attorneys never had a legal duty to set aside a portion of settlement proceeds to protect Medicaid’s future interests. The current state of federal law on this topic has been discussed in our prior blog referencing the U.S. Supreme Court’s decisions in Ahlborn and Wos, and their reinstatement via the Budget reconciliation Act of 2018.  Now the U.S. Supreme Court will weigh in this issue – i.e., whether a Medicaid agency like Florida’s is entitled to seek a portion of funds designated for future medical care from a settlement, judgment, award, or other arrangement (each individually now referred to as “settlement”) when it takes up Gallardo v. Marstiller.

How would that be enforced if it is decided that Medicaid’s future interests must be considered at the time of a settlement, judgment, award, or other arrangement? Could this set legal precedent for a nationwide practice of Medicaid beneficiaries setting aside some portion of their settlements to represent Medicaid futures like is done for certain cases involving Medicare beneficiaries or those who have a reasonable expectation of becoming Medicare beneficiaries within 30 months of settlements? Is it possible that a U.S. Supreme Court ruling in favor of Florida Medicaid’s future interests may lead to a federal statute setting forth the protection of Medicaid’s future interests in settlements similar to the way the Medicare Secondary Payer Statute sets the framework for the protection of Medicare’s past and future interests?

The effects could be felt beyond the state of Florida. Perhaps this is the reason that briefs have been filed in this case by or on behalf of the National Conference of State Legislatures, the National League of Cities, the U.S. Conference of Mayors, and the Government Finance Office, the American Justice Association, the Florida Justice Association, the American Academy of Physician Life Care Planners

Additionally, the outcome could increase the awareness of Medicaid lien resolution specifically and lien resolution generally.  Furthermore, if it is determined that Medicaid is entitled to at least some portion of the expected accident-related Medicaid futures, this could affect how Medicare Set-Aside (MSA) allocation reports would be prepared when beneficiaries are dual enrolled, and could increase the need for Professional Administration, due to the complexity of administering funds set aside for protection of both Medicare and Medicaid’s interests.

The Supreme Court’s decision will likely come during the Court’s 2021-2022 term. At that time Medivest will review the decision and provide analysis on what effects it could have on settlement services.


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