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 11^th 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.