“Absurd and Fundamentally Unjust”: Supreme Court Expands Medicaid Lien Recoveries, Allowing State Medicaid Agency to “Share in damages for which it has provided no compensation.”

Paul R. Loudenslager, Esq., MSCC is Senior Lien Attorney at Precision Resolution, LLC, Paramount’s strategic lien resolution and Medicare Set-Aside partner.

Today, the United States Supreme Court issued its decision in Gallardo v. Marstiller. This was a Medicaid lien case from the Court of Appeals for the Eleventh Circuit concerning the scope of the State Medicaid agency’s right to place a lien on a Medicaid recipient’s tort settlement. The unfortunate decision was a 7-2 majority, with only Justices Sotomayor and Breyer dissenting. Justice Thomas delivered the Opinion of the Court. The holding is that a Medicaid agency may place a lien for past medical expenses on the portion of a tort recovery that represents compensation for past and future medical expenses.

The case concerned a 2008 incident in Florida where Gianinna Gallardo (only 13 years old at the time), stepped off of a school bus and was hit by a truck. Today, she remains in a persistent vegetative state. Seeking over $20 million in damages, the litigation against the tortfeasors resulted in a settlement of $800,000. The settlement expressly allocated $35,367.52 as compensation for past medical expenses, with all other items of damages unallocated.

Florida Medicaid paid over $860,000 in medical expenses at the time of the settlement. Florida’s Medicaid Third Party Liability Act provides that the Medicaid agency is entitled to one-half of the beneficiary’s settlement after deducting 25% for attorney fees. The statutorily-created presumption that this amount represents the portion of the tort settlement that is for “past and future medical expenses.” That presumption can then be rebutted through an administrative hearing.

Here, Florida’s statute entitled it to $300,000 of Ms. Gallardo’s $800,000 settlement, even though Ms. Gallardo’s counsel argued that only about $35,000 represented compensation for past medical expenses.

Florida’s argument was that it was entitled to collect its claimed lien for medical expenses already paid, from the portion of the settlement that represented compensation for past and future medical expenses.

The Supreme Court agreed with Florida, concluding that the text of the Federal Medicaid Act allows it to collect from the past and future medical expense components of a tort recovery. This increases the pool of funds available from which Medicaid may recover.

The way that Justice Thomas worded his “question presented” framed the basis of his argument: “The question presented is whether §1396k(a)(1)(A) permits a State to seek reimbursement from settlement payments allocated for future medical care.” The fact the question presented relied solely on the interpretation of one statutory provision when there were several others at issue in this case, speaks volumes. He went on to conclude that:

The plain text of §1396k(a)(1)(A) decides this case. This provision requires the State to acquire from each Medicaid beneficiary an assignment of “any rights . . . of the individual . . . to support . . . for the purpose of medical care . . . and to payment for medical care from any third party.” §1396k(a)(1)(A). Nothing in the provision purports to limit a beneficiary’s assignment to “payment for” past “medical care” already paid for by Medicaid. To the contrary, the grant of “any rights . . . to payment for medical care” most naturally covers not only rights to payment for past medical expenses, but also rights to payment for future medical expenses.

The Court’s narrow reading contrasts with Justice Sotomayor’s dissent, which begins by noting the “absurd and fundamentally unjust” scenario “for a state agency to ‘share in damages for which it has provided no compensation.” Gallardo, citing Arkansas Dept. of Health and Human Srvs. v. Ahlborn, 547 U.S. 268, 288, n. 19. And then goes on to conclude that the majority allows such a result “by reading one statutory provision in isolation while giving short shrift to the statutory context, the relationships between the provisions at issue, and the framework set forth in precedent.” Justice Sotomayor quite sensibly reads the assignment provision that is the focus of the majority opinion in conjunction with and in the context of the Federal Anti Lien Statute (42 U.S.C. §1396p); the other third party liability provisions of the Medicaid Act at 42 U.S.C. §1396(a)(25)(A) and (B); the acquisition of rights provision at 42 U.S.C. §1396(a)(25)(H), as well as the Court’s precedent in the Ahlborn decision. All of these work in tandem to “enable a State to reimburse itself for expenses it has paid, not for expenses it may or may not incur in the future.”

Justice Sotomayor then went on to describe the policy issues here, commenting that the Court’s decision could have the opposite effect of diminishing the State’s ultimate recovery:

“As a State’s right of recovery from any damages payout expands, a Medicaid beneficiary’s share shrinks, reducing the beneficiary’s incentive to pursue a tort action in the first place. . . . By diminishing beneficiaries’ interests in doing so, the Court’s expansion of States’ assignment rights could perversely cause States to recover fewer overall expenses, all while unsettling expectations in the States that have relied on a contrary reading of federal law.”

The majority’s reasoning, essentially focusing on only one part of a whole statutory scheme, which includes the Court’s own precedent, is concerning. The ultimate result, here, on a practical level, is that in some cases, resolving a Medicaid lien could get much more difficult.