II. Liens Under State Law

• Library: The Law of Automobile Insurance in SC (SCBar) (2015 Ed.)

II. Liens Under State Law

A. Medicaid

Medicaid is a state health-coverage program for indigents authorized by Title XIX of the Federal Social Security Act.⁹ A recipient can fall under some 12 different categories of eligibility, and each category has its own criteria. In South Carolina, the Department of Health and Human Services administers Medicaid eligibility in cooperation with the Federal Centers for Medicare and Medicaid Services (CMS).¹⁰ Under the agreement between these state and federal agencies, the state administers the Medicaid Plan, and the federal government contributes a significant amount of its funding.

The Division of Program Recovery and Revenue of the Department of Health and Human Services aims to identify other legally responsible resources for purposes of Medicaid liens. The Division seeks reimbursement from those resources or prevents Medicaid payment until an insured exhausts all available third-party sources. Because a number of persons qualify for Medicaid as well as health insurance benefits under private plans, attorneys should facilitate the prompt filing of health insurance benefits when representing insureds who also qualify for Medicaid.

1. The "Medicaid Lien"

When Medicaid pays for medical treatment for illness or injury, the Department of Health and Human Services acquires assignments¹¹ and subrogation rights¹² by operation of law from the beneficiary to the extent of the amount paid by Medicaid.¹³ Because the term "subrogation" suggests an equitable meaning to both attorneys and the judiciary, the Department generally asserts its claim under its assignment rights to avoid confusion. As a consequence, when the term "subrogation" is used, the Department refers to it as "statutory subrogation" to emphasize that such subrogation is not equitable and that the Department's claim has priority over any other right of reimbursement, subrogation, or indemnity of any third party or the recipient of benefits.¹⁴

Notice. In asserting the Medicaid lien, South Carolina law provides that:

any representative or attorney retained by an applicant or recipient shall not be considered liable to State Health and Human Services Finance Commission for improper settlement, compromise, or disbursement of funds unless he has written notice of State Health and Human Services Finance Commission's assignment and subrogation rights prior to disbursement of funds.¹⁵

One commentator has pointed out that this "written notice" need not be from the Department itself and that medical bills indicating that payment was "Medicaid assigned" suffices to put one on notice.¹⁶ Similarly, it follows that reductions in clients' medical bills without apparent reasons should suffice to put an attorney on notice of the Medicaid lien if payments from this program explain the reduction.

Reduction of lien. In general, the Department will not reduce the Medicaid lien if the amount the beneficiary recovers suffices to accommodate (1) attorneys' fees and costs, (2) the Medicaid lien in full, and (3) any amount in excess to the beneficiary. In all other instances, the Department can reduce the lien by 25%, which represents attorneys' fees incurred by the beneficiary, and can share in the costs of litigation by a proportional reduction of the lien.¹⁷ This limitation upon lien reduction is necessary because the federal government refuses to allow states to compromise the federal portion of any recovery. In addition to these statutory proscriptions against lien reduction, any contractual provision that denies or reduces Medicaid's right of assignment or subrogation is null and void by operation of law.¹⁸

Enforcement. The Department can take the following actions to enforce Medicaid liens:

(1) intervene or join in an action or proceeding brought by the applicant or recipient

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