Keeping the Government Away from Medicaid Recipients' Pocketbook: Protecting the Medicaid Recipients' Rights to Proceeds of Third-party Settlements in Arkansas Department of Health & Human Services v. Ahlborn - Sean Sandison

• Jurisdiction: United States,Federal,Arkansas
• Publication year: 2007
• Citation: Vol. 58 No. 2

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Keeping the Government Away from Medicaid Recipients' Pocket-book: Protecting Medicaid Recipients' Rights to Proceeds of Third-Party Settlements in Arkansas Department of Health & Human Services v. Ahlborn

I. Introduction

In Arkansas Department of Health & Human Services v. Ahlborn,¹ the United States Supreme Court approached the contentious issue of whether Medicaid and state Medicaid agencies can recover expenses incurred on behalf of a Medicaid recipient from the entirety of the recipient's third-party settlement.² Over the past decade, several states and the United States Department of Health and Human Services have reached opposite results on this question. In its unanimous opinion, the Court quelled the debate by limiting Medicaid and the corresponding state programs' recoveries from third-party settlements to the proceeds representing repayment of medical expenses,³ a move likely to cause changes for the federal government, state governments, and individual Medicaid recipients.

II. Factual Background

A motor vehicle accident on January 2, 1996, rendered Heidi Ahlborn permanently disabled.⁴ Ahlborn was a nineteen-year-old college student and future teacher, but the accident left her brain-damaged and incapable of continuing her education.⁵ Ahlborn filed suit against the allegedly responsible individuals and entities, seeking various damages arising out of the vehicle accident. These damages included the following: (1) permanent injury; (2) past and future medical expenses; (3) past and future pain, suffering, and mental anguish; (4) past loss of earnings and working time; and (5) permanent impairment of ability to earn in the future. In 2002 Ahlborn settled her suit with the defendants and her underinsured motorist insurer for a total of $550,000, without allocating the settlement among types of damages. ⁶

Shortly after the accident, Ahlborn applied and qualified for Medicaid in Arkansas, leading the Arkansas Department of Human Services ("ADHS"), the state agency charged with administering Arkansas's Medicaid program, to pay $215,645.30 of medical expenses on Ahlborn's behalf.⁷ Arkansas law requires Medicaid recipients to assign their rights of recovery from a third party to ADHS.⁸ As a result, ADHS asserted a lien on the settlement proceeds. In response, Ahlborn initiated the present suit against ADHS, seeking a declaratory judgment to limit ADHS's recovery to the portion of the settlement representing past medical expenses.⁹

The United States District Court for the Eastern District of Arkansas, faced with cross-motions for summary judgment, denied Ahlborn's motion for summary judgment and granted ADHS's motion for summary judgment.¹⁰ Prior to the trial court's order granting ADHS's motion for summary judgment, the parties had stipulated that if ADHS's argument prevailed, ADHS would recover the full $215,645.30. The parties also stipulated that $35,581.47 represented a reasonable measure of the medical expenses portion of Ahlborn's settlement and was the amount that ADHS would recover if Ahlborn's argument prevailed.¹¹

Ahlborn argued that the federal Medicaid laws preempted the Arkansas Medicaid laws to the extent that Arkansas's law allowed for reimbursement beyond settlement proceeds that reasonably represent third-party compensation for medical expenses.¹² The court reasoned that the statutory text, an opinion of the United States Department of Health and Human Services, and the legislative history of Medicaid led to the conclusion that Congress intended for the Medicaid statutes to provide states the right to recover fully from third-party payments to a Medicaid recipient.¹³

On appeal, the Eighth Circuit Court of Appeals reversed and remanded the case with instructions for the lower court to render judgment for ADHS according to Ahlborn's lower calculation.¹⁴ The court adopted a "straightforward interpretation of the text" of the federal Medicaid statutes to conclude that key Arkansas statutes were preempted by the federal statutes if they required Ahlborn to assign her rights to recover third-party liability payments beyond the cost of medical expenses.¹⁵

Ultimately, the United States Supreme Court agreed with the court of appeals, holding that federal Medicaid laws do not permit ADHS to recover any amount beyond that which reasonably represents third-party compensation for medical expenses and that "Arkansas'[s] third-party liability provisions are unenforceable insofar as they compel a different conclusion."¹⁶

III. Legal Background

A. The Medicaid Program

Medicaid is a joint program between the federal government and participating state governments in which the federal government provides over half of the program's cost in exchange for the states complying with certain statutory requirements.¹⁷ To ensure that Medicaid can recover costs from liable third parties, federal law requires state Medicaid agencies to "take all reasonable measures to ascertain the legal liability of third parties . . . to pay for care and services available under [Medicaid]."¹⁸ The primary mechanism for accomplishing this goal is the assignment statute, which requires recipients to assign to Medicaid their "rights . . . to payment for medical care from any third party."¹⁹ Protecting against an over-invasive government recovery from a recipient, federal law also proscribes placing a lien on the property of a Medicaid recipient before the recipient's death.²⁰ unfortunately, these statutes do not uniformly describe the types of third-party payment from which the government can recover.²¹ The federal statutes declare that the state should seek repayment of the recipient's Medicaid assistance "to the extent of such legal liability," departing from the assignment statute's language restricting the government interest to third-party compensation for medical expenses.²² Furthermore, the federal statutes apparently grant Medicaid a priority over the recipient to third-party payment by stating that "any amount collected by the State under an assignment" should first satisfy the state's medical payments while only giving the recipient a remainder interest in such funds.²³ Though detailed in its provisions, courts have interpreted the federal Medicaid statutes with contradictory results.

The other half of Medicaid is state participation. The federal provisions require states to enact their own statutory regimes to administer state plans in accordance with the federal statutes.²⁴ Arkansas, like many other states, enacted laws which, while on the surface appear to be identical to the federal counterparts, were sufficiently different to lead courts to interpret them differently.²⁵ The Arkansas assignment statute, states that all Medicaid applicants automatically assign their rights "to any settlement, judgment, or award which may be obtained against any third party . . . to the full extent" of Medicaid's medical payments for the recipient.²⁶ Arkansas law also imposes a lien upon any "settlement, judgment, or award received by the recipient from a third party."²⁷ These state statutory provisions do not match their companion federal provisions, paving the road towards the Court's decision.

B. Contrary State Supreme Court Decisions

Arkansas is not alone in enacting laws that do not completely match the federal provisions. The Washington Supreme Court addressed such an apparent mismatch in 2000 in Wilson v. State.²⁸ Much like Arkan-sas's statute, Washington's assignment statute seemingly allowed the state agency to recover from "'any recovery ... to the extent of the value of the assistance paid.'"²⁹ In Wilson the state Medicaid agency asserted a lien against any recovery. When the recipient negotiated a settlement in this medical malpractice case, the agency asserted the right of reimbursement, and the recipient sued the agency to prevent recov-ery.³⁰ The recipient argued that any lien violated the federal anti-lien provision, and the court framed the issue as "[w]hether federal law prohibits the imposition of a state statutory recovery lien against the proceeds of a Medicaid recipient's third party recovery beyond that portion of the recovery allocated specifically to medical expenses."³¹

The court showed great deference to congressional intent in premising its interpretation upon the belief that Congress intended for Medicaid "to be the payment source of last resort."³² With this intent in mind, the court interpreted 42 U.S.C. Sec. 1396a(a)(25)(H)³³ to authorize the state to recover to the full extent of Medicaid payments, rather than limiting recovery to payments for medical expenses.³⁴ As a result, the state law allowing for full recovery of Medicaid's expenses did not conflict with the federal scheme and actually "advance[d] the purposes and objectives of the federal law."³⁵ The court also held that the federal anti-lien provision did not preclude recovery because the recipient assigned the third-party recovery right to the extent paid out by the state, and the resulting lien blocked any property transfer of the proceeds before the funds became the Medicaid recipient's property.³⁶ The four dissenting justices partially forecasted the United States Supreme Court's position of six years later by stating that the majority had failed to interpret Sec. 1396a(a)(25)(H) in light of the surrounding provisions in the statute.³⁷ According to the dissent, the remainder of the federal Medicaid statutes only provided for assignment of"payments from another party for health care items or services," and thus, the state laws that provide further assignment conflict with these federal statutes.³⁸ Nevertheless, the majority utilized congressional intent in interpreting the federal Medicaid statutes to allow recovery from a recipient's third-party settlements to the full extent of Medicaid's payments, without restric-tion.³⁹

In 2002 the Utah Supreme Court also approached the property and anti-lien issue in Houghton v. Department of...