Medicaid lien reduction: is it possible?

• Author: Schackow, Gerald D.

Attorneys who deal with Medicaid liens know the difficulties in obtaining any kind of reduction or compromise for their clients. Until recently, some may have thought Medicaid lien reduction was an impossible feat. With the proper preparation, evidence, and documentation, however, Medicaid liens can, in essence, be reduced by the parties reasonably allocating a client's settlement funds--more specifically the portion for past medical expenses. This allocation limits the amount of settlement funds accessible to reimbursing Medicaid, and, therefore, results in a reduction of the lien and a savings to the client.

Each attorney on either side of a legal case is interested in settling their client's case so that there is certainty in the outcome. In fact, settlements are so favored that almost all courts in all areas of law require the parties to mediate their positions prior to trial in hopes of obtaining a settlement.

One of the highest hurdles in reaching a settlement in a plaintiff's tort case is when the plaintiff (through his or her attorney) must take care of all those who have a financial interest in the plaintiffs' settlement funds through subrogation, liens, loans, etc. If the plaintiff at the end of the day, who has all the power in deciding whether to accept a certain settlement from a defendant (insurance company), gets only a small portion of the settlement offered, then the plaintiff is not likely to accept the offer. Often, the settlement offer is fair but the circumstances are such that a fair offer seems unfair to the plaintiff and no settlement takes place.

All of the above is to say, there are two parts to most cases --obtaining the gross settlement money--and maximizing the net settlement to the client. The attorney who can best manage and reduce the money that needs to be paid out from their clients' funds to sources other than the client is usually a skilled and successful attorney.

Applicable Florida and Federal Statutory History

When it comes to maximizing net funds for the client, liens from health insurance and other providers can be severely limiting. The Florida Legislature deals with liens through the collateral source statute. (1) The collateral source statute tries to deal fairly with several issues relating to cases involving clients who recover money damages from a third-party tortfeasor when collateral source providers have a right to subrogation (reimbursement). Specific to this article, the collateral source statute allows for reduction of subrogation liens based on factors such as attorneys' fees, costs of the case, and other equity arguments like comparative negligence and insurance limits/coverage issues.

Subrogation liens acquired by clients who receive benefits from Medicaid and Medicare, however, are not considered "collateral sources" under the statute, and, therefore, are not subject to the same reduction arguments of equity and the other factors mentioned above. As a result, these types of liens are more resistant to reduction than others (ERISA (2) and Medicaid being the primary examples). For the past several years, plaintiffs were rarely, if ever, able to reduce Medicaid liens on their clients' settlement funds when the total settlement funds exceeded the Medicaid lien. (3) When settlement funds are less than the Medicaid lien, then and only then, a formula to reduce the Medicaid lien found in [section]409.910(11)[R] permits the plaintiff the right to split the settlement proceeds with Medicaid 50/50, with each side taking a one-half interest in the settlement funds. (4)

The good news is, times have changed. Technically, a Medicaid lien still cannot be reduced, but the Medicaid lien can be limited so as to apply only to the amount of your settlement allocated for the past medicals. A brief history of the law follows.

The state of Florida chose to participate in the federal Medicaid program, which provides payment for medical services to families and individuals who qualify based on need. In order to get reimbursed by the federal government for portions of payments made to eligible recipients, Florida's Medicaid program, called the Agency for Healthcare Administration (AHCA), is required to seek reimbursement from Medicaid recipients if they recover from a third-party tortfeasor via settlement/trial. (5)

States are limited, however, in their power to pursue reimbursement under the federal anti-lien statute. (6) Specifically, the anti-lien statute provides that state Medicaid programs may not attach their right to reimbursement "against the property of an individual prior to his death on account of medical assistance paid or to be paid on his behalf under the [s]tate plan." (7) There is an obvious conflict between Medicaid reimbursement and the federal anti-lien statute.

The Florida statute implementing the state's requirement to seek reimbursement from Medicaid recipients when there is a third-party tortfeasor recovery, entitles AHCA to impose a lien on a Medicaid recipient's claim against the tortfeasor, and, therefore, on any monetary amount recovered by the recipient as a result of a judgment, award, or settlement of the claim. Basically, Medicaid is always paid back in full with only one exception, that being [section]409.910(11)(f). As previously mentioned, this section provides a formula to determine what amount the state may recover from a settlement, which caps recovery at half of the total amount of the settlement after deducting attorneys' fees and costs. Example: a policy limits settlement of $50,000, when the claimant has $75,000 in medical expenses that were paid by Medicaid. After all the fees and costs are deducted, the net to client is $30,000, based on [section]409.910(11)(f), the client and Medicaid split 50/50, with each taking $15,000.

Evolution of Medicaid Law through the Courts

This irrebuttable statutory formula for calculating Medicaid's reimbursement amount seemed to cause tension between a state's federal requirement to seek repayment from recipients who recover from a third-party tortfeasor, and the federal anti-lien statute, which prevents states from seeking reimbursement from an individual's personal property. As a result, plaintiff's attorneys took to the courts, attempting to seek clarification from the judicial system as to whether the type of irrebuttable formula found in Florida's Medicaid statute was preempted by the anti-lien statute and, therefore, rebuttable. As a result, four pertinent cases shaped and solidified the law in Florida with regard to repaying AHCA out of settlement funds.

In Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006), the U.S. Supreme Court was put to the...