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The Ahlborn Ultimatum: Negotiating and Settling Personal Injury Claims Involving Medicaid Liens

January 16, 2008
The Ahlborn Ultimatum:
Negotiating and Settling Personal Injury Claims
Involving Medicaid Liens after Arkansas HHS v. Ahlborn
Since 1965, when Congress enacted Medicaid legislation, states that choose to participate in this voluntary program (all 50 do), must "take all reasonable measures to ascertain the legal liability of third parties... to pay for care and services available" under Medicaid.  1396a(a)(25)(A).  Once those parties are identified, states must enact laws requiring Medicaid recipients to "assign to the State any rights... to support and to payment for medical care from any third party."  1396k(a).  Furthermore, the Medicaid legislation provides that "any amount collected by the state under an assignment... shall be retained by the State as is necessary to reimburse it for medical assistance payments on behalf of" the Medicaid recipient.  1396k(b). 
Under this statutory structure, most states will assert a lien for the full amount of any payments by Medicaid and take the position that the lien is non-negotiable.  A Medicaid recipient injured by a negligent third party is required to pay over to Medicaid the full extent of its asserted lien, regardless of the amount of the person's total recovery.  This has significantly affected the value of personal injury cases and their ability to be resolved in the face of large Medicaid liens.  Several states and the U.S. Department of Health and Human Services have addressed this issue and reached conflicting results.  In 2006, the U.S. Supreme Court was presented squarely with this issue in Arkansas Dep't of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006). 
The Ahlborn Decision
In 1996, Heidi Ahlborn was seriously injured in an automobile accident in Arkansas.  At the time of the accident, Ahlborn was a 19-year-old college student without health insurance or other assets to pay for medical care.  Arkansas' Medicaid program paid $215,645.30 for Ahlborn's medical expenses incurred as a result of this accident.  Ahlborn subsequently filed suit against two alleged tortfeasors and resolved the case for $550,000.  The settlement did not designate a specific amount for medical expenses.  Arkansas asserted a lien against the settlement proceeds to the full extent of its Medicaid payments for Ahlborn's medical care.
After unsuccessful attempts to negotiate with Medicaid, Ahlborn filed a declaratory judgment action in federal court alleging that the asserted lien violated federal Medicaid laws by requiring payment to Medicaid from funds intended to compensate Ahlborn for damages other than past medical expenses.  In her settlement with the tortfeasor, Ahlborn had not allocated the amounts paid among the various items of damages alleged in her complaint.  However, Ahlborn and Medicaid stipulated, in the declaratory judgment action, that Ahlborn's case was worth slightly more than $3 million and that her settlement represented approximately 16.5% of the value of her claim.  The parties further stipulated that if Ahlborn's legal position was correct, Medicaid would be entitled to $35,581.47, or 16.5% of the total amount paid by Medicaid.  Neither the Court's opinion, nor the underlying briefs,  explain how or why the parties determined that medical expenses would be 16.5% of the total case value.
The District Court granted summary judgment in favor of Arkansas.  The United States Court of Appeals for the Eighth Circuit reversed, holding that Arkansas was only entitled to repayment of the portion of the settlement that represented compensation for past medical expenses.  The U.S. Supreme Court affirmed the decision of the Eighth Circuit, holding that federal Medicaid laws do not allow Arkansas to assert a lien for more than the amount of the settlement attributable to past medical expenses.  The Court further held that the Arkansas Medicaid statutes were unconstitutional to the extent they would require greater reimbursement.
In so holding, the Court not only rejected Arkansas's statutory structure, but virtually all state statutes that would allow Medicaid to enforce its entire lien regardless of the amount of the recovery attributable to past medical expenses.  The Court expressed concern that under the present Arkansas system, Medicaid could recover its entire lien from the injured party even when a jury's award of past medical expenses is less than the Medicaid lien.
The Court focused on two significant provisions of Medicaid's federal framework. First, the federal third-party liability provision requires Medicaid recipients to "assign the State any rights... to payment for medical care from any third party."  Ahlborn, 164 L.Ed.2d at 471(citing 42 U.S.C. 1396k(a)(1)(A)).  The Court went on to note that Medicaid only requires States to seek reimbursement to the extent of a third party's liability "to pay for care and services available under the plan."  Id., 164 L.Ed.2d at 472 (citing 1396k(a)(25)(A)).  Second, and most significant, the Court held that the federal anti-lien provision expressly limits a State?s right to recover by prohibiting the "imposition of a lien against property of an individual on account of medical assistance rendered to him under a State plan..."  1396p(a).  The Court noted that this provision, read in isolation, would ban any lien on a Medicaid recipient's recovery from a negligent third party.  But, read in combination with other Medicaid provisions, the Court determined that the provision was intended to prohibit liens against settlement proceeds in excess of the portion associated with past medical expenses.
Post-Ahlborn Reaction
The state and federal courts have begun to react to the Ahlborn decision and its consequences.  For examples, in Bauder v. Department of Public Health and Services, 2006 Mont. Dist. LEXIS 564, (D. Mont. 2006), the District Court acknowledged Ahlborn's impact on Medicaid liens by noting that enforcement is limited to the portion of the Plaintiff's recovery representing past medical expenses.  However, the Bauder Court noted, as have other state and federal courts, that the parties in Ahlborn stipulated to the portion of the settlement that represented past medical expenses.  In the absence of such a stipulation, many courts have relied on evidentiary hearings to decide what portion of a settlement represents compensation for past medical expenses.  Such hearings discourage "loaded" settlements that artificially reduce the apportionment of medical expenses to the total settlement amount in an effort to minimize the amount of Medicaid reimbursement in the wake of the Ahlborn decision.
To date, the Ahlborn decision is restricted by its facts to Medicaid reimbursements.  In fact, when asked to apply the reasoning of Ahlborn to reduce a group health insurance lien, the Eighth Circuit refused to extend the Ahlborn holding.  Administrative Committee of the Walmart Stores, Inc. v. Shank, 500 F.3d 834 (8th Cir. 2007).  In Shank, the Eighth Circuit distinguished Ahlborn's concern with government Medicaid benefits from private group health insurance plan's provision expressly providing for full recoupment of paid plan benefits from a tort recovery.  The claimant filed a petition for writ of certiorari in the U.S. Supreme court on December 12, 2007.

Practical Applications
The Shank decision highlights the importance of determining the source of the medical benefits paid to the Plaintiff (Medicaid, private pay, ERISA plan, etc...) and upon what terms the medical benefits were paid out.  The outcome of the subrogation battle between the Plaintiff in a personal injury case and their medical expense payor directly affects the negotiations involved in personal injury cases with asserted reimbursement claims for paid medical benefits.
Lawyers who defend personal injury cases know that in many instances, a Plaintiff will only accept a settlement offer that allows him or her to pay his medical providers and his lawyer and still put something in his or her pocket.  Until the Ahlborn decision, large Medicaid liens often complicated the settlement process, since the States regarded the lien as essentially non-negotiable.  With the decision in Ahlborn, attorneys now have greater leverage to negotiate for a reduced Medicaid lien, which should facilitate negotiated settlements.  As noted by the Court in Ahlborn, most states already have in place a procedure for apportioning settlement proceeds when various medical providers have asserted liens that cannot be resolved.  The Court, in response to criticisms that parties to personal injury settlements could deliberately undervalue the medical expenses portion of a settlement to deprive Medicaid of its right to repayment, noted that this same procedure could be used in the context of Medicaid.  But, there can be pitfalls. 
A recent personal injury case handled by our office provides some insight into Ahlborn's effects.  The matter involved severe injuries but questionable liability, and a Medicaid lien exceeding $100,000.  During settlement negotiations, the Medicaid lien was a significant stumbling block, until Plaintiff?s counsel was advised about Ahlborn.  Because of Ahlborn, the parties were able to discount the Medicaid lien and agree on a settlement amount.  However, once the parties agreed to a settlement amount, Plaintiff ran into problems with Medicaid in negotiating the lien. 
Initially, Medicaid would not agree to negotiate its lien.  After reviewing Ahlborn, Medicaid agreed to reduce its lien substantially by 85%, but insisted on an order from the circuit court overseeing the personal injury matter ordering Medicaid to accept the reduced payment of its lien.  The court refused to enter an order without argument and briefing on the issue.  On further hearing, counsel for Plaintiff put forth uncontested expert testimony as to the overall value of the case.  The court refused to rule because the issue had not been fully briefed by Medicaid and the issue was one of first impression in Florida. 
Although the Ahlborn decision came out in 2006, Florida has not dealt significantly with the issue.  Many practitioners simply are not aware of the decision and its significant impact on personal injury settlements involving Medicaid.  It also appears from Medicaid's response in this case that it has been allowing agreed orders to be entered without argument, thus, limiting the value of such orders.  At the time of this writing, the court had not entered an order on the issue.
Defense Practitioners should be aware of Ahlborn, and its significant effect on settlement negotiations where Medicaid liens are involved.  In cases where it may facilitate settlement, we recommend comparing the Arkansas statute to your state's statute, to identify any subtle differences that could affect a court's application of Ahlborn.  If Plaintiff is unsuccessful in negotiating a reduced Medicaid lien, the parties may have to litigate the matter, and should consider offering to join with Plaintiff in drafting any motion submitted to the court on this issue.  This will increase the chances of such a motion being granted, allow for thorough research and analysis, and promote uniformity across jurisdictions on this very significant issue.
* Richard Maselli is a partner with the law firm of Ogden & Sullivan, P.A. in Tampa, Florida.  He is admitted in the Northern, Southern and Middle District Courts of Florida as well as the Eleventh Circuit Court of Appeals and practices throughout the state of Florida in the areas of personal injury and insurance litigation.  Mr. Maselli is a frequent speaker on a variety of topics including recent presentations on spoliation of evidence, mediation and responding to insurance complaints in Florida.
Rachel Krause is a senior associate with the law firm of Ogden & Sullivan, P.A. in Tampa, Florida, defending life, health, disability, ERISA, and personal injury matters.  She is admitted in all federal and state courts in Florida, as well as the State Bar of Georgia and the Middle District of Georgia.  She has written and spoken on issues related to tort reform, life insurance, and annuities.
Law Office: 113 S. Armenia Avenue Tampa Florida 33609 | Phone: 813.223.5111 | Fax: 813.229.2336

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