The following is an analysis by ElderLawAnswers member attorney, John J. Campbell of the Eighth Circuit's decision in Ahlborn v. Arkansas Department of Human Services, which the U.S. Supreme Court has just agreed to hear.
In a decision filed on February 9, 2005, the United States Court of Appeals for the Eighth Circuit held that a state's right to recover its Medicaid lien from a beneficiary's liability settlement is limited to that portion of the settlement representing payment for past medical expenses. Ahlborn v. Arkansas Dept. of Human Services, 397 F.3d 620 (8th Cir., Feb. 9, 2005).
Ms. Ahlborn was seriously injured and permanently disabled in a motor vehicle accident in 1996. She applied and qualified for Medicaid benefits in the State of Arkansas. According to Arkansas law, she was required, as a condition of Medicaid eligibility, to assign 'any settlement, judgment, or award which may be obtained against any third party' to the Arkansas Department of Human Services (ADHS), the state Medicaid agency, 'to the full extent of any amount which may be paid by Medicaid' for her benefit. Ark. Code Ann. §20-77-307(a).
By the time Ms. Ahlborn settled her third party tort claim, Medicaid had made payments totaling $215,645.30 for her care. The net amount of Ms. Ahlborn's settlement was $550,000, of which $35,581.47 represented settlement of her claim for past medical expenses. Based upon state law and the required assignment, ADHS attempted to assert its $215,645.30 Medicaid lien against the entire settlement.
Ms. Ahlborn sued ADHS in federal court, seeking a declaratory judgment that ADHS could only recover its lien from the portion of her settlement representing payment for past medical expenses. Ms. Ahlborn's argument was based upon 42 U.S.C. §1396p(a)(1), the federal 'anti-lien statute.' That statute prohibits Medicaid from imposing a lien 'against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the state plan.'
ADHS argued that the Arkansas statute requiring the assignment of all rights against third parties was required by two other federal statutory provisions: 42 U.S.C. §1396a(a)(25)(H); and 42 U.S.C. §1396k(a)(1). These two statutes provide: (a) A State plan for medical assistance must '“ . . . (25) provide '“ . . . (H) that to the extent that payment has been made under the State plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance, the State has in effect laws under which, to the extent that payment has been made under the State plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services. 42 U.S.C. §1396a(a)(25)(H); and (a) For the purpose of assisting in the collection of medical support payments . . . a State plan for medical assistance shall '“ (1) provide that, as a condition of eligibility for medical assistance . . . to an individual . . . the individual is required '“ (A) to assign the State any rights . . . to payment for medical care from any third party; . . . (C) to cooperate with the State in identifying, and providing information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan. . . . 42 U.S.C. §1396k(a)(1).
Those provisions, argued ADHS, allowed the state to recover its lien from all settlement proceeds, rather than just that portion of proceeds meant to compensate the beneficiary for medical expenses. Further, ADHS argued that the federal anti-lien statute did not prohibit this because the settlement proceeds were not Ms. Ahlborn's property when the state's lien attached, since the proceeds were still in the hands of the defendants.
ADHS' argument relied heavily on two state supreme court opinions from Utah and Washington: Houghton v. Dep't of Health, 57 P.3d 1067 (Utah 2002); and Wilson v. State, 10 P.3d 1061 (Wash. 2000). In both cases, the state courts found that the relevant federal statutes permitted their states to require Medicaid beneficiaries to grant blanket assignments to their states of all rights against third parties; and that the federal statutes permitted the states to recover their Medicaid liens from all settlement proceeds up to the full amount of Medicaid benefits provided.
The Houghton and Wilson decisions, in turn, both relied heavily on two decisions handed down in the 1990's from the U.S. Department of Health and Human Services, Departmental Appeals Board. Those decisions each stated the position of the U.S. Department of Health and Human Services (HHS) that federal law permits states to seek recovery from all settlement proceeds; and that these proceeds are not considered 'property of the individual' because the state's Medicaid lien attaches while the settlement proceeds are still property of the defendant (or the defendant's insurance carrier). Calif. Dep't. of Health Servs., D.A.B. No. 1504. 1995 WL 66334 (HHS Jan. 5, 1995); and Wash. State Dep't of Soc. and Health Servs., D.A.B. No. 1561, 1996 WL 157123 (HHS Feb. 7, 1996).
The Eighth Circuit Court of Appeals analyzed and rejected the holdings in Houghton and Wilson. Primarily, the Court disagreed with those courts' construction of the federal statutes permitting state Medicaid lien recovery. As the Court stated: We believe a straightforward interpretation of the text of these statutes [42 U.S.C. §1396a(a)(25)(H); and 42 U.S.C. §1396k(a)(1)] demonstrates that the federal statutory scheme requires only that the State recover payments from third parties to the extent of their legal liability to compensate the beneficiary for medical care and services incurred by the beneficiary. Under §1396a(a)(25)(H), a state Medicaid plan must include provisions specifying that, when the State provides medical benefits to an applicant, 'the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services.'. . . This acquisition of rights occurs only in cases where 'a third party has a legal liability to make payment for [medical] assistance. Id. Section 1396k(a)(1) similarly requires that an applicant assign to the State her right 'to payment for medical care from any third party.' . . . Both statutes are thus limited to rights to third-party payments made to compensate for medical care.
In so ruling, the Court favorably cited the case of Martin ex rel. Hoff v. City of Rochester, 642 N.W.2D 1 (Minn. 2002). In that case, the Minnesota Supreme Court also found that the language of the federal statutes in question clearly prohibited states from recovering Medicaid benefits paid to a beneficiary from settlement proceeds meant to compensate the beneficiary for other than past medical expenses.
The Court, following the same line of reasoning as did the Minnesota Supreme Court in Martin, determined that the key issue was whether the proceeds of the settlement constituted Ms. Ahlborn's 'property.' Unlike the Houghton and Wilson courts, the Court was not willing to accept HHS's interpretation of the relevant federal statutes on that issue. The Court stated that deference to HHS's interpretation of the law, as stated in the two HHS decisions cited above, was inappropriate where the language of the federal statutes in question was not ambiguous.
Instead, the Court conducted a separate analysis and concluded that Ms. Ahlborn's unliquidated tort claim was a 'chose in action', treated as 'property' under both statute and common law. Further, the Court declined to differentiate between the settlement proceeds themselves and Ms. Ahlborn's claim to those proceeds. Thus, the Court reasoned, the federal anti-lien statute clearly prohibited the placement of a lien on those claims, except to the extent that 42 U.S.C. §1396a(a)(25)(H) and 42 U.S.C. §1396k(a)(1) permitted the states to recover from third party payments for medical care.
As the Court stated: In the end, we are left with a federal statutory scheme that clearly requires Ahlborn to assign her rights to recover from third parties for the costs of medical care and services incurred as a result of their tortious conduct, but protects all of Ahlborn's nonassigned property from recovery by the State through the anti-lien statute. The Arkansas statutes requiring Ahlborn to assign her entire cause of action against the third-party tortfeasors, and establishing a statutory lien on settlement proceeds for matters other than medical care and services, conflict with and frustrate this federal scheme.
As a result, the Court held that, to the extent that the Arkansas statutes require an assignment of rights to third party claims or payments other than for medical care, the Arkansas statutes are pre-empted by federal law.
The Ahlborn case appears to be the first case decided by a federal appellate court on the issue of the scope of the states' rights to recover Medicaid liens from the proceeds of third party settlements. As such, Ahlborn could signal a significant change in the law in this area. Further, while Ahlborn dealt with a third party liability settlement, the Court's reasoning would seem equally applicable to worker's compensation settlements.
For large settlements where a state Medicaid agency may attempt to assert a lien significantly greater than the portion of the settlement reasonably allocated to past medical expenses, it may be worth pursuing the remedy of declaratory judgment in federal court, rather than waiting for the state agency to sue in state court. A state's allegedly over broad enforcement of its Medicaid lien recovery rights may also form the basis of a suit in federal court under 42 U.S.C. §1983.
Certainly, for plaintiffs living in one of the states under the jurisdiction of the federal Eighth Circuit Court of Appeals, the Ahlborn opinion would constitute strong precedent. Medicaid lien recovery is almost certain to be restricted to settlement proceeds for past medical expenses these states.
Other federal circuits may find Ahlborn persuasive as well. The federal Tenth Circuit Court of Appeals, for instance, has issued rulings in the past that seem to signal a policy to restrict the ability of states to enact Medicaid laws that go beyond the powers granted to the states under federal Medicaid statutes. E.g., Ramey v. Reinertson, 268 F.3d 955 (10th Cir. 2001).
Even in states such as Utah, New York, New Jersey and Washington, where the state courts have ruled that their state Medicaid agencies are empowered to seek recovery from non-medical portions of settlement recoveries, the federal courts with jurisdiction over those states may prove more friendly forums. Alternatively, a state Medicaid agency may be more willing to negotiate recovery of its lien from settlement, knowing that there is a risk that a federal court may determine the state's Medicaid lien statute to be subject to federal preemption under Ahlborn.
Strong advocacy is needed when dealing with government liens in the context of third party and worker's compensation settlements. The Ahlborn case could prove to be an effective tool to ensure that the greatest possible portion of settlement proceeds will remain available to the plaintiff.
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