After a family of Medicaid recipients agree to a large personal injury settlement, a U.S. district court reduces the the state's Medicaid lien against the settlement proceeds but specifically declines to calculate the reduction by comparing the "true value" of the claim to the settlement amount, a theory the U.S. Supreme Court applied in Alhborn. McKinney v. Philadelphia Housing Authority (U.S. Dist. Ct. E.D.P.A., No. 07-4432, August 24, 2010)
Angelique McKinney sued the Philadelphia Housing Authority and her landlord after her daughter suffered a severe respiratory incident allegedly triggered by mold in Ms. McKinney's home. When the McKinney family and the defendants reached an $11.9 million settlement, the state Medicaid agency, which had provided Ms. McKinney's family with some $1.2 million worth of medical benefits as a result of the incident, intervened and asked the court to order Ms. McKinney to reimburse the state for the entire amount of its lien from the settlement proceeds. Ms. McKinney objected to the imposition of the full amount of the lien and placed the amount requested in escrow pending resolution of the state's claim.
Citing the Supreme Court's decision in Arkansas Department of Health and Human Services v. Ahlborn, Ms. McKinney argued that the court should reduce the Medicaid lien by applying the "ratio theory" used in the Ahlborn decision. The theory calls for a court to compare the amount of the settlement to the true value of the claim and then reduce the amount of the Medicaid lien by the same ratio. The Department of Public Welfare disagreed and argued that under Pennsylvania law it was entitled to collect the full amount of its lien so long as the amount requested was less than half the total settlement amount.
The U.S. District Court for the Eastern District of Pennsylvania disagrees with both parties and conducts its own allocation of the settlement. In a strongly worded explanation, the court says that the "plaintiffs are flat wrong when they argue that their ratio theory is required by Ahlborn" and that the DPW's regulations "would obviously be in tension with the Federal Medicaid statute and would raise serious Supremacy Clause concerns." After weighing the factors for and against settlement, the court reduces the Medicaid lien by one-third, requires the DPW to pay for one-third of the McKinney family's legal fees, and imposes 7.08 percent of the litigation costs on the DPW.
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