Federal Appeals Court Holds State May Place Lien Only on Medical Portion of Settlement

[This article was originally published on February 11, 2005.  The links were updated on June 19, 2018.]

The Eighth Circuit Court of Appeals rules that an Arkansas statute requiring Medicaid applicants to assign to the state the entirety of any settlement violates the federal Medicaid law's "anti-lien statute," and that the state may recover only from those portions of third-party awards allocated for medical expenses. Ahlborn v. Arkansas Dept. of Human Services (8th Cir., No. 03-3377, Feb. 9, 2005).

Heidi Ahlborn was rendered permanently disabled as the result of a car crash. While being treated for her injuries, Ms. Ahlborn applied for and began receiving Medicaid benefits. In applying for benefits, she assigned to the Arkansas Department of Human Services Arkansas (ADHS) her right to the entirety of any third-party payment '” not just that portion made for medical care '“ as required by Arkansas law. Ms. Ahlborn subsequently received $550,000 in a lump-sum settlement from the tortfeasor. The Director of ADHS asserted a lien against Ahlborn's settlement for the amount of benefits ADHS provided, $215,645.30.

Ms. Ahlborn sued, arguing that ADHS can recover only that portion of her settlement representing payment for past medical expenses, estimated to be $35,581.47. She contended that the Arkansas recovery scheme conflicts with the federal "anti-lien" statute," 42 U.S.C. § 1396p(a)(1). Arkansas countered that the settlement remains property of the tortfeasor until the state is fully reimbursed for all funds expended on Ms. Ahlborn's medical care. Among other cases, the state cited Houghton v. Dep't of Health, 57 P.3d 1067, 1069 (Utah 2002).

The district court ruled that the state may recover from Ms. Ahlborn's settlement the total amount of benefits provided under the Medicaid program, regardless of whether the settlement funds represent payments for the cost of medical services. Ms. Ahlborn appealed.

The U.S. Court of Appeals for the Eighth Circuit reverses. The court rules that Ms. Ahlborn's right to a settlement was her "property" and that the state may not "circumvent the restrictions of the federal anti-lien statute simply by requiring an applicant for Medicaid benefits to assign property rights to the State before the applicant liquidates the property to a sum certain." The court finds that the federal statutes in question limit a state to placing a lien only on third-party payments made to compensate for medical care, and approvingly cites Martin ex rel. Hoff v. City of Rochester, 642 N.W.2d 1, 13 (Minn. 2002). Therefore, the court holds, Arkansas' scheme violates federal law. In making its ruling, the court considers and rejects the federal Health Care Financing Administration's contrary view.

For the full text of this decision, go to: http://caselaw.lp.findlaw.com/data2/circs/8th/033377p.pdf.

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