Medicaid Contractor Can Recover Funds from Personal Injury Settlement under State's Subrogation Statute

The Supreme Court of Connecticut rules that a private Medicaid contractor has the right under the state's Medicaid subrogation statute to stand in the state's shoes and obtain reimbursement from Medicaid beneficiaries who settle personal injury claims.  Rathbun v. Health Net of the Northeast (Conn., No. SC 18928, March 10, 2015).

Connecticut contracts with Health Net of the Northeast to provide Medicaid managed care services, and Health Net in turn contracts with The Rawlings Company, LLC, to recover medical payments that Health Net has made on behalf of Medicaid beneficiaries who subsequently receive personal injury awards or settlements.  In 2008, several Medicaid beneficiaries who were pursued by Rawlings and Health Net brought a class action seeking a declaratory judgment stating that Connecticut's Medicaid subrogation statute authorizes Health Net to seek reimbursement only from the third-party tortfeasors who caused injuries to Medicaid beneficiaries and not from the beneficiaries themselves.  A trial court granted Health Net's motion for summary judgment and the appeals court upheld the trial court's decision.

On appeal to the Connecticut Supreme Court, the plaintiffs argued that Connecticut's Medicaid subrogation statute clearly gives the state the right to step into a Medicaid beneficiary's shoes and initiate proceedings only against third parties, not against the beneficiaries themselves.  The plaintiffs also argued that the subrogation right was granted only to the state and could not be passed to Health Net as an outside contractor.

The Connecticut Supreme Court upholds the lower courts' decisions.  After pointing out that common law allows an insurer to obtain recovery directly from an insured person when he receives a settlement from a third party, the court goes on to state that it "can perceive no reason why the legislature would have intended that the right to subrogation under [the statute], unlike the right to subrogation under the common law, would exclude the department's right to reimbursement from Medicaid recipients, thereby providing a windfall to those recipients in violation of federal Medicaid law governing third-party liability in this context."

To read the full text of the court's decision, click here.