State May Only Recover Settlement Proceeds Allocated to Medical Expenses

[This article was originally published on March 27, 2002.  The links were updated on August 24, 2018.]

The Minnesota Supreme Court rules that the state's Medicaid lien entitles it to recover only that part of a settlement that pertains to its claim for medical expenses. To the extent that Minnesota's medical assistance lien, assignment, and subrogation statutes allow for a broader recovery, they are preempted by the federal anti-lien statute. Martin, et al v. City of Rochester, et al (Minn., C3-00-398, March 21, 2002).

Troy Hoff was involved in a car crash in 1991 that rendered him mentally incompetent. Troy soon began receiving Medicaid benefits to cover the cost of his care. In 1993, Troy's mother, Joan Martin, assigned to the state all of Troy's rights to payment for medical care from any third party liable for his injuries, and the state filed a public assistance lien on Troy's causes of action arising out of the crash. Ms. Martin proceeded to sue several defendants and settled six years later for $220,000. The state asserted that its medical assistance lien entitled it to obtain from the settlement $58,561.82 as reimbursement for the more than $600,000 it had paid by that time for Troy's medical care. Ms. Martin moved to dismiss, arguing that the assignment to the state of Troy's rights to medical expenses had left her with no power to sue for medical expenses on his behalf. Ms. Martin asserted that the settlement therefore was made only on his remaining personal injury claims for pain and suffering, disfigurement, disability, emotional distress, loss of earnings, and loss of earning capacity. Ms. Martin contended that the resulting settlement proceeds were solely Troy's property. Among its responses to Ms. Martin's motion, the state raised a subrogation claim for the first time.

Agreeing with Ms. Martin, the district court ruled that the state was not entitled to any of the settlement funds. The court concluded that the state's lien and subrogation rights were preempted by federal law. The Court of Appeals agreed with the state and reversed the district court, concluding that Minnesota's medical assistance statute does not conflict with the federal Medicaid statutory scheme because compliance with both the state and federal provisions was possible. Ms. Martin appealed.

The Minnesota Supreme Court reverses and remands. The court holds that the state's medical assistance assignment provision conflicts with its federal counterpart in that the state requires medical recipients to assign "all proceeds" received from a third party, while the federal provision limits the assignment to payments for medical or health care expenses only. Allowing the state to expand the range of the required assignment, the court rules, defeats the federal anti-lien provision and interferes with the federal Medicaid scheme, and therefore federal law preempts this provision of the state statute.

The court finds that federal law similarly preempts the state statute granting the state a subrogation right. "Pursuing a subrogation right," the court writes, "allows an end-run around the protections of the anti-lien provision by using a subrogation right instead of a lien to take part of the recipient's personal property that is protected by the anti-lien provision." The court concludes that settlement proceeds for causes of action other than medical claims belong to Troy alone, while the state is entitled only to that part of the settlement that represents a recovery on its claim for medical expenses. However, the court determines that is unclear what parts of the settlement proceeds are allocated to what causes of action, and therefore remands for clarification.

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