Ahlborn an exciting development for Plaintiffs (maybe)
The recent United States Supreme Court decision of Arkansas Department of Human Services v. Ahlborn 547 U.S. ___, 126 S.Ct. 1752 (April 2006) has created an excellent opportunity for plaintiff's lawyers to ensure clients receive a fair share of their settlements in personal injury matters. Those of us that follow the developments of lien law were excited when this decision was published, and considered it a big "win" for Plaintiffs. Unfortunately, North Carolina has not immediately followed the very clear guidance of the U.S. Supreme Court.
My very short summary of Ahlborn
If you want to read the Ahlborn slip opinion, click here. I'm not going to summarize it much other than this short paragraph. In Ahlborn, Arkansas Medicaid had a claim against the proceeds of a personal injury settlement. (NOTE: I'm using fictional numbers numbers to make this easy.) Let's say Arkansas said that Ahlborn owed $100,000 to repay payments made by Medicaid for injuries caused by a third party's negligence. Ahlborn had a settlement of $500,000. Normally, Medicaid would get the full $100,000, right? Well, the lawyers for Ahlborn said, "Hey wait, we may have gotten $500,000 for our client, but our client had a lot more damages, and this was a compromise settlement, so Medicaid should not, can not, take the full $100,000. They should only get their fair share."
For several different reasons outlines below, Justice Stevens, writing for the majority, agreed that Medicaid should only get their fair share of the total damages to the Plaintiff.
In essence, Justice Steven's said, "Medicaid can only get paid from the part of the settlement that represents payments made for medical bills. Thus, when there is a lump sum settlement, a court can, and should, figure out what portion of the settlement is for medical bills, and what portion is for other damages, like pain and suffering, future medical damages, lost wages, disfigurement, etc." This is sort of a complicated way of saying that Medicaid must pro-rate with other damages.
An Example of How the Ahlborn analysis should work
So in my fictional version of Ahlborn, here is what would happen: According to Justice Stevens, Medicaid and the Plaintiff should agree on what the total damages are worth. (Ok, realistically, in NC, Medicaid will often balk at this part, but we'll get to that later.) Next you determine what Medicaid's total lien will be. Then, you determine the percentage that Medicaid's lien represents of the total value of the damages. Finally, multiply Medicaid's total lien by the percentage, and voila, you have Medicaid's final lien.
Medicaid and the Plaintiff can't agree? Easy solution says Justice Stevens, have a trial judge figure it out. I call this process "pro-ration" but the Supreme Court calls it "apportionment." Ok, I'll use their term, mostly because my spell check just does not like any version of "proration".
Mathematically, using my fictional Ahlborn numbers here is what we get:
-$166,666 Attorney Fees
-$100,000 Medicaid lien
$233,333 available to client
What is the value of the total damages?
Assume there are the following damages:
$ 100,000 Medicaid Lien
$1,500,000 Future medical bills (life care plan)
$ 250,000 Past lost wages
$ 250,000 Future lost wages
$ 2,100,000 TOTAL Damages (we're leaving pain and suffering out to make this simple)
What portion of the total damages is Medicaid's "lien"?
$100,000 divided by $2,100,000 = .047619 (pro-ration percentage)
What should Medicaid receive as part of the final settlement?
$100,000 lien x .047619 (pro-rata share) = $4,761.90
Final Analysis of Lien under Ahlborn:
-$166,666 Attorney Fees
-$4,761.90 ($100,000 x .47619) Final Medicaid Lien
$328,572.10 available to client
The reasons behind Ahlborn (Statutory analysis)
The reasons behind this interpretation of Medicaid law depend in part of how the Supreme Court interpreted federal statutes that enable the States to collect for Medicaid payments. The analysis is fairly complicated, but is well summarized in a Petition for Rehearing filed in the NC Supreme Court case of Ezell v. DHHS. (Since our Supremes adopted the dissenting COA opinion, you really need to read the dissent to make sense of the NCSC decision. Read the COA opinion here.) Ezell involved an issue that should be controlled by Ahlborn, though right now it looks like the N.C. Supreme Court has ignored the ruling in Ahlborn by adopting the dissenting opinion of the N.C. Court of Appeals which was decided pre-Ahlborn and gives no consideration of the analysis and "apportionment" required by Ahlborn.
Here is the summary of Ahlborn from the Petition for Rehearing in Ezell:
Writing for a unanimous court in Ahlborn, Justice Stevens noted that 42 U.S.C. §1396k requires Medicaid beneficiaries to “assign the State any rights … to payment for medical care from any third party”— specifically excepting rights to payment for lost wages or pain and suffering. 547 U.S. ___, 126 S.Ct. at 1761. Second, Stevens observed that the language of 42 U.S.C. §1396a(a)(25)(B) requiring state Medicaid programs to seek reimbursement from third parties expressly refers to “the legal liability of third parties … to pay for [medical] care and services available under the [Medicaid] plan.” Ibid. Third, Stevens determined that the rights acquired by state Medicaid programs pursuant to 42 U.S.C. §1396a(a)(25)(H) were only “the rights of [a Medicaid beneficiary] to payment by [a third party] for … health care items or services” —not rights to payment for lost wages, pain and suffering, an inheritance, or anything other than medical expenses. Ibid.
Reading these statutory provisions together in context, Justice Stevens concluded that “the federal third-party liability provisions require an assignment of no more than the right to recover that portion of a settlement that represents payments for medical care.” Ibid., 547 U.S. ___, 126 S.Ct. at 1762.
Despite the complicated statutory analysis in Ahlborn, the actual application of the decision is fairly simple. Unfortunately, NC Medicaid (DHHS), via the NC Attorney General's office, is ignoring the opinion. I am personally aware of at least three cases (four counting Ezell) where DHHS has said, in essence" "that's not what Ahlborn means, pay us our full lien."
DHHS seems to be taking the position that their lien is superior to any other lien (except Medicare) and that their lien is to be paid in full, up to NC's statutory "cap" of 1/3 of the gross settlement.
Other Issues Ahlborn Raises in NC
Ahlborn also calls into question the constitutionality of the arbitrary 1/3 cap because the cap has absolutely no relationship to the settlement value. If this is true, "smaller" cases, those with no long term medical costs or future damages, may have to pay more of a small settlement (no 1/3 cap) but those cases with large damages and future losses will benefit.
Another disturbing aspect of Ahlborn is that is may lead a court to consider future liens by Medicaid. In other words, in my fictional Ahlborn case above, the State might argue that they should be compensated for medical costs that will be paid. This is already happening with Medicare set-aside trusts in Worker's Compensation cases.
Keep reading here for further analysis and hints and tips about using Ahlborn.