and Medicaid
and for private insurers under ERISA.
Getting Medicaid’s Hand
Out of your Client’s Pocket
By Ron M. Landsman
State Medicaid programs, with Congress’ blessing, have been ahead of the pack in
seeking to share in the recovery generated by personal injury litigation. Now, when an
injured person recovers compensation for damages he or she has suffered at the hands of a
negligent or malevolent party, many who have had to or who might pay the injured person’s
medical bills line up to take a piece of the action. This is true for government programs like
Medicare
and Medicaid
and for private insurers under ERISA.
To satisfy their clients, personal injury attorneys not only have to win the battle of the lawsuit, but also the war of distribution. Knowing these risks at the outset, and taking them into account, enables the personal injury attorney to deliver not just a legal victory, but a life victory for the client, as well.
Medicaid’s first line of attack is through subrogation claims, either when litigation is pending or resolved, seeking a share of what it has already paid out for your client’s care at the time of settlement or judgment. By statute, State Medicaid programs are required to claim reimbursement for the costs they paid because of defendants’ negligence. A second line of attack comes after your client’s death. Medicaid can recover much of what it has paid out by claims against your client’s probate estate or, if one was established, from the special needs trust that held his or her recovery. While this is somewhat removed from the trial attorney’s primary focus, it is not at all removed from client’s concerns about their welfare and that of their families after they are gone, and how a case is settled may affect the client’s ability to attend to that.
If a third party caused injury that gave rise to the need for care that Medicaid
paid
for, the State Medicaid program is subrogated to the Medicaid beneficiary’s right to recover
from the third party the cost of that care. Congress has long required State Medicaid
programs to shift liability for costs to third parties by “tak[ing] all reasonable measures to
ascertain the legal liability of third parties ... to pay for the care and services available under
the [Medicaid State] plan,” 42 U.S.C. § 1306a(a)(25)(A); see also 42 C.F.R. § 433.136. It
requires beneficiaries to assign to the States their rights to such recovery, and to agree to
cooperate with same. Id., § 1396k(a). State Medicaid programs are required to seek to
recover from personal injury settlements what it has paid for the cost of medical care
provided by the program. Maryland requires, as provided, for Medicaid subrogation against
third parties liable for the cost of the care that was paid for by the program. Maryland Health-General Code, § 15-120.
The Federal statute plainly requires that there be a causal connection between, on the one hand, the services for which Medicaid paid and for which it seeks recovery and, on the other, the tort that gave rise to the plaintiff’s claim. Medicaid is merely subrogated to the plaintiff’s right, and has no greater right to recover for the cost of the medical care it paid for than the plaintiff does. The clarity of this limitation is reflected in the unanimity of the Supreme Court’s decision in Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268, 164 L.Ed.2d 459, 126 S.Ct. 1752 (2006). The Court rejected the argument that a State Medicaid program had the right “to more than the portion of [a beneficiary’s] settlement than represents medical expenses” for which it, Medicaid, had paid. 126 S.Ct. at 1760.
The facts in that case were largely stipulated. Plaintiff, a young woman, 19 years old, was permanently injured in an automobile accident; her claim was ultimately settled for $550,000. The State stipulated that her claim could be reasonably valued at $3,040,708.18. Medicaid’s outlay was $215,645.30. The parties also stipulated that $35,581.47 of the settlement was attributable to reimbursement for medical payments made.
The Court noted the Federal statute limiting States to enforcing “rights ... to payment for medical care from any third party,” id., at 1761, quoting 42 U.S.C. § 1396k(a)(1)(A)(emphasis added), and on the flip side the general limitation on Medicaid recovery except as otherwise provided – from real property or from a probate estate after death. In light of this, it concluded, Medicaid subrogation claims are “limited to payments for medical care,” and may not attach or encumber “the remainder of the settlement.” Id. at 1763. The Court spoke disapprovingly of older cases that rejected “equitable subrogation principles such as the ‘made whole’ rule,” and while its approach was to avoid rather than reject them, the effect is to strike off in a parallel direction. To be sure, the Court appears to say that to the extent there is a recovery for medical expenses, Federal law “requires ... that the State [Medicaid program] be paid first out of any damages representing payments for medical care before the recipient can recover any of her own costs for medical care.” Id. at 1762. But its direct causation approach is plainly a significant limit on what Medicaid may claim, even if it won’t resolve every aspect of every case favorably for injured plaintiffs.
The Court noted at the outset that everyone agreed that a litigated determination of allocation, whether by judge or jury, would be binding, id. at 1762, and dismissed as solvable the potential problem – not presented in that case because of the parties’ stipulation – of how to determine allocation in the context of settlements. The risk of post-settlement manipulation is easily solved, it said. The State Medicaid program agrees to an allocation or the issue can be submitted to the court. In any event, the Court said, there is as much to be concerned with over-allocation as under-allocation, “unfair to the recipients” in the former situation. Also, it cited with approval ATLA’s observation in its amicus brief that some States have methods for allocating tort settlements where private insurers are also involved.
This appears to be a back-door approval of equitable contribution. As in Ahlborn itself, a settlement that reflects a discount on reasonably claimed losses because of all of the many risks of litigation should affect how much of the recovery is attributed to medical costs as it is to any other element of damages. That is exactly where subsequent cases have gone. See, e.g., Lugo ex rel. Lugo v. Beth Israel Medical Center, 819 N.Y.S.2d 892, 13 Misc.3d 681, 2006 N.Y. Slip Op. 26340 (N.Y.Sup. Jul 21, 2006). They have held hearings to value the case, and then applied to the total Medicaid expenditures the same percentage reduction as the settlement is to the total value of the case. Chambers v. Jain, 15 Misc.3d 1120(A), Slip Copy, 2007 WL 1118383 (Table) N.Y.Sup. (Apr 13, 2007). But cf., D.C. ex rel. A.G. v. City of New York, 18 Misc.3d 1116(A), 856 N.Y.S.2d 497 (Table) (N.Y.Sup.,2008).
Helpfully, the Maryland statute – unlike the Arkansas statute at issue in Ahlborn – is cast in causative terms limited to liability for medical services provided. It provides for subrogation to a beneficiary’s cause of action against another person “to the extent of any payments made by the Department... that result from the occurrence that gave rise to the cause of action.” Md. Health-Gen., § 15-120(a). Although the words are not identical to the Federal statute, their tenor is the same, and in any event they are constrained by it. The notion that Medicaid’s recovery should be reduced because the plaintiff did not recover the “full value” of the claim applies; while that is not equitable reduction per se, it comes close. The Maryland statute is ambiguous respecting attorney’s fees; it says the Department is not liable, but then says that deducting fees is not to be considered payment of or contribution to those fees.
Estate recovery and payback trusts
While trial lawyers may naturally feel most concerned about what comes out of a settlement up front – in the form of Medicaid subrogation claims – most clients will be equally concerned about what happens at the back end through Medicaid estate recoveries and special needs trusts. Their trial lawyer should be, too.
Estate recovery. As to the former – estate recovery – where the injured person has already died so that his estate is the plaintiff, the estate recovery issues loom at least as large as subrogation. Estate recovery issues are of course important where the plaintiff is the estate of an individual who had received Medicaid benefits, or the plaintiff estate pays in whole or part to the estate of someone who had received Medicaid (typically a spouse). Clients may not feel they have gotten much benefit of litigation counsel’s work in settling a claim for an estate with little or no subrogation lien only to see most or all of it lost to an estate recovery claim by Medicaid. Indeed, they haven’t. For a decision correctly recognizing that Ahlborn does not preclude Medicaid’s enforcement of its estate recovery authority, see In re Estate of Ramirez, 14 Misc.3d 480, 826 N.Y.S.2d 553 (N.Y.Sur., 2006).
Congress did not require any estate recovery until 1993, but both D.C. and Maryland had broad estate recovery programs, to the maximum extent permitted under Federal law, from when they were first authorized. In that year, Congress required some estate recovery in all States, but continued or added a number of limitations:
-- It requires estate recovery for nursing home services, “home and community-based services,” and related hospital and drugs services in all States.
Id., §
1396p(b)(1)(B)(I).
-- Other services can also be the subject of recovery, but only if specified in the State’s “Medicaid State Plan.” Id., § 1396p(b)(1)(B)(ii).
● D.C. claimed it was entitled to recover for all services provided, but did
not update its State Plan until August 4, 2006. It continues to make
claims for non-nursing home services provided prior to that date, but
when pushed, will drop those claims.
● Maryland continues to recover for all services provided, but it appears not to have updated its State Plan.
-- But no recovery is permitted:
● Until afer the death of a surviving spouse. Id., § 1396p(b)(2).
● If there is a surviving child under age 21 or who is blind or disabled. Id., § 1396p(b)(2)(A).
● For services provided when the beneficiary was under 55 years of age. 42 U.S.C. § 1396p(b)(1)(B).
● To the extent application of the recovery rule would work an “undue hardship.” Id., § 1396p(b)(3).
Estate recovery is fundamentally different from subrogation, broader in some ways, narrower in others. It is broader in that it applies to all assets, no matter how or when acquired, e.g., a home owned prior to eligibility or an inheritance acquired afterward, even after death. It is narrower in that there are specific limits on recovery designed to protect certain beneficiaries without their own independent showing of need (except for hardship) or satisfying Medicaid eligibility requirements.
There are a number of strategies available to limit or avoid recovery:
-- For individuals who are not expected to survive, assigning their cause of action, if possible, to, e.g., a spouse, adult children, or a revocable living trust may avoid recovery. Even if the plaintiff is at the time a Medicaid beneficiary, such an assignment should not result in a loss of benefits for long term or waiver care (the only kind subject to the Medicaid anti-transfer rules) since the value of the cause of action at that point is speculative. Such assignments should be no less effective than those made to firms that advance funds in exchange for some portion or all of a future settlement or judgment.
-- Where the estate is the plaintiff, distributing its cause of action to a person entitled to take it without recovery would avoid the problem presented by the latter’s death. That is, if the decedent’s spouse has survived but is not in good health, distributing the cause of action to the spouse while she is living avoids the adverse effect of loss of the defense if she passes away before settlement and distribution. This would be effective if she is not herself a Medicaid beneficiary, or in any event if the claim against her estate would be substantially less.
-- Likewise the distribution to a child under age 21 or a disabled child. But if the disabled child him or herself needs Medicaid benefits, the cause of action is only protected by placing it in a special needs trust with payback for the disabled child.
-- Although causation is not an issue, the other limits on recovery should be reviewed closely – were any benefits provided before age 55 and was the Medicaid program entitled to recover for these services at the time they were provided by having adequate State Plan provisions in place.
-- Assignment of interests in an estate to the hardship claimant may preserve more of the recovery than could be done in any other way.
-- Disclaimer by the recipient estate where one estate is paying to a second (usually a spouse) with Medicaid recovery exposure. The disclaimer is a transfer for Medicaid purposes, for which the only remedy is loss of future benefits – hardly significant for an estate.
Special needs trusts. Special needs trusts stand in a somewhat different relationship. They are of course used where a person with assets – from a settlement, an inheritance, or his or her own earnings and savings – needs to get or continue SSI and/or Medicaid eligibility. The SNT is funded after any Medicaid subrogation lien is satisfied except to the extent that recovery is waived or postponed by Medicaid. The SNT may be used where the person needing the benefit of an SNT is the plaintiff him or herself, or where he or she is the surviving child or other heir or legatee of a deceased beneficiary/plaintiff. In the latter case, the estate claim may be reduced or eliminated because of the disabled child or the hardship claim of the other heir or legatee.
The utility of special needs trusts for disabled beneficiaries is well established. Where
the plaintiff (or other individual) is permanently disabled, he or she can use either an
individual special needs payback trust, if under age 65, under 42 U.S.C. § 1396p(d)(4)(A),
or a pooled special needs trust, under 42 U.S.C. § 1396p(d)(4)(c),
such as the Wesley Vinner
Memorial Trust (http://www.dcsafehorizons.org/), the only one now operating in Maryland
and D.C. With a few limited (thought some potentially significant) exceptions, there are
virtually no limits imposed by Maryland or D.C. Medicaid on what the funds can be spent
on, as opposed to the trustee’s independent fiduciary concern to preserve funds if possible
for the beneficiary’s lifetime. There are only two significant impacts: First, distributions
directly to the beneficiary are income for SSI and Medicaid purposes and will result in dollar
for dollar reductions in benefits. Second, payment by a trustee for food or shelter constitutes
income to the SSI beneficiary which results in a reduction of his or her SSI benefit by one-third of the Federal benefit rate ($637 per month in 2007, so that the reduction is $213). The
trustee can pay any liability of a beneficiary, e.g., credit card payments; at worst, as noted,
payments are treated as food or shelter.
But the SNT presents unique recovery issues of its own.
Both individual and pooled income special needs trust require that Medicaid programs
be reimbursed for whatever they have paid for an individual’s care, following the trust
beneficiary’s death, to the extent of trust assets, before any heir, legatee or remainderman can
get any distribution. Unlike with estate claims, there are no scope or time limits on services
which can be the subject of repayment; nor is there any causal connection between the injury,
if any, giving rise to the disability and the services that may be recovered for, as with
subrogation liens. The difference between the pooled income trust and the individual trust,
so far as recovery is concerned,
is that no payback is required to the extent the trust retains
funds.
Where payback is required, some attorneys are developing strategies for minimizing the amount exposed to payback; these are drawn from estate tax strategies such as family limited partnerships and the like where the cash available at the time payback is required is significantly reduced, permitting the FLP managing partner to negotiate any repayment on potentially quite favorable terms.
Effective Responses To Anticipated Claims
Each State Medicaid program has an office for pursing subrogation and estate recovery claims. It is that office that will file the claim, where appropriate, and it is that office that will generate the detailed list of services and costs upon which the claim is based. The three kinds of Medicaid claims – subrogation, estate recovery and special needs trust remainders – have similarities and differences. All of course require that the services actually be provided to the client/decedent, but subrogation requires a causal relationship between the tort and the incurred medical expense, while estate recovery and SNT remainder claims do not. There is relief from estate recovery obligations if there is a surviving spouse or young or disabled child, or the services were provided prior to age 55, but none of those facts (except to the extent they make out a hardship defense) are relevant to subrogation claims. Whether they are relevant to forestall an SNT remainder claim is an open question.
The context of the Medicaid claim will provide the procedure for resolution. A subrogation claim in a personal injury suit will be resolved, if all else fails, by the trial court. If the only issue is allocation, the logic of Lugo ex rel. Lugo v. Beth Israel Medical Center gives you at least a pro rata reduction, once you have excluded the erroneous or non-causal claims. An estate claim arises by definition in a probate proceeding. If not resolved by negotiations initially, the personal representative who is unwilling to pay the amount demanded denies the claim, and the Medicaid agency then has 60 days to file a petition for allowance of the claim (see Md. Estates and Trusts Art., § 8-107(b). There is no well-established procedure yet for resolution of claims against SNTs. The demand may be treated as a final agency determination subject to review under the Administrative Procedure Act, but a trustee ought to be able to invoke a circuit court’s general equity jurisdiction, if not its jurisdiction over trusts generally. Id., § 14-101 et seq.
While the quality of claims made will vary widely, and the procedures are significantly different, ATLA’s Center for Constitutional Litigation, in its post-Ahlborn memorandum, provided useful general advice on how to approach potential claims. It is worth quoting at some length:
1) Provide timely written notification to the relevant governmental agency that you will be seeking recovery for tort damages, possibly including repayment of the government’s medical expenses. Ask the government to provide an accounting of its medical costs, Invite the government to participate in the lawsuit. Inform the government agency of your understanding, based on Ahlborn, that any tort recovery must be equitably apportioned between the plaintiff and the government. (Although the Court did not accept the government’s characterization in Ahlborn that the plaintiff had breached her duty of cooperation, you do not want to give a court any basis for concluding that you are trying to gain any unfair advantage over the government in pursuing any recovery.)
2) Make a tactical decision whether to seek recovery for medical costs paid by the government and be explicit about the decision in your pleadings. (Unless some particular regulatory or contractual requirement obligates the plaintiff to herself seek reimbursement of the government’s health care expenses, plaintiff would appear to have the option of leaving it to the government to pursue its claim for reimbursement. Whether to seek recovery of such costs (which will need to be paid over to the government), therefore, becomes a tactical decision based on factors such as the collateral source rule in your local jurisdiction, the likely effect on the size of any judgement/recovery, the willingness of the government to contribute to litigation costs. Etc. If a decision is made not to seek recovery for the government’s medical costs. This fact should be made explicit in the pleadings. Thereby putting both the government and the defendant on notice of the possibility of a separate claim by the government to recover its costs, Likewise, any settlement, release, etc. under such circumstances should make clear that it is not waiving any claim by the government.)
3) Seek to negotiate an agreement with the government over the equitable apportionment of any settlement and, if such an agreement cannot be reached, apply to the court for an order that equitably allocates any court settlement among categories of damages. (It is simple if the government will agree to a reasonable division of any recovery. If not, it is important to ask the court to allocate any settlement recovery among various items of damages, along the lines of a special verdict. You can alert the court to the Supreme Court’s endorsement of this practice in the Ahlborn ruling, 126. S.Ct. at 1256 and n.17. It would probably be the best practice to notify the government of such an allocation request and invite government counsel to appear and present argument concerning an equitable allocation. If, for conjunction with the settling defendant-should propose and equitable allocation of the settlement and incorporate it into any agreement. Recognize that you may later be called upon to defend the reasonableness of this allocation.)
4) If the government agency asserts a right to priority reimbursement, be prepared to argue that the government’s claim of priority was rejected by (or is at least inconsistent with) the rationale of the Supreme Court in Ahlborn.
Whatever procedure applies, the following general rules are also appropriate.
First, ask the agency to provide a bill as it were – a detailed statement of all charges and all goods and services paid for. Review it for accuracy and make sure all of the charges are in fact for your client and in fact related to the injury upon which suit is based. It is easy enough to sort out the charges made before the date of injury, and hardly more difficult to exclude the charges for Viagra for your 89-year-old widow who suffered a broken hip. But it should not be hard to appreciate that for most attorneys, the fine points of medical goods and services and their relationship to a particular injury or treatment may require more education and training than they have; there are services available to review and analyze such bills and claims.
Second, review those claims against the billing and service records of all providers to identify discrepancies.
Third, require strict proof by the claimant that it has paid the claims its computer records report.
Conclusion
The potential for losing the benefit of a successful personal injury requires plaintiffs’ counsel to attend to the problems and risks from the outset. The exposure to subrogation and recovery claims would appear to be as much a part of the assessment of such claims as physician review to determine whether there was malpractice in the first place. Whether or not properly anticipated, the defense against those claims requires a whole new area of knowledge, analysis and possibly litigation to get clients the recovery they sought in the first place.