Medicaid Beneficiaries Keep More Settlement Proceeds Under Bipartisan Budget Act of 2018

Medicaid Beneficiaries Keep More Settlement Proceeds Under Bipartisan Budget Act of 2018

A section of the Bipartisan Budget Act (BBA) of 2018[1], signed into law by President Trump on February 8, 2018, repealed Section 202(b) of the BBA from 2013,[2] that previously enabled states to extend Medicaid lien recoveries beyond medical expenses to any category of damages in third party liability settlements, judgments or awards (BBA repeal).  Those repealed Section 202(b) BBA provisions, sometimes referred to as the Murray/Ryan legislation, sharply deviated from and effectively overruled the U.S. Supreme Court’s 2006 decision in Arkansas Department of Health and Human Services v. Ahlborn, [3] and the 2013 Wos v. E.M.A. decision that affirmed Ahlborn.[4]  Ahlborn and Wos limited Medicaid liens solely to the medical damages portion of a Medicaid beneficiary’s liability settlement or judgment.

The good news for Medicaid beneficiaries and their attorneys is that the BBA repeal brings back Ahlborn and Wos as the law of the land.[5]  The Ahlborn decision makes it easier for Medicaid beneficiaries to know the maximum amount of Medicaid liens especially when settling parties agree on what the full case value amount would have been if there was 100% liability on the part of the tortfeasor and an allocation is performed for applicable past and future medical damages.  While Ahlborn involved analysis of a Medicaid lien without any allocation between various types of alleged damages at the time of settlement, the case has been analogously cited in Medicare Secondary Payer Act (MSP) cases by courts for its reasonable apportionment methodology.  In Ahlborn, the Supreme Court applied the ratio between net proceeds to the injured party (which in MSP cases is typically obtained by taking the settlement amount and subtracting procurement costs, attorney’s fees and government conditional payment liens[6]) and the full value of the case, to the amount stipulated as 100% of medical expenses, to reach a reduced proportionate amount as the Medicaid lien amount for the medical expenses.  The Supreme Court in Wos, affirmed Ahlborn, holding North Carolina’s Medicaid lien statute that presumed 1/3 of any tort settlement would represent medical expenses, violated the federal Medicaid anti-lien statute,[7] because the state Medicaid statute’s automatic 1/3 calculation could reach beyond actual medical expenses of injured parties, depriving them of a property rights interest in other portions of their settlements.  The Wos Court referenced 16 states that had judicial or statutory methods available to allocate medical damages[8] and suggested that North Carolina had:

. . . ample means available to allocate Medicaid beneficiaries’ tort recoveries in an efficient manner that complies with federal law. Indeed, if States are concerned that case-by-case judicial allocations will prove unwieldy, they may even be able to adopt ex ante administrative criteria for allocating medical and nonmedical expenses, provided that these criteria are backed by evidence suggesting that they are likely to yield reasonable results in the mine run of cases. What they cannot do is what North Carolina did here: adopt an arbitrary, one-size-fits-all allocation for all cases. 

Wos v. E.M.A. ex rel. Johnson, 568 U.S. 627,641, 133 S. Ct. 1391, 1401, 185 L. Ed. 2d 471 (2013).

Section 53102 of the BBA of 2018 repealed Section 202(b) of the BBA of 2013 in its entirety.  While the effective date of Section 202(b) of BBA of 2013 had been delayed to October 1, 2017 (this is why the BBA repeal was made retroactive to September 30, 2017), it would have discouraged Medicaid beneficiaries and their attorneys from entering into settlements, especially in cases with high proportionate amount of medical bills paid by Medicaid in relation to overall settlement amounts.  The BBA repeal now keeps Medicaid from reaching into non-economic damages such as pain and suffering, loss of enjoyment of life and loss of consortium in liability matters, as well as away from economic non-medical damages, such as lost wages in workers’ compensation claims.  The repeal will mean that Medicaid beneficiaries will more often than not, get more money in their pockets, furthering a longstanding policy recognized by the Supreme Court of encouraging parties to settle matters out of court.

Take Aways:

  • Under the Ahlborn standard, it would seem that parties should attempt to work out allocations of various damages categories associated with their settlement, including a breakdown of past versus future medical expenses, the total amount of any conditional payments made by Medicare, Medicare Advantage Plans or Medicaid, along with the ratio of net settlement proceeds to the injured party compared to an estimated 100% liability full case value. This will help provide a reasonable apportionment percentage to consider applying to future injury related Medicare allowable medical expenses.  CMS currently only recognizes liability apportionment percentages determined by courts after evaluation of these issues “on the merits” and does not have a clear policy toward liability apportionment review for settlements outside of court.  However, when parties go through a rigorous good faith process to estimate the various damages, expenses and reasonable ratio as described above, it would certainly conserve judicial resources.
  • If the claim or claims released are different than those alleged, the parties should be specific as to which body parts and injuries are included in the released claim, ideally including the applicable ICD codes involved. This may help prevent future Medicare coverage confusion over what is or is not injury related.
  • Pursuant to the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b) (MSP), when an injured Medicare beneficiary wants to settle a third-party liability case, not only must Medicare be reimbursed for any conditional payments made prior to the date of settlement, Medicare’s interests must always be considered, and when future medical expenses are implicated, Medicare’s interests must be protected for those future injury related Medicare allowable medical expenses.  42 U.S.C. § 1395y(b)(2)(A). A similar analysis applies to Medicaid lien interests because while the BBA repeal limited the reach of Medicaid liens, it did not eliminate them.
  • In Ahlborn, the medical allocation portion was achieved not at the time of settlement but by stipulation during the subsequent federal court case. The Wos court pointed out that allocations can also be achieved by judicial decree, administrative hearings or even administrative rulemaking.[9]
  • The Centers for Medicare & Medicaid Services (CMS), the agency that runs the Medicare program, could save parties time and money by adopting Ahlborn’s methodology of equitable apportionment of medical expenses in new regulations to clarify how to best apportion future medical expenses in Medicare implicated third party liability cases.  Using guidance from the workers’ compensation field doesn’t work for apportionment ratios because workers’ compensation doesn’t have comparative negligence concepts and doesn’t have settlements for less than full value.  Allowing an Ahlborn methodology would not only provide consistency between how Medicare and Medicaid conditional payment liens will be handled, it would provide necessary guidance to prospective settling parties while protecting the Medicare Trust Funds.  Based on the Wos Court’s statement about adopting administrative criteria for allocation of medical and non-medical expenses, it seems like a renewed rulemaking push would be welcomed by many courts.  Clear rulemaking direction from CMS regarding liability MSAs would likely be welcomed by settling parties, their attorneys and those in the MSP industry too!

[1] Bipartisan Budget Act of 2018 “SEC. 53102. Third party liability in Medicaid and CHIP.

(a) Modification of third party liability rules related to special treatment of certain types of care and payments.—

(1) IN GENERAL.—Section 1902(a)(25)(E) of the Social Security Act (42 U.S.C. 1396a(a)(25)(E)) is amended, in the matter preceding clause (i), by striking “prenatal or”.

(2) EFFECTIVE DATE.—The amendment made by paragraph (1) shall take effect on the date of enactment of this Act.

(b) Delay in effective date and repeal of certain Bipartisan Budget Act of 2013 amendments.—

(1) REPEAL.—Effective as of September 30, 2017, subsection (b) of section 202 of the Bipartisan Budget Act of 2013 (Public Law 113–67; 127 Stat. 1177; 42 U.S.C. 1396a note) (including any amendments made by such subsection) is repealed and the provisions amended by such subsection shall be applied and administered as if such amendments had never been enacted.

(2) DELAY IN EFFECTIVE DATE.—Subsection (c) of section 202 of the Bipartisan Budget Act of 2013 (Public Law 113–67; 127 Stat. 1177; 42 U.S.C. 1396a note) is amended to read as follows:

“(c) Effective date.—The amendments made by subsection (a) shall take effect on October 1, 2019.”.

(3) EFFECTIVE DATE; TREATMENT.—The repeal and amendment made by this subsection shall take effect as if enacted on September 30, 2017, and shall apply with respect to any open claims, including claims pending, generated, or filed, after such date.  The amendments made by subsections (a) and (b) of section 202 of the Bipartisan Budget Act of 2013 (Public Law 113–67; 127 Stat. 1177; 42 U.S.C. 1396a note) that took effect on October 1, 2017, are null and void and section 1902(a)(25) of the Social Security Act (42 U.S.C. 1396a(a)(25)) shall be applied and administered as if such amendments had not taken effect on such date.”.

[2]   Section 202(b) of the BBA of 2013, Public Law 113-67, amended portions of the Medicaid law pertaining to “recovery of Medicaid expenditures from beneficiary liability settlements” including:

  1. a) In 42 U.S.C. §1396a(a)(25)(B) [also known as § 1902(a)(25)(H) of the Social Security Act], pertaining to cases where a legal liability is found to exist after Medicaid paid for medical assistance and the amount of reimbursement that could be reasonably expected would exceed recovery costs, language was changed to indicate that the State or local agency would [now] seek reimbursement for such assistance instead of the prior restriction  “to the extent of such legal liability”; and language in §1396a(a)(25)(H) pertaining to the State’s acquired rights of the beneficiary in recovering payment from liable third parties was removed “payment by any other party for such health care items or services” and inserted “any payments by such third party”;
  2. b) In 42 U.S.C. §1396k(a)(1)(A) [also known as §1912(a)(1)(A) of the Social Security Act] instead of limiting the Medicaid lien recovery to “payment for medical care from any third party” that language was removed to expand the Medicaid lien recovery right to “any payment from a third party that has a legal liability to pay for care and services available under the plan.” [without regard to the type of damages being paid in a settlement]. See RESOLUTION MAKING CONTINUING APPROPRIATIONS, PL 113-67, December 26, 2013, 127 Stat 1165.

[3] Arkansas Dept. of Health and Human Svcs. v. Ahlborn, 547 U.S. 268, 126 S. Ct. 1752 (2006) (holding Medicaid’s federal anti-lien provision, 42 U.S.C. §1396p(a)(1), to pre-empt state’s “effort to take any portion of a Medicaid beneficiary’s tort judgment or settlement not ’designated as payments for medical care.’”  Id. at 284.

[4] Wos v. E.M.A. ex rel. Johnson, 568 U.S. 627, 133 S. Ct. 1391, 1401, 185 L. Ed. 2d 471 (2013).

[5] The Ahlborn case started as a state court automobile negligence case that settled out of court for $550,000 when the young plaintiff, Heidi Ahlborn, suffered brain damage and loss of future earning capacity, among other damages from the accident.  The parties did not allocate among the various damages categories in the settlement but the allegations in the underlying case included claims for Ms. Ahlborn’s future medical care.  Medicaid asserted a lien against the settlement proceeds in the amount of $215,645.30, the total amount Medicaid had spent for Ms. Ahlborn’s care from the accident.  Ms. Alborn filed a declaratory judgment action in U.S. District Court claiming the reach of the Medicaid lien by the state agency violated the anti-lien provisions of federal Medicaid law.  All parties then stipulated that Ahlborn’s full claim was reasonably valued at $3,040,708.12 and that the settlement amount was approximately 1/6th of that full value.  The U.S. District Court granted the state Medicaid agency’s motion for summary judgment but on appeal, the Eighth Circuit reversed, holding the state agency to only be entitled to that portion of the judgment that represented payments for medical care.  The Eighth Circuit reduced the lien from $215,645.30 to $35,581.47, the amount the state agency stipulated had represented compensation for medical expenses (approximately 1/6 of the original claimed lien amount).   The Supreme Court affirmed.

[6] See Hinsinger v. Showboat Atlantic City, 18 A.3d 229 (Super. Ct. NJ 2011)(applying 42 C.F.R. § 411.37 to a liability case with future medical expenses and holding attorney’s fees incurred in procurement of settlement payable from funds allocated to a Medicare set-aside); see also, Benoit v. Neustrom, et al., 2013 WL 1702120 (W.D. La. 2013) (net to plaintiff calculated after deducting attorney’s fees, expenses and Medicare conditional payment amounts).

[7] 42 U.S.C. §1396p(a)(1).

[8]  Wos v. E.M.A. ex rel. Johnson at 641 (“States have considerable latitude to design administrative and judicial procedures to ensure a prompt and fair allocation of damages. Sixteen States and the District of Columbia provide for hearings of this sort, and there is no indication that they have proved burdensome. Brief for United States as Amicus Curiae 28–29, and n. 7.”).

[9] Id. at 641.




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