Third Party Liability Provisions and Medicaid Compelled Pursuit of Reimbursement

Arkansas Dept. of Health and Human Servs. v. Ahlborn

In Arkansas, when someone receives Medicaid funding for an injury, for which she subsequently receives a legal settlement, Medicaid automatically places a lean on that payment in the amount that it paid out for the injury and requires that it be notified and given reasonable opportunity to establish its interest. This was the case where Ahlborn sustained permanent serious injuries. Medicaid covered $215,645.30 in medical payments while Ahlborn sued a third party for past and future medical costs; permanent physical injury; past and future pain, suffering, and mental anguish; and past and future loss of earnings and working time. Her claims (of which the Arkansas Department of Health Services (ADHS) was aware, but never formally notified or named as a party in the suit) were settled out of court for $550,000 without any allocation of the money for the specific categories of damages. Ahlborn charged that the lien violated Medicaid law by depleting the funds that she was awarded for reasons other than medical costs and that, given the percentage of her total claim that she was awarded, ADHS was only entitled to $35,581.47 (the portion that constituted reimbursement for medical payments made).

The federal Medicaid law requires that States “take all reasonable measures to ascertain the legal liability of third parties … to pay for care and services under the plan” and requires that the State seek reimbursement and grants the State the rights of the individual to “to support (specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party.” The Court first notes that where the federal law compels States to seek full reimbursement to the extent of a third party’s legal liability, the liability at issue is “the legal liability of third parties … to pay for care and services available under the plan.” This same clarification arises in the second point, that while ADHS argues that its obligation seek reimbursement for its whole cost implies that it is limited only by the amount it pays out, and the Court’s response that the previous caveat still applies. Finally, ADHS argues that its right to be “reimbursed fully from ‘any amount collected by the State under an assignment’ before ‘the remainder of such amount collected’ is remitted to the recipient implies the absence of any restriction. The Court explains, however, that “an assignment” does not mean the whole settlement but is limited to the portion of it relating to medical expenses.

The federal law goes on to prohibit any (other) such lien on a person’s property on account of medical expenses, making the lien at issue here an exception to a broader rule. ADHS argues that the proceeds of the settlement were not Ahlborn’s property because it was automatically transferred to the State. The Court rejects this argument because until the process materialized Ahlborn retained her interests in the case in full so the lien could not have attached until afterwards and because Ahlborn could not have waived her right to the settlement by applying for medical assistance because the State would not need to put a lien on its own property.

The State also argues that in this case Alhborn engaged in obstruction by failing to cooperate with the State by notifying it of her case and that there must be a rule of full reimbursement in order to discourage settlement manipulation. The Court, however, reads the law to imply that Alhborn had a duty to cooperate in cases initiated by the State (“assist the State in pursuing”) and because the Government did not ask to be a party to Alhborn’s suit or participate in settlement negotiations. The Court also overrules the findings of the regulatory board, findings which are usually accorded substantial deference where the board is acting on delegated authority, because the findings seem to be internally inconsistent (in the same ways that the State’s arguments were).