High court to determine states’ take of medical liability awards

Physician defendants might find it easier to settle lawsuits if Medicaid programs are limited in what they can collect from injured patients, legal experts say.

By Alicia Gallegos — Posted Oct. 8, 2012

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The U.S Supreme Court in its current term will weigh how much state Medicaid programs are entitled to recoup from beneficiaries who win medical liability awards. Justices have agreed to hear oral arguments in Delia v. E.M.A.

The case, officially accepted Sept. 25 by the high court, centers on whether a North Carolina law that requires such plaintiffs to return to the state up to a third of any tort payments they receive is overly broad. The ruling will impact how state Medicaid programs are allowed to designate what is fair reimbursement from patients who have received subsidized care for their injuries.

“It is a very important case that is certainly of interest to many plaintiffs, defendants and insurers,” said Andrew G. Slutkin, a law professor at the University of Baltimore School of Law and a senior partner at Silverman Thompson Slutkin & White. “The bottom line is a lot of states do this differently, and that’s the problem. The [Supreme Court] will hopefully solve this conflict among the states and provide some kind of uniformity on how Medicaid is supposed to be reimbursed.”

Under federal law, states with Medicaid programs are obligated to seek repayment from third-party tortfeasors for any health care expenses incurred by Medicaid patients as a result of the alleged injury. At the same time, states are prohibited from seeking reimbursement out of the personal property of Medicaid patients themselves. This conflict has led to mixed opinions by lower courts over how to resolve such repayment disputes.

In the Delia case, Sandra and William Armstrong sued a physician for negligence after their daughter allegedly was injured during delivery. Emily Armstrong was born blind, deaf and mentally retarded, according to court documents. Before the filing, the North Carolina Dept. of Health and Human Services paid more than $1.9 million in Medicaid expenses for Emily’s care. The Armstrongs settled with the physician and other defendants for $2.8 million, well below the full value of the tort claims, court records said. That agreement did not separate past medical expenses from expected future medical expenses and other damages.

The North Carolina health department placed a lien on the settlement, and the family sued the state, claiming that the state law requiring the family to hand over a third of the total was unconstitutional. The rule violates federal Medicaid law, because the lien encumbers funds beyond those that were paid to cover the previous Medicaid care, the lawsuit said. The North Carolina Supreme Court ruled in favor of the state, but the 4th U.S. Circuit Court of Appeals reversed that decision, saying the state’s one-third recovery law was in “fatal conflict” with federal law that prevents liens on Medicaid patients’ personal property.

“In the event of an unallocated lump-sum settlement exceeding the amount of the state’s Medicaid expenditures, as in this case, the sum certain allocable to medical expenses must be determined by way of a fair and impartial adversarial procedure,” the appeals justices said.

States vary in obtaining repayments

All states have a process to recoup payments from Medicaid patients who win medical liability awards, but how such repayments are calculated vary. For example, Maryland generally collects dollar-for-dollar the amount Medicaid paid for the care of the plaintiffs up to 50% of the settlement, Slutkin said. Florida and Georgia also have processes similar to North Carolina’s.

Ideally, states should weigh the maximum value of a plaintiff’s claims and how much the plaintiff is compromising by settling, as well as consider the legal costs associated with the lawsuit, Slutkin said.

Without taking into account the circumstances of each case, and evaluating the breakdown of past and future medical expenses, states such as North Carolina are arriving at unfair calculations, said William B. Bystrynski, an attorney for the Armstrongs.

“We would argue that this little girl has tremendous injuries,” he said. “The settlement is intended for her past medical expenses which Medicaid paid, but also her future expenses. By taking a third, it really doesn’t leave enough money to take care of her going forward.”

At this article’s deadline, the North Carolina health department and the North Carolina Dept. of Justice had not returned phone calls and emails seeking comment. In legal briefings, North Carolina Attorney General Roy Cooper said states retain the authority to regulate how tort recoveries are allocated.

“The 4th Circuit erroneously imposed a requirement for an ‘adversarial hearing’ to determine the ‘true value’ of the case before allocating a portion of a settlement as compensation for past medical expenses,” he said. “The express, fundamental conflict between the 4th Circuit and the North Carolina Supreme Court & will remain until resolved by this court.”

In evaluating Delia, high court justices will review a past case before the court. In that case, the U.S. Supreme Court said the Arkansas Dept. of Health and Human Services could not place a lien on a plaintiff’s settlement for the full amount that Medicaid had paid for the patient’s care. Arkansas was due only a portion of the settlement, the court said. But that ruling left undefined the extent to which states can use special rules and procedures to decide proper Medicaid repayments.

How doctors could be affected

Physician defendants could be impacted by the high court’s ruling, legal experts said. If the Supreme Court rules that states are entitled to collect the full amount of Medicaid expenses from tort settlements, injured patients who are enrolled in the program would be discouraged from suing health professionals in the first place, Slutkin said.

But if the high court rules that states must take a lower amount from tort settlements, it would become less difficult for defendants and plaintiffs to settle the lawsuits that do go forward, Bystrynski said. Plaintiffs often do not want to accept lower settlement offers if a large portion of them would be guaranteed to go back to the state, he said. This leads to more litigation time and expenses for doctors and plaintiffs, he said.

“Right now, it’s very difficult to settle cases,” he said. “If plaintiffs keep more of the money they recover, it’ll be easier on both sides to try to resolve cases.”

The North Carolina Medical Society has not taken a formal position on the issue but is monitoring the case.

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Case at a glance

How much can state Medicaid programs get back from beneficiaries after a medical liability award or settlement?

The North Carolina Supreme Court said the state could collect up to a third of Medicaid patients’ settlements as per state law. The 4th U.S. Circuit Court of Appeals reversed, saying the state’s one-third recovery law was in “fatal conflict” with federal law that prevents liens on Medicaid patients’ personal property. The U.S. Supreme Court will hear oral arguments on the case later this term.

Impact: Some legal experts say physician defendants might find it easier to settle medical lawsuits if Medicaid programs are limited in what they can collect for injured patients’ health expenses.

Delia v. E.M.A., U.S. Supreme Court, oral arguments to be determined (link)

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External links

Delia v. E.M.A., U.S. Supreme Court, oral arguments to be determined, cert. granted Sept. 25 (link)

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