Ruling redefines state take of medical liability awards

A high court ruling restricting how much state Medicaid programs can seize from certain medical liability awards could lead to faster settlements between patients and physician defendants, legal observers said.

In a 6-3 opinion, U.S. Supreme Court justices ruled that federal Medicaid law preempts a North Carolina statute that allowed the state to recoup up to a third of medical liability settlements and tort judgments received by Medicaid beneficiaries who required subsidized follow-up care. The court said states are entitled to some reimbursement for their costs, but that the amounts must be reasonable.

The decision means swifter case resolutions and less expense for both parties, said William B. Bystrynski, an attorney with Kirby & Holt in Raleigh, N.C., who represented the original plaintiff in the case.

“Lawyers on both sides agree that it will be easier to get cases settled when the government isn’t demanding a huge share of whatever the defendant is willing to pay,” he said. “Under the old system, a case that could be settled out of court would have to be tried, because Medicaid was taking so much of the proposed settlement that after paying Medicaid, there was too little left for the person who was injured.”

The Federation of Defense and Corporate Counsel, an association of defense attorneys, issued a friend-of-the-court brief in favor of overturning the North Carolina law. In a statement after the ruling, the federation said that “this outcome will facilitate the ability of parties to settle appropriate cases based on the actual facts and alleged damages without the interference of a presumptive rule that is divorced from those facts.”

At this article’s deadline, the North Carolina Dept. of Health and Human Services, the original defendant in the case, had not returned messages seeking comment.

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

In the North Carolina 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 health department 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 state placed a lien on the settlement, and the family sued, claiming that the state law requiring the family to hand over a third of the total was unconstitutional. The family said the rule violated federal Medicaid law because the lien encumbered funds beyond those that were paid to cover the previous Medicaid care. The North Carolina Supreme Court ruled in favor of the state, but the 4th U.S. Circuit Court of Appeals reversed that decision.

In their March 20 opinion, the Supreme Court justices said North Carolina’s law reflected its efforts to comply with federal law and secure reimbursement from third-party tortfeasors, but that in some circumstances, the statute permitted the state to seize an unfair amount. The federal Medicaid statute’s anti-lien provision preempts a state’s effort to take any portion of a Medicaid beneficiary’s tort judgment or settlement not “designated as payments for medical care.”

“The defect in [the law] is that it sets forth no process for determining what portion of a beneficiary’s tort recovery is attributable to medical expenses,” the high court said. “Instead, North Carolina has picked an arbitrary number — one-third — and by statutory command labeled that portion of a beneficiary’s tort recovery as representing payment for medical care. Preemption is not a matter of semantics. A state may not evade the preemptive force of federal law by resorting to creative statutory interpretation or description at odds with the statute’s intended operation and effect.”

Decision will affect other states

Legal experts said the ruling will force states to revisit how they decide Medicaid reimbursements owed by plaintiffs who win settlements or other awards in medical liability cases.

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. Florida and Georgia have processes similar to North Carolina’s.

The Supreme Court decision provides important guidance to all states about how to proceed with recouping Medicaid payments, 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 Supreme Court ruling is very good for everybody, because it finally puts to rest the issue of what states can and cannot claim for reimbursement in personal injury matters,” he said. “It’s a great decision that promotes efficiency in what we do, is fair and gives everyone guidance that was summarily lacking before.”

The North Carolina Medical Society was following the case but did not take a formal position on the issue.