The Legal Framework of Medical Assistance Liens in Minnesota
Under Minn. Stat. § 256B.056, subd. 6, and federal law, the MA plan and/or the State receives an assignment for “the right to recover that portion of a settlement that represents payments for medical care”. 42 U.S.C. § 1396p(a)(1); Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 282, 284 (2006); Minn. Stat. §256B.056, subd. 6. The MA Plan or the State “must take appropriate steps with respect to its assigned claim for medical expenses, whether that is initiating a lawsuit, participating in a lawsuit initiated by the recipient, or taking part in settlement negotiations”. Martin ex rel. Hoff v. Rochester, 642 N.W.2d 1, 25, n. 29 (Minn. 2002), pet. for rev. denied (U.S. June 27, 2003). If the underlying liability case settles and is not tried, there must be an allocation by stipulation or court hearing.
In Martin ex rel. Hoff v. Rochester, the Minnesota Supreme Court analyzed the mechanisms for reimbursement of medical assistance payments made on a recipient’s behalf. 642 N.W.2d 1. Martin invalidated Minnesota’s lien mechanism on preemption grounds, setting aside Minn. Stat. § 256B.042 and holding that § 256B.042, Minnesota’s medical assistance lien statute, is preempted by federal law (42 U.S.C. § 1396p) to the extent that it allows a lien for medical assistance paid to be placed on a medical assistance recipient’s cause of action prior to their death. Martin, 642 N.W.2d at 16.
The Martin court also adopted a “bundle of sticks” analogy from U.S. v. Ben-Hur, 20 F.3d 313, 317-318 (7th Cir. 1994) in its analysis of the State’s assignment provision, concluding that the state assignment provision in § 256B.056, subd. 6 requires that medical assistance recipients assign to the State all rights to payment for medical care from third parties liable for the injuries that necessitate medical assistance. Martin, 642 N.W.2d at 15, 18. In essence, what a medical assistance recipient “assigned” to the State when they applied for medical assistance, was just their medical “stick”. All other “sticks” in the bundle (pain and suffering, emotional distress, disability, disfigurement, loss of earnings, loss of earning capacity, and arguably future medical expenses) remain the personal property of the injured medical assistance recipient. Id.
In its preemption analysis of the State’s claimed subrogation right to settlement proceeds under Minn. Stat. § 256B.37, the Martin court limited the State’s subrogation rights to claims for medical expenses. 642 N.W.2d at 20. Minn. Stat. 256B.37 purports to extend to “all portions of the cause of action, notwithstanding any settlement allocation or apportionment that purports to dispose of portions of the cause of action not subject to subrogation.” Id. According to the Minnesota Supreme Court, allowing the State to assert a subrogation right “and thus get indirectly what it is prohibited from attaining directly would defeat the purpose of the federal anti-lien provision in the same manner as the broad assignment of rights.” Martin, 642 N.W.2d at 20.
Pursuing a subrogation right would allow and end-run around the protections of the federal anti-lien provision by using a subrogation right instead of a lien to take part of the recipient’s personal property that is protected. Id. Indeed, when the State actually obtains the assignment of rights to third-party payments for medical expenses, subrogation is no longer appropriate because the State now owns the claim related to past medical expenses paid. Id.
Minn. Stat. § 256B.37, subd. 1 must be read narrowly. The express language of the statute limits its application to a “settlement allocation or apportionment” – not to a judicial allocation or apportionment. The statute simply prohibits an arbitrary allocation or apportionment arrived at between a plaintiff and the tortfeasor, not a judicial allocation or apportionment rendered after an evidentiary hearing.
Under the reasoning of Martin, whether a direct right is asserted by the State of Minnesota based on assignment, or an indirect right asserted based on subrogation, the scope of the State’s recovery is limited to money from funds specifically allocated to medical bills — that portion of the award that corresponds to benefits paid by the government.
In many instances, the State may contract with a private HMO to provide medical assistance benefits. Under these circumstances, is not the State’s claim for reimbursement then limited to the amount paid by the State – in this instance, the premiums paid? HMOs should not be entitled to assert claims under the medical assistance statutory rubric. HMOs are already subject to Minn. Stat. § 62A.095, which prohibits the assertion of any subrogation or reimbursement claim until the injured claimant makes a full recovery for their losses.
The clear mandate of federal law, is that an MA plan and/or the State may not demand any portion of a medical assistance recipient’s (Medicaid recipient’s) tort recovery except the share that is attributable to medical expenses. If the MA plan and/or the State and the medical assistance/Medicaid recipient cannot agree, the allocation of the underlying tort settlement is properly subject to a judicial determination in an evidentiary hearing. Wos v. E.M.A., 133 S. Ct. 1391 (2013).
E.M.A. was born in February 2000 with several birth injuries which left her deaf, blind, and unable to sit, walk, crawl, or talk. Id. at 1395. The injuries she sustained at birth also caused her to suffer from mental retardation and a seizure disorder. Id.
In February 2003, E.M.A. and her parents filed a medical malpractice suit in North Carolina state court against the physician who delivered E.M.A, and the hospital where she was born. Id. Damages in that proceeding were estimated to be in excess of $42 million for medical and life care expenses, loss of future earning capacity, and other expenses, such as architectural renovations to their home and specialized transportation expenses. Id. The most significant portion of these claimed damages and expenses were for “skilled home care” totaling more than $37 million. Wos, 133 S. Ct. at 1395.
E.M.A. and her parents provided notice to the North Carolina Department of Health and Human Services during the pendency of settlement negotiations. Id. The Department had a statutory right to intervene in the lawsuit and participate in the settlement negotiations in order to obtain reimbursement for medical expenses it paid on E.M.A.’s behalf, up to one-third of the total recovery. Id.; N.C. Gen Stat. Ann. §§ 108A-57, 108A-59. The Department elected not to intervene or participate. Wos, 133 S. Ct. at 1395. However, the Department did inform E.M.A. and her parents that the North Carolina Medicaid program had expended $1.9 million for E.M.A.’s medical care, which it would seek to recover from any settlement or judgment. Id.
In November 2006, the North Carolina state court approved a $2.8 million settlement, dictated, in large part, by the policy limits on the defendants’ malpractice coverage. Id. The settlement agreement did not specifically allocate the proceeds among the different categories of damages claimed. Id. In approving the settlement, the state court ordered placement of one-third of the $2.8 million recovery into an interest-bearing escrow account until the actual amount of the lien owed to the State of North Carolina was judicially determined. Id.
E.M.A. and her parents subsequently filed suit in the United States District Court, Western District of North Carolina, seeking declaratory and injunctive relief. Id. at 1396. E.M.A. and her parents argued that North Carolina’s statutory reimbursement scheme (1/3 recovery) violated the federal Medicaid anti-lien provision. 42 U.S.C. § 1396p(a)(1); Wos, 133 S. Ct. at 1396. While this litigation was pending, the North Carolina Supreme Court confronted the same question. Andrews v. Haygood, 362 N.C. 599, 604, 605, 669 S.E.2d 310, 314 (2008) (the North Carolina Supreme Court held that the irrebuttable statutory presumption that one-third of a Medicaid beneficiary’s tort recovery is attributable to medical expenses was “a reasonable method for determining the State’s medical reimbursements”); see Wos, 133 S. Ct. at 1396. The United States District Court, in the instant case, agreed with the North Carolina Supreme Court. Armstrong v. Cansler, 722 F.Supp.2d 653 (2010).
The United States Court of Appeals for the Fourth Circuit vacated and remanded. E.M.A. v. Cansler, 674 F.3d 290 (4th Cir. 2012). The Fourth Circuit concluded that North Carolina’s statutory one-third scheme could not be reconciled with “Ahlborn’s clear holding that the general anti-lien provision in federal Medicaid law prohibits a state from recovering any portion of a settlement or judgment not attributable to medical expenses.” E.M.A., 674 F.3d at 310; Ahlborn, 547 U.S. at 284. In some cases, the Fourth Circuit reasoned, the actual portion of a beneficiary’s tort recovery representing payment for medical care could be less than one-third. E.M.A., 674 F.3d at 310-11. The Fourth Circuit concluded that North Carolina’s statutory presumption must be “subject to adversarial testing” in a judicial or administrative proceeding. Id. at 311. The Supreme Court of the United States granted certiorari to resolve the conflict between the Fourth Circuit and the North Carolina Supreme Court. Wos, 133 S. Ct. 99 (2012).
The Supreme Court of the United States previously addressed Medicaid liens in Ahlborn. Ahlborn, 547 U.S. 268, 282-285. In Ahlborn, the Supreme Court held that the Medicaid statute sets both a floor and a ceiling on a state’s potential share of a beneficiary’s tort recovery. Id. Federal law requires an assignment to the state of “the right to recover that portion of a settlement that represents payments for medical care,” but it also “precludes attachment or encumbrance of the remainder of the settlement.” Id. at 282, 284. The Medicaid beneficiary has a property right in the proceeds of the settlement, bringing it within the ambit of the Medicaid anti-lien provision. Id. at 285; see 42 U.S.C. § 1396p(a)(1). This specific property right is subject to the specific statutory “exception” requiring a state to seek reimbursement for medical expenses paid on the beneficiary’s behalf, but the anti-lien provision protects the beneficiary’s interest in the remainder of the settlement. Id. at 284; Wos, 133 S. Ct. at 1397.
In Wos, the Supreme Court had the occasion to address the question of how to determine what portion of a settlement represents recovery for medical care. Wos, 133 S. Ct. at 1397. This question was not addressed in Ahlborn. Ahlborn, 547 U.S. at 274, 288. The parties, in Ahlborn, stipulated that 6% of Ahlborn’s tort recovery represented compensation for medical care. Id. at 274. The Ahlborn Court anticipated the concern that some settlements would not include an itemized allocation of damages. The Court also recognized the possibility that Medicaid beneficiaries and tortfeasors might agree to allocate an artificially low portion of settlement proceeds to medical expenses. Id. The Court reasoned that these problems could “be avoided either by obtaining the State’s advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision.” Id. at 288.
The State of North Carolina attempted a different approach. By statute, the State required that the Department of Health and Humans Services be subrogated to all rights of recovery of a beneficiary out of the proceeds recovered from a third party for Medicaid payments made by the Department. N.C. Gen. Stat. Ann. § 108A-57(a). The amount paid to the Department shall not exceed one-third of the gross amount obtained or recovered. Id.
Before Ahlborn, North Carolina interpreted these statutory provisions to allow the State to recover the costs of medical treatment provided, even when the funds received by the beneficiary were not reimbursement for medical expenses. Wos, 133 S. Ct. at 1397. Following Ahlborn, however, North Carolina’s statutory construction conflicts with the Medicaid anti-lien provision, which “precludes attachment or encumbrance” of any portion of a settlement not “designated as payments for medical care.” Ahlborn, 547 U.S. at 284. In response, the State of North Carolina and the North Carolina Supreme Court developed a new interpretation of its statute. Under the new interpretation, the statute “defines ‘the portion of the settlement that represents payment for medical expenses’ as the lesser of the State’s past medical expenditures or one-third of the plaintiff’s total recovery.” Andrews, 362 N.C. at 604, 669 S.E.2d at 314. In North Carolina’s view, when the State’s Medicaid expenditures on behalf of a beneficiary exceed one-third of the beneficiary’s tort recovery, the statute establishes a conclusive presumption that one-third of the recovery represents compensation for medical expenses. Id. Under this statutory interpretation, the presumption would operate even if the settlement or jury verdict expressly allocates a lower percentage of the judgment to medical expenses. Id.; Wos, 133 S. Ct. at 1398.
In Wos, applying a preemption analysis under the Supremacy Clause, the Supreme Court determined that the Medicaid anti-lien statute preempts North Carolina’s statute. Wos, 133 S. Ct. at 1398 (applying 42 U.S.C. § 1396p(a)(1) to preempt N.C. Gen. Stat. Ann. § 108A-57(a)). The Court reasoned that the Medicaid anti-lien statute prohibits a State from making a claim to any part of a Medicaid beneficiary’s tort recovery not “designated as payments for medical care.” Id. (quoting Ahlborn, 547 U.S. at 284). The Court determined that North Carolina’s statute, “is pre-empted if, and insofar as, it would operate that way.” Wos, 133 S. Ct. at 1398. According to the Court:
[t]he defect in § 108A-57 is that it sets forth no process for determining what portion of a beneficiary’s tort recovery is attributable to medical expenses. 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. Pre-emption is not a matter of semantics. A State may not evade the pre-emptive force of federal law by resorting to creative statutory interpretation or description at odds with the statute’s intended operationand effect.
Id. If North Carolina’s analysis and interpretation of the statute would be accepted, the Court determined that “would frustrate the Medicaid anti-lien provision in the context of tort recoveries.” Id. The Court reasoned that “[t]he argument lacks any limiting principle: If a State arbitrarily may designate one-third of any recovery as payment for medical expenses, there is no logical reason why it could not designate half, three-quarters, or all of a tort recovery in the same way.” Id.
In some cases, a one-third allocation to medical expenses may indeed be reasonable. However, as the Court makes clear, there must be “a mechanism for determining whether it is a reasonable approximation in any particular case.” Id. at 1399. The Supreme Court suggests that no estimate will be necessary or appropriate where there has been a judicial finding or approval of an allocation between medical and non-medical damages –“in the form of either a jury verdict, court decree, or stipulation binding on all parties – that is the end of the matter.” Id.; see Ahlborn, 547 U.S. at 274 (all parties stipulated that approximately 6 % of the plaintiff’s settlement represented payment for medical costs). In other cases, a settlement may not be reached and the judge or jury, in their findings, may make an allocation. Wos, 133 S. Ct. at 1399. With a stipulation or judgment under these circumstances, the Medicaid “anti-lien provision protects from state demand the portion of a beneficiary’s tort recovery that the stipulation or judgment does not attribute to medical expenses.” Id.
The problem in Wos was that North Carolina’s statute authorized the State to take one-third of an injured victim’s total recovery, even if a proper stipulation or judgment attributes a smaller percentage to medical expenses. Id.; cf. Ahlborn, 547 U.S. at 288 (only $35,581.47 of the recipient’s settlement constituted reimbursement for medical payments made. If North Carolina’s statute would have applied, the State would have claimed $183,333.33). When a State and Medicaid beneficiary cannot agree on an allocation, Wos instructs that this creates a situation where the parties could submit the matter to a court for a decision. Wos, 133 S. Ct. at 1399. In order to attribute a smaller percentage to medical expenses, a binding stipulation or court order is necessary. Id.
The Medicaid Act’s clear mandate is that a State may not demand any portion of a beneficiary’s tort recovery except the share that is attributable to medical expenses. Instead, if the State and Medicaid beneficiary cannot agree, the allocation of the tort settlement is properly subject to judicial determination in an evidentiary hearing. Id. at 1399-1400; see Henning v. Wineman, 306 N.W.2d 550 (Minn. 1981); Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis.2d 263, 316 N.W.2d 348 (1982). A one-size-fits all allocation for all cases, like the arbitrary method imposed by North Carolina, is not compatible with the Medicaid anti-lien statute. Wos, 133 S. Ct. at 1401-1402.
The Supreme Court of the United States, in Wos, reasoned that if the State and medical assistance/Medicaid recipients cannot agree, the allocation of the tort settlement is properly subject to judicial determination in an evidentiary hearing. Id. at 1399-1400; see Henning, 306 N.W.2d 550; Rimes, 106 Wis.2d 263, 316 N.W.2d 348. This is also the main implication of Martin: there exists a need for some type of specific allocation of a settlement between medical and non-medical damages, either through trial, stipulation, or evidentiary hearing (like one contemplated by Henning where the Court determines the value of each side’s case and proportionally distributes the proceeds). Martin, 642 N.W.2d at 1-11; Wos, 133 S. Ct. at 1399-1400; see Henning, 306 N.W.2d 550; Rimes, 106 Wis.2d 263, 316 N.W.2d 348. Ultimately, Wos makes clear that Minnesota law is pre-empted to the extent the State attempts to take any portion of a medical assistance/Medicaid recipient’s tort judgment or settlement not “designated as payments for medical care.” Wos, 133 S. Ct. at 1398 (quoting Ahlborn, 547 U.S. at 284).
As noted, if the State and medical assistance/Medicaid recipients cannot agree on an allocation, the trial court must determine what portion of the recovery may be allocated to medical expenses. In Wos, the Supreme Court of the United States affirmed this approach, as taken by the United States Court of Appeals for the 4th Circuit. 133 S. Ct. at 1399-1400; E.M.A., 674 F.3d at 310-311. See also Yang v. Portage County, U.S. Dist. Ct., 12-cv-797-bbc, 2013 U.S. Dist. LEXIS 101521 (W. Dist. Wis. July 19, 2013). The 4th Circuit reasoned:
Although the Ahlborn Court acknowledged the existence in state law of “special rules and procedures” for allocating settlements, and left open the possibility that such rules may be employed to address concerns about settlement manipulation, [citation omitted], it did not give states unfettered discretion to allocate settlements without regard to the actual portion attributable to medical expenses. Indeed, Ahlborn expressed a preference for resolving allocation disputes “either by obtaining the State’s advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision.
E.M.A., 674 F.3d at 311 (quoting Ahlborn, 547 U.S. at 288).
The U.S Court of Appeal for the 4th Circuit held that a State must have in place procedures that allow a dissatisfied medical assistance/Medicaid recipient to challenge a default allocation by the State. Id. Without such a rule, nothing prevents a State from allocating 100% of a settlement to medical expenses, “thereby eviscerating the rule promulgated by Ahlborn.” Id. Under the circumstances presented in the case before it, the 4th Circuit determined that “absent any state-created mechanism for such testing, it will fall to the district court to conduct the appropriate proceedings.” Id.
Trial courts may be guided by the method of allocation utilized in a Henning hearing in Minnesota or a Rimes hearing in Wisconsin. Henning, 306 N.W.2d 550; Rimes, 106 Wis.2d 263, 316 N.W.2d 348. The method of allocation discussed in Ahlborn is also instructive. Ahlborn, 547 U.S. at 274. In Ahlborn, the District Court would (1) determine the total value of Plaintiff’s claim; (2) divide the amount of the settlement by the total value of the claim; and (3) multiply the amount of medical assistance/Medicaid benefits paid by the resulting fraction. Id.
More often than not, the State of Minnesota and/or the MA plan does not provide a mechanism for resolving such disputes administratively. The responsibility, then, falls appropriately on a trial court to hold a hearing to determine what portion of plaintiff’s recovery may be allocated to medical expenses. The Supreme Court of the United States acknowledged that a fair allocation of a settlement may be difficult to determine, but indicated that there are “objective benchmarks to make projections of the damages the plaintiff likely could have proven had the case gone to trial.” Wos, 133 S. Ct. at 1400. The Wos Court stated, for example, that the value of “each individual claim will depend both on how likely [plaintiff] would have been to prevail on the claims at trial and how much they reasonably could have been expected to receive on each claim if successful, in view of damages awarded in comparable tort cases.” Id.