Supreme Court limits Medicaid reimbursement from settlements.

The U.S. Supreme Court handed injured plaintiffs a significant victory on May 1, ruling unanimously to limit state Medicaid agencies' claims for reimbursement to the portion of any tort settlement attributable to past medical expenses. The agencies may not claim any part of a plaintiff's recovery for lost wages, pain and suffering, or other nonmedical damages. (Ark. Dep't of Health & Hum. Servs. v. Ahlborn, 126 S. Ct. 1752 (2006).)

Heidi Ahlborn was a 19-year-old college student when she was involved in an automobile accident that left her severely and permanently disabled. The Arkansas Department of Health and Human Services (DHHS), the state's Medicaid agency, paid more than $215,000 for her medical treatment.

When Ahlborn recovered $550,000 for her injuries through settlements with various auto insurers, the agency sought full reimbursement of its Medicaid payments, even though, the state acknowledged, the settlement recovery amounted to only about one-sixth of her total damages. Ahlborn then brought a declaratory judgment action to limit the agency's reimbursement to the portion of the settlement attributable to her past medical expenses.

The federal Medicaid Act requires Medicaid recipients to "assign [to] the state any rights ... to payment for medical care from any third party" and to "assist the state in pursuing any third party who may be liable to pay for care and services available under the [state Medicaid] plan." The Supreme Court rejected Arkansas's argument--supported by 30 other states and the U.S. solicitor general--that these statutory provisions entitled DHHS to full reimbursement out of any settlement.

Moreover, the Court ruled, the state could not itself adopt more expansive reimbursement rules, because any reimbursement out of funds paid to the plaintiff for claims such as lost wages and pain and suffering would contravene the anti-lien provision of the Medicaid Act.

The Court's statutory analysis closely tracked ATLA's amicus brief, written by Louis Bograd and Ned Miltenberg of the Center for Constitutional Litigation (CCL). The Court shared ATLA's concern that any rule granting "absolute priority" to the state's reimbursement claim "might preclude settlement in a large number of cases." It agreed with ATLA that any concern about settlement manipulation to avoid repayment could be eliminated through judicial procedures to allocate settlements when the state and the plaintiff cannot agree on a fair allocation.

Other federally funded health care programs, including Medicare, claim a similar right to full reimbursement out of tort settlements. CCL is undertaking a close analysis of those statutory schemes to determine whether the decision in Ahlborn can be extended to ensure an equitable allocation of recoveries in those contexts as well.