Injured People receiving favorable settlements or judgments in the areas of personal injury and medical malpractice were guaranteed that they would receive money.  Effective October 1, 2014, with the reversal of the Ahlborn decision, this may not be the case.  If the Medicaid lien exceeds the settlement amount, the injured party may be left with nothing.

How can this be?

On December 26, 2013, President Obama signed the Bipartisan Budget Act of 2013. Section 202(b) of the Bipartisan Budget Act of 2013 modifies portions of the federal Medicaid Act, effectively reversing Arkansas Dept. of Health & Human Srvs. v. Ahlborn. The Act takes effect on October 1, 2014.

The federal Medicaid statute has required that Medicaid agencies recover from third parties legally liable for health care items or services to the extent that the Medicaid program had paid for those items or services. The statute also required States to have individuals assign to the State the individual’s right to payment for medical care from any third party.

In 2006, the Supreme Court held in Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, that those statutes limited any claim by Medicaid programs to the portion of the recovery in a tort action to medical expenses, not to other items of damages. Although the Court did not directly decide whether or not the Medicaid program’s recovery could be done through the use of a lien, it strongly implied that it could not. The Court then reiterated this ruling nine months ago in Wos v. E.M.A., 133 S. Ct. 1391, 185 . Ed. 2d 471 (2013).

There are three main amendments to the Bipartisan Budget Act of 2013 that are relevant to Medicaid third-party liability:

1. 42 U.S.C. § 1396a(a)(25)(H) previously allowed the State to acquire the rights of the individual to “payment by any other party for such health care items or services.” Now, § 202(b)(1)(B) of the Budget Act amends this section to permit recovery not just for health care items or services but for “any payments by such third party.”
2. 42 U.S.C. § 1396k(a)(1)(A) previously provided that the individual only assign the rights to “payment for medical care from any third party.” Now, § 202(b)(2) amends the law to replace the provision for reimbursement “for medical care from any third party” with a provision for reimbursement of “any payment from a third party that has a legal liability to pay for care and services available under the plan.” These two amendments effectively reverse the allocation theory derived from Albhorn and later affirmed in Wos.
3. 42 U.S.C. § 1396p(a)(1)(A) previously stated that no lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual. Now, § 202(b)(3) appears to resolve any ambiguity about lien rights against tort recoveries by creating the possibility of a lien against the settlement proceeds of a live individual for medical assistance paid.