USSC Rules on Medicaid Subrogation Case

The USSC has ruled that a state may not enforce its Medicaid lien out of money paid to the plaintiff for losses other than medical expenses. The case is Arkansas Department of Health and Human Services v. Ahlborn, No. 04-1506 (decided May 1, 2006).

Arkansas had a statute that permitted it to have its Medicaid subrogation interest paid out of a tort recovery by the plaintiff. Arkansas took the position that it was paid “off the top,” without regard to whether the money was paid for medical bills or some other compensable loss. That statute was held to be in violation of federal law.

The USSC addressed the issue of the parties potentially setting up an artifical allocation of settlement monies for medical expenses fopr the purposes of defeating Medicaid subrogation. The Court said “[e]ven in the absence of such a post-settlement agreement [about what portion of the settlement proceeds should be allocated to medical expenses], though, the risk that parties to a tort suit will allocate away the State’s interest can 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. For just as there are risks in underestimating the value of readily calculable damages in settlement negotiations, so also is there a countervailing concern that a rule of absolute priority might preclude settlement in a large number of cases, and be unfair to the recipient in others.”

What does this mean? It means that the Tennessee statute which is often interpretated to give “first dollar” rights to Tennessee is also overbroad. From a practical matter, these matters are often worked out and should continue to be. This case gives the plaintiff a strong tool to help resolve the issue in the event he or she confronts a “subrogation specialist” with a bad attitude.

Read the decision here.