Medicaid Liens After Ahlborn: A Primer

Medicaid Liens After Ahlborn: A Primer
   By Robert S. Kelner and Gail S. Kelner

        The United States Supreme Court’s decision in Arkansas Department of Health and Social Services v. Ahlborn, 547 U.S. 268 (2006) (“Ahlborn”), radically reshaped the law governing Medicaid liens asserted against recoveries in personal injury cases.  In New York, before Ahlborn, public agencies could potentially recover the entire value of their asserted Medicaid liens, even if the plaintiff had only obtained a limited recovery.  Ahlborn changed that.  The Supreme Court held that Medicaid agencies may only recoup their liens from the portion of a settlement (or verdict) that represents compensation for past medical expenses. 
       Under circumstances where  a plaintiff has made a limited recovery – whether because of insufficient insurance coverage, liability issues, or other reasons – this principle is extremely important.  If a plaintiff is only able to recover some fraction of the value of his or her damages, the Medicaid lien should be reduced by the same proportion.  For instance, if the plaintiff recovered only one-half the full value of the damages, the Medicaid lien should likewise be reduced to one-half the asserted amount.  In this column, we will discuss the legal underpinnings of the Ahlborn decision, and the manner in which it has been applied by New York courts. 
         Heidi Ahlborn suffered severe injuries in a car accident. Her medical benefits were paid, in part, by the Arkansas Department of Social Services (“ADHS”), the state agency responsible for dispensing Medicaid.   She commenced a personal injury action which was subsequently settled for $550,000 – far less than it might have been worth – apparently due to liability issues. ADHS, which paid over $200,000 for medical expenses, argued that it was entitled to recoup that entire amount from Ms. Ahlborn’s recovery.  She asserted that, because she had received a limited recovery, Medicaid’s lien should be reduced as well, as a matter of federal statute.  The parties stipulated that Ahlborn's entire claim was reasonably valued at $3,040,708.12. It was further agreed that  the settlement amounted to approximately one-sixth of that sum and that, if Ahlborn's construction of federal law was correct, ADHS would be entitled to only the portion of the settlement  that constituted its proportionate share for medical payments made.  That amount would be $35,581.47, which represented the original amount of the Medicaid lien, reduced by approximately the same proportion as Ahlborn’s total recovery had been.
       The Supreme Court agreed with Ahlborn’s construction of the statute.  Justice John Paul Stevens observed at the outset of the Court’s discussion, “States are not required to participate in Medicaid, but all of them do.” He further noted that, in return for accepting federal funds, the States bear the remaining costs, and agree to adhere to the various statutory requirements that enable and configure the programs.
       Justice Stevens noted that the governing federal statute places express limits on the State's powers to pursue recovery of funds it paid on the recipient's behalf. 42 U.S.C. §1396p(a), if read literally and in isolation, appears to ban a lien even on that portion of the settlement proceeds that represents payments for medical care.  Although the text of this provision enumerates the circumstances under which liens can be imposed, it makes no reference to proceeds from personal injury lawsuits.   However, the Court held that other statutory provisions implicitly established a narrow exception to this rule, allowing States to assert a lien against any payments that may constitute reimbursement for medical costs.
    As the Court explained in Ahlborn:
    “[T]hat does not mean that the State can force an assignment of, or place a lien on, any other portion of Ahlborn's property. As explained above, the exception carved out by [the related statutory provisions] is limited to payments for medical care. Beyond that, the anti-lien provision applies.”

 Justice Stevens  concluded:
     Federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn's settlement in an amount exceeding $35,581.47, and the federal anti-lien provision affirmatively prohibits it from doing so. Arkansas' third-party liability provisions are unenforceable insofar as they compel a different conclusion.” Id. at 292
  
Ahlborn had recovered approximately one-sixth of the value of her injury.  ADHS was entitled to approximately one-sixth the value of its medical lien, and was prohibited by statute from obtaining more.  While the parties had stipulated to the full value of the settlement and the amount representing payment for past medical expenses, the Supreme Court treated the stipulation as having the same effect as a judicial decision. “The effect of the stipulation is the same as if a trial judge had found that Ahlborn's damages amounted to $3,040,708.12 (of which $215,645.30 were for medical expenses), but because of her contributory negligence, she could only recover one-sixth of those damages.”  It noted that, where the parties could not reach a similar stipulation, the issue could be resolved, “if necessary, by submitting the matter to a court for decision.”
 The Application of Ahlborn in New York Courts
      Prior to Ahlborn, the New York courts held that public agencies had broad authority to satisfy their liens from the entire amount of a personal injury judgment or settlement.  Gold ex rel. Gold v. United Health Services Hospitals, Inc., 95 N.Y.2d 683 (2001).  In Calvanese v. Calvanese, 93 N.Y.2d 111 (1999), the Court of Appeals had held that Medicaid agencies were entitled to fully recoup their liens from the proceeds of lawsuits. The entire amount of a personal injury settlement would be  available to satisfy the lien, not only that portion of the settlement specifically allocated to past medical expenses.
     In a significant post-Ahlborn decision,  in Lugo v. Beth Israel Medical Center, 13 Misc.3d 681 (N.Y.Sup. 2006), Justice Alice Schlesinger aptly observed, that Ahlborn has had a “significant impact on New York law.”  In  Lugo, Justice Schlesinger directly resolved an important question that was implicitly addressed by Ahlborn:  what should happen if the parties do not agree upon what proportion of a settlement was attributable to past medical expenses?  She held that the appropriate action is for the Court to hold a hearing to determine the “full value of the case and the value of the various items of damages, including plaintiff's injuries and how they compare to verdicts awarded in other cases.”  The value of the medical lien, as in Ahlborn, would be reduced in that proportion. The court in Lugo stated that Ahlborn must be read to limit the DSS recoupment to the amount of the settlement proceeds allocated to past medical expenses.
    In reaching this decision, Justice Schlesinger rejected the argument of the Department of Social Services that Ahlborn did not require or sanction the use of a formula at all, because  the formula applied in that case was by stipulation between the parties limited to that case. She stated that the  Supreme Court had  equated the stipulation to a judicial determination allocating the award, and thereby effectively sanctioned the use of the formula.  Moreover, she reasoned that such a formula was rational.  The plaintiff, on the other hand, had argued that the court could determine the true value of an injury based purely by comparison to similar cases, and simply adopting the allocation of damages that these cases had employed.  Justice Schlesinger rejected this argument, stating:
    [T]o the extent that plaintiff Lugo suggests that the Ahlborn decision mandates the use of the same formula here and obviates the need for a hearing, this court does not necessarily agree. A court determination is necessary to confirm the full value of the case and the value of the various items of damages, including plaintiff's injuries and how they compare to verdicts awarded in other cases. The parties are also entitled to be heard on the fair allocation of the settlement proceeds.

     She thus set down a hearing, at which DSS could challenge the data proffered by plaintiffs as to the true value of the case as compared to  similar cases and the predicate data on which that value was calculated 
    The application of a proportionate formula is, as Justice Schlesinger noted, sanctioned by Ahlborn.   It operates on an intuitive premise: if a settlement represents only one-sixth the actual value of an injury, it logically follows that every individual component of damages awarded in that settlement was commonly reduced to one-sixth its actual value.   If past medical expenses were compensated at a greater proportion of their actual value than other elements of damages, it would reduce the Ahlborn court’s holding that a lien could be asserted only over the “portion of the settlement proceeds that represents payments for medical care” to mere semantics. Moreover, the Supreme Court also explicitly stated that “the federal anti-lien provision affirmatively prohibit[ed]” the Arkansas agency from recouping more than the one-sixth amount in the stipulation.  This language in the Ahlborn ruling indicates that the concept of a proportionate reduction is founded in the statute, and was not simply a function of the stipulation between the parties.
    The Ahlborn formula has been applied by a number of other New York  courts, including a handful of published decisions.  For instance, in Chambers v. Jain, 839 N.Y.S.2d 432 (N.Y. Sup. 2007), the infant plaintiff had suffered injuries as a result of medical malpractice.  The case was settled for $1,700,000.  Medicaid asserted a lien of $141,638. The parties in Chambers did not stipulate to the full value of the case. As such, the court conducted a hearing and allowed the parties the opportunity to submit evidence. Reports from plaintiff’s experts delineated the serious injuries including a seizure disorder, cognitive deficits and the need for future care. Based upon this and other evidence, the court determined that the full value of the case was $6,000,000.  It calculated that plaintiff  had recovered 28.3% of his damages.  Medicaid was therefore entitled to 28.3% of its lien, which was consequently reduced to $40,083.55.   It was otherwise extinguished.
    In Wright v. New York Hospital Medical Center, 2007 WL 4229216, N.Y. Slip Op. 33804(U)  (N.Y. Sup. 2007), the plaintiff, a 44 year old woman, had suffered severe brain damage as a result of medical malpractice.  The case was settled for $5,250,000.  The Department of Social Services sought full recovery of its lien of $636,149.  The court held that the plaintiff’s injury, based on the medical proof, was worth $12,872,821. She had recovered only 40.8% of that amount.  The Medicaid lien therefore should  be reduced by the same proportion.  DSS was entitled to recoup $259,548.79, the portion of the settlement allocable to past medical expenses.  See also Harris v. City of New York, 16 Misc.3d 674 (N.Y. Sup. 2007).
      There is not a great deal of published case law regarding Ahlborn hearings, and so it is difficult to extrapolate rules of general applicability concerning the evidence that must be presented.  In several of the cases cited above, the courts relied upon the affirmations of physicians to establish the nature of the plaintiff’s injuries.  It is, at the least, within the court’s discretion to determine the value of the case based on documentary evidence.  Additionally, while Justice Schlesinger declined to determine the actual value of an injury based purely on case law in Lugo, she did not say that case law had no probative worth at all.  Both the Lugo and Chambers decisions relied heavily upon  similar cases to determine the value of injuries.  It would seem that courts at least have discretion to use case law as a guidepost to determine future medical expenses and other specific elements of damages.
    In order to benefit from the  Ahlborn holding , plaintiff must be willing to submit medical proof.  In Segarra v. 2805 Holdings,( NYLJ, 6/ 26/08), plaintiff  settled her action for $165,000.  Medicaid asserted a lien for $3,760.66.  Plaintiff argued that her damages were  worth more than the $165,000 for which she had settled, and apparently submitted some case law to support her point.  She refused, though, to submit to an Ahlborn hearing.  The court  reasoned that the cases she had submitted represented only a “miniscule percentage of cases which have settled or gone to verdict” and were not a reliable guide to the full value of the case. It held  that she had waived her right to claim that her damages exceeded the settlement amount by declining to submit to a full hearing, at which she would have had the opportunity to testify and to present medical evidence. The court also noted that the Medicaid lien represented so small a percentage of the settlement that it was “reasonable to assume that the parties took plaintiff’s medical expenses into account when setting the case.” 
      Ahlborn does not remove a Court’s discretion, already recognized under New York law, to find that a settlement included no component for past medical expenses.  See, e.g., D.C. ex Re. A.G. v. City of New York, 858 N.Y.S.2d 497 (N.Y. Sup. 2008).  Ahlborn sets a statutory ceiling for what Medicaid recipients may be compelled to pay.  It does not affect courts’ discretion to make such orders as may be just – an inherent power of the judiciary, and not a creation of federal statute. In our experience, despite Ahlborn, the New York City Department of Human Resources has been reluctant to apply the formula adopted by Justice Schlesinger in Lugo. Based upon the applicable case law, the New York courts should hopefully follow the methodology applied by the courts in Lugo and Chambers.