Client Alert!

Medicaid Liens: What's Left to Negotiate?

By Elizabeth K. Brown | April 6, 2011

In negotiating Medicaid liens, the Oklahoma Health Care Authority ("OHCA") is taking a harder line now than ever before. Two recent Oklahoma cases Price vs. Wolford, 608 F.3d 698 (10th Cir. 2010) and Edwards vs. Ardent Health, LLC, 243 P.3d 25 (Okla. Civ. App. 2010), although both favorable to the OHCA, may still leave plaintiffs with an opportunity for negotiation of the amounts due the OHCA in certain instances.

Background

Ahlborn Case

The United States Supreme Court, in Ark. Dept. of Health & Human Servs. vs. Ahlborn, 547 U.S. 268 (2006), opened the door for negotiations of the Medicaid lien upon settlement of or judgment in a personal injury action. In Ahlborn, the Supreme Court held that the federal Medicaid statute only permits a State to recover its payments for medical assistance from that portion of a liability settlement attributable to medical items and services. The Court further held that if the State attempted to recover from more than the portion of a settlement that the parties allocated to medical items and services, it was in violation of the federal anti-lien statute set forth in 42 U.S.C. § 1396p(a)(1).

The Medicaid recipient in Ahlborn received a tort liability settlement of $550,000, but the settlement was not apportioned between medical services, loss of earnings or pain and suffering claims. Arkansas asserted a lien in the amount of $215,645 against the entire settlement amount. Ahlborn argued, and the Supreme Court agreed, that Arkansas could recover only that portion of the settlement proceeds that was payment for medical expenses, as opposed to the much larger payment for lost wages or pain and suffering. During the course of this litigation, the parties stipulated that the amount of the settlement allocated to medical expenses was only $35,581 or approximately 16% of its total recovery claim. As a result, Arkansas was only allowed to recover $35,581 on account of its Medicaid lien.

Oklahoma Statute

The Ahlborn Court expressly refrained from deciding whether a state could adopt special rules or procedures pertaining to allocation of tort settlement proceeds for the purpose of preventing Medicaid recipients from seeking to manipulate their damage allocations in order to limit or prevent states from asserting a claim for reimbursement. Ahlborn, 547 U.S. at 288 n. 18. Recognizing the opportunity to enact special rules, Oklahoma amended its Medicaid-recovery statute in 2007 in response to the Ahlborn case to provide that the Medicaid lien has priority over all other claimants, after payment of attorneys fees. The statute, as amended, reads in pertinent part as follows:

The Authority [OHCA]:

1. Shall have a lien upon payment of the medical assistance to the extent of the amount so paid upon that part going or belonging to the injured or deceased person of any recovery or sum had or collected or to be collected by the injured or diseased person up to the amount of the damages for the total medical expenses, or by the heirs, personal representative or next of kin in case of the death of the person, whether by judgment or by settlement or compromise.

The lien authorized by this subsection shall:

d. be applied and considered valid as to the entire settlement, after the claim of the attorney or attorneys for fees and costs, unless a more limited allocation of damages to medical expenses is shown by clear and convincing evidence.

Okla. Stat. tit. 63, § 5051.1(D)(1)(d) (emphasis added).

The Oklahoma Medicaid lien statute gives the OHCA's lien for reimbursement of medical expenses paid by Medicaid priority over all other lien claimants (after payment of attorneys' fees). As a result, Plaintiffs should make sure that the OHCA claim for reimbursement is paid out of the settlement proceeds first before any other medical providers are paid.

Oklahoma Case Law

Two Oklahoma cases, the Price case and the Edwards case, have recently explored the effect of the amended Oklahoma Medicaid lien statute on the ability of the OHCA to recover medical expenses out of settlement proceeds or from a judgment. Both cases recognize that the Medicaid lien is limited to that portion of the settlement or judgment attributable to medical expenses as required by Ahlborn, but both require the plaintiff to prove by clear and convincing evidence that such portion is less than the claim for reimbursement made by the OHCA in order to reduce the OHCA claim for reimbursement. The cases also provide some insight into what type of evidence would be sufficient in order for the Medicaid lien to be reduced.

Price Case

In Price, the OHCA asserted a $544,282.26 Medicaid lien on a $1.1 million settlement of Plaintiffs' malpractice suit. The Plaintiff asserted that the portion of the plaintiff's $1.1 million settlement attributed to her expenses paid by Medicaid was no more than $67,666.67. Before the hearing on the settlement, the OHCA filed a motion to intervene and submitted a brief on the issue, but did not request an evidentiary hearing. The District Court determined that in order for the Medicaid lien to be reduced, the Plaintiff had to present clear and convincing evidence that the portion of the settlement attributable to medical expenses was less than the medical expenses paid by Medicaid. The District Court found that the Plaintiff had met her burden of proof and reduced the lien to $67,666.67 as requested by the Plaintiff even though no evidence had been presented.

On appeal, the 10th Circuit found that the District Court had recognized the correct legal standard to apply in assessing the propriety of the proposed reduction in OHCA's recovery, but had erred in applying the standard. The 10th Circuit noted that there was no evidence whatsoever presented at the hearing on the settlement related to the reduction in the Medicaid lien stating "we cannot affirm a finding that there was clear and convincing evidence to support a claim when nothing relevant was offered into evidence during the proceeding to resolve the claim". The 10th Circuit then reversed and remanded the case to the District Court for further proceedings.

In so ruling, the 10th Circuit gave the following examples of facts that could be sufficient to support a reduction in the Medicaid lien:

Aside from a reduction necessary to compensate counsel, a reduction in a Medicaid lien can be justified only by showing a reason why the plaintiff would agree to allow the defendant to pay less than the full amount of the Medicaid lien. The usual reasons would be that the liability of the settling defendant is uncertain or that the defendant lacks the money to pay for his full liability (or both); so the plaintiff would be willing to take a proportionate reduction in each component of the damages that she would expect the jury to award if the defendant were found liable. For example, if the settlement is for 50% of what the jury is likely to award because there is only a 50% chance that the jury will find liability, the Medicaid lien could properly be cut in half. Or if liability is clear and the expected verdict would be $2 million, but the defendant can pay only $1 million, a 50% reduction would also be in order. A further reduction might also be appropriate if there are doubts about whether the jury would award as damages all the medical expenses paid by Medicaid-because, for example, one could question whether the expenses were caused by the negligent acts of the defendant-although generally one can be more confident of recovering those expenses in full than in recovering, say, the full claim for pain and suffering.

Price at 707.

According to the 10th Circuit, those types of circumstances described in Price above, if presented at a hearing on allocation of settlement proceeds, could possibly constitute clear and convincing evidence sufficient to support a reduction in the Medicaid lien.

Edwards Case

In Edwards, the wife of a disabled person filed a medical negligence suit against certain health care providers in connection with allegedly negligent care they provided to her husband. Ultimately, the underlying lawsuit was settled and Edwards sought court approval of the settlement.

The Plaintiff asserted that his total damages were $3,000,000 although the case settled for $1,500,000. In arriving at the portion of the settlement proceeds attributable to medical expenses, Plaintiff asserted that his total medical expenses of $1,173,000 were 39% of the total damages. Plaintiff then applied the 39% to the actual settlement proceeds net of attorneys fees to arrive at the portion of the recovery Plaintiff asserted to be allocable to medical expenses of $325,000. The Plaintiff then paid $200,000 of that amount to the Plaintiff's health insurer and proposed to pay the balance of $125,000 to OHCA instead of the $381,917.20 OHCA claimed was due them. The OHCA objected to the settlement but the trial court nevertheless approved the settlement and substantially reduced the Medicaid lien. The OHCA appealed.

In rejecting Plaintiff's approach to determining the amount of the settlement proceeds allocable to the Medicaid lien, the Court of Appeals stated:

While Plaintiff reads the Ahlborn case in such a way as to wrap all parties in a pro rata blanket reduction rule, a closer inspection reveals the Supreme Court in Ahlborn merely decided that the state's Medicaid reimbursement extends no further than the portion of the settlement representing medical expenses (in that case, the precise amount stipulated by the parties). In contrast to Ahlborn, the parties here strenuously contest the value of the claim and the amount of the settlement that should be attributable to medical expenses. Further, no party here urges a construction of Oklahoma law which would violate the pronouncement in Ahlborn because the parties agree the OHCA lien extends no further than the portion of the recovery representing medical costs.

Edwards at 29.

The Court of Appeals also found that:

Because the stipulations present in Ahlborn are absent from the settlement here, a hearing to satisfy paragraph (D)(1)(d) of § 5051.1 was required. Although there was a hearing of sorts, there was no showing "by clear and convincing evidence" to warrant a "more limited allocation" or reduction of OHCA's lien. Because the settlement amount is amply sufficient to pay the Plaintiff's attorney fee and satisfy the OHCA's lien in full, and, because there was no showing by clear and convincing evidence that OHCA's lien should be reduced, OHCA is entitled to recovery of the full amount of its lien.

Edwards at 29.

The Edwards court determined that OHCA had a lien on the portion of the gross settlement proceeds (unreduced by attorneys' fees) allocable to medical expenses which, based upon plaintiff's allocation to medical expenses of 39%, was $585,000 (as opposed to 39% of the net settlement proceeds after attorneys' fees or $325,000 as plaintiff asserted) and was entitled to reimbursement of the full $381,917.20 (see footnote below) stating:

OHCA asserts its statutory entitlement to the full amount of its lien because the settlement amount of $1.5 million, and particularly the 39.13% attributed by the trial court to medical costs, is sufficient to discharge its $381,917.20 lien in full. We agree. The Oklahoma statute governing OHCA liens for the recovery of medical expenses expressly provides "damages for medical costs are considered a priority over all other damages and should be paid by the tortfeasor prior to other damages being allocated or paid." 63 O.S. §5051.1(A)(1). OHCA's lien is "inferior only to a lien or claim of the [Plaintiff's] attorney." Id. §(D)(1)(a).

Edwards at 29.

Note that the Edwards court also found that a hearing on the allocation is required for the judge to order a reduction of the lien even though the statute does not expressly require it.

What's Left in Negotiating the Medicaid Lien

If the portion of the gross amount of the settlement or judgment attributable to medical expenses exceeds the amount of the medical expenses paid by Medicaid attributable to the injury and if after the payment of attorney's fees there are sufficient proceeds to reimburse the OHCA in full, the Medicaid lien will likely need to be paid in full. Since by Oklahoma statute the Medicaid lien takes priority over all other lien claimants, the Medicaid lien should be paid first before any other medical providers. However, if the portion of the gross settlement or judgment attributable to medical expenses is less than the expenses paid by Medicaid, then Ahlborn applies and the Medicaid lien must be reduced.

Of course, the plaintiff may not be able to convince the OHCA that the OHCA claim for reimbursement exceeds the portion of the settlement or judgment attributable to medical expenses. If the OHCA is not willing to reduce its lien in light of the specific facts of the settlement and if, in the plaintiff's view, the portion of the settlement or judgment allocable to medical expenses is less than the OHCA's claim for reimbursement, then the plaintiff may want to consider setting the matter for hearing and having the trial court decide the proper allocation. The OHCA will need to be given notice of the hearing and an opportunity to intervene or participate.

At the hearing, the plaintiff will need to be able to show by clear and convincing evidence that the portion of the settlement or judgment attributable to medical expenses is less than the amount of the medical expense reimbursement being claimed by the OHCA. This could be accomplished, as the Price court suggests, by a showing that the plaintiff had agreed to take a proportionate reduction in each component of the damages that the plaintiff expected the jury to award if the defendant had been found liable because the liability of the defendant was uncertain or because the defendant lacked the money to pay for his full liability.

To prevail, the plaintiff will need to then prove to the trial court that the OHCA's claim exceeds the portion allocable to medical expenses. The plaintiff could also prevail if he could prove to the trial court that the OHCA claim for reimbursement included a claim for reimbursement of medical expenses that were not injury related.

The plaintiff should also make a good record at the trial court level of the facts supporting the allocation of the settlement or judgment to the medical expense portion in the event the OHCA decides to appeal the trial court allocation. The OHCA has a couple of recent appellate court victories under its belt and will likely appeal any trial court decision favorable to the plaintiff unless the plaintiff has met his burden of proving the allocation by clear and convincing evidence by submitting sufficient evidence at a hearing with the OHCA involved.