DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop 00-00-00 
Baltimore, Maryland 21244-1850 
  
 
            SMD # 23-002 
 
RE: Third-Party Liability in Medicaid: State 
Compliance with Changes Required in Law and 
Court Rulings 
 
 
March 8, 2023 
   
Dear State Medicaid Director:  
 
The Center for Medicaid and CHIP Services (CMCS) is issuing this State Medicaid Director 
Letter (SMDL) to provide guidance to state Medicaid agencies on two new third-party liability 
(TPL) requirements reflected in current law. The first new provision was included in the 
Consolidated Appropriations Act, 2022 (CAA, 2022; P.L. 117-103) and increases state flexibility 
with respect to TPL by requiring states to have laws in effect that bar liable third-party payers 
from refusing payment for an item or service solely on the basis that such item or service did not 
receive prior authorization under the third-party payers rules. The second change in TPL 
requirements came with the U.S. Supreme Court ruling in Gallardo v. Marstiller that the Social 
Security Act (the Act) permits a state to create a lien over injury settlement proceeds attributable 
to future medical expenses. 
 
Background 
 
Medicaid is generally the payer of last resort, meaning that Medicaid only pays claims for 
covered items and services if there are no other liable third-party payers for the same items and 
services. When Medicaid beneficiaries have one or more additional sources of coverage for 
health care services, TPL rules govern the legal obligation of such third parties. Section 
1902(a)(25)(A) of the Act defines third-party payers as health insurers, managed care 
organizations, and group health plans, among others. 
 
Federal law generally requires health insurers and other third parties legally liable for health care 
services received by Medicaid beneficiaries to pay for such services. Federal law also requires 
states to have state laws enhancing the states ability to identify and obtain payment from third-
party resources that are legally responsible to pay claims primary to Medicaid. 
 
Consolidated Appropriations Act of 2022 
 
The CAA, 2022, enacted March 15, 2022, increases state flexibility with respect to TPL. Section 
202 of the CAA, 2022 amended section 1902(a)(25)(I) of the Act to require a state plan for 
medical assistance to provide assurances satisfactory to the Secretary that the state has state laws 
in place that bar responsible third-party payers (other than Medicare plans) from refusing 
payment for an item or service solely on the basis that such item or service did not receive prior  Page 2  State Medicaid Letter 
 
authorization under the third-party payers rules.1 Specifically, if the responsible third party 
requires prior authorization for an item or service furnished to a Medicaid-eligible individual, the 
responsible third party must accept the authorization provided by the state that the item or 
service is covered under the state plan (or waiver of such plan) for such individual, as if such 
authorization was made by the third party for such item or service. Authorization by the state 
means that the item or service an individual received (and for which third-party reimbursement is 
being sought) is a covered service or item under the Medicaid state plan (or waiver of such plan) 
for that individual.  
 
Section 202 of the CAA, 2022 also modifies the existing requirement for a third-party payer to 
respond to a state inquiry regarding a health care claim that is submitted not later than three years 
after the provision of such item or service to specify that the third party must respond within 60 
days of receiving the inquiry.   
 
The effective date for this new provision is January 1, 2024, with an exception for states that first 
need to pass state legislation to comply with the change in law.  States must submit a state plan 
amendment (SPA) to the Centers for Medicare & Medicaid Services (CMS) providing 
assurances that the required laws are in effect in the state. Some states may already have the 
requisite laws. These states should submit an amendment to their state plan to CMS as soon as 
practicable. States that do not currently have the laws mandated by the CAA, 2022 should enact 
the required legislation during their next legislative session and submit a SPA to CMS by the end 
of the legislative session. 
 
Gallardo v. Marstiller 
 
On June 6, 2022, the U.S. Supreme Court ruled in Gallardo v. Marstiller that section 1917 of the 
Act permits a state to create a lien over injury settlement proceeds attributable to future medical 
expenses.2 Specifically, the Court held the Acts assignment-of-rights provision at section 
1912(a)(1)(A) does not limit a beneficiarys assignment of medical support and payment of 
medical care from a third party to the Medicaid program to payments for past medical care 
already paid for by Medicaid. The Court reasoned that this provision includes the beneficiarys 
assignment to payment for past medical expenses, and also includes rights to payment for future 
medical expenses. The Court said that, because a state may seek reimbursement from settlement 
amounts representing payment for past or future medical care under section 1912(a)(1)(A), the 
anti-lien provision at section 1917(a) of the Act does not apply to state laws that permit a state to 
recover reimbursement for Medicaids payment of a beneficiarys past medical expenses by 
taking funds from the portion of the beneficiarys settlement amounts for future medical 
expenses.  
 
This case revisits similar issues presented in Wos v. E.M.A. (2013) and Arkansas Dept. of Health 
and Human Services v. Ahlborn (2006). Those cases interpreted Medicaids anti-lien provisions 
as saying states may only recover the medical expense portion of an injury settlement, as 
opposed to pain and suffering, lost wages, and other property rights recovered. In Gallardo, the 
                                               
1 See Consolidated Appropriations Act, 2022, Pub. L. No. 117-103, Division H, Title II, Section 202 (Increasing 
State Flexibility with Respect to Third Party Liability). 
2 See Gallardo v. Marstiller, No. 20-1263 (2022)  Page 3  State Medicaid Letter 
 
Supreme Court held that the Wos and Ahlborn rulings do not conflict just because one is broader 
than the other, and that a state may recover its Medicaid payments only from the portion of the 
settlement, judgment, or award designated for medical expenses. 
 
As a result of the Gallardo v. Marstiller ruling, states may now pursue recovery for medical care 
furnished on behalf of a beneficiary not only from the portions of the beneficiarys settlement 
representing compensation for past Medicaid-furnished care but also from settlement funds that 
compensate the Medicaid beneficiary for future medical care. 
 
Additional Information 
 
If you have any questions about this SMDL, please contact Ginger Boscas, Deputy Director, 
Division of Health Home, PACE, and COB/TPL at Ginger.Boscas@cms.hhs.gov.  
 
            Sincerely,  
 
            /s/ 
 
Daniel Tsai  
Deputy Administrator and Director