Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-03-03377/USCOURTS-ca8-03-03377-0/pdf.json

Parties Involved:
Heidi Ahlborn
Appellant
Arkansas Department of Human Services
Appellee
Roy Jeffus
Appellee
Kurt Knickrehm
Appellee
Wayne Olive
Appellee

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 03-3377

___________

Heidi Ahlborn, *

*

Appellant, *

*

v. *

* 

Arkansas Department of Human *

Services; Kurt Knickrehm, Director * Appeal from the United States

of the Arkansas Department of Human * District Court for the Eastern

Services; Wayne Olive, Director of the * District of Arkansas.

Third Party Liability Unit; Roy Jeffus, *

Interim Director, Division of Medical *

Services of the Arkansas Department *

of Human Services, *

*

 Appellees. *

__________

Submitted: April 13, 2004

Filed: February 9, 2005

___________

Before MORRIS SHEPPARD ARNOLD, RILEY, and COLLOTON, Circuit

Judges.

___________

COLLOTON, Circuit Judge.

Heidi Ahlborn appeals the district court’s grant of summary judgment in favor

of the Arkansas Department of Human Services and employees thereof (collectively

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“the State”) in a dispute concerning the extent to which her recovery from a tortfeasor

may be taken by the State as reimbursement for the cost of medical care and services

provided to Ahlborn by the Medicaid program. After careful review of the various

statutes involved, we conclude that Ahlborn has the better of the argument, and we

therefore reverse.

I.

Ahlborn was seriously injured in a motor vehicle accident on January 2, 1996.

As a result of this accident, she suffered severe personal injuries, especially to her

head, which required extensive medical care and rendered her permanently disabled.

While under treatment, Ahlborn applied and qualified for medical benefits under the

Arkansas Medicaid program, administered in the State by appellee Arkansas

Department of Human Services (“ADHS”). In applying for benefits, Arkansas law

required Ahlborn to assign to ADHS her “right to any settlement, judgment, or

award” she might receive from third parties, “to the full extent of any amount which

may be paid by Medicaid for the benefit of the applicant.” Ark. Code Ann. § 20-77-

307(a). In total, ADHS provided Medicaid benefits to or on behalf of Ahlborn in the

amount of at least $215,645.30, which fully relieved her debt to health care providers.

The parties agree that Ahlborn’s injuries gave rise to claims other than past

medical care, including loss of earnings and working time, pain and suffering, and

permanent impairment of ability to earn in the future. The parties also stipulated that

an estimate of Ahlborn’s damages totals approximately $3,040,708.12. However, in

mid-2002, Ahlborn was paid $550,000 following a compromise settlement reached

through negotiations with her insurance company and third parties allegedly liable for

her injuries. This was a lump-sum settlement that did not allocate Ahlborn’s recovery

among her various claims. The State was not a party to the settlement. The Director

of ADHS asserted a lien against Ahlborn’s settlement for the amount of benefits

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ADHS provided, pursuant to Arkansas Code Sections 20-77-301 through 20-77-313

(third-party liability).

Ahlborn brought suit seeking a declaratory judgment, arguing that ADHS can

only recover that portion of her settlement representing payment for past medical

expenses. The parties characterize the sole issue in this case as one of statutory

construction: whether federal Medicaid statutes, which provide for the assignment

of rights to third-party payments, but prohibit placing a lien on a Medicaid recipient’s

property, limit the State’s recovery to only those portions of the payments made for

medical expenses. The parties have entered into a stipulation regarding damages,

whereby the State will recover $215,645.30 if it prevails on the statutory construction

issue, but only $35,581.47 if Ahlborn prevails. This first figure represents the total

amount the parties stipulated the State paid in relation to Ahlborn’s care. The parties

stipulated that the second figure, which represents 16.5 percent of this total amount,

is a fair representation of the percentage of the settlement constituting payment by the

tortfeasor for past medical care.

The parties filed cross-motions for summary judgment, and the district court

granted the State’s motion. The court interpreted the relevant federal statutory

provisions to mean that the State may recover from Ahlborn’s settlement the sum

stipulated as the total amount of benefits provided under the Medicaid program,

regardless whether the settlement funds represent payments for the cost of medical

services. We review the grant of summary judgment de novo, applying the same

standard as the district court. Murphey v. City of Minneapolis, 358 F.3d 1074, 1077

(8th Cir. 2004). We will affirm the grant of summary judgment if there is no genuine

issue as to any material fact and the moving party is entitled to judgment as a matter

of law. Fed. R. Civ. P. 56(c); Shelter Ins. Cos. v. Hildreth, 255 F.3d 921, 924 (8th

Cir. 2001).

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II.

The Medicaid program was established in 1965 by Title XIX of the Social

Security Act (“the Act”), codified at 42 U.S.C. § 1396-1396v. The primary purpose

of the program is to provide federal financial assistance to States that elect to

reimburse certain costs of medical treatment for needy individuals. See Harris v.

McRae, 448 U.S. 297, 301 (1980). States voluntarily agree to participate in the

program, but must comply with federal requirements once they do so. Id. It is often

said that Congress wanted Medicaid to be a “payer of last resort, that is, other

available resources must be used before Medicaid pays for the care of an individual

enrolled in the Medicaid program.” S. Rep. No. 99-146, at 312 (1985), reprinted in

1986 U.S.C.C.A.N. 42, 279. The sole issue presented by the parties in this case is

whether the Arkansas statutory scheme for recovering Medicaid payments comports

with the federal statutes governing how state Medicaid recovery programs must

operate. The essential disagreement is whether the State may recover from Ahlborn’s

settlement any amount beyond that stipulated to be expenses for medical care.

Under Arkansas law, applicants for Medicaid benefits “automatically assign”

their rights to “any settlement, judgment, or award which may be obtained against any

third party to [ADHS] to the full extent of any amount which may be paid by

Medicaid for the benefit of the applicant.” Ark. Code Ann. § 20-77-307(a). “The

assignment shall be considered a statutory lien on any settlement, judgment, or award

received by the recipient from a third party.” Id. § 20-77-307(c). Further, Arkansas

Code Section 20-77-302(a) provides that when a Medicaid recipient brings a claim

against a liable third party, “any settlement, judgment, or award obtained is subject

to the division’s claim for reimbursement of the benefits provided to the recipient

under the medical assistance program.” Arkansas thus requires recoupment from, and

places a lien on, the entirety of third-party payments – not just that portion of thirdparty payments made for medical care.

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Ahlborn argues that the Arkansas scheme conflicts with federal law. She relies

on 42 U.S.C. § 1396p(a)(1), which prohibits (with certain exceptions not applicable

here) the imposition of a lien “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[.]” This provision, sometimes referred to as the “anti-lien statute,” generally

prevents a State from attaching property of a recipient to reimburse the State for

benefits paid under a state Medicaid plan. Under the statute’s implementing

regulation, “property” is defined as “the homestead and all other personal and real

property in which the recipient has a legal interest.” 42 C.F.R. § 433.36(b). 

The State argues that the Arkansas statutory lien “on any settlement, judgment,

or award received by the recipient from a third party” does not conflict with the

federal anti-lien statute, because the settlement that Ahlborn received from the

tortfeasor is not Ahlborn’s property. The State contends that because Ahlborn

assigned to the State her right to any settlement as a condition of receiving Medicaid

benefits, the settlement remains property of the tortfeasor until the State is fully

reimbursed for all funds expended on Ahlborn’s medical care. This appears to be the

reasoning adopted by the majorities of two divided state court decisions on which the

State relies. Houghton v. Dep’t of Health, 57 P.3d 1067, 1069 (Utah 2002); Wilson

v. State, 10 P.3d 1061, 1066 (Wash. 2000).

 We believe that Ahlborn’s right to a settlement that may be received from a

third party, which the Arkansas statute required her to assign to the State, was

Ahlborn’s “property.” Her unliquidated tort claim, in other words, is a form of

“personal . . . property in which the recipient has a legal interest.” 42 C.F.R.

§ 433.36(b). “It is basic property law that a chose in action is personal property,” and

that “the right to sue for damages is property.” Gregory v. Colvin, 363 S.W.2d 539,

540 (Ark. 1963). The Arkansas assignment statute, moreover, contemplates that the

lien arises after Ahlborn receives her settlement from the tortfeasor: “The assignment

shall be considered a statutory lien on any settlement, judgment, or award received

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1

The State also argues on brief that Ahlborn’s unliquidated cause of action is

a “resource” that should be considered in determining whether she is eligible for

Medicaid benefits in the first place. See 42 U.S.C. §§ 1382, 1382b, 1396p(e)(5). The

State complains that Ahlborn should not be allowed to “exclude the value of her tort

claim to receive benefits and later shield the same resource to defeat reimbursement.”

(Appellee Br. at 18). We view this argument as largely a red herring, because the

State already determined that Ahlborn was eligible for Medicaid benefits, and her

eligibility is not at issue in this lawsuit. 

In any event, the State’s effort to equate “resources” available to an applicant

in the eligibility determination with “property” that is shielded from state recovery

-6-

by the recipient from a third party.” Ark. Code Ann. § 20-77-307(c) (emphasis

added). Thus, whether the State’s assignment and lien act upon Ahlborn’s cause of

action or the settlement she received from the third-party tortfeasors, we see no basis

in the governing federal regulations or the common law of property to conclude that

the assignment or lien acted upon something other than Ahlborn’s property.

We do not believe, moreover, that the State may circumvent the restrictions of

the federal anti-lien statute simply by requiring an applicant for Medicaid benefits to

assign property rights to the State before the applicant liquidates the property to a sum

certain. If the State could proceed in that manner, then we do not see what limiting

principle would preclude the State from requiring a Medicaid applicant to assign to

the State other interests in property – such as future wages, lottery winnings, or real

property – in order to reimburse the State for health care expenditures under

Medicaid. This sort of broad ranging assignment requirement clearly would conflict

with the federal anti-lien statute. The State, at oral argument, disclaimed an ability

to require a Medicaid applicant to assign unlimited property interests, and relied

instead on a narrower justification for the Arkansas statutory lien on recovery from

tortfeasors. The State ultimately asserts that because other federal statutes require the

State to impose the statutory lien created by Section 20-77-307(c), the Arkansas

statute cannot conflict with the federal anti-lien statute.1

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efforts by the anti-lien statute is not supported by federal or state law. “Resources”

is defined by the federal regulation that implements 42 U.S.C. § 1382b as “cash or

other liquid assets or any real or personal property that an individual . . . owns and

could convert to cash to be used for his or her support and maintenance.” 20 C.F.R.

§ 416.1201(a). An unliquidated personal injury cause of action cannot be sold or

assigned, Mallory v. Hartsfield, Almand & Grisham, LLP, 86 S.W.3d 863, 866 (Ark.

2002), so at the time she applied for benefits, Ahlborn lacked the power to convert

her cause of action to cash for support and maintenance. The Arkansas administrative

code, moreover, defines “resource” as any real or personal property “available to an

individual to meet his needs,” and specifies that “[o]nly those resources currently

available, or for which the individual has the legal ability to make available, will be

considered.” Code of Ark. Rules 016.20.001, Medical Services Policy Manual §

11301 (June 1, 2002). Thus, although the cause of action was “property,” 42 C.F.R.

§ 433.36(b), it was not a “resource.” Cf. Smith v. Ariz. Long Term Care Sys., 84 P.3d

482, 487 (Ariz. Ct. App. 2004).

-7-

The federal statutes in question provide that a state Medicaid plan must provide

that the State acquires the rights of a Medicaid beneficiary to certain payments by

third parties, 42 U.S.C. § 1396a(a)(25)(H), and require that a beneficiary assign to the

State certain rights to payment from third parties, 42 U.S.C. § 1396k(a)(1). The first

statute provides:

A State plan for medical assistance must – 

. . . 

(25) provide – 

. . . 

(H) that to the extent that payment has been made under the State plan

for medical assistance in any case where a third party has a legal

liability to make payment for such assistance, the State has in effect

laws under which, to the extent that payment has been made under the

State plan for medical assistance for health care items or services

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furnished to an individual, the State is considered to have acquired the

rights of such individual to payment by any other party for such health

care items or services.

42 U.S.C. § 1396a(a)(25)(H) (emphasis added).

The second provision states:

(a) For the purpose of assisting in the collection of medical support

payments . . . a State plan for medical assistance shall – 

(1) provide that, as a condition of eligibility for medical assistance . . .

to an individual . . . the individual is required – 

(A) to assign the State any rights . . . to payment for medical care from

any third party;

. . . 

(C) to cooperate with the State in identifying, and providing information

to assist the State in pursuing, any third party who may be liable to pay

for care and services available under the plan . . . .

42 U.S.C. § 1396k(a)(1)(A) (emphasis added).

We believe a straightforward interpretation of the text of these statutes

demonstrates that the federal statutory scheme requires only that the State recover

payments from third parties to the extent of their legal liability to compensate the

beneficiary for medical care and services incurred by the beneficiary. Under

§ 1396a(a)(25)(H), a state Medicaid plan must include provisions specifying that,

when the State provides medical benefits to an applicant, “the State is considered to

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have acquired the rights of such individual to payment by any other party for such

health care items or services.” (emphasis added). This acquisition of rights occurs

only in cases where “a third party has a legal liability to make payment for [medical]

assistance.” Id. Section 1396k(a)(1)(A) similarly requires that an applicant assign

to the State her right “to payment for medical care from any third party.” (emphasis

added). Both statutes are thus limited to rights to third-party payments made to

compensate for medical care.

Taking the three federal statutes together, we agree with the Supreme Court of

Minnesota that the plain meaning of each achieves a harmonious statutory scheme:

The anti-lien provision protects the personal property of a medical

assistant recipient – here, [the plaintiff’s] cause of action – from a state’s

effort to recover for medical expenses. The assignment transfers to the

state the recipient’s right to recover medical expenses, and therefore the

ability to pursue directly potentially liable third parties for medical

assistance expenses paid. The anti-lien provision protects all of a

recipient’s nonassigned rights to recover. The recovery provision, on

the other hand, requires that the state pursue the third parties for medical

expenses paid by the state, and the state does so under the assignment.

Martin ex rel. Hoff v. City of Rochester, 642 N.W.2d 1, 13 (Minn. 2002). Where, as

here, the recipient pursues the third party directly for medical expenses, the recovery

provision also allows the State to establish a lien to the extent that a settlement or

award constitutes payment by the third party for medical expenses incurred by the

recipient.

The State nonetheless urges us to adopt the view espoused by the federal

Health Care Financing Administration, and upheld by the Departmental Appeals

Board of the Department of Health and Human Services (“HHS”) in two

adjudications during the 1990s. See Calif. Dep’t of Health Servs., D.A.B. No. 1504,

1995 WL 66334 (HHS Jan. 5, 1995) (“Calif. Dep’t”); Wash. State Dep’t of Soc. and

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2

During the 1990s, some States concluded that a policy of attempting to recover

from Medicaid recipients all third-party liability settlements and payments was not

the best method to conserve public funds. The State of California, for example,

concluded that allowing victims to share in awards “created an incentive to seek out

and pursue liable third parties, thereby maximizing pursuit and shifting initial costs

from California to the victim.” D.A.B. No. 1504, at 13. In decisions involving the

California and Washington state Medicaid programs, however, HHS disallowed

federal financial participation on the ground that anything less than 100 percent state

recovery of third-party liability settlements and payments was inconsistent with

federal law. 

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Health Servs., D.A.B. No. 1561, 1996 WL 157123 (HHS Feb. 7, 1996) (“Wash. State

Dep’t”). These adjudications conclude that the federal government can require States

to attempt to recover from third-party payments beyond those made for medical care.2

The parties dispute whether the HHS decisions are entitled to deference under

the doctrine of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467

U.S. 837, 842-43 (1984), as an agency’s interpretation of an ambiguous federal

statute that it is charged with administering. While we agree that an agency’s formal

adjudication may be entitled to deference in an appropriate case, cf. Christensen v.

Harris County, 529 U.S. 576, 587 (2000), the principles of deference apply only

when a statute is ambiguous and the agency advances a reasonable interpretation of

the statute. In this case, we reject the agency’s interpretation as inconsistent with the

plain language of the statute. 

The HHS adjudications cite three reasons why States can be required to attempt

to recover funds from those third-party payments for damages other than the cost of

medical care and services. First, HHS reasoned that “[i]n cases where a third party

has caused the need for medical care and is liable for its payment, the Act looks to

that third party to reimburse the public.” Wash. State Dep’t, D.A.B. No. 1561, at 8;

Calif. Dep’t, D.A.B. No. 1504, at 10. While we agree that the Act looks to third

parties to reimburse taxpayer funds, HHS supports its view by noting that States are

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required under 42 U.S.C. § 1396a(a)(25)(B) to “seek reimbursement for such

assistance to the extent of such legal liability.” Wash. State Dep’t, D.A.B. No. 1561,

at 8; Calif. Dep’t, D.A.B. No. 1504, at 10. The phrase “such legal liability,” however,

refers back to “legal liability” in § 1396a(a)(25)(A), which makes clear that this is

“the legal liability of third parties . . . to pay for care and services available under the

plan[.]” Where, as here, the State seeks reimbursement for amounts payable to the

Medicaid recipient for other damages such as lost wages, the text of the Act cited by

HHS does not authorize recovery. 

Second, HHS concluded that it is reasonable for the government to condition

the availability of Medicaid funds on a recipient’s agreement to reimburse Medicaid

to the extent of a third party’s liability. Therefore, according to HHS, “Medicaid has

superior status to the recipient in relation to the tortfeasor to recover costs Medicaid

incurred on behalf of the recipient on the condition that it would be reimbursed if

there was a liable third party from whom a recovery was collected.” Wash. State

Dep’t, D.A.B. No. 1561, at 8; Calif. Dep’t, D.A.B. No. 1504, at 11. While the

condition described may well be reasonable as a matter of public policy, the HHS

interpretation contradicts the express statutory language. Recipients are not required

under federal law to reimburse Medicaid “to the extent of the third party's liability.”

Id. Rather, recipients are only required to assign their rights to third-party payments

for medical care. 42 U.S.C. §§ 1396a(a)(25)(H), 1396k(a)(1)(A). We therefore reject

HHS’s second reason for requiring States to recover from third-party payments

portions not designated for medical care.

Finally, HHS relied on a concern that if States were limited to recovering

payments from third parties for medical care and services, then recipients could

prevent state recovery by intentionally manipulating the amounts paid for various

claims. Wash. State Dep’t, D.A.B. No. 1561, at 9; Calif. Dep’t, D.A.B. No. 1504, at

11. For example, during settlement negotiations, a Medicaid recipient could agree

with a third party to reduce the amount paid for medical care, but increase the amount

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paid for pain and suffering. Or a recipient might attempt to recover only for damages

other than past medical expenses, and thus assert that a lump-sum payment does not

include funds for such expenses. 

The federal statutes, of course, do not leave the States without a remedy in this

situation: Through the assignment provision, a State has legal authority to pursue

directly the third-party tortfeasor for medical expenses incurred by the recipient. And

we do not foreclose the possibility that manipulation of settlement amounts might, in

an appropriate case, provide the basis for a State to recover funds received by a

Medicaid beneficiary from a third-party tortfeasor, even though they are not

technically denominated payments for medical care and services. In such a

circumstance, however, the recovery might be permissible because the third-party

payment is properly recharacterized as a payment for medical expenses, despite a

different label applied by the parties, not because the federal statutes authorize the

State to recover all payments from third parties up to the amount of funds expended

by the state Medicaid program. In this case, there is no dispute about which portion

of Ahlborn’s settlement represents payment for medical care, so the potential for

manipulation of settlements provides no basis for the State to capture funds received

by Ahlborn to compensate for damages other than the costs of medical care.

In the end, we are left with a federal statutory scheme that clearly requires

Ahlborn to assign her rights to recover from third parties for the costs of medical care

and services incurred as a result of their tortious conduct, but protects all of Ahlborn’s

nonassigned property from recovery by the State through the anti-lien statute. The

Arkansas statutes requiring Ahlborn to assign her entire cause of action against the

third-party tortfeasors, and establishing a statutory lien on settlement proceeds for

matters other than medical care and services, conflict with and frustrate this federal

scheme. See Hines v. Davidowitz, 312 U.S. 52, 67 (1941). Accordingly, we conclude

that Ahlborn prevails on the question of statutory construction presented by the

parties on this appeal, and that the Arkansas assignment and recovery statutes are

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preempted to the extent that they require Ahlborn to assign her rights to recover thirdparty liability payments for matters other than the cost of her medical care and

services.

* * *

The judgment of the district court is reversed, and the case is remanded with

directions to enter judgment for the State in the amount of $35,581.47.

_____________________________

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