Source: http://mnbenchbar.com/2016/03/show-them-the-money/
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Show Them The Money: Medicaid Secondary Payer Recovery in Injury Cases « Bench and Bar of Minnesota
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Posted Mar 4 2016 by Aaron Frederickson	in Articles	with 0 Comments
The expansion of Medicaid benefits under the Affordable Care Act has spurred federal action to ensure that states can more aggressively recover costs incurred by the government in injury cases. In Minnesota, where case law has limited Medicaid cost recovery in the past, attorneys handling Medicaid-related injury cases will need to master a new statutory framework.
The expansion of federally funded, state-administered Medicaid programs is placing a significant burden on state programs to provide affordable medical care and treatment for countless individuals. Like other essential government health programs, Medicaid’s funding is growing given the needs of individuals amid rising health care costs.
Court decisions have hindered the ability of these programs to recover fully for monies paid on behalf of beneficiaries. But the looming effective date of a federal law known as the Medicaid Secondary Payer Act has put changes on the horizon that will affect how you settle personal injury and workers’ compensation cases. Failure to prepare now will expose your law practice and clients to adverse government action.
The Medicaid program has its origins under the Social Security Amendments of 1965, through Title XIX to the Social Security Act. It is now codified at 42 U.S.C. §1396 et seq., and is characterized by a federal/state relationship.1 In this unique arrangement to deliver healthcare to the disabled and those living in poverty, the federal government provides states with a source of program funding and mandatory directives.2 While the Medicaid program is voluntary and states are allowed to meet the needs of their population base, requirements and benchmarks established by the Centers for Medicare and Medicaid Services (CMS) are compulsory.3
Medicaid should never be mistaken for Medicare. Medicaid differs from Medicare not only in its funding mechanism, but also in other ways:
It is a “means tested” benefit (eligibility based on income and assets);
This program is funded by state and federal governments; and
State governments are the primary administrator of Medicaid programs, while receiving direction and approval from the federal government.
A barrier to understanding Medicaid and its rights of recovery starts with the labyrinth of statutes and regulations governing this changing issue. This has resulted in it being referred to as “unintelligible to the uninitiated,” with a need for a fresh start.4
Medicaid Eligibility and Operations
Under its original framework, Medicaid was designed to serve as a medical assistance program for families with dependent children, older Americans, and those who were disabled or blind.5 Passage of the Patient Protection and Affordable Care Act (ACA)6 has expanded the scope of those covered under Medicaid. Under current guidelines, nearly anyone who has a household income under 133 percent of the federal poverty level (roughly $32,252.50 for a family of four in 2015) and is under the age of 65 qualifies for this benefit. This also includes adults without dependent children.7
Attorneys practicing in the area of workers’ compensation and personal injury claims have taken notice of CMS’s warning regarding compliance with federal health and welfare law since the mid-1990s. This is mainly the result of CMS’s issuance of the Patel Memorandum, and a growing area of the law known as Medicare Secondary Payer compliance.8 While the interests of the federal and state government’s role in Medicaid were not specifically addressed in the memorandum, it was speculated by some that other government benefits were ripe for recovery efforts in the near future. Given this void and the lack of federal direction to state governments, parties to injury cases have often neglected to recognize Medicaid’s rights. The lack of these recovery efforts has placed onerous pressure on the individual Medicaid programs.
Medicaid Rights of Recovery: The Ahlborn Decision
In 1996, Heidi Ahlborn was in a severe motor vehicle accident that forced her to secure medical insurance through Arkansas’ Medicaid program.9 During the course of her recovery, the Arkansas state Medicaid program paid $215,645 related to her medical care and treatment for personal injuries.
Ms. Ahlborn and her attorneys cooperated with the Arkansas Department of Human Services during settlement negotiations. The parties invited the department to participate in settlement discussions regarding a claim that was valued at just over $3,000,000. Attorneys for Ahlborn ultimately settled her personal injury claim for $550,000, or roughly one-sixth the total value. This amount represented a compromise of the total value of her claim for pain and suffering, all wage losses and past/future medical care. The final settlement agreement did not itemize the percentages of these potential claims.
Following settlement of her case, Ahlborn offered to settle her claims with the Department for $35,581.47, which was one-sixth of the total lien amount. The department rejected this offer. The department then brought a declaratory action in federal court seeking reimbursement for the full lien amount based on Arkansas Code Annotated Sections 20-77-301 through 20-77-309, which allowed recovery from “the cost of benefits” from third parties. The department also argued Ahlborn could not limit the state’s recovery based on legal theories of contributory or comparative fault of the Medicaid beneficiary, nor could their claim be minimized based on any reductions accepted in an injury-related settlement.10
The federal district court judge hearing the matter sided with the department by awarding the full lien amount. Ahlborn appealed successfully; the court rejected the department’s position. The United States Supreme Court agreed to review the matter, which involved the construction of the Medicaid statute and its implementation. The Court focused its attention on both the federal third-party liability provisions and anti-lien provision of the federal Medicaid laws.11
In addressing issues related to federal third-party liability provisions, the Court reviewed in detail the origins of the Medicaid program and its operation at the state level. Central to this discussion was the understanding that beneficiaries are required to “‘assign the State any rights…to payment for medical care from any third party,’ 42 U.S.C. §1396k(a)(1)(A) (emphasis added), not rights to payment for, for example, lost wages.”12 Under this framework, the Court determined the Department was indeed limited in what it could recover.13
The Court then turned its attention to various anti-lien provisions contained within federal law and their interactions with state law pertaining to Medicaid. While there was an agreement that federal law created a “floor upon which States were free to build…[,] the federal statute places express limits on the State’s powers to pursue recovery of funds it paid on the Recipient’s behalf.”14 Due to these limitations, the department was not able to recover fully from Ahlborn.
Post-Ahlborn and Unanswered Questions on Recovery
The effect of the Ahlborn decision was a significant setback for state Medicaid programs and their efforts to recover monies in injury-related cases. Notwithstanding this setback, little changed nationwide as other state programs continued to focus on the solvency of their programs through aggressive recovery efforts. This was also made possible by a key question that was not resolved by the Ahlborn Court: how state programs could determine the portion of a settlement that represented “medical care.”
In North Carolina, the state legislature answered this question by allowing their Medicaid program to receive automatic reimbursement for medical expenses of up to one-third of the total recovery.15 This scheme was challenged in a medical malpractice case, Wos v. ex. rel. E.M.A., involving damages exceeding $42 million and a child born with severe cognitive disabilities.16
In its review, the Wos Court was again troubled by a statutory scheme that appeared to give Medicaid programs unfettered access to settlement proceeds. Speaking for a 6-3 majority, Justice Kennedy noted, “Under the Supremacy Clause, ‘[w]here state and federal law ‘directly conflict,’ state law must give way.’ The Medicaid anti-lien provision prohibits a State from making a claim to any part of a Medicaid beneficiary’s tort recovery not ‘designated as payments for medical care.’ (Citations omitted) North Carolina’s statute, therefore, is pre-empted if, and insofar as, it would operate that way.”17 The majority went on to assert that these programs should avoid “irrebuttable presumptions” when considering recovery for medical expenses in injury cases and provide due process protections for beneficiaries based on equitable consideration of the facts of each individual case.18
The holdings in Ahlborn and Wos significantly limited the options state Medicaid had to recover medical expenses paid in injury cases. This forced states to be creative in a number of ways when addressing the ongoing solvency of their Medicaid program:
Medicaid agencies have sought a greater role in cases where medical damages are an issue. This includes all phases of litigation and settlement;
State legislatures have responded to the burdens faced by Medicaid programs by passing mandatory joinder laws in impacted cases; and
States are increasingly willing to accept a negotiated “discount” instead of pursing litigation where issues of causation are highly questionable.
The Federal Government Responds: Medicaid Secondary Payer
Central to the Ahlborn and Wos decisions was the construction of federal laws regarding the rights and responsibilities of parties in injury cases, which served as a barrier to state Medicaid programs in their recovery efforts. Change was needed to address this problem. This change came in the form of amendments to the Social Security Act regarding Medicaid in Section 202 of the Bipartisan Budget Act of 2013,19 or the Medicaid Secondary Payer Act.
Under this new statutory framework, the law that decided Ahlborn has undergone a radical transformation. Effective October 1, 2017, state Medicaid agencies are explicitly permitted to recover funds expended on a beneficiary’s behalf from the entire settlement proceeds by removing language that limited recovery to only “health care items or services.” Now recovery can be against “any payments.”20 This expansive language will require attorneys handling injury cases to adopt new best practices to consider the interests of Medicaid and to protect themselves and their client’s interests.
The efforts to strengthen Medicaid recovery efforts are not limited to the courtroom. On June 1, 2015, CMS proposed rules to assist state Medicaid programs in their recovery efforts.21 These changes were related to existing state Medicaid requirements related to the third-party cases and data match programs for motor vehicle accidents and workers’ compensation claims. Under the proposed streamlined process, states would be given greater flexibility to use technological advancements in their recovery programs.
The Future of Medicaid Secondary Payer Is Here!
Although provisions of the Medicaid Secondary Payer Act do not take full effect until October 2017, its impact is already being felt in how parties settle injury cases. One early example is the state of Rhode Island and the Medical Assistance Intercept System (MAIS).22 Under this innovative program, the state has initiated the following steps to maximize recovery efforts:
Use an electronic data match system to identify Medicaid recipients with pending injury-related claims;
Allow insurance companies and attorneys the option of performing this data match via the Insurance Services Office (ISO) Claim Search or using the MAIS interactive lookup tool;
Intercept payments of $500 or more for reimbursement involving Medicaid beneficiaries in workers’ compensation and personal injury cases; and
Require all insurance companies doing business in Rhode Island to participate in the MAIS Program.23
The National Conference of Insurance Legislators (NCOIL)24 is advocating the adoption of their model legislation to assist in recovery efforts. The Model Act Regarding Medicaid Interception of Insurance Payments is a result of this work. If adopted, it would apply to all workers’ compensation and personal injury claims for medical payments coverage and third party payments for bodily injury from insurers and self-funded primary plans. States such as Kentucky and Mississippi25 have embraced fully this message and have made recent steps to notify interested parties of their proactive recovery efforts.
Medicaid Recovery in Minnesota: Sorting the Bundles of Sticks
The Minnesota Supreme Court has also taken the opportunity to address the complex issue of Medicaid recovery.26 In Martin ex rel. Hoff v. City of Rochester, the court scrutinized the statutory framework of recovery in Medicaid cases under lien and subrogation.27 While the statutes in question did survive judicial scrutiny, clarification was given regarding the state’s ability to recover.
Central to the Court’s analysis were federal anti-lien provisions and the ability of the state to recovery money paid on behalf of an injured Medicaid beneficiary. In doing so, the Martin Court reached conclusions similar to those found in Ahlborn and Wos—the Medicaid program is limited to recovery from the recipient’s medical expenses only.28
In order to illustrate its holding, the Court used the legal concept of a “bundle of sticks.”29 A Medicaid beneficiary in an injury claim holds this bundle, with each stick representing a separate potential right of recovery. Based on federal and state law, the state is able to retain sole ownership of the right to recover medical expenses against any third party.30 On the other hand, the plaintiff does not give away their right to recover for the non-medical portions of their claim. To this extent, beneficiary plaintiffs are able to resolve their tort actions, less any issues related to medical care, without interference by the state.31
The change in federal recovery statutes effective October 1, 2017, will have a radical impact on the future interpretation of Minnesota’s Medicaid recovery statutes. The change in rights of Medicaid programs to recover “any payment(s)” made on a beneficiary’s behalf will subject one’s control over their bundles of sticks to more governmental scrutiny. Failure to understand and adapt to this change will only result in adverse actions against attorneys, and possible adverse actions under state and federal False Claims Acts. The holding in Martin will also be void, as will the judicial determinations in Ahlborn and Wos.
What Minnesota Attorneys Must Know
The Minnesota Department of Human Services (DHS) is the agency responsible for implementation and enforcement of the state Medicaid program. It is paramount for attorneys practicing workers’ compensation and personal injury law in Minnesota to understand how to protect their clients and consider the interests of Medicaid. Existing recovery policies allow the department to monitor workers’ compensation claims under a data match program similar to Rhode Island’s. This process is not in place when it comes to other personal injury claims, including incidents involving beneficiaries in motor vehicle accidents. Future legislative efforts may assist DHS to communicate with the Department of Public Safety to streamline compliance efforts while respecting the privacy rights of individuals.
Under the Minnesota Workers’ Compensation Act, attorneys representing the employee and employers/insurers have an affirmative obligation to make inquiry into potential intervention interests.32 Supporting case law requires the resolution of these claims or the reservation of their rights via disposition at a post-settlement hearing.33 These rights have also been found to be in conformance with state and federal law concerning Medicaid rights of recovery.
Similar obligations of attorneys and pro se litigants arguably exist in other personal injury claims.34 In order to be vigilant on compliance and recovery matters, DHS systems will generate a Medical Service Questionnaire (MSQ) if a beneficiary receives care within specified treatment parameters. A MSQ seeks information about the origins of the injury and to identify responsible parties and potential claims. It is then the responsibility of the beneficiary to respond to this request in a prompt manner.
The greatest impact will likely be seen in non-workers’ compensation cases involving a personal injury. In these instances, the litigants are not subject to the strict statutory confines and settlement procedures. This may result in the need for further scrutiny by DHS and a push for legislative efforts as noted in NCOIL model laws.
Protecting Your Clients through Best Practices
The competing interests of state and federal statutes have complicated the legal practice of attorneys in workers’ compensation and personal injury cases. Now is the time to act before Medicaid recovery efforts go into overdrive. This includes educating all stakeholders about changes coming to the Medicaid recovery process. Failure to implement updated practices could jeopardize your client’s claim and subject attorneys to malpractice actions. Here is what you must do:
Understand the applicable state law (and case law) in your jurisdiction. Medicaid recovery is a right of subrogation and not a “lien” in the traditional sense of the word. Failure to resolve such claims can adversely affect you and your client(s).
Proactively communicate the importance of Medicaid recovery to your client(s) and other stakeholders in the claim. This also includes cooperating with opposing counsel on recovery matters and keeping the appropriate state agencies advised as litigation progresses.
Identify issues concerning Medicaid eligibility or beneficiaries and place the appropriate state agency on notice. Self-reporting is encouraged.
In personal injury cases, attorneys representing injured parties should specify the percentages of claims attributable to medical expenses, including those portions where Medicaid would have a claim, in their settlement agreements.
Promptly pay and resolve claims as part of the settlement process, including claims by state Medicaid agencies.
The Medicaid program plays an increasingly important role in health coverage for Americans. As its scope grows, so will its impact on injury-related claims. This growth will force state Medicaid programs to be aggressive in asserting their recovery rights in claims, which are bolstered by changes in federal law that expand their rights.
Correction: This article has been modified to correct the date on which the Medicaid Secondary Payer Act becomes effective. It is October 1, 2017, not October 1, 2016.
Aaron P. Frederickson is licensed to practice law in Minnesota and Wisconsin. He has practice experience in workers’ compensation, civil litigation, and Medicare/Medicaid-compliance matters. He can be reached at (651) 485-7036.
1 42 C.F.R. §430.0.
2 Id., and 42 U.S.C. § 1396b(a); See Norwest Bank N.D., v. Doth, 159 F.3d 328 (8th Cir. 1998).
3 42 C.F.R. §430.10.
4 Friedman v. Berger, 547 F.2d 724, 727 (2nd Cir. 1976).
5 42 U.S.C. §1396–1.
6 Public Law No. 111-148.
7 42 U.S.C. §1396a(a)(10) et seq.
8 Parashar B. Patel, Centers for Medicare and Medicaid Services, policy memorandum, 7/23/2001.
9 Arkansas Department of Human Services v. Ahlborn, 126 S. Ct. 1752 (2006).
10 Ark. Code Ann. §20-77-301(d)(1) (2001).
11 126 S. Ct. at 1760.
12 Id. at 1761.
13 Id. at 1765.
14 Id. at 1762. The Court noted these limitations are found in several places, including 42 U.S.C. §§1396a(a)(18) and 1396p.
15 N. C. Gen. Stat. Ann. §§108A–57, and 108A–59.
16 Wos v. ex. rel. E.M.A., 133 S. Ct. 1391 (2013).
17 Id. at 1398.
18 See Id. at 1400 – 1401.
19 Public Law No. 113–67. These provisions were to take effect on 10/1/2014, but were delayed two years per Section 211, Public Law No. 113-93.
20 Id. at Section 202, which will be codified at 42 U.S. Code §1396k (a)(1)(A).
21 CMS-2390-P; Medicaid and Children’s Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, Medicaid and CHIP Comprehensive Quality Strategies, and Revisions Related to Third Party Liability.
22 2012 R.I. ALS 241, 2012 R.I. Pub. Laws 241.
23 Additional information about the Rhode Island Medical Assistance Intercept System can be found at: https://ri-mais.com/.
24 According to their website,
“[t]he purpose of NCOIL is to help legislators make informed decisions on insurance issues that affect their constituents and to declare opposition to federal encroachment of state authority to oversee the business of insurance, as authorized under the McCarran-Ferguson Act of 1945.” http://www.ncoil.org/.
25 In Miss. Div. of Medicaid v. Pittman, 171 So. 3d 583, (Miss. Ct. App. 2015), Cert. denied, 2015 Miss. LEXIS 395 (Miss. 2015), the Court rejected the “Made Whole Doctrine” when considering the state Medicaid programs rights. A formal letter from the Mississippi Division of Medicaid was sent to the State Bar on 7/17/2015, as further caution on recovery matters.
26 Martin ex rel. Hoff v. City of Rochester, 642 N.W.2d 1 (Minn. 2002).
27 Id. at 11. The relevant statutes include Minn. Stat. §256B.042, (lien rights) and Minn. Stat. §256B.37 (subrogation).
29 Id. at 26. These “sticks” include pain and suffering, emotional distress, disability, disfigurement, etc.
32 Minn. Stat. §176.361; and Minn. R 1415.1100 et seq.
33 Parker/Lindberg v. Friendship Village, 395 N.W.2d 713 (Minn. 1986).
34 Minn. Stat. §256B.042, subd. 2(c).