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U.S. Supreme Court Holds North Carolina’s Medicaid Reimbursement Scheme Violated the Medicaid Anti-Lien Provision


An infant was born with multiple serious birth injuries that require her to receive between 12 and 18 hours of skilled nursing care per day and that will prevent her from being able to work, live independently, or provide for her basic needs. North Carolina's Medicaid program pays part of the cost of her ongoing medical care.

 

The infant and her parents filed a medical malpractice suit against the physician who delivered her and the hospital where she was born. They presented expert testimony estimating their damages to exceed $42 million, but they ultimately settled for $2.8 million, due in large part to insurance policy limits. The settlement did not allocate money among their various medical and nonmedical claims.

 

In approving the settlement, the state court placed one-third of the recovery into escrow pending a judicial determination of the amount of the lien owed by the infant to the State. A North Carolina statute requires that up to one-third of any damages recovered by a beneficiary for a tortious injury be paid to the State to reimburse it for payments it made for medical treatment on account of the injury. The infant and her parents then brought a Section 1983 action against the North Carolina Department of Health and Human Services seeking declaratory and injunctive relief in Federal District Court, claiming that the State's reimbursement scheme violated the Medicaid anti-lien provision.

 

While that litigation was pending, the North Carolina Supreme Court held in another case that the nonrebuttable statutory one-third presumption was a reasonable method for determining the amount due the State for medical expenses. The Federal District Court, in the instant case, agreed. But the Fourth Circuit vacated and remanded, concluding that the State's statutory scheme could not be reconciled with earlier case law.

 

In the earlier case, the court held that the federal Medicaid statute sets both a floor and a ceiling on a State's potential share of a beneficiary's tort recovery. Federal law requires an assignment to the State of the right to recover that portion of a settlement that represents payments for medical care. But, it also precludes attachment or encumbrance of the remainder of the settlement. The earlier case, did not, however, resolve the question of how to determine what portion of a settlement represents payment for medical care.

In this case, the United States District Court for the Western District of North Carolina granted summary judgment in favor of the state. The United States Court of Appeals for the Fourth Circuit vacated and remanded. Certiorari was granted.

 

The Supreme Court affirmed the Fourth Circuit Court of Appeals. The Court held that the North Carolina statute governing the State's reimbursement from the proceeds of tort damages recovered by a Medicaid beneficiary is preempted by the federal Medicaid anti-lien provision to the extent that the North Carolina statute can be interpreted as creating a conclusive presumption that one-third of a Medicaid beneficiary's tort recovery represents compensation for medical expenses.

 

The Court noted that the Medicaid statutes set both a floor and a ceiling on a state's potential share of a beneficiary's tort recovery, by requiring an assignment to the state of the right to recover that portion of a settlement that represents payments for medical care, but also precluding attachment or encumbrance of the remainder of the settlement. 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.

 

The court abrogated prior case law and concluded that the North Carolina statute governing the State's reimbursement from the proceeds of tort damages recovered by a Medicaid beneficiary is preempted by the federal Medicaid statute's anti-lien provision, to the extent that the North Carolina statute can be interpreted as creating a conclusive presumption that one-third of a Medicaid beneficiary's tort recovery represents compensation for medical expenses.

 

See: Wos v. E.M.A. ex rel. Johnson, 2013 WL 1131709, 13 Cal. Daily Op. Serv. 3058, (U.S., March 20, 2013) (not designated for publication).

 

 

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