Delia v. E.M.A.

E.M.A., a minor, suffered catastrophic injuries during her birth due to the physician's negligence during delivery. As part of its Medicaid program, North Carolina paid for E.M.A.’s medical expenses upon her mother’s agreement to reimburse the Medicaid program for any recovery gained from a third party to cover E.M.A.’s medical expenses. When E.M.A. settled her claim against the physician for a fraction of her medical costs, North Carolina attached a lien equal to one third of the total settlement. In this case, the Supreme Court will resolve a conflict between the North Carolina Supreme Court and the United States Court of Appeals for the Fourth Circuit.  The Court will decide whether a North Carolina law that allows the North Carolina Department of Health and Human Services (“DHHS”) to assert a lien against a Medicaid recipient's recovery from a third party, when limited to the lesser of either the total amount of medical expenses or one third of the Medicaid recipient’s total settlement amount, violates the "no-lien" provision of the Medicaid Act. DHHS argues that the North Carolina statute is consistent with the Medicaid Act’s no-lien provision because it operates as an advanced agreement to apportion one third of the settlement toward medical expenses.  E.M.A. responds that the statute violates the Medicaid Act because it allows DHHS to recover a proportion of the settlement that is greater than her medical expenses.  This case will allow the Court to balance the interest that States have in maintaining solvent Medicaid programs against the interests of Medicaid claimants who fail to recover sufficient damages from third-parties to cover their medical costs.

Questions as Framed for the Court by the Parties: 

Whether N.C. Gen. Stat. § 108A-57 is preempted by the Medicaid Act's anti-lien provision as it was construed in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006), an issue on which the North Carolina Supreme Court and the United States Court of Appeals for the Fourth Circuit are in conflict.

Issue

Does N.C. Gen. Stat. §108A-57 violate the anti-lien provision of the Medicaid Act as it was interpreted in Arkansas Department of Health and Human Services v. Ahlborn?

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Facts

E.M.A. was born on February 21, 2003, with psychological conditions and physical injuries that require her to have twelve to eighteen hours of skilled nursing care daily. E.M.A. v. Cansler, 674 F.3d 290, 293 (4th Cir. 2012). E.M.A.’s mother, Sandra Armstrong, applied for Medicaid benefits on E.M.A.’s behalf and agreed to pay the State any insurance money she or anyone listed on the application received in order to pay for medical and hospital bills Medicaid had or would cover. Id. Armstrong also agreed to notify the county department of social services if she or anyone listed on the application was involved in an accident, and to pay the State medical and support payments paid or owed to her or anyone listed on the application due to a court order, including accident-related insurance settlements. Id.

On February 21, 2003, E.M.A. and her parents filed a medical malpractice suit, seeking damages on E.M.A.’s behalf for injuries, lost wages, pain and suffering, and future medical expenses beginning at adulthood. E.M.A., 674 F.3d at 293. E.M.A.’s parents also filed claims for E.M.A.’s past and future medical expenses through her eighteenth birthday and damages for their emotional distress. Id. The parties settled after the North Carolina Department of Health and Human Services (“DHHS”) had, with E.M.A.’s parents’ knowledge, paid over $1.9 million for E.M.A.’s medical care, which entitled DHHS to a lien on the settlement. See id.

The settlement was reviewed at a hearing on November 13, 2006. Id. Although E.M.A.’s parents claim they served DHHS with notice of the hearing, no DHHS representative attended. E.M.A., 674 F.3d at 294. Although the presiding judge approved the settlement, the settlement funds were not allocated among the distinct claims or categories of damages. Id. Instead of determining the amount of DHHS’s lien on the settlement, the presiding judge ordered that the maximum potential lien amount, one-third of the lump-sum settlement totaling $933,333.33, be paid into an interest bearing account in the Catawba County Clerk of Court's Office until the actual amount could be determined. Id.

On March 23, 2007, E.M.A. filed suit in the United States District Court for the Western District of North Carolina against DHHS under 42 U.S.C. § 1983, alleging a deprivation of her rights under 42 U.S.C. § 1396p and the Fourteenth Amendment’s Equal Protection Clause. E.M.A., 674 F.3d at 294. E.M.A.’s complaint requested a declaratory judgment determining the following: (1) that DHHS did not have a lien on her portion of the settlement or, alternatively, the amount of the lien; (2) North Carolina third-party liability statutes are unconstitutional under the Supremacy Clause because they allowed DHHS to assert a lien on settlement funds paid in lieu of damages for non-medical expense claims; and (3) enjoining DHHS from enforcing North Carolina third-party liability statutes in violation of 42 U.S.C. §§ 1396-1396(v), the Supreme Court’s decision in Arkansas v. Department of Human Services v. Ahlborn, and the Equal Protection Clause. Id. at 294–95. E.M.A.'s parents joined as plaintiffs and filed cross-motions for summary judgment simultaneously with E.M.A. and DHHS. Id. at 295. The district court granted DHHS’ motion for summary judgment and dismissed E.M.A.'s case with prejudice, entitling DHHS to $933,333.33. Id.

E.M.A. and her parents appealed to the Fourth Circuit Court of Appeals, which vacated and remanded the case after finding that DHHS could assert a lien against E.M.A.’s portion of the settlement, but that the amount allocable to medical expenses in cases involving an unallocated lump-sum settlement exceeding the state's Medicaid expenditures must be determined through an adversarial procedure allowing the Medicaid beneficiary to rebut the State’s claim to one-third of the lump-sum settlement. E.M.A., 674 F.3d at 312. DHHS filed a petition for writ of certiorari on July 20, 2012, which the Supreme Court granted on September 20, 2012.

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Discussion

Fairness to Medicaid Recipients and the State

The United States argues that N.C. Gen. Stat. §108A-57 (the “Statute”) is unfair to Medicaid recipients who recover from third parties because it fails to provide recipients with individualized consideration to determine how much of a settlement is allocable to medical expenses despite the fact that medical costs can vary greatly from case to case and counsel contingency fees are usually derived from participants’ settlement amounts. See Brief of Amicus Curiae the U.S. in Support of Respondents at4–5, 10, 27. Moreover, the Federation of Defense and Corporate Counsel (“FDCC”) maintains that the Statute disadvantages Medicaid claimants by failing to provide special consideration for recipients, such as E.M.A., who are forced to settle for the amount of compensation that is available rather than the amount that adequately covers their medical expenses. See Brief of Amicus Curiae the Federation of Defense and Corporate Counsel (“FDCC”) in Support of Respondents at 6–7, 16–17.

The National Governors Association (“NGA”) counters that the Statute’s default reimbursement amount is not unfair to Medicaid claimants because the Statute allows parties to a settlement to make a good faith allocation of medical expenses, which subsequently limits the North Carolina Department of Health and Human Services’ (“DHHS”) recovery to that amount. SeeBrief of Amicus Curiae the National Governors Association (“NGA”), National Conference of State Legislatures, Council of State Governments, National Association of Counties, International City/County Management Association, National League of Cities, United States Conference of Mayors, Government Finance Officers Association, and the City of New York in Support of Petitioner at 14–15 [hereinafter Brief of NGA].

The FDCC argues that, since medical costs cannot be accurately measured, the Statute allows DHHS to claim a portion of a Medicaid recipient’s settlement regardless of whether it is, in fact, attributable to medical expenses. See Brief of FDCC at 16. Moreover, the FDCC contends that the Statute fails to provide Medicaid recipients with the procedural safeguards provided by settlement negotiations or trial when determining medical costs. See id. at 3–4.

Texas, Alabama, Georgia, Hawaii, Idaho, Indiana, Michigan, Nebraska, New Mexico, Ohio, and South Carolina (collectively the “States”) maintain that, since it is impossible for anyone to accurately determine medical costs, allowing judges and arbitrators to ascertain these costs would fail to adequately protect Medicaid recipients from arbitrary claims made by DHHS. Brief of Amicus Curiae Texas, Alabama, Georgia, Hawaii, Idaho, Indiana, Michigan, Nebraska, New Mexico, Ohio, and South Carolina in Support of Petitioner at 15–16 [hereinafter Brief of the States].  Thus, the States contend that North Carolina must provide its own mechanism to determine how much DHHS can reasonably recover by simultaneously balancing existing policy considerations and preventing the parties to a settlement from allocating an artificially low amount to medical expenses. See id. at9–11, 15–17.  The States conclude that the Statute does not unfairly burden Medicaid claimants because it limits DHHS’ recovery to the amount that can reasonably be attributed to the Medicaid recipient’s medical costs. See id. at 16.

In direct opposition to the States, AARP and the Constitutional Accountability Center argue that the Statute is void because it fails to adequately protect the pecuniary interests of its Medicaid recipient constituents. See Brief of Amicus Curiae AARP and Constitutional Accountability Center in Support of Respondents at 6–7. The FDCC specifically asserts that the Statute is unfair to Medicaid recipients because it allows DHHS to exercise its subrogation rights after the recipients bear all the cost and risk associated with recovery and, thus, allows DHHS to unfairly profit from claimants’ efforts to seek third-party recovery. See Brief of FDCC at4., 7.

The NGA counters that providing Medicaid benefits is expensive and that these costs are becoming more difficult for states to cover due to the increasing number of U.S. citizens who rely on Medicaid and the States’ shrinking budget to cover Medicaid expenses. Brief of NGA at 3–7. Thus, the NGA maintains that recovering medical costs from Medicaid recipients who recover from third parties is one of the only ways through which DHHS can defray Medicaid costs. Id.  

Burden on the Judicial System

The FDCC notes that the already strained court system will face even greater financial stress if DHHS acquires automatic default judgments on settlements because Medicaid beneficiaries will be less willing to settle cases out of court. See Brief of FDCC at 4–5, 8, 12, 17–19. The U.S. attributes this decreased likelihood to settle to the fact that the cost of out-of-court settlements will be almost equal to the cost of litigation. Id. at 4–5, 10–13. Moreover, according to the American Association for Justice and the North Carolina Advocates for Justice, granting DHHS automatic default judgments on settlements will ultimately disincentivize Medicaid recipients who would otherwise seek recovery from third parties and thus deprive the state Medicaid agency from any recovery. Brief of Amicus Curiae American Association for Justice and the North Carolina Advocates for Justice in Support of Respondents at 25.

The NGA maintains that granting DHHS a reasonable default recovery will save the North Carolina judicial system the additional economic and efficiency costs by not requiring DHHS to participate in settlement talks and post-settlement hearings that, at best, provide minimal benefits to the parties involved. Brief of NGA at 3–4, 11–13.

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Analysis

Petitioner, the North Carolina Department of Health and Human Services ("DHHS") contends that N.C. Gen. Stat.  §108A-57 does not violate the anti-lien provision of the Medicaid Act because it limits the lien to past paid medical bills and never more than one third of any recovery against a third person. Brief for Petitioner, North Carolina Department of Health and Human Services, at 14. Respondent, E.M.A., argues that § 108A-57 violates the anti-lien provision according to definition the Supreme Court of the United States offered in Arkansas Department of Health and Human Services v. Ahlborn. Brief for Respondent, E.M.A., at 9–11.

Anti-Lien Provision and the Ahlborn Decision

DHHS asserts that §108A-57 does not violate the anti-lien provision because it is consistent with the goals of the Medicaid Act, and it involves a different issue than that in the Supreme Court's Ahlborn decision. Brief for Petitioner at 17. DHHS contends that in Ahlborn, the Supreme Court decided only the narrow question of whether a state may attach a lien on a settlement exceeding the portion of the settlement that the parties agreed represented past medical expenses. Id. at 17. In this case, unlike in Ahlborn, the parties did not agree on the portion of the settlement that represented medical expenses. Id. at 17. DHHS argues that the state uses the lien in order to secure its right to reimbursement when recipients recover money for those expenses from third parties in tort cases. Id. at 18. DHHS argues that the Medicaid Act requires states to seek this reimbursement, and the Court in Ahlborn approved of states using special procedures to recover their expenses. Id. at 18. Specifically, DHHS contends that the Court in Ahlborn allowed the states to fashion their own recovery procedures, and that the post-settlement hearing required by the Fourth Circuit was only a suggestion in Ahlborn, not a requirement. Id. at 19. Finally, DHHS contends that the limitation to one third of the settlement operates as an advance agreement by the recipient to allocate that proportion of any settlement to medical expenses. Id. at 24.

E.M.A. responds that §108A-57 violates the anti-lien provision of the Medicaid Act because it operates as an "irrebuttable presumption" that imposes liens on settlements in excess of the amount that represents medical expenses. Brief for Respondent at 15–16. E.M.A. argues that rather than a narrow question, the Ahlborn decision broadly prohibits statutes that attach proportions of settlements in excess of the portion of it devoted to medical care, whether or not the parties agreed to a specific proportion. Id. at 19. E.M.A. also contends that the language in Ahlborn allowing states to adopt special procedures does not apply to this case because there is no risk of settlement manipulation. Id. at 31–32. Finally, E.M.A. asserts that the language of Ahlborn requires a post-settlement hearing to determine the proportion of a settlement that represents medical expenses and therefore the Fourth Circuit was correct to require a hearing in this case. Id. at 32–33.

Medicaid and Tort Law

DHHS also asserts that states traditionally control tort law, and, thus, they should be able to impose conditions on tort recoveries within the state. Brief for Petitioner at 21. Specifically, DHHS contends that states have the power to create or disallow claims and cap damages. Id.According to DHHS, the ability to impose a Medicaid lien is part of that power. Id.Moreover, DHHS argues that §108A-57 is consistent with the longstanding North Carolina tradition of adapting tort settlements in order to secure its rights to reimbursement from parties who benefited from state funded programs.  Id. at 23.

E.M.A. contends that DHHS's reliance on the traditional state control of tort law is misplaced. Brief for Respondent at 20. First, E.M.A. argues that the Medicaid lien is not a product of tort law but rather that of property rights. Id. at 21. E.M.A. also claims that these liens can apply to any case that involves medical expenses paid by Medicaid, including federal claims that state law does not create or control. Id.Finally, E.M.A. asserts that this case does not involve North Carolina substantive law, and even if it did, the lien provision would still need to be consistent with the Medicaid Act or it would be preempted under federal law. Id.

Approval by the Centers for Medicare and Medicaid Services

DHHS argues that the federal agency responsible for administering the Medicaid program, the Centers for Medicare and Medicaid Services ("CMS"), approved of North Carolina's procedure for attaching liens against settlements. Brief for Petitioner at 34. DHHS contends that CMS is responsible for overseeing a state's plan to pursue reimbursement from third parties. Id.According to DHHS, CMS has declared that North Carolina's procedures are consistent with the Medicaid Act. Id.Moreover, CMS asserts that the agency approved of the North Carolina Supreme Court's decision in Andrews v. Haygood, which found that the procedure was consistent with the Medicaid Act and the Ahlborn opinion. Id.Because CMS approves of the procedure, DHHS argues that CMS's interpretation of the Medicaid Act allowing §108A-57 is entitled to deference from the Court because it is an agency interpretation delegated to it by Congress under the Chevron doctrine. Id.at 34–35.  Finally, DHHS argues that the Fourth Circuit misread a CMS memorandum to support its holding that §108A-57 conflicted with the Ahlborn decision. Id.Instead, DHHS claims that the CMS memorandum approved of laws that provide a "special allocation" for damages, and that allow parties to compromise claims only by approval from the state. Id. at 35. According to DHHS, 108A-57 is such a law. Id.

E.M.A. responds that the CMS opinion is not entitled to court deference as an agency interpretation of the law under the Chevron doctrine. Brief for Respondent at 33. First, E.M.A. asserts that DHHS has not indicated any official agency statement or affidavit produced by CMS that is entitled to Chevron deference. Id. at 34. E.M.A. argues that the CMS letter that DHHS cites does not rise to the level of a formal opinion. Id.Because this document lacks the force of law, E.M.A. contends that it is not entitled to deference from the Court. Id. Second, E.M.A. argues that the CMS opinion is not entitled to deference because it is inconsistent with clear congressional intent. Id. at 35. E.M.A. argues that the Medicaid Act unambiguously prevents states from attaching liens on Medicaid recipients' tort settlements in excess of the proportion that represents medical care. Id. Finally, E.M.A. claims that the Ahlborn court refused to give deference to the agency's interpretation in that case because, like here, the agency's interpretation was contrary to clearly expressed Congressional intent. Id. 

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Conclusion

In this case, the Supreme Court will resolve a conflict between the North Carolina Supreme Court and the United States Court of Appeals for the Fourth Circuit by further defining the parameters of the "no-lien" provision of the Medicaid Act.  This decision will guide states in crafting fair procedures to ensure they receive reimbursement for Medicaid expenses, as required by the Medicaid Act, while not unfairly disadvantaging Medicaid claimants who are unable to recover sufficient damages from third parties to cover their total medical costs. E.M.A. argues that §108A-57 violates the Medicaid Act according to the Ahlborn decision because it attaches a lien against a settlement in excess of the amount allocated to medical costs.  DHHS contends that the Medicaid Act does not forbid §108A-57 because the statute limits the lien to no more than one third of the settlement and operates as an advance agreement to allocate that proportion of the settlement to medical costs. 

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