ARKANSAS DEPARTMENT OF HEALTH AND HUMAN SERVICES et al. v. AHLBORN
certiorari to the united states court of appeals for the eighth circuit
Federal Medicaid law requires participating States to “ascertain the legal liability of third parties … to pay for [an individual benefits recipient’s] care and services available under the [State’s] plan,” 42 U. S. C. §1396a(a)(25)(A); to “seek reimbursement for [medical] assistance to the extent of such legal liability,” 1396a(a)(25)(B); to enact “laws under which, to the extent that payment has been made … for medical assistance for health care items or services 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,” §1396a(a)(25)(H); to “provide that, as a condition of [Medicaid] eligibility … , the individual is required … (A) to assign the State any rights … to payment for medical care from any third party; … (B) to cooperate with the State … in obtaining [such] payments … and … (C) … in identifying, and providing information to assist the State in pursuing, any third party who may be liable,” 1396k(a)(1). Finally, “any amount collected by the State under an assignment made” as described above “shall be retained by the State … to reimburse it for [Medicaid] payments made on behalf of” the recipient. §1396k(b). “[T]he remainder of such amount collected shall be paid” to the recipient. Ibid. Acting pursuant to its understanding of these provisions, Arkansas passed laws under which, when a state Medicaid recipient obtains a tort settlement following payment of medical costs on her behalf, a lien is automatically imposed on the settlement in an amount equal to Medicaid’s costs. When that amount exceeds the portion of the settlement representing medical costs, satisfaction of the State’s lien requires payment out of proceeds meant to compensate the recipient for damages distinct from medical costs, such as pain and suffering, lost wages, and loss of future earnings.
Following respondent Ahlborn’s car accident with allegedly negligent third parties, petitioner Arkansas Department of Health Services (ADHS) determined that Ahlborn was eligible for Medicaid and paid providers $215,645.30 on her behalf. She filed a state-court suit against the alleged tortfeasors seeking damages for past medical costs and for other items including pain and suffering, loss of earnings and working time, and permanent impairment of her future earning ability. The case was settled out of court for $550,000, which was not allocated between categories of damages. ADHS did not participate or ask to participate in the settlement negotiations, and did not seek to reopen the judgment after the case was dismissed, but did intervene in the suit and assert a lien against the settlement proceeds for the full amount it had paid for Ahlborn’s care. She filed this action in Federal District Court seeking a declaration that the State’s lien violated federal law insofar as its satisfaction would require depletion of compensation for her injuries other than past medical expenses. The parties stipulated, inter alia, that the settlement amounted to approximately one-sixth of the reasonable value of Ahlborn’s claim and that, if her construction of federal law was correct, ADHS would be entitled to only the portion of the settlement ($35,581.47) that constituted reimbursement for medical payments made. In granting ADHS summary judgment, the court held that under Arkansas law, which it concluded did not conflict with federal law, Ahlborn had assigned ADHS her right to recover the full amount of Medicaid’s payments for her benefit. The Eighth Circuit reversed, holding that ADHS was entitled only to that portion of the settlement that represented payments for medical care.
Held: Federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn’s settlement in an amount exceeding $35,581.47, and the federal anti-lien provision affirmatively prohibits it from doing so. Arkansas’ third-party liability provisions are unenforceable insofar as they compel a different conclusion. Pp. 9–23.
(a) Arkansas’ statute finds no support in the federal third-party liability provisions. That ADHS cannot claim more than the portion of Ahlborn’s settlement that represents medical expenses is suggested by §1396k(a)(1)(A), which requires that Medicaid recipients, as a condition of eligibility, “assign the State any rights … to payment for medical care from any third party” (emphasis added), not their rights to payment for, e.g., lost wages. The other statutory language ADHS relies on is not to the contrary, but reinforces the assignment provision’s implicit limitation. First, statutory context shows that §1396a(a)(25)(B)’s requirement that States “seek reimbursement for [medical] assistance to the extent of such legal liability” refers to “the legal liability of third parties … to pay for care and services available under the plan,” §1396a(a)(25)(A) (emphases added). Here, because the tortfeasors accepted liability for only one-sixth of Ahlborn’s overall damages, and ADHS has stipulated that only $35,581.47 of that sum represents compensation for medical expenses, the relevant “liability” extends no further than that amount. Second, §1396a(a)(25)(H)’s requirement that the State enact laws giving it the right to recover from liable third parties “to the extent [it made] payment … for medical assistance for health care items or services furnished to an individual” does not limit the State’s recovery only by the amount it paid out on the recipient’s behalf, since the rest of the provision makes clear that the State must be assigned “the rights of [the recipient] to payment by any other party for such health care items or services.” (Emphasis added.) Finally, §1396k(b)’s requirement that, where the State actively pursues recovery from the third party, Medicaid be reimbursed fully from “any amount collected by the State under an assignment” before “the remainder of such amount collected” is remitted to the recipient does not show that the State must be paid in full from any settlement. Rather, because the State’s assigned rights extend only to recovery of medical payments, what §1396k(b) requires is that the State be paid first out of any damages for medical care before the recipient can recover any of her own medical costs. Pp. 9–13.
(b) Arkansas’ statute squarely conflicts with the federal Medicaid law’s anti-lien provision, §1396p(a)(1), which prohibits States from imposing liens “against the property of any individual prior to his death on account of medical assistance paid … on his behalf under the State plan.” Even if the State’s lien is assumed to be consistent with federal law insofar as it encumbers proceeds designated as medical payments, the anti-lien provision precludes attachment or encumbrance of the remainder of the settlement. ADHS’ attempt to avoid the anti-lien provision by characterizing the settlement proceeds as not Ahlborn’s “property,” but as the State’s, fails for two reasons. First, because the settlement is not “received from a third party,” as required by the state statute, until Ahlborn’s chose in action has been reduced to proceeds in her possession, the assertion that any of the proceeds belonged to the State all along lacks merit. Second, the State’s argument that Ahlborn lost her property rights in the proceeds the instant she applied for medical assistance is inconsistent with the creation of a statutory lien on those proceeds: ADHS would not need a lien on its own property. Pp. 13–17.
(c) The Court rejects as unpersuasive ADHS’ and the United States’ arguments that a rule permitting a lien on more than medical damages ought to apply here either because Ahlborn breached her duty to “cooperate” with ADHS or because there is an inherent danger of manipulation in cases where the parties to a tort case settle without judicial oversight or input from the State. As §1396k(a)(1)(C) demonstrates, the duty to cooperate arises principally, if not exclusively, in proceedings initiated by the State to recover from third parties. In any event, the aspersions cast upon Ahlborn are entirely unsupported; all the record reveals is that ADHS neither asked to be nor was involved in the settlement negotiations. Whatever the bounds of the duty to cooperate, there is no evidence that it was breached here. Although more colorable, the alternative argument that a rule of full reimbursement is needed generally to avoid the risk of settlement manipulation also fails. The risk that parties to a tort suit will allocate away the State’s interest can be avoided either by obtaining the State’s advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision. Pp. 17–19.
(d) Also rejected is ADHS’ contention that the Eighth Circuit accorded insufficient weight to two decisions by the Departmental Appeals Board (Board) of the federal Department of Health and Human Services (HHS) rejecting appeals by two States from denial of reimbursement for costs they paid on behalf of Medicaid recipients who had settled tort claims. Although HHS generally has broad regulatory authority in the Medicaid area, the Court declines to treat the Board’s reasoning in those cases as controlling because they address a different question from the one posed here, make no mention of the anti-lien provision, and rest on a questionable construction of the federal third-party liability provisions. Pp. 19–23.
397 F. 3d 620, affirmed.
Stevens, J., delivered the opinion for a unanimous Court.