State Can Seek Recovery of Future Medical Expenses

In Gallardo v. Marstiller (U.S. June 6, 2022 (Google Scholar link)), the U.S. Supreme Court held that a State may seek reimbursement of future medical expenses from injury settlement funds.

Prior to Gallardo, the primary cases governing the extent of a State’s right to seek reimbursement for medical assistance (Medicaid) were Arkansas Dep’t of Health and Human Servs. v. Ahlborn, 547 U.S. 268 and Wos. v. E.M.A., 568 U.S. 627. Those cases interpreted Medicaid’s anti-lien provisions as saying States may only recover the medical expense portion of an injury settlement, as opposed to pain and suffering, lost wages and other property rights recovered. In Gallardo the question was whether States may also recover the portion of an injury settlement allocated to future medical expenses. The Supreme Court held that States may recover from that portion of the settlement or verdict.

The Court found that States must require Medicaid beneficiaries to assign the State “any rights . . . to payment for medicalcare from any third party.” 42 U. S. C. §1396k(a)(1)(A). That assignment permits a State to seek reimbursement from the portion of a beneficiary’s private tort settlement that represents “payment for medical care,” ibid., despite the Medicaid Act’s general prohibition against seeking reimbursement from a beneficiary’s “property,” §1396p(a)(1). States must also enact laws by which they automatically acquire a right to certain third-party payments“for health care items or services furnished” to a beneficiary. §1396a(a)(25)(H). And States must use these (and other) tools to “seek reimbursement” from third parties “to the extent of [their] legal liability” for a beneficiary’s “care and services available under the plan.” §§1396a(a)(25)(A)–(B).

These requirements are limited by the Medicaid Act’s anti-lien provisions. The Act’s “anti-lien provision” prohibits States from recovering medical payments from a beneficiary’s “property.” §1396p(a)(1); see also §1396a(a)(18) (requiring state Medicaid plans to comply with §1396p).

Florida’s statute automatically places a lien on one-half of the amount recovered, less 25% for attorney’s fees, which results in a net presumptive lien of 37.5% of the recovery. Beneficiaries can rebut that presumption by proving with clear and convincing evidence “that the portion of the total recovery which should be allocated as past and future medical expenses is less than the amount calculated by [Florida’s] formula.”

After being struck by a truck in 2008, Gallardo received $862,688.77 in medical assistance, plus another $21,499.30 was paid by private insurance. Gallardo, through her parents, sued the truck’s owner and driver, as well as the Lee County School Board, seeking compensation for past medical expenses, future medical expenses, lost earnings, and other damages. Although Gallardo sought over $20 million in damages, the litigation ultimately settled for $800,000—a 4% recovery. The settlement expressly designated $35,367.52 for past medical expenses (4% of the amount paid by Medicaid) and acknowledged, without designating an amount, that some of the remaining recovery amount represented future medical expenses. Under Florida’s allocation statute, the resumptive amount owed to Medicaid was $300,000. When Gallardo tried to settle that claim for $35,367.52, the State of Florida did not respond. Gallardo then placed $300,000 in escrow and filed suit contending Florida could not recover from amounts allocated to future medical expenses.

The district court granted Gallardo’s motion for summary judgment. The Eleventh Circuit reversed, holding that Florida’s law does not conflict with the anti-lien provisions of the Medicaid Act because those provisions only prohibit a State from asserting a lien against any part of a settlement not ‘designated as payments for medical care.’ The U.S. Supreme Court granted certiorari because the Supreme Court of Florida arrived at the opposite conclusion in Giraldo v. Agency for Health Care Admin., 248 So. 3d 53, 56 (2018).

In affirming the Eleventh Circuit and reversing Giraldo, the Court held that the plain text of §1396k(a)(1)(A) decides this case. This provision requires the State to acquire from each Medicaid beneficiary an assignment of “any rights . . . of the individual . . . to support . . . for the purpose of medical care . . . and to payment for medical care from any third party.” §1396k(a)(1)(A). Nothing in this provision purports to limit a beneficiary’s assignment to “payment for” past “medical care” already paid for by Medicaid. To the contrary, the grant of “any rights . . . to payment for medical care” most naturally covers not only rights to payment for past medical expenses, but also rights to payment for future medical expenses.

The Court rejected Gallardo’s argument that the State might, by recovering from future medical expenses, unjustly share in damages for which it has provided no compensation. The Court held its holding in Ahlborn was dictated by the Medicaid Act’s “text,” not by our sense of fairness. The decision does, however, stop short of concluding the Medicaid recipient made a life-time assignment of his or her rights to the Medicaid program. It concludes that section 1396k(a)(1)(A) only assigns “any rights . . . of the individual” (emphasis added), which is most naturally read as covering those rights “the individual” possesses while on Medicaid. (Emphasis added).

Commentary

The Supreme Court missed the mark in Gallardo. The decision fails to take into account situations where the Medicaid beneficiary left the Medicaid program prior to receiving the recovery and the State clearly did not pay (and would never pay) for future medical assistance. What about situations where the State claims a right to future medical expenses, but the beneficiary dies before receiving services? In those situations, the Court’s so-called logic is mind-boggling and the State is unjustly enriched. Second, the decision sets up future litigation over estate recovery and special needs trust repayment claims. If the State has already been reimbursed for future medical expenses, then it has already been paid; any estate receiving an estate recovery claim, or any trust receiving a reimbursement claim should deny the claim as already paid. Result-oriented decisions like Gallardo, dressed in the guise of “interpreting the plain text,” are a poor substitute for more considered decisions which incorporate common sense. As Justice Sotomayor pointed out in her dissent, the majority undermined Ahlborn, by allowing a recovery it found fundamentally unjust in 2006. Under Gallardo, States may now reimburse themselves for medical care furnished on behalf of a beneficiary not only from the portions of the beneficiary’s settlement representing compensation for Medicaid-furnished care, but also from settlement funds that compensate the Medicaid beneficiary for future medical care for which Medicaid has not paid and might never pay. Further compounding the problem, the Medicaid trust rules don’t envision anything similar to a Medicare Set-Aside Trust to pay future medicals as incurred so unjust enrichment can’t be prevented.