In Gallardo v. Dudek, 963 F.3d 1167 (11th Cir. 2020), two issues were raised related to a state Medicaid agency’s recovery process from third party liability settlement: (1) Does federal law preempt State claim to medical paid—both past and future—from third party settlement reached without the State’s consent? (2) Does federal law preempt formula-based recovery on the settlement subject to an administrative review procedure?
A truck struck Plaintiff Gallardo who was exiting a school bus, resulting in catastrophic injuries and a persistent vegetative condition. Florida state Medicaid agency paid more than $862,000 for her treatment. Plaintiff settled with several defendants for $800,000 of which the parties allocated approximately $35,000 to reimburse past medical expenses only. No monies were allocated for future medical expenses. Despite notice of its lien interests, Medicaid apparently was not asked to participate in negotiations, nor agree to the settlement terms. Medicaid rejected the Plaintiff’s proposition.
Federal law essentially limits Medicaid state agency recovery rights to medical-designated portions of the settlement. At issue, Florida’s Medicaid third party liability law which allows the agency to recover based on an automatic formula-- half of the third party recovery (after 25 percent attorney's fees and costs) limited to the total amount provided in medical assistance—which is subject to administrative review.
After discussing conflict preemption principals and finding none existed, the majority of the 11th Circuit found that the State agency was not bound by the parties underlying settlement agreement which unilaterally allocated an amount for medical reimbursements. Further, unlike federal law prohibiting liens against settlement monies not designated for medical care, Florida’s state law limited recovery to Medicaid payments based on a formula subject to administrative review. The 11th Circuit court distinguished both the Ahlborn case where the United States Supreme Court prohibited Arkansas’ Medicaid agency from recovering against settlement monies designated to general damages like pain and suffering, and the Wos case where the Supreme Court also prohibited North Carolina’s Medicaid agency from applying an across the board 1/3 percentage recovery against all settlement monies without an administrative review process. A dissenting justice concluded the State of Florida could now “pocket funds marked for things it never paid for” like future medical expenses. Plaintiff’s petition for rehearing was denied on October 20, 2020. No subsequent appellate procedure is reported yet.
Every State has a different Medicaid recovery procedure. These agencies are becoming more aggressive on reimbursement efforts on both past and future payments. Consider keeping the particular agency regularly and reasonably informed on case progress and resolution negotiations.
Plot your course. Be proactive. Create winning compliance strategies in line with best claims handling procedures and business judgment rule.
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