Medicaid and Medicare Liens in Personal Injury Settlements: NAELA News

copyright 2009 Lawrence A. Friedman

Medicaid and Medicare participants normally are not required to repay benefits while living [42 U.S.C. 1396p(a)] although Medicaid can recoup some benefits from certain participants’ assets upon death [42 U.S.C. 1396p(b)]. Thus, federal law generally prohibits claims against a Medicaid participant for properly paid benefits even if a Medicaid participant subsequently realizes a substantial windfall. Federal law even limits estate recovery to Medicaid benefits provided after a Medicaid participant reaches age 55. [42 U.S.C. 1396p(b)(1)(B)]

Claims Against Litigation Awards

At first blush, it could appear that tort victims shouldn’t face Medicaid liens. However, cases permit Medicaid to claim against personal injury recoveries for health care occasioned by a tort. In Cricchio v. Pennisi and Link v. Town of Smithtown, 90 N.Y.2d 296 (N.Y. 1997) New York’s Court of Appeals first enunciated the accepted rationale that Medicaid recovery from a personal injury award is against the tortfeasor rather than the Medicaid recipient. Although a bit strained, this reasoning is logical to an extent. Since personal injury damages seek to make a victim whole, the tortfeasor pays some damages to cover medical expenses necessitated by the tort.

Although beyond the scope of this article, state benefit programs also may call for recovery of prior benefits, but without Medicaid and Medicare limitations. For instance, while Medicaid and Medicare cannot recoup properly paid prior benefits from an inheritance, states may intercept all kinds of receipts to recover state funded room, board and other costs to reside in a group home or state psychiatric hospital decades ago.

The Medicare Secondary Payer Act (“MSP Act”) [42 U.S.C. 1395y(b)(2)(B)(ii)] provides that Medicare need not fund care for which a third party has liability. Thus, Medicare won’t pay for care covered by a health or accident insurance policy that is primary to Medicare. Similarly, Medicare isn’t responsible for treatments necessitated by a tort or a work injury covered by worker compensation. Nevertheless, per the MSP Act, Medicare typically covers care where third party responsibility is unclear or disputed but demands repayment from a tort or worker compensation award.

State Medicaid laws [e.g. N.J.S. 30:4D-7.1] and the MSP Act require notice of recoveries and repayment of Medicaid claims. Therefore, persons who disburse a litigation recovery without first satisfying Medicaid and Medicare repayment claims may have personal liability and owe interest. MSP Act regulations [42 C.F.R. § 411.24(g)] explicitly provide for attorney liability, and the recent case of US v. Harris (U.S,DC. N.D. West Va. No. 5:09CV102, March 26, 2009) confirms that the government won’t hesitate to pursue attorneys who ignore Medicare repayment rights when disbursing personal injury claims. State laws may impose similar liabilities on lawyers who don’t resolve claims for group home and other state liens.

Calculating Medicaid and Medicare Recoveries

Federal law clearly authorizes Medicaid and Medicare to recover from certain litigation recoveries, but federal law doesn’t spell out the appropriate methodology to calculate government claims. In the Medicare arena, CMS maintains that it may recover against an entire award, but some practitioners argue that Medicare claims should be limited to damages intended to compensate for healthcare costs. However, unless and until a court rules against CMS, a lawyer who limits Medicare repayment to the medicals portion of damages, risks personal liability to CMS for the remaining Medicare claim.

Since New York’s Court of Appeals’ seminal ruling in Cricchio v. Pennisi and Link v. Town of Smithtown, 90 N.Y.2d 296 (N.Y. 1997), many states have maintained that Medicaid may recover costs occasioned by a tort from an entire personal injury award. However, in Arkansas Department of Health and Human Services, et al. v. Ahlborn, 547 U.S. 268 (2006), the Supreme Court held that Medicaid may tap only damages that compensate for medicals. Because damages were stipulated in Ahlborn, the Supreme Court left it to others to say how to allocate damages between Medicaid reachable medical damages and other items like pain and suffering and lost wages. Nevertheless, the Supreme Court did include dicta indicating that states could intervene in personal injury claims or the courts could apply a reasonable approach to determine allocations. Consequently, lawyers should be careful to build a case in settlement documents when seeking to limit repayment where a Medicaid claim may exceed a fair share of the overall award.

Provision for Future Care

The Centers for Medicare and Medicaid Services (“CMS”) has issued detailed procedures requiring exhaustion of worker compensation medical damages payments for future treatments before Medicare will cover treatments of work injuries. Because employees who miscalculate the amount Medicare would require to be paid toward care due to a worker compensation award could be left with no coverage, CMS developed a procedure that avoids any interruption of coverage. A Medicare set-aside amount is calculated per Medicare regulations, submitted to CMS for approval and then earmarked for future treatments of the work related injury. In turn, the set-aside funds must be spent solely for treatments that would be funded by Medicare if they weren’t occasioned by the work accident. While Medicare set-aside calculations may appear mechanical, in some cases, careful design can result in less being set-aside and more distributed to the injured client.

Because the MSP Act does not distinguish between worker compensation carriers and other who may have liability for a Medicare participant’s medicals, CMS would appear to have similar authority to require tort victims to apply damages for future medicals toward future care arising from a tort. However, CMS has not promulgated guidance on coordinating Medicare benefits with tort recoveries and generally hasn’t forced tort recoveries to pay future medicals.

At this point, it is not clear whether, when, and how Medicare may require tort recoveries to fund future care relating to personal injuries. However, CMS is promulgating requirements for liability insurers to submit data that CMS could use to track liability if CMS extends the worker compensation model to personal injury recoveries. As this uncertainty obviously wreaks havoc in the personal injury bar and liability insurance industries, it seems likely that CMS will clarify its position eventually. In the meantime, it seems prudent to calculate the portion of a personal injury award that could be required to fund future care if CMS should apply the worker compensation rubric to tort recoveries and advise the client to retain that amount until CMS clarifies its position.

Lawrence A. Friedman maintains his law office in Bridgewater, New Jersey (908-704-1900). He is a former chair of the New Jersey State Bar Association Elder & Disabilities Law Section and a consultor to its Real Property, Trusts and Estates Law Section and received the NJSBA’s Distinguished Legislative Service Award for writing legislation to further special needs trusts in New Jersey. Friedman has been Certified as an Elder Law Attorney by the A.B.A. approved National Elder Law Foundation and frequently presents continuing education programs for other lawyers. He often lectures and writes on special needs, elder law, wills, estates, trusts, government benefits, guardianships, and tax law. He received his LL.M. in Taxation and J.D. from New York University School of Law.

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