E.M.A v. Lanier CanslerE.M.A v. Lanier Cansler
COUNSEL
ARGUED: William Bernard Bystrynski, KIRBY & HOLT, LLP, Raleigh, North Carolina, for Appellants. Belinda Anne Smith, NORTH CAROLINA DEPARTMENT OF JUSTICE, Raleigh, North Carolina, for Appellee. ON BRIEF: C. Mark Holt, KIRBY & HOLT, LLP, Raleigh, North Carolina; Jeffrey T. Mackie, SIGMON, CLARK, MACKIE, HUTTON, HANVEY & FERRELL, PA, Hickory, North Carolina, for Appellants. Roy Cooper, North Carolina Attorney General, Raleigh, North Carolina, for Appellee.
OPINION
DAVIS, Circuit Judge:
Under federal law, states participating in the Medicaid program are obligated (with some exceptions) to seek reimbursement from third-party tortfeasors for health care expenditures made on behalf of Medicaid beneficiaries who are tort victims. At the same time, however, states are prohibited (with some exceptions) from seeking reimbursement “from the personal property of” Medicaid beneficiaries themselves for health care expenditures made on behalf of those beneficiaries. But what if the injured Medicaid beneficiary obtains a judgment against (or enters into a settlement agreement with) the tortfeasor? Under such circumstances, what constraints are imposed as to how the state may satisfy its mandatory claim for reimbursement? In Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006), the Supreme Court provided considerable guidance in resolving this tension in the Medicaid law. The instant appeal requires us to apply the teachings of Ahlborn to the Medicaid program as it is administered in North Carolina.
The minor appellant, E.M.A., sustained serious injuries at birth due to the negligence of the medical professionals who attended to her delivery. As a result of E.M.A.’s injuries, the North Carolina Department of Health and Human Services (“DHHS“), through the state Medicaid program, paid more than $1.9 million in medical and health care expenses on her behalf. Meanwhile, E.M.A., through her guardian ad litem, and her parents, Sandra and William Earl Armstrong, individually (hereafter “Appellants“), instituted a medical malpractice action in state court. In due course, they settled the action for a lump sum of approximately $2.8 million (a sum in excess of the total Medicaid expenditures of approximately $1.9 million but well below the full value of all the tort claims). The settlement agreement did not allocate separate amounts for past medical expenses and other damages.
DHHS subsequently asserted a statutory lien on the settlement proceeds pursuant to
Appellants brought this action in federal district court against Lanier M. Cansler, in his official capacity as Secretary of DHHS, seeking declaratory and injunctive relief pursuant to
For the reasons set forth within, we disagree, respectfully, with the analysis of the Supreme Court of North Carolina, as adopted by the district court. Rather, in agreement with one of our sister circuit courts analyzing an analogous state law, we are persuaded that the unrebuttable presumption inherent in the one-third cap on the state’s recovery imposed by the North Carolina third-party liability statutes is in fatal conflict with federal law. Accordingly, we vacate the judgment in favor of the Secretary and remand this action for further proceedings consistent with this opinion.
I
A
E.M.A. was born on February 25, 2000 with injuries that necessitated substantial medical treatment. As a result of the injuries she suffered at birth, E.M.A. is legally deaf and blind, and she is unable to sit, walk, crawl, or talk. Additionally, E.M.A. suffers from mental retardation and a seizure disorder. She requires between 12 and 18 hours of skilled nursing care per day. Sandra Armstrong, E.M.A.’s mother, applied for Medicaid benefits on behalf of E.M.A. on April 26, 2000. The North Carolina Medicaid program is administered by the Division of Medical Assistance (“DMA“) of DHHS pursuant to
to give back to the State any and all money that is received by me or anyone listed on this application from any insurance company for payment of medical and/or hospital bills for which the Medical Assistance program has or will make payment. In addition, I agree that all medical payments or medical support paid or owed due to a court order for me or anyone listed on this application must be sent to the State to repay past or current medical expenses paid by the State. This includes insurance settlements resulting from an accident. I further agree to notify the county department of social services if I or anyone listed on this application is involved in any accident.
J.A. 82, ¶ 2.
On February 21, 2003, E.M.A. and her parents filed a lawsuit in Catawba County Superior Court alleging claims for medical malpractice. The malpractice suit sought damages on behalf of E.M.A. for her physical and developmental injuries, lost wages, pain and suffering, and future medical expenses starting at her majority. Sandra and William Earl Armstrong sought damages for past medical expenses for E.M.A.’s care and treatment, medical expenses through E.M.A.’s eighteenth birthday, and damages for their own emotional distress.
After three years of litigation, the parties settled the medical malpractice case. Prior to consummating the settlement, Appellants were aware that DHHS had paid more than $1.9 million for the costs of E.M.A.’s medical care. Appellants contend that they gave notice of the settlement negotiations and of the mediation
On November 13, 2006, Judge Timothy Kincaid held a hearing in the Catawba County Superior Court to review the fairness and appropriateness of the settlement. Appellants allege they served DHHS with notice of the hearing, but no representative of DHHS appeared. The court approved the settlement, finding that it was fair and just, in the best interest of E.M.A., and in all respects reasonable and proper. The court likewise found the settlement to be fair in all respects as to Sandra and William Earl Armstrong, and that their individual claims had been resolved by the settlement, “including, but not limited to, claims for severe emotional distress and mental anguish and liability for past, present and future medical and life care expenses.” J.A. 134. Judge Kincaid noted that the plaintiffs had alleged that “[E.M.A.] suffered severe and permanent injuries and that both parents . . . have incurred liability for past, present and future medical and life care expenses for treatment of [E.M.A.],” J.A. 133, and concluded that the sums set out in the Settlement Schedule were fair and just compensation for their respective claims, J.A. 135.
Notably, neither the parties to the settlement nor the court allocated the settlement funds among the distinct claims or categories of damages. To be sure, however, Judge Kincaid recognized that DHHS had asserted a lien against the proceeds of the settlement, but for reasons not addressed by the parties before us, he apparently was not asked and/or declined to adjudicate the proper amount of the DHHS lien. Rather, he found simply that “the amount of that lien needs to be determined in light of the U.S. Supreme Court decision in [Ahlborn],” J.A. 136, which had been decided approximately six months earlier during the pendency of the state medical malpractice litigation. Accordingly, the court ordered that the maximum potential lien amount, as set out in the Settlement Schedule and as provided in
B
On March 23, 2007, E.M.A. filed this suit in the United States District Court for the Western District of North Carolina under
The Secretary filed certain preliminary motions, which the district court granted in part and denied in part, without prejudice. E.M.A.’s parents were joined as plaintiffs by consent. Thereafter, the district court stayed the action pending final review in the North Carolina Supreme Court of Andrews v. Haygood, 669 S.E.2d 310 (N.C. 2008), cert. denied sub nom. Brown v. North Carolina Department of Health and Human Services, 129 S. Ct. 2792 (2009), a state-court appeal challenging the enforceability of the North Carolina third-party liability statutes under circumstances materially indistinguishable from the circumstances present in this case.
After the North Carolina Supreme Court sustained the North Carolina third-party liability statutes in Andrews, 669 S.E.2d 310, the parties filed cross-motions for summary judgment. The district court concluded that, based upon the North Carolina Supreme Court’s reasoning in Andrews and its own independent analysis, the North Carolina third-party liability statutes are consistent with federal Medicaid law as interpreted in Ahlborn. Having reached this conclusion of law and finding no genuine dispute of material fact remaining, the district court denied E.M.A.’s motion for summary judgment, granted the Secretary’s motion for summary judgment, and dismissed E.M.A.’s case with prejudice, thereby entitling the Secretary to $933,333.33, the full amount held in trust by the state court. E.M.A., through her guardian ad litem, together with her parents, timely appealed. We have jurisdiction pursuant to
II
The outcome of the instant appeal turns upon our application of federal Medicaid law, as interpreted by the Supreme Court in Ahlborn, to North Carolina’s statutory scheme for third-party liability, in light of the particular undisputed facts of this case involving a lump-sum personal injury settlement recovered by a minor child. We review de novo the district court’s grant of summary judgment. Purdham v. Fairfax Cnty. Sch. Bd., 637 F.3d 421, 426 (4th Cir. 2011). Similarly, “[t]he district court’s analysis of the statutes in the instant case presents questions of law which we review de novo,” WLR Foods, Inc. v. Tyson Foods, Inc., 65 F.3d 1172, 1178 (4th Cir. 1995), cert. denied, 516 U.S. 1117 (1996), including, of course, its analysis of the Appellants’ Supremacy Clause challenge. See Sheehan v. Peveich (In re Peveich), 574 F.3d 248, 252 (4th Cir. 2009).
E.M.A. and her parents argue on appeal that DHHS’s lien against E.M.A.’s portion of the settlement proceeds violates federal Medicaid law because the lien encumbers funds that are not payment for medical expenses already incurred. Although the medical malpractice settlement was not allocated among categories of damages, E.M.A. asserts that her portion of the proceeds necessarily does not include reimbursement for medical care because a minor has no cause of action to
The Secretary responds, citing to the North Carolina Supreme Court’s majority opinion in Andrews, that the district court correctly held that the North Carolina third-party liability statutes,
For the reasons set forth herein, although we agree that common law principles play no role in the circumstances presented in this case, we are persuaded that Appellants have the better of the argument with respect to federal law as explicated in Ahlborn. E.M.A.’s argument that DHHS cannot assert a lien against her portion of the settlement funds because a minor cannot recover for past medical expenses under North Carolina common law fails because the state statutes at issue clearly abrogate the common law. Nevertheless, we shall vacate the judgment because the North Carolina third-party liability statutes,
III
A
We begin with a summary of the relevant provisions of federal law. The Medicaid program, launched in 1965 with the enactment of Title XIX of the Social Security Act, as added, 79 Stat. 343,
to the extent that payment has been made under the State plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance, [have] in effect laws under which, to the extent that payment has been made under the State plan 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.
to assign the State any rights, of the individual or of any other person who is eligible for medical assistance under this title [42 USCS §§ 1396 et seq.] and on whose behalf the individual has the legal authority to execute an assignment of such rights, to support (specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party.
Although participating states are required under federal Medicaid law to seek recovery from liable third parties, as set forth above, “the federal statute places express limits on the State’s powers to pursue recovery of funds it paid on the recipient’s behalf.” Ahlborn, 547 U.S. at 283. These limitations are contained in
The Supreme Court has characterized the third-party liability provisions in federal Medicaid law as an exception to the anti-lien provisions, stating that “[t]o the extent that the forced assignment [of payments that constitute reimbursement for medical
B
Next, we outline the state law provisions that are relevant to this case. As noted above, North Carolina participates in the federal Medicaid program, and DHHS is the North Carolina regulatory body charged with establishing and administering the Medicaid program throughout the state in accordance with Title XIX of the federal Social Security Act,
Notwithstanding any other provisions of the law, to the extent of payments under this Part, the State, or the county providing medical assistance benefits, shall be subrogated to all rights of recovery, contractual or otherwise, of the beneficiary of this assistance, or of the beneficiary’s personal representative, heirs, or the administrator or executor of the estate, against any person . . . Any attorney retained by the beneficiary of the assistance shall, out of the proceeds obtained on behalf of the beneficiary by settlement with, judgment against, or otherwise from a third party by reason of injury or death, distribute to the Department the amount of assistance paid by the Department on behalf of or to the beneficiary, as prorated with the claims of all others having medical subrogation rights or medical liens against the amount received or recovered, but the amount paid to the Department shall not exceed one-third of the gross amount to be retained or recovered.
Accordingly, under the state’s third-party liability statutes, North Carolina has a subrogation right to, and may assert a lien upon, the lesser of its actual medical expenditures or one-third of the Medicaid recipient’s total recovery.4 See
C
(1)
The interplay among the above-described federal and state legal principles creates a measure of tension. In Ahlborn, the Supreme Court reconciled seemingly conflicting legal standards when it considered whether an Arkansas third-party liability statute permitting the state to claim a right to the entirety of the costs it paid on a Medicaid recipient’s behalf, regardless of whether that amount exceeded the portion of the recipient’s judgment or settlement representing past medical expenses, violated federal Medicaid law. 547 U.S. at 278. In an opinion by Justice Stevens for a unanimous Court, Ahlborn held that Arkansas’ assertion of a lien on a Medicaid recipient’s tort settlement in an amount exceeding the stipulated medical-expenses portion was not authorized by federal Medicaid law; to the contrary, the state’s attempt to do so was affirmatively prohibited by the general anti-lien provision in
For the purposes of our analysis in the instant appeal, the facts of Ahlborn are highly instructive. Following Heidi Ahlborn’s car accident with allegedly negligent third parties, the Arkansas Department of Health and Human Services (“ADHHS“)5 determined that she was eligible for Medicaid and paid providers $215,645.30 on her behalf. Id. at 273. 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. Id. ADHHS intervened in Ahlborn’s lawsuit to assert a lien on the proceeds of any third-party recovery she might obtain. Id. at 274. The case was settled for a lump sum of $550,000, which was not allocated between her various claims. Id. ADHHS did not participate or ask to participate in the
Ahlborn filed a declaratory judgment 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. See Ahlborn v. Ark. Dep’t of Human Servs., 280 F. Supp. 2d 881 (E.D. Ark. 2003). Notably, the parties stipulated 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, ADHHS would be entitled to only the prorated portion of the settlement that constituted reimbursement for medical payments made ($35,581.47, or one-sixth of $215,645.30, the full amount paid by ADHHS for her medical expenses related to the car accident). Id. at 883.
Ruling on cross-motions for summary judgment, the district court held that under Arkansas law, which it concluded did not conflict with federal law, Ahlborn had assigned to ADHHS her right to any recovery from the third-party tortfeasors to the full extent of Medicaid’s payments for her benefit. Id. at 888. Accordingly, ADHHS was entitled to a lien in the full amount of $215,645.30. The Eighth Circuit reversed, holding that ADHHS was entitled only to that portion of the settlement that represented payments for medical care. Ahlborn v. Ark. Dep’t of Human Servs., 397 F.3d 620, 628 (8th Cir. 2005). ADHHS sought further review in the Supreme Court, which granted certiorari and affirmed the Eighth Circuit. Ahlborn, 547 U.S. at 292.
The Supreme Court held that Arkansas’ third-party liability lien attached only to the portion of Ahlborn’s settlement that was designated by stipulation for past medical expenses paid by Medicaid, or $35,581.47. Id. The Court found that the remainder of ADHHS’s claim could not be asserted against the balance of the settlement proceeds. Id. at 280-81. The Court reasoned that the anti-lien provisions in the federal Medicaid statutes,
there is no question that the State can require an assignment of the right, or a chose in action, to receive payments for medical care . . . The State can also demand . . . that the recipient “assign” in advance any payments that may constitute reimbursement for medical costs . . . As long as the assignment rights are authorized under
42 U.S.C. §§ 1396a(a)(25) and1396k(a) , such assignments are considered exceptions to the anti-lien provision.
Id. at 284. The Court concluded that the federal third-party liability provisions require an assignment of no more than the right to recover the portion of the settlement proceeds which are designated for past medical bills paid by Medicaid, id. at 282, and that the federal anti-lien provision prohibits state Medicaid programs from asserting a third-party liability claim against a Medicaid beneficiary’s settlement or judgment for personal injury damages other than medical expenses, id. at 286.
In Andrews, 669 S.E.2d 310, upon which the district court below heavily relied, the North Carolina Supreme Court rejected, by a 4-3 vote, a Supremacy Clause challenge to
In Ezell v. Grace Hospital, Inc., 623 S.E.2d 79 (N.C. Ct. App. 2005), a pre-Ahlborn case, the North Carolina Court of Appeals held that
Judge Steelman’s dissent provided an automatic appeal to the North Carolina Supreme Court under
Then, not long afterwards, in Andrews v. Haygood, 655 S.E.2d 440 (N.C. Ct. App. 2008), the North Carolina Court of Appeals once again considered whether, in an action to determine the proper amount of a Medicaid lien on a medical malpractice settlement, the trial court erred in concluding that the North Carolina Supreme Court’s decision in Ezell was controlling, and the United States Supreme Court’s decision in Ahlborn was not. Andrews, 655 S.E.2d at 441-42. The intermediate appellate court concluded that Ezell was binding, id. at 442, and that since the North Carolina Supreme Court decided Ezell after Ahlborn was decided, and subsequently denied the petition for rehearing, the North Carolina Supreme Court had understood Ahlborn to have no effect on North Carolina’s third-party liability statutes, id. at 443. The North Carolina Court of Appeals reasoned that, “[although we recognize that the Arkansas statute discussed in Ahlborn is similar to [
Judge Wynn’s dissent further emphasized that “the North Carolina statute at issue in [Andrews] is materially indistinguishable from the Arkansas statutory provisions found by a unanimous United States Supreme Court in Ahlborn to be preempted by federal law.” Id. Judge Wynn reasoned,
The principal difference between the North Carolina and Arkansas statutes is that the latter provides no ceiling or limit on the amount of recovery allowed to the ADHS; rather, the statute explicitly stated that ADHS was entitled to recover the full amount of the benefits paid to the recipient . . . . North Carolina, by contrast, allows DMA to take at most one-third of the gross amount of the settlement, regardless of whether that fully satisfies the amount paid in medical benefits . . . . Nevertheless, the basic thrust of the statutes is the same: under both, the State has an automatic lien on the full amount of any settlement
with a third party reached by a Medicaid settlement, regardless of what expenses or damages those funds are designated to compensate.
Id. at 445. Accordingly, Judge Wynn concluded that “the Arkansas statute — and likewise, our North Carolina statute — conflicts with federal Medicaid statutes by allowing the State to recover from a recipient settlement funds that were for purposes other than medical expenses.” Id. He explained that because the settlement at issue in Andrews, unlike the settlement in Ahlborn, was not allocated as to particular claims, “the holding of Ahlborn dictates that the trial court must hold an evidentiary hearing as to what portion of the settlement is designated for medical expenses prior to determination of the amount of repayment to be made to DMA.” Id. at 446.
Upon further appellate review, the North Carolina Supreme Court considered “whether the statutory framework governing the State‘s subrogation claim for medical expenses on a Medicaid recipient‘s tort claim settlement complies with federal Medicaid law as interpreted by the Supreme Court of the United States in [Ahlborn].” Andrews, 669 S.E.2d at 311. The appellant trustee of the settlement account argued that, absent an agreement between the parties, federal law requires a judicial determination of the portion of a tort claim settlement that represents the recovery of medical expenses. Id. at 312. In response, the state contended that the statutory one-third limiting provision complies with Ahlborn‘s interpretation of federal Medicaid law, and that judicial apportionment of medical expenses from the settlement was therefore not required. Id. The North Carolina Supreme Court agreed with the state and affirmed the Court of Appeals, stating that “[b]ecause Ahlborn
Thus, when it finally confronted the issue of Ahlborn‘s effect on the North Carolina third-party liability statutes, the North Carolina Supreme Court read Ahlborn narrowly and concluded that it “controls [only] when there has been a prior determination or stipulation as to the medical expense portion of a plaintiff‘s settlement. In those cases, the State may not receive reimbursement in excess of the portion so designated.” Id. at 313. The court further emphasized that “the Ahlborn holding, limited by the parties’ stipulations, did not require a specific method for determining the portion of a settlement that represents the recovery of medical expenses.” Id. Noting that Ahlborn recognized that some states have adopted “special rules and procedures” for allocating tort settlements under such circumstances, but ultimately expressed no view on the matter, the Andrews court determined that ”Ahlborn thus does not mandate a judicial determination of the portion of a settlement from which the State may be reimbursed for past medical expenses. Instead, the Supreme Court left to the States the decision on the measures to employ in the operation of their Medicaid programs.” Id. (citing Ahlborn, 547 U.S. at 288 n.18) (internal quotation marks omitted).
Applying this interpretation of Ahlborn, the North Carolina Supreme Court majority found that “the one-third limitation of
In her dissenting opinion in Andrews, Justice Hudson agreed with the majority that Ahlborn does not mandate a specific method for determining the medical expense portion of a plaintiff‘s settlement, but emphasized that the Ahlborn Court nevertheless did explicitly hold that a state may not violate the anti-lien provisions of
(3)
In the instant case, the district court recognized that Andrews was not binding upon it, but adopted the North Carolina Supreme Court‘s legal analysis and holding that the state‘s third-party liability statutes comport with federal Medicaid law and Ahlborn. Armstrong v. Cansler, 722 F. Supp. 2d 653, 655-58 (W.D.N.C. 2010). The district court agreed with the Andrews court‘s determination that the Supreme
The district court then undertook its own independent analysis of the North Carolina third-party liability statutes, and thereby confirmed its conclusion that there is no conflict between the state‘s third-party liability scheme and federal law. Id. at 656-58. The district court determined that North Carolina has complied with the federal requirements that it “take all reasonable measures to ascertain the legal liability of third parties . . . to pay for care and services available under the [Medicaid] plan” and “seek reimbursement for assistance to the extent of such legal liability” by enacting the State Plan for Medical Assistance, which includes an assignment statute,
IV
A
E.M.A.‘s primary argument on appeal is that DHHS‘s lien on her settlement proceeds violates the federal anti-lien statute,
Neither the federal law nor the state law at issue in this case mentions the Medicaid beneficiary‘s age or minority status in setting forth third-party liability and assignment requirements. Indeed, the North Carolina assignment statute provides that ”nothwithstanding any other provisions of the law, by accepting medical assistance, the recipient shall be deemed to have made an assignment to the State of the right to third party benefits, . . . to which he may be entitled.”
The North Carolina Court of Appeals considered a distinct but analogous argument in Ezell, 623 S.E.2d 79, in which one of the issues before the court on appeal was whether the trial court committed reversible error in its application of common law principles of equity to the state‘s right of subrogation under
[i]n matters of statutory construction, this Court must ascertain and effectuate the intent of the legislative body. It is well-established that legislative intent may be determined from the language of the statute, and if a statute is facially clear and unambiguous, leaving no room for interpretation, the courts will enforce the statute as written. We conclude that the plain language of the statute here precludes the application of equitable subrogation principles. We conclude that the legislature specifically abrogated the application of common law principles of equity when it stated that the State “shall be subrogated to all rights of recovery,” “notwithstanding any other provisions of the law.” . . . [W]e must enforce the statute as written and if the legislature wishes for common law equitable principles to apply to this statute, it may certainly amend it accordingly.
Id. (internal citations and quotation marks omitted). The Ezell court‘s reasoning applies with equal force here.7 Like the Ezell court, we find that the plain language of the North Carolina assignment and subrogation statutes quoted above demonstrates the North Carolina legislature‘s intent “to specifically abrogate[ ] the application of [certain] common
law principles,” see Ezell, 623 S.E.2d at 81-82, including, as relevant here, the common law rule that a minor has no claim for past medical expenses insofar as it conflicts with the state‘s rights of recovery against a third party tortfeasor.8 See, e.g., Christenbury v. Hedrick, 234 S.E.2d 3, 5 (N.C. App. 1977) (“It is well settled that the common law of England is in force in this State to the extent that it is not destructive of, repugnant to, or inconsistent with our form of government, and to the extent that it has not been abrogated or repealed by statute or has not become obsolete; however, when the General Assembly legislates in respect to the subject matter of any common law rule, the statute supplants the common law and becomes the public policy of this State in respect to that particular matter.“) (citation omitted). Accordingly, we hold that, in light of the comprehensive statutory scheme before us, E.M.A.‘s share of the settlement proceeds at issue in this case is not shielded from the state‘s reimbursement claim by virtue of her minority.9
(1)
Given that North Carolina common law does not bar DHHS‘s lien against E.M.A.‘s settlement proceeds, we are faced with the same question considered by the North Carolina Supreme Court in Andrews: Whether North Carolina‘s third-party liability statutes comport with federal Medicaid law and Ahlborn merely because the subrogation statute,
On the contrary, however, nothing in Justice Stevens‘s opinion for a unanimous court in Ahlborn supports such a crabbed application of that case. The Ahlborn Court addressed the specific issue of “whether [ADHHS] can lay claim to more than the portion of [the recipient‘s] settlement that represents medical expenses.” 547 U.S. at 280. The Court in no
way rested its analysis of this issue on whether there has been a prior determination or stipulation as to the medical expenses portion of a Medicaid recipient‘s settlement. Thus, Ahlborn is properly understood to prohibit recovery by the state of more than the amount of settlement proceeds representing payment for medical care already received. The North Carolina statute‘s one-third cap on the state‘s recovery against a Medicaid recipient‘s settlement proceeds does not satisfy Ahlborn insofar as it permits DHHS to assert a lien against settlement proceeds intended (or otherwise properly allocable) to compensate the Medicaid recipient for other claims, such as pain and suffering or lost wages (i.e., in cases where one-third of the recipient‘s total settlement recovery is greater than the amount DHHS expended on the recipient‘s behalf).10 See Andrews, 669 S.E.2d at 607-09 (Hudson, J., dissenting) (concluding that the North Carolina statutes conflict with federal Medicaid law by allowing the state to recover from a recipient funds that were for purposes other than medical expenses); Andrews, 655 S.E.2d at 445 (Wynn, J., dissenting) (same).
(2)
In determining that
with Ahlborn by imposing what it regarded as a “reasonable cap” on the state‘s lien where recovery for past medical expenses is not expressly allocated, the North Carolina Supreme Court in Andrews relied primarily on a footnote in Ahlborn. See Andrews, 669 S.E.2d at 313 (citing Ahlborn, 547 U.S. at 288 n.18). In the opinion of the Court, Justice Stevens was addressing a danger suggested by proponents of full reimbursement that parties would manipulate settlement agreements reducing the allocation to the medical expense component and thereby diminishing the proportional reimbursement to the state. Ahlborn, 547 U.S. at 288. Justice Stevens pointed out that this risk could be avoided either by obtaining a state‘s advance consent to the allocation or by requiring that the allocation be submitted to the court. Id. In footnote 18, Justice Stevens noted that “[a]s one amicus observes, some States have adopted special rules and procedures for allocating tort settlements . . . . Although we express no view on the matter, we leave open the possibility that such rules and procedures might be employed to meet concerns about settlement manipulation.” Id. at n.18 (citing Brief of the Association of Trial Lawyers of America as Amicus Curiae in Support of Respondents at 20-21) (hereafter “ATLA Brief“).
We are not persuaded that a mere “reasonable cap” on a state‘s recovery from an unallocated lump-sum settlement satisfies the federal anti-lien law as required by Ahlborn. Indeed, contrary to the Andrews court‘s reliance on Justice Stevens‘s footnote, the ATLA Brief, rather than advocating full recovery subject only to a statutory cap, discussed procedures in several states to have “mini-hearings” to set allocations of proceeds from tort settlements where there is no agreement among the interested parties. Nevertheless, the Supreme Court of North Carolina found that footnote 18 in Ahlborn authorizes the states to mandate full recovery up to a legislatively determined, across-the-board limit or cap. This reliance is misplaced.
It is also illuminating that the Centers for Medicaid and Medicare Services (“CMS“) issued a memorandum to all
Associate Regional Administrators for Medicaid and State Operations in the wake of the Ahlborn decision to aid the states in understanding the effect the decision would have on state third-party liability recovery. See Memorandum from Gale Arden, Director of CMS‘s Center for Medicaid and State Operations Disable and Elderly Health Programs Group (DEHPG) to all Associate Regional Administrators for Medicaid and State Operations, “State Options for Recovery Against Liability Settlements in Light of U.S. Supreme Court Decision in Arkansas Department of Human Services v. Ahlborn” (July 3, 2006) (hereafter “CMS Memorandum“).
To aid states in ensuring compliance with Ahlborn, the CMS Memorandum listed various actions states may and may not take: (1) states may only require assignment of the right to payment from a third party for healthcare (or medical) items and services; and (2) states may not pass or enforce laws which broaden the recovery rights, vis-à-vis Medicaid beneficiaries, of the state Medicaid agency, allowing such agencies to recover from damages other than medical expenses provided for in the award amount, even if this means that Medicaid must forego full recovery of its claim.11 On the other hand, a state may wish to, inter alia: (1) “enact laws which provide for a specific allocation amongst dam-
age[s], i.e., pain and suffering, lost wages, and medical claims“; (2) “require that cases can only be compromised with the consent of the state“; (3) “pass laws which require a mandatory joinder of a State when a Medicaid lien is at issue“; (4) “strengthen their laws regarding the duty of attorneys to notify and cooperate to include provisions which could render voidable any settlement of which the State was not notified and given an opportunity to present its recovery claim for medical assistance paid.” Id. In addition, the CMS Memorandum emphasized the Ahlborn Court‘s admonition that states should become involved in the underlying tort litigation in order to influence the amount that is allocated in a settlement to medical items and services. Id. (stating that “absent such involvement, the Court found little sympathy in the State‘s argument that they should be able to recover the total settlement“).
Indeed, in reaction to the Supreme Court‘s ruling in Ahlborn, many states that previously imposed statutory caps on Medicaid third-party recovery amended their laws in various ways. Most notably, California changed its laws from imposing a statutory cap of one-half of the recovery to limiting recovery to the portion of the award specifically representing payment for medical expenses or care. Petition for Writ of Certiorari at 20-23, Brown, 129 S. Ct. 2792 (No. 08–1146) (discussing
(internal quotation marks omitted). Idaho continues to use its pre-Ahlborn statute, which allows for full payment to Medicaid
(3)
On the basis of Ahlborn‘s clear holding that the general anti-lien provision in federal Medicaid law prohibits a state from recovering any portion of a settlement or judgment not attributable to medical expenses, DHHS‘s lien on E.M.A.‘s settlement proceeds in this case violates federal law. In order to comply with
Just as there is insufficient information before this court regarding allocation of the settlement proceeds among various categories of damages, we cannot apply the “proportional analysis” that E.M.A. argues is proper under Ahlborn. As discussed above, the parties in Ahlborn stipulated that the settlement of $550,000 represented only one-sixth of the true value of Ahlborn‘s claim, because the settlement was limited due to
the amount of insurance available, and determined that the state was thereby entitled to only one-sixth of the stipulated medical expenses. E.M.A.‘s settlement is distinguishable in that there was no issue (so far as the record before us shows) of limited insurance and no stipulation. On remand, the district court must determine the true value of the case in allocating medical expenses, but Ahlborn does not mandate such a “proportional analysis,” to use the term that Appellants have coined in their briefing.12
In reaching the conclusion we do, we find the Third Circuit‘s analysis of the
of a settlement amount was properly allocable to medical expenditures may be deemed to fall within the acceptable “special rules and procedures” contemplated by Ahlborn in footnote 18, it cautioned the state that it must afford a mechanism permitting beneficiaries to rebut such a presumption,13 reasoning as follows:
Although the Ahlborn Court acknowledged the existence in state law of “special rules and procedures” for allocating settlements, and left open the possibility that such rules may be employed to address concerns about settlement manipulation, 547 U.S. at 288 n. 18, it did not give states unfettered discretion to allocate settlements without regard to the actual portion attributable to medical expenses. Indeed, Ahlborn expressed a preference for resolving allocation disputes “either by obtaining the State‘s advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision.” Id. at 288.
We express no view as to whether allocation disputes of this type must be adjudicated by a court, or may instead be resolved through other “special rules and procedures.” Id. at 288 n. 18. We hold merely that in determining what portion of a Medicaid beneficiary‘s third-party recovery it may claim in reimbursement for Medicaid expenses, the state must have in place procedures that allow a dissatisfied beneficiary to challenge the default allocation. As the Beneficiaries point out, without such a rule noth-
ing would prevent states from allocating 75%, 90% or even 100% of a settlement to medical expenses, thereby eviscerating the rule promulgated by Ahlborn. Because the District Court concluded otherwise, we will reverse its order in this respect and remand for further proceedings consistent with this opinion.
We agree with the reasoning of the Third Circuit and hold that to comport with federal law as interpreted in Ahlborn, under the circumstances in this case, North Carolina‘s statutory presumption must be subject to adversarial testing.14 Under the circumstances of the case before us, absent any state-created mechanism for such testing, it will fall to the district court to conduct the appropriate proceedings.
V
In sum, E.M.A.‘s argument that DHHS cannot assert a lien against her portion of
state‘s recovery to settlement proceeds that are shown to be properly allocable to past medical expenses. In the event of an unallocated lump-sum settlement exceeding the amount of the state‘s Medicaid expenditures, as in this case, the sum certain allocable to medical expenses must be determined by way of a fair and impartial adversarial procedure that affords the Medicaid beneficiary an opportunity to rebut the statutory presumption in favor of the state that allocation of one-third of a lump sum settlement is consistent with the anti-lien provision in federal law.
Accordingly, for the reasons set forth, we vacate the judgment of the district court and remand for an evidentiary hearing at which the district court shall determine the proper amount of DHHS‘s Medicaid lien in this case in accordance with Ahlborn and the views expressed in this opinion.
VACATED AND REMANDED
AGEE, Circuit Judge, concurring in part, dissenting in part, and concurring in the judgment:
I join the majority opinion except for Section IV(A) (and related references), which concludes that the relevant North Carolina Medicaid statutes,
Unless modified by statute, the common law is the law of North Carolina, as in many states. See State v. Vance, 403 S.E.2d 495, 498 (N.C. 1991);
Under the common law of North Carolina, a minor has no cause of action against a tortfeasor for medical expenses incurred during minority. See Vaughan v. Moore, 366 S.E.2d 518, 520 (N.C. Ct. App. 1988).
Rather, the right to recover for medical expenses lies with the parents, but the minor (through his or her proper representative) may recover for other damages, such as pain and suffering or loss of future income. Id. (citing Ellington v. Bradford, 86 S.E.2d 925, 926 (N.C. 1955)). Applying that principle to this case, it would appear that E.M.A. could not recover against her tortfeasor for the incurred medical expenses. As a consequence, the principles enunciated in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006), would insulate E.M.A.‘s allotted portion of the settlement proceeds from the State‘s lien unless that portion did in fact include medical expense reimbursements.
Notwithstanding North Carolina common law, however, the majority opinion, relying upon the “plain language” of the subrogation statute and the assignment statute, as well as pre-Ahlborn authority, allows the State to encumber E.M.A.‘s portion of settlement proceeds. I do not agree the statutes at issue here lead to that result.
The assignment statute states that “[n]otwithstanding any other provisions of the law, by accepting medical assistance, the recipient shall be deemed to have made an assignment to the State of the right to third party benefits . . . to which he may be entitled.”
With particular emphasis on the “[n]otwithstanding any other provisions of the law,” language, the majority opinion concludes that these statutes “by their plain language abrogate the common law rule that a minor cannot recover for medical expenses.” Maj. Op. at 26. Neither statute, however, conflicts with the common law rule at issue here by its plain terms or otherwise.
The assignment statute specifically limits the “rights” assigned: “the recipient [of Medicaid benefits] shall be deemed to have made an assignment to the state of the right to third party benefits . . . to which he may be entitled.” (Emphasis added.) By its express language, this statute does not purport to enlarge the preexisting rights of a beneficiary of Medicaid benefits, including those possessed by minors.
In this regard, E.D.B. ex rel. D.B. v. Clair, 987 A.2d 681 (Pa. 2009), cited ante at 28 n.9, is instructive. In that case, the Supreme Court of Pennsylvania found, pursuant to its state‘s Fraud and Abuse Control Act (which operates, like the North Carolina Medicaid statutes at issue here, to regulate the state‘s right of assignment of benefits) “a Medicaid beneficiary has a cause of action against his or her tortfeasor to recover and reimburse [the state] for Medicaid benefits received during the beneficiary‘s minority.” Id. at 691.3 The Pennsylvania statutes at issue did not expressly provide for a cause of action for a minor tort-victim for medical expenses, but rather, Pennsylvania‘s highest court found that the legislature intended to create such a cause of action in order to effectuate its goal that
“the entirety of a beneficiary‘s settlement would be subject to [the state‘s] claim.” Id. at 690. Although that goal was unattainable after Ahlborn, the court noted that “nothing in Ahlborn affects, negates, weakens, or calls into question the reasoning . . . as to the General Assembly‘s intent with regard to the filing of claims by beneficiaries for Medicaid expenditures incurred during their minority.” Id. at 691 (emphasis in original). The key here, in contradistinction from the statutes or court decisions in North Carolina, is that the Pennsylvania Supreme Court specifically concluded a cause of action existed in a minor, therefore giving the minor a chose to assign.
In stark contrast, North Carolina‘s Court of Appeals has rejected the notion that the statutes at issue create a cause of action in a minor for medical expenses, even where that minor is a beneficiary of Medicaid benefits. See Campbell v. N.C. Dep‘t of Human Res., 569 S.E.2d 670, 672 (N.C. Ct. App. 2002) (stating that because, under North Carolina common law, a minor has no cause of action for medical expenses, “the settlement money which [the minor] plaintiff received was not recompense for medical expenses“). Campbell thus acknowledged that, even after the enactment of the North Carolina Medicaid statutes, a minor lacked a cause of action for medical expenses, ruling instead that the State was nonetheless entitled to the plaintiff‘s settlement proceeds on other grounds (although this rationale has since been nullified by Ahlborn).
The same is true of North Carolina‘s subrogation statute which requires that “to the extent of [Medicaid] payments . . . , the State, . . . shall be subrogated to all rights of recovery . . . of the beneficiary of this assistance[.]”
I am also not persuaded that Ezell v. Grace Hospital, Inc., 623 S.E.2d 79 (N.C. Ct. App. 2005), rev‘d per curiam for the
The majority opinion, however, relies on Campbell as additional support for its holding that the common law rule is abrogated. In that case, the North Carolina Court of Appeals considered and rejected a claim similar to that raised by E.M.A. Ahlborn, however, which was decided four years after Campbell, has clearly eviscerated the rationale of Campbell such that its holding should not be entitled precedential weight.
In Campbell, the plaintiff, who was a minor at the time he was injured by a third-party tortfeasor and received Medicaid benefits, claimed that the State had no right of subrogation because he lacked a cause of action under North Carolina law for medical expenses. While agreeing with the premise that, at common law, a minor may not recover for medical expenses incurred during minority, the North Carolina Court of Appeals reasoned that “[N.C. Gen. Stat.]
tlement proceeds, regardless of whether they were for medical expenses, the plaintiff‘s right (or lack thereof) to receive medical expenses in tort was no barrier to the State‘s lien. The Campbell court relied on prior North Carolina cases for the proposition that “to the extent of Medicaid payments under [the] Medical Assistance Program” the State is “subrogated to all rights of recovery of the beneficiary of medical assistance.” Id. (citing and quoting N.C. Dept of H.R. v. Weaver, 466 S.E.2d 717, 719 (N.C. Ct. App. 1996), (emphasis and internal alterations omitted).
Campbell also relied heavily on Payne v. North Carolina Department of Human Resources, 486 S.E.2d 469 (N.C. Ct. App. 1997), a case in which the North Carolina Court of Appeals considered and rejected a challenge to North Carolina‘s Medicaid subrogation scheme based on the federal anti-lien statute found at
Plaintiff [in Payne] argued that [the State‘s] subrogation rights extended only to the amount allocated to his mother for medical expenses. This Court disagreed, and held that “by accepting Medicaid benefits, [minor plaintiff] assigned his right to third-party benefits to [the State], and [the State‘s] lien vested at that time.”
Campbell, 569 S.E.2d at 672-73.
This reasoning is plainly at odds with Ahlborn‘s command that a state Medicaid agency may not seek assignment of “rights to payment for anything other than medical expenses — not lost wages, not pain and
Accordingly, when the Campbell court opined that “[the State] is entitled to recover the costs of medical treatment provided for a minor, even when the funds received by the minor are not reimbursement for medical expenses[,]” 569 S.E.2d at 672, its rationale conflicts directly with Ahlborn. See 547 U.S. at 282 (“[T]he State‘s assigned rights extend only to recovery of payments for medical care.“). While it is true that most creditors can usually satisfy debts owing to them from any assets of the debtor that the creditor can find, this is not the case in the Medicaid context. Ahlborn and the federal anti-lien statute at
There is no question that the State can require an assignment of the right, or chose in action, to receive payments for medical care. So much is expressly provided for by
§§ 1396a(a)(25) and1396k(a) . . . . To the extent that the forced assignment is expressly authorized by the terms of§§ 1396a(a)(25) and1396k(a) , it is an exception to the anti-lien provision. But that does not mean that the State can force an assignment of, or place a lien on, any other portion of Ahlborn‘s property.
Ahlborn, 547 U.S. at 284-85 (internal citations omitted) (emphasis added). Campbell, which stands in obvious conflict with that holding, must give way and cannot be a basis upon which to find abrogation of the North Carolina common law rule.
Indeed, the one aspect of Campbell that seems to survive Ahlborn is the acknowledgement of the North Carolina common law that because “a minor, even after reaching majority, may not recover for medical expenses incurred during minority . . . the settlement money which plaintiff received was not recompense for medical expenses.” 569 S.E.2d at 672 (internal citation and quotation marks omitted) (emphasis added).
That statement of North Carolina law does not rest on a premise that has been rejected by the Supreme Court, and should guide our analysis of E.M.A.‘s claim on appeal. It is a recognition that, even in light of North Carolina‘s Medicaid statutes, a minor still lacks a cause of action for medical expenses. Accordingly, the argument that the North Carolina Medicaid subrogation and assignment statutes somehow abrogate this right is not an accurate statement of North Carolina law in my view.
I therefore must disagree with the conclusion in the majority opinion that the North Carolina Medicaid statutes “by their plain language” abrogate the common law. Maj. Op. at 26. And, as noted above, no North Carolina appellate court decision, in conformity with Ahlborn, so construes those statutes. To the contrary, the statutes at issue plainly do not conflict with, and nor do they abrogate, the common law rule that minors may not recover for medical expenses in North Carolina.
Nevertheless, while the minor does not have a cause of action for medical expenses, that does not necessarily mean, in an otherwise unallocated settlement, that none of the funds comprising the minor‘s share were not in fact representative of medical expenses already incurred or allocated
The state trial court order approving the settlement does not make the findings necessary to resolve to what extent the Medicaid lien, under Ahlborn, is applicable here. I do not fault the state trial judge as there was (like now) no clear rule by appellate decision or legislative enactment on point. If the matter of medical expense reimbursement was part of the calculation put before the state trial court, and the settlement order stated how an allocation between the parties was determined with the damage elements comprising each share, then the determination as to what could be attached by the Medicaid lien should be straightforward. Such an explicit allocation is not in the record before us, however. It is simply not possible, on this record, to ascertain what elements of damages comprise the respective settlement shares of E.M.A. or her parents. For that reason I agree with the majority that the district court judgment must be vacated and remanded. Should it be determined, on remand, that any portion of E.M.A.‘s settlement share was in fact represented by her past medical expenses, then the State‘s Medicaid lien could properly attach to that portion under Ahlborn. However, should it be determined that no part of E.M.A.‘s share was represented by her past medical expenses, no lien could attach.
On remand, the district court should consider two salient questions:
1. What amount of the settlement was allocated to each party: (a) E.M.A. (acting through her guardian ad litem); and (b) Earl and Sandra Armstrong (E.M.A.‘s parents)?
2. What elements of damage comprise the award each party received? Put another way, were the respective amounts awarded on an ad hoc or arbitrary determination or was there an actual basis for the division between the parties based on the merits of the various elements of damage, such as medical expenses?
Although cases that have approved the default statutory percentage method for allocating settlement proceeds did so
partly on the basis to avoid a case-by-case determination of the medical expense portion of settlements, e.g., Andrews v. Haygood, 669 S.E.2d 310, 314 (N.C. 2008), I agree with the majority opinion that Ahlborn requires such fact-specific inquiries in a case such as is now before us. Until states develop a specific mechanism for determining the medical expense portion of unallocated settlements, a judicial resolution is the only means by which the Ahlborn principles for application of a Medicaid lien can be established. The Supreme Court seemed to recognize this point in Ahlborn that determining Medicaid lien status on an allocated or unallocated settlement could be “either by obtaining the State‘s advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision.” Ahlborn, 547 U.S. at 288.
I am in agreement with the majority opinion‘s conclusion that “[t]he North Carolina statute‘s one-third cap on the state‘s
For the foregoing reasons, I respectfully dissent from Section IV(A) (and related references) of the majority opinion, but concur otherwise and concur in the judgment.
Notes
The alleged apportionment of 12 percent to Sandra and William Earl Armstrong is not evident from the court‘s order, however, and the Secretary takes issue with Appellants’ characterization. See Br. of Appellee at 7 (stating that “[appellants‘] assertion contradicts the plain language of the order which provides that the funds be paid either to Medicaid or to the minor plaintiff‘s special needs trust. The record does not support [appellant]s’ new apportionment theory.“). In the view we take of the case, we need not further explore this aspect of the parties’ contentions.
Common law jurisprudence fails to speak to the central issue in this case. The policy questions that are implicated focus not on
parental duty but on protection of the public fisc in the provision of medical assistance to minors whose parents do not have the financial means to do so. The common law is silent as to the provision of medical care to needy minors and does not contemplate state involvement in administering such care. Accordingly, our resolution of the instant case is based on interpretation of the relevant statutory law, which incorporates social welfare developments independent of common law jurisprudence.
J.A. 82 (emphases added).to give back to the State any and all money that is received by me or anyone listed on this application from my insurance company for payment of medical and/or hospital bills for which the Medical Assistance program has or will make payment. In addition, I agree that all medical payments or medical support paid or owed due to a court order for me or anyone listed on this application must be sent to the State to repay past or current medical expenses paid by the State. This includes insurance settlements resulting from an accident. I further agree to notify the county department of social services if I or anyone listed on this application is involved in any accident.
Price v. Wolford, 608 F.3d 698, 707-08 (10th Cir. 2010).[A] reduction in a Medicaid lien can be justified only by showing a reason why the plaintiff would agree to allow the defendant to pay less than the full amount of the Medicaid lien. The usual reasons would be that the liability of the settling defendant is uncertain or that the defendant lacks the money to pay for his full liability (or both); so the plaintiff would be willing to take a proportionate reduction in each component of the damages that she would expect the jury to award if the defendant were found liable. For example, if the settlement is for 50% of what the jury is likely to award because there is only a 50% chance that the jury will find liability, the Medicaid lien could properly be cut in half. Or if liability is clear and the expected verdict would be $2 million, but the defendant can pay only $1 million, a 50% reduction would also be in order. A further reduction might also be appropriate if there are doubts about whether the jury would award as damages all the medical expenses paid by Medicaid-because, for example, one could question whether the expenses were caused by the negligent acts of the defendant-although generally one can be more confident of recovering those expenses in full than in recovering, say, the full claim for pain and suffering.