The agency must distribute collections as follows—

1. (a) To itself, an amount equal to State Medicaid expenditures for the individual on whose right the collection was based.
2. (b) To the Federal Government, the Federal share of the State Medicaid expenditures, minus any incentive payment made in accordance with § 433.153.
3. (c) To the beneficiary, any remaining amount. This amount must be treated as income or resources under part 435 or part 436 of this subchapter, as appropriate.