The Florida Bar

Florida Bar Journal

Medicaid Lien Reduction: Is It Possible?

Featured Article

Illustration by Barbara Kelley/Illustration of man and hurdle Attorneys who deal with Medicaid liens know the difficulties in obtaining any kind of reduction or compromise for their clients. Until recently, some may have thought Medicaid lien reduction was an impossible feat. With the proper preparation, evidence, and documentation, however, Medicaid liens can, in essence, be reduced by the parties reasonably allocating a client’s settlement funds — more specifically the portion for past medical expenses. This allocation limits the amount of settlement funds accessible to reimbursing Medicaid, and, therefore, results in a reduction of the lien and a savings to the client.

Each attorney on either side of a legal case is interested in settling their client’s case so that there is certainty in the outcome. In fact, settlements are so favored that almost all courts in all areas of law require the parties to mediate their positions prior to trial in hopes of obtaining a settlement.

One of the highest hurdles in reaching a settlement in a plaintiff’s tort case is when the plaintiff (through his or her attorney) must take care of all those who have a financial interest in the plaintiffs’ settlement funds through subrogation, liens, loans, etc. If the plaintiff at the end of the day, who has all the power in deciding whether to accept a certain settlement from a defendant (insurance company), gets only a small portion of the settlement offered, then the plaintiff is not likely to accept the offer. Often, the settlement offer is fair but the circumstances are such that a fair offer seems unfair to the plaintiff and no settlement takes place.

All of the above is to say, there are two parts to most cases — obtaining the gross settlement money — and maximizing the net settlement to the client. The attorney who can best manage and reduce the money that needs to be paid out from their clients’ funds to sources other than the client is usually a skilled and successful attorney.

Applicable Florida and Federal Statutory History
When it comes to maximizing net funds for the client, liens from health insurance and other providers can be severely limiting. The Florida Legislature deals with liens through the collateral source statute.1 The collateral source statute tries to deal fairly with several issues relating to cases involving clients who recover money damages from a third-party tortfeasor when collateral source providers have a right to subrogation (reimbursement). Specific to this article, the collateral source statute allows for reduction of subrogation liens based on factors such as attorneys’ fees, costs of the case, and other equity arguments like comparative negligence and insurance limits/coverage issues.

Subrogation liens acquired by clients who receive benefits from Medicaid and Medicare, however, are not considered “collateral sources” under the statute, and, therefore, are not subject to the same reduction arguments of equity and the other factors mentioned above. As a result, these types of liens are more resistant to reduction than others (ERISA2 and Medicaid being the primary examples). For the past several years, plaintiffs were rarely, if ever, able to reduce Medicaid liens on their clients’ settlement funds when the total settlement funds exceeded the Medicaid lien.3 When settlement funds are less than the Medicaid lien, then and only then, a formula to reduce the Medicaid lien found in §409.910(11)(f) permits the plaintiff the right to split the settlement proceeds with Medicaid 50/50, with each side taking a one-half interest in the settlement funds.4

The good news is, times have changed. Technically, a Medicaid lien still cannot be reduced, but the Medicaid lien can be limited so as to apply only to the amount of your settlement allocated for the past medicals. A brief history of the law follows.

The state of Florida chose to participate in the federal Medicaid program, which provides payment for medical services to families and individuals who qualify based on need. In order to get reimbursed by the federal government for portions of payments made to eligible recipients, Florida’s Medicaid program, called the Agency for Healthcare Administration (AHCA), is required to seek reimbursement from Medicaid recipients if they recover from a third-party tortfeasor via settlement/trial.5

States are limited, however, in their power to pursue reimbursement under the federal anti-lien statute.6 Specifically, the anti-lien statute provides that state Medicaid programs may not attach their right to reimbursement “against the property of an individual prior to his death on account of medical assistance paid or to be paid on his behalf under the [s]tate plan.”7 There is an obvious conflict between Medicaid reimbursement and the federal anti-lien statute.

The Florida statute implementing the state’s requirement to seek reimbursement from Medicaid recipients when there is a third-party tortfeasor recovery, entitles AHCA to impose a lien on a Medicaid recipient’s claim against the tortfeasor, and, therefore, on any monetary amount recovered by the recipient as a result of a judgment, award, or settlement of the claim. Basically, Medicaid is always paid back in full with only one exception, that being §409.910(11)(f). As previously mentioned, this section provides a formula to determine what amount the state may recover from a settlement, which caps recovery at half of the total amount of the settlement after deducting attorneys’ fees and costs. Example: a policy limits settlement of $50,000, when the claimant has $75,000 in medical expenses that were paid by Medicaid. After all the fees and costs are deducted, the net to client is $30,000, based on §409.910(11)(f), the client and Medicaid split 50/50, with each taking $15,000.

Evolution of Medicaid Law through the Courts
This irrebuttable statutory formula for calculating Medicaid’s reimbursement amount seemed to cause tension between a state’s federal requirement to seek repayment from recipients who recover from a third-party tortfeasor, and the federal anti-lien statute, which prevents states from seeking reimbursement from an individual’s personal property. As a result, plaintiff’s attorneys took to the courts, attempting to seek clarification from the judicial system as to whether the type of irrebuttable formula found in Florida’s Medicaid statute was preempted by the anti-lien statute and, therefore, rebuttable. As a result, four pertinent cases shaped and solidified the law in Florida with regard to repaying AHCA out of settlement funds.

In Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006), the U.S. Supreme Court was put to the task of determining whether the anti-lien statute prevents state Medicaid programs from recovering more funds than the amount allocated in a settlement to past medical expenses. In Ahlborn, the plaintiff was in a car accident that caused her severe injuries. The Arkansas Medicaid program paid over $200,000 on the plaintiff’s behalf and sought reimbursement for such payments. The case settled for what the parties stipulated was one-sixth of the full value of the plaintiff’s claim. Therefore, the parties argued that Medicaid should only receive one-sixth of their lien. Medicaid argued that they should be paid in full, since the Arkansas statute provided an irrebuttable formula requiring Medicaid to be paid back in full if the formula does not apply when the settlement funds exceed the amount of the lien.

The U.S. Supreme Court unanimously held that the federal requirement of state Medicaid programs to seek reimbursement “does not sanction an assignment of rights to payment for anything other than medical expenses — not lost wages, not pain and suffering, not an inheritance.”8 Therefore, under Ahlborn, states may not “force an assignment of, or place a lien on, any other portion” of a settlement other than that which represents payment for medical care.9

As a result, the Supreme Court in Ahlborn limited the Medicaid lien to the portion stipulated by the parties to represent compensation for past medical expenses.10 In addition, the Court held that even absent an allocation of the settlement for past medical expenses, the plaintiff should be afforded the opportunity to submit the matter to a court for a decision.11

In Smith v. Agency for Healthcare Administration, 24 So. 3d 590 (Fla. 5th DCA 2009), the Fifth District was presented with a case in which there were severe injuries and a large Medicaid lien. However, the parties in this lawsuit, unlike in Ahlborn, failed to allocate what percentage of the agreed-upon total settlement represented medical bills. The plaintiff argued, however, that an apportionment of the settlement proceeds was unnecessary because the U.S. Supreme Court in Ahlborn had adopted a formula for determining what portion of a settlement was attributable to medical expenses.12 The Fifth District rejected that argument, clarifying that Ahlborn held that when an apportionment exists, “a plaintiff should be afforded an opportunity to seek the reduction of a Medicaid lien amount by demonstrating, with evidence, that the lien amount exceeds the amount recovered for medical expenses.”13

Soon after Smith, the Second District also addressed the issue of Medicaid lien “reductions” in Russell v. Agency for Healthcare Administration, 23 So. 3d 1266 (Fla. 2d DCA 2010). Similar to Smith and Ahlborn, the parties in Russell failed to allocate a portion of the settlement proceeds to past medical expenses. Just as the Fifth District found, the Second District held that because no portion of the total settlement was designated to compensate for past medical expenses, the Medicaid lien could attach to any portion, and, therefore, attached to the entire settlement proceeds. However, the Second District did hold that when there is an allocation of the settlement proceeds specifically for past due medical bills, the plaintiff does have the opportunity to present the reasonableness of the allocation to a trial court for a determination, thus, keeping the “reduction” of the Medicaid lien in place.14

Wos v. E.M.A., 133 S. Ct. 1391 (2013), came to the U.S. Supreme Court from North Carolina, which had adopted a nearly identical Medicaid recovery statute as Florida. At last, the U.S. Supreme Court explicitly held that the “irrebuttable, one-size-fits-all statutory presumption is incompatible with the [federal] Medicaid Act’s clear mandate that a [s]tate may not demand any portion of a beneficiary’s tort recovery except the share that is attributable to medical expenses.”15 As a result, the rigid Medicaid recovery formula was struck down to the extent that it permitted recovery beyond the portion of a Medicaid recipient’s third-party settlement that represents compensation for past medical expenses.

Davis v. Roberts, 130 So. 3d 264 (Fla. 5th DCA 2013),16 became the final key to confirming that Medicaid lien limitations (reductions) were possible. Finally, the attorneys got it right. Here, as a crucial part of the mediation settlement, all parties agreed in writing to a reasonable allocation of the plaintiff’s past medical expenses, as well as the projected actual total value of all the damages, and finally, the actual amount of money paid to plaintiff due to mitigating conditions. Once a settlement was reached, the plaintiff’s attorneys filed two motions with the court — one to approve the settlement of the minor plaintiff and one to determine the reasonableness of the allocations set forth above. The Fifth District held that a plaintiff has the right to petition the court to demonstrate that the lien amount exceeds the amount recovered for past medical expenses.17 The Fifth District noted that their instant decision was consistent with their decision in Smith, but that the facts differed. In Smith, the plaintiff lacked an allocation of the settlement and proffered no evidence at trial as to what amount of the settlement represented past medical expenses. In Davis, the plaintiffs not only had an allocation, but also presented ample proof as to the reasonableness of the allocation.18 As a result, the Fifth District held that when there is an allocation and when the allocation is supported by evidence, a court may determine whether the allocation was reasonable, thereby limiting the lien amount to the amount allocated to past medical expenses.19

Consequently, the Fifth District ruled, consistent with Wos, that the federal anti-lien statute preempts F.S. §409.910(11)(f)’s “default allocation,” prohibiting Medicaid from recovering any settlement money beyond the portion allocated to past medical expenses.20 It was agreed by all parties that the plaintiff in Davis recovered only 10 percent of her total damages, including 10 percent of her past medical expenses, due to various defenses and coverage issues. Thus, the case was reversed and remanded to the trial court, which was now given clear authority to limit the Medicaid lien of $239,268.87 to the $23,926.88 portion of the settlement allocated to past medical expenses (1/10 of her total medical expenses that she recovered in the settlement).21

Tips for Practitioners
How should parties move forward when faced with a Medicaid lien? First, the plaintiff’s attorney should determine how much the Medicaid lien is seeking. If it is small, then it is usually best to pay the lien in full, especially if the settlement offer is significantly more than the lien. It takes a good bit of work and cost to go through the various steps to contest and win the limiting of Medicaid’s lien. Depending on the amount in question, it may be better for the client to pay the lien and move forward.

If the lien represents a significant amount of money and the settlement amount recovered is more money than the lien, but less than full value of the case (this determination varies on a case-by-case basis), then the attorney will need to take the following steps to attempt to limit the Medicaid lien:

At Mediation — invite all parties to attend who are interested, including Medicaid. They may not make an appearance, but at least the attempt to be inclusive has been evidenced.

During the Mediation — have all agreeable parties sign a statement that will be attached to the final mediation document as Exhibit A. This statement should provide that the amount of the settlement, due to fault, comparative fault, lack of coverage, will not fully compensate the claimant for their damages/injuries caused by the accident. Exhibit A must provide actual case numbers ( i.e., the plaintiff’s injuries/damages have been evaluated by the plaintiff and defendant at $1 million however, because of the fault being contested, comparative fault, and a limited insurance policy, the plaintiff is receiving only $100,000, which represents 10 percent of the total injury/damage value). Further, this settlement means that the plaintiff is specifically recovering only 10 percent of his damages for past medical expenses, which were $20,000. Thus, the plaintiff is receiving only $2,000 for this specific past medical damage. Please note that this should be reasonable, as the parties will need to present evidence of the reasonableness of the settlement allocations at a later hearing.

By utilizing Exhibit A, all the elements necessary for the plaintiff to be entitled to a Medicaid limitation on their lien have been addressed. The party only received 10 percent of all damages, including the Medicaid lien, thus, Medicaid’s lien is limited to only the 10 percent that has been recovered for the client’s medical bills in the settlement — a 90 percent reduction.

Medicaid will most likely argue they do not agree with Exhibit A. They will likely take the position that Exhibit A is unfair, unreasonable, and invalid. Medicaid may argue that both plaintiffs and defendants and their counsel worked in collusion to get the case finished. Since the defendants had no economic skin in Exhibit A, the damages and percentages were not decided on a fair and reasonable basis.

One cannot try to undercut Medicaid’s right to recover; a reasonable allocation that can be proven in court, with evidence, including but not limited to testimony, is required.

This is the safeguard to stop any collusion between plaintiffs and defendants. One must be fair in setting the values and percentages in Exhibit A, and will have to prove and justify the reasoning and numbers before a panel/court at a later date.

Section 409.910, as of July 2013, requires an administrative hearing be held in front of the Department of Administrative Hearings (DOAH) in Tallahassee.22 As a result, hearing officers will now replace judges in hearing all evidence presented and in determining whether the allocation of past medical expenses was fair and reasonable.

F.S. §409.910(17) states that all issues must be proven by “the preponderance of the evidence” and that the plaintiffs must prove all matters in Exhibit A. If the attorney alleges a problem with the fault of the defendants, the accident facts must be presented before the hearing officers, etc .

Basically at this hearing, an attorney must argue the issues of fault and liability, as well as comparative negligence on the part of the client. The same applies to lack of insurance coverage or a causation problem regarding the injuries. Experienced personal injury attorneys make great expert witnesses and are allowed to give their opinions after a proper foundation has been laid as to their experience and expertise in practice. These hearings may take anywhere from one hour to one or two days.

The client needs to be in attendance and prepared to testify just like a trial setting as to fault and damages. This is why only significant lien amounts typically warrant this effort. The DOAH Tallahassee hearing is not the venue or panel that most plaintiff’s attorneys would choose; however, any adverse relief can be appealed to the First District Court of Appeal.23

Conclusion
As a result, at the end of this article, the reader who wishes to “reduce” successfully difficult, and often substantial, Medicaid liens should feel much more hopeful in successfully achieving the maximum net settlement to their client. As long as a reasonable allocation is agreed upon by the parties and supported with ample evidence, including experts on damages, fault, and case values, then a plaintiff earns an opportunity to have a judge determine the reasonableness of the allocation. If the allocation is determined to be reasonable, then the Medicaid lien will be limited to only those funds allocated for past medical expenses, and every step will have been taken to act in the best interest of the client.24

1 Fla. Stat. §768.76 (2014). This section of Ch.768 is commonly referred to as the “collateral source statute,” which governs subrogation rights and repayment.

2 Employee Retirement Income Security Act of 1974, partially codified at 29 U.S.C. §§1001-1461.

3 See Fla. Stat. §409.910 (2014). Fla. Stat. Ch. 409, beginning at §901 through §9205, covers regulation of the Florida Medicaid Program. Section 910 specifically governs repayment of benefits when third-party liability exists. Subsection (6)(a) is the default for repayment and applies when the settlement funds exceed the Medicaid lien amount: “The agency is automatically subrogated to any rights that an applicant, recipient, or legal representative has to any third-party benefit for the full amount of medical assistance provided by Medicaid. Recovery pursuant to the subrogation rights created hereby shall not be reduced, prorated, or applied to only a portion of a judgment, award, or settlement, but is to provide full recovery by the agency from any and all third-party benefits. Equities of a recipient, his or her legal representative, a recipient’s creditors, or health care providers shall not defeat, reduce, or prorate recovery by the agency as to its subrogation rights granted under this paragraph.”

4 Fla. Stat. §409.910(11)(f) (2014), provides: “Notwithstanding any provision in this section to the contrary, in the event of an action in tort against a third party in which the recipient or his or her legal representative is a party which results in a judgment, award, or settlement from a third party, the amount recovered shall be distributed as follows: 1. After attorney’s fees and taxable costs as defined by the Florida Rules of Civil Procedure, one-half of the remaining recovery shall be paid to the agency up to the total amount of medical assistance provided by Medicaid. 2. The remaining amount of the recovery shall be paid to the recipient. 3. For purposes of calculating the agency’s recovery of medical assistance benefits paid, the fee for services of an attorney retained by the recipient or his or her legal representative shall be calculated at 25 percent of the judgment, award, or settlement. 4. Notwithstanding any provision of this section to the contrary, the agency shall be entitled to all medical coverage benefits up to the total amount of medical assistance provided by Medicaid. For purposes of this paragraph, ‘medical coverage’ means any benefits under health insurance, a health maintenance organization, a preferred provider arrangement, or a prepaid health clinic, and the portion of benefits designated for medical payments under coverage for workers’ compensation, personal injury protection, and casualty.”

5 See 42 U.S.C. §1396a(a)(25)(A) (2014). This is the federal mandate for states choosing to participate in the Medicaid program to seek reimbursement from Medicaid recipients who recover from liable third parties.

6 42 U.S.C. §1396p(a)(1) (2014). This federal statute is what is commonly referred to as the “anti-lien statute.”

7 Id. This section was intended to prevent Medicaid from asserting liens from paid-out medical benefits against any personal property of a recipient.

8 Ahlborn, 547 U.S. at 281 (emphasis added). This statement from the U.S. Supreme Court began the evolution of lower court holdings developing the law into what it is today.

9 Id. at 285. The U.S. Supreme Court later solidified this holding in Wos, 133 S. Ct. 1391 (2013).

10 Id. at 292 (“Federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn’s settlement in an amount exceeding $35,581.47, and the federal anti-lien provision affirmatively prohibits it from doing so.”).

11 Id. at 288 (“Even in the absence of such a postsettlement agreement, though, the risk that parties to a tort suit will allocate away the [s]tate’s interest can be avoided either by obtaining the [s]tate’s advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision.”).

12 Smith, 24 So. 3d at 591 (“The parties in Ahlborn had stipulated to a figure representing the total recovery for medical expenses in their case, and used the method now advanced in this case to calculate their stipulated figure. However, the court in Ahlborn simply accepted the stipulation, and in no way adopted the formula as a required or sanctioned method to determine the medical expense portion of an overall settlement amount.”).

13 Id. at 592 (“The problem here is that instead of making that showing, Smith presented her narrow legal argument premised upon her misreading of Ahlborn and provided only the total damage figure of $7,000,000.00. Smith proffered nothing from which the trial judge could determine how much of the $7,000,000.00 in damages represented Thomas’ medical expenses, and made no other showing to support her argument that the medical expense portion of the $2,225,000.00 settlement was less than $122,783.87.”).

14 Russell, 23 So. 3d at 1269 (citation omitted) (“As the court acknowledged in Ahlborn, ‘the risk that parties to a tort suit will allocate away the State’s interest,’ may justify the use of ‘special rules and procedures,’ or may require submission of ‘the matter to a court for decision.’”).

15 Wos, 133 S. Ct. at 1399.

16 The authors’ firm represented plaintiff Hunter Davis in the underlying case of Davis v. Roberts, 130 So. 3d 264 (Fla. 5th DCA 2013), through the appeal and final judgment by the court.

17 Davis, 130 So. 3d at 270 (“As such, we reiterate our prior directive and hold that a Medicaid recipient ‘should be afforded the opportunity to seek the reduction of a Medicaid lien amount by demonstrating, with evidence, that the lien amount [established by §409.910(11)(f)] exceeds the amount recovered for medical expenses.’ Smith, 24 So. 3d at 592; see also Agency for Health Care Admin. v. Riley, 119 So. 3d 514, 516 (Fla. 2d DCA 2013) (expressly adopting the [F]ourth [D]istrict’s holding in Roberts that a plaintiff should be afforded an opportunity to seek the reduction of a Medicaid lien amount established by the statutory default allocation by demonstrating, with evidence, that the lien amount exceeds the amount recovered for medical expenses).”).

18 Id. at 267-268.

19 Id. at 270 (“ Wos, Roberts, and Riley expressly authorize a plaintiff to seek, by way of an evidentiary hearing, the reduction of the Medicaid lien amount established by the statutory allocation.”).

20 Id. at 270 (“ Ahlborn and Wos make clear that §409.910(11)(f) is preempted by the federal Medicaid statute’s anti-lien provision to the extent it creates an irrebuttable presumption and permits recovery beyond that portion of the Medicaid recipient’s third-party recovery representing compensation for past medical expenses. Accordingly, we agree with the fourth district in Roberts that section 409.910(11)(f) is a ‘default allocation.’”).

21 Id. at 270-271.

22 See Fla. Stat. §409.910(17)(b) (2014) (“A recipient may contest the amount designated as recovered medical expense damages payable to the agency pursuant to the formula specified in paragraph (11)(f) by filing a petition under Ch. 120 within 21 days after the date of payment of funds to the agency or after the date of placing the full amount of the third-party benefits in the trust account for the benefit of the agency pursuant to paragraph (a). The petition shall be filed with the Division of Administrative Hearings. For purposes of Ch. 120, the payment of funds to the agency or the placement of the full amount of the third-party benefits in the trust account for the benefit of the agency constitutes final agency action and notice thereof. Final order authority for the proceedings specified in this subsection rests with the Division of Administrative Hearings. This procedure is the exclusive method for challenging the amount of third-party benefits payable to the agency. In order to successfully challenge the amount payable to the agency, the recipient must prove, by clear and convincing evidence, that a lesser portion of the total recovery should be allocated as reimbursement for past and future medical expenses than the amount calculated by the agency pursuant to the formula set forth in paragraph (11)(f) or that Medicaid provided a lesser amount of medical assistance than that asserted by the agency.”).

23 See Fla. Stat. §409.910(17)(d) (2014) (“Venue for all administrative proceedings pursuant to this subsection lies in Leon County, at the discretion of the agency. Venue for all appellate proceedings arising from the administrative proceeding outlined in this subsection lies at the First District Court of Appeal in Leon County, at the discretion of the agency.”).

24 Recently, the First District joined the Second, Fourth, and Fifth districts in holding that a plaintiff has the opportunity to limit the Medicaid lien beyond the statutory formula set forth in Fla. Stat. §409.910(11)(f) by showing that the lien amount exceeds the amount recovered for past medical expenses. See Harrell v. Agency for Healthcare Administration, 143 So. 3d 478 (Fla. 4th DCA 2014).

Gerald Schackow is a partner at Schackow & Mercadante, P.A., a law firm that focuses on wrongful death and personal injury cases. He earned his undergraduate degree from the University of Florida, as well as his J.D. from the University of Florida College of Law in 1965. He has practiced personal injury throughout North Florida for nearly 50 years. He lives and works in Gainesville, where he practices with his partner, Steve Mercadante and three of his children, Lynn, Brian, and Catherine.

Brian Schackow is a partner at Schackow & Mercadante, P.A., in Gainesville.  He earned his undergraduate degree from the University of Florida in 1999 and his J.D. from the University of Denver College of Law in 2002. His practice is focused on personal injury and wrongful death cases.

The authors thank fellow Bar members Floyd Faglie of Monticello, Melissa Stringer of Gainesville, and Maegen Peek Luca of Tampa, for their fine efforts in this case.