North Carolina Medical Malpractice Medicaid Recovery Law Unconstitutional

Sometimes when there is a medical malpractice settlement, the medical malpractice claimant’s medical bills related to the medical malpractice were paid by Medicaid. Under federal law, states participating in the Medicaid program are required (with some exceptions) to seek reimbursement for medical bills paid on behalf of the successful medical malpractice claimants. Nonetheless, federal law prohibits (with some exceptions) states from seeking reimbursement from the personal property of the Medicaid recipients.

In a medical malpractice case arising out of North Carolina that involved the serious birth injuries suffered by an infant, Medicaid paid $1.9 million in past medical bills related to the medical malpractice claim. The medical malpractice claim was settled for $2.8 million but the amount allocated to the past medical bills paid by Medicaid was not made by the parties to the medical malpractice case or the judge who reviewed and approved the settlement.

North Carolina has a state law in the form of an unrebuttable presumption that Medicaid is entitled to be reimbursed the amount of the actual medical bills it paid or one-third of the total recovery, whichever is less. Therefore, North Carolina claimed that it was entitled to $933,333.33 of the settlement (one-third).

A federal appeals court decided on March 22, 2012 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…federal Medicaid law limits North Carolina’s recovery to settlement proceeds representing payment for medical expenses. In the event of a lump-sum settlement, as in this case, the sum certain allocable to medical expenses must be determined, in the absence of a stipulation by the affected parties, by judicial determination or some similar adversarial process, before the state may recoup its Medicaid outlays.”

The appellate court remanded the case to the lower court to “determine the true value of the case in allocating medical expenses.” The appellate court referenced with approval “the kind of considerations that might be salient in assessing the propriety of a particular lien determination: [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.”

The appellate court stated, “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…under the circumstances in this case, North Carolina’s statutory presumption must be subject to adversarial testing. 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.”

The appellate court concluded by stating, “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.”


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This entry was posted on Wednesday, March 28th, 2012 at 10:09 am. Both comments and pings are currently closed.


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