In Wos v. EMA, U.S. Sup. Ct., No. 12-98., the U.S. Supreme Court struck down North Carolina’s irrebuttable presumption of a one-third medical recovery for purposes of reimbursing state Medicaid.

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U.S. SUPREME COURT STRIKES DOWN STATE MEDICAID RECOVERY LAW STATUTE

Analyst’s Comment provided by John McCulloch, J.D.

In this analyst’s opinion, the Supreme Court effectively and efficiently cut through a wide variety of justifications the state of North Carolina used in justifying their one-third presumption. Since the decision in Ahlborn, a number of states have relied upon presumptive allocations in their Medicaid recovery statutes, feeling that Ahlborn gave them room to create such a scheme. These statutes have frustrated public policy in favor of settlement by making it difficult, and at times impossible, for parties to settle lawsuits knowing that a large portion of the settlement, including amounts for pain and suffering, would be taken away by state Medicaid. This decision will have long ranging implications in those states because this is a U.S. Supreme Court ruling. Under the Supremacy Clause, where state and federal law directly conflict, state law must give way.

Case Facts

E. M. A. was born with multiple serious birth injuries and her parents settled her medical malpractice suit with damages estimated at $42 million. The suit was settled for $2.8 million, due in part to insurance policy limits. The settlement did not allocate between medical and nonmedical compensation. In approving the settlement, the state court placed one-third of the recovery into escrow pending a judicial determination of the amount of the Medicaid lien owed by E. M. A. to the State. The state of North Carolina had a statutory presumption of one-third of a tort recovery being attributable to medical expenses.

E. M. A. and her parents then sought declaratory and injunctive relief in Federal District Court, claiming that the State’s reimbursement scheme violated the Medicaid anti-lien provision as held in the Supreme Court’s decision in Arkansas Dept. of Health and Human Servs. v. Ahlborn. The Fourth Circuit vacated and remanded, concluding that the State’s statutory scheme could not be reconciled with Ahlborn. The US Supreme Court granted certiorari and held in a 6-3 vote that the Federal anti-lien provision preempts North Carolina’s irrebuttable statutory presumption that one-third of a tort recovery is attributable to medical expenses.

Case Holding

The Supreme Court, in striking down North Carolina’s one-third statutory presumption, found that it provided no process for determining what portion of a Medicaid beneficiary’s tort recovery was attributable to medical expenses, instead finding North Carolina relied upon an arbitrary number, one-third, and by statute deemed it

to represent payment for medical care. It held that an irrebuttable, one-size-fits-all statutory presumption is incompatible with the Medicaid Act’s clear mandate that a state may not demand any portion of a beneficiary’s tort recovery except the share that is attributable to medical expenses.

North Carolina argued that if the Supreme Court struck down the one-third presumption, it would frustrate the Medicaid anti-lien provision in the context of tort recoveries. Further, it argued that the Ahlborn decision permitted them to have a one-third presumption. The Court stated this was a misinterpretation of Ahlborn. The Supreme Court, in Ahlborn, did not endorse irrebuttable presumptions that designate some arbitrary fraction of a tort judgment to medical expenses in all cases.

North Carolina also argued that its law falls within the scope of a state’s traditional authority to regulate tort actions, including the amount of damages that a party may recover. The Court disagreed, stating that a statute that singles out Medicaid beneficiaries in this manner cannot avoid compliance with the federal anti-lien provision merely by relying upon a connection to an area of traditional state regulation. The State also contended that even though its allocation of one-third of a tort recovery to medical expenses may be arbitrary, other methods for allocating a recovery would be just as arbitrary. The Court found this unpersuasive, as allocations, while to some extent not precise, need not be arbitrary

Another argument was made that it would be wasteful, time consuming and costly to hold “frequent mini-trials” in order to divide a settlement between medical and nonmedical expenses. This argument would not relieve a state of its obligation to comply with the terms of the Medicaid anti-lien provision, and the Court found that the State had ample means available to allocate Medicaid beneficiaries’ tort recoveries in an efficient manner that complied with federal law.

Lastly, North Carolina produced two documents, a July 2006 memo and a December 2009 letter responding to an inquiry from a member of North Carolina’s congressional delegation, stating that the Centers for Medicare and Medicaid Services approved of North Carolina’s statutory scheme for Medicaid reimbursement. The State felt these agency pronouncements were entitled to Chevron deference and treated as law. The Court disagreed, finding that the documents no longer reflected CMS’ position, and that opinion letters did not have the force of law.

In the end, the Court determined that a state may not evade the pre-emptive force of federal law by resorting to creative statutory interpretation or description at odds with the statute’s intended operation and effect.