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From Health Law Daily, March 21, 2013

U.S. Supreme Court finds N.C. irrebuttable statutory presumption on medical expenses to be preempted by Medicaid statute

By Sheila Lynch-Afryl, JD, MA

The Medicaid statute’s anti-lien provision preempted North Carolina’s irrebuttable statutory presumption that one-third of a tort recovery is attributable to medical expenses (Wos v E.M.A., March 20, 2013, Kennedy, A). States are required, in administering their Medicaid programs, to seek reimbursement for medical expenses incurred on behalf of beneficiaries who later recover from third-party tortfeasors. North Carolina enacted a statute that it interpreted as establishing an irrebuttable presumption that one-third of a tort recovery is attributable to medical expenses. The North Carolina statute conflicted with 42 U.S.C. §1396p(a)(1), which prohibits states from attaching a lien on the property of a Medicaid beneficiary to recover benefits paid by the state on the beneficiary’s behalf. Accordingly, the state statute was preempted.

Background. E.M.A. suffered severe birth injuries, which will require 12 to 18 hours of skilled nursing care a day for the rest of her life. Her parents filed a lawsuit against the doctor who delivered E.M.A. and the hospital where she was born. In 2006, the case settled for $2.8 million, apparently dictated in large part by the limits on the defendants’ medical malpractice insurance coverage, despite expert testimony that damages exceeded $42 million. Pursuant to N.C.G.S. §108A-57(a), the court placed one-third of the $2.8 million settlement into an escrow account pending determination of the actual amount of the lien owed by E.M.A. to the state. E.M.A. and her parents filed suit, arguing that North Carolina’s reimbursement scheme violated the Medicaid anti-lien provision.

Conflict in decisions. The Fourth Circuit concluded that North Carolina’s statutory presumption must be subject to adversarial testing in a judicial or administrative proceeding. In a different case, however, the North Carolina Supreme Court found that the presumption was a reasonable method for determining the state’s medical reimbursements. The U.S. Supreme Court granted certiorari to resolve the conflict.

Preemption. In Arkansas Dept. of Health and Human Services v Ahlborn, 547 U.S. 268 (2006), the Supreme Court found that federal law permits an assignment to the state of the right to recover portions of a settlement representing payments for medical care, but it precludes attachment of the remainder of the settlement. Post-Ahlborn, North Carolina began interpreting its statute as defining the “portion of the settlement that represents payment for medical expenses” as the lesser of the state’s past medical expenditures or one-third of the plaintiff’s total recovery.

The Supreme Court noted that statute allows the state to take one-third of the total recovery, even if a smaller percentage could be attributed to medical expenses. An irrebuttable statutory presumption is incompatible with the Medicaid statute’s clear mandate that a state may not demand any portion of a beneficiary’s tort recovery except the part that is attributable to medical expenses. The Court found that because a conflict existed between the North Carolina statute and the Medicaid anti-lien provision, the state statute was preempted.

Dissent. Justices Roberts, Scalia, and Thomas dissented, arguing that the state statute was not preempted because there are no federal requirements outlining how to determine what portion of a settlement represents payment for medical care. The dissent found North Carolina’s approach reasonable and concluded that deciding on an approach for allocating medical versus nonmedical expenses should be a joint venture between the states and the federal government.

The case number is 12-98.

Attorneys: John F. Maddrey, North Carolina Department of Justice, for Aldona Wos, Secretary, North Carolina Department of Health and Human Services. Louis M. Bograd (Center for Constitutional Litigation, P.C.) for American Association for Justice. Christopher Egleson (Akin Gump Strauss Hauer & Feld, LLP) for National Governors Association. Allison O. Van Laningham (Smith Moore Leatherwood LLP) for Federation of Defense and Corporate Counsel. Elizabeth B. Wydra (Constitutional Accountability Center) for AARP.

Companies: North Carolina Department of Health and Human Services; American Association for Justice; National Governors Association; Federation of Defense and Corporate Counsel; AARP

MainStory: TopStory PreemptionNews MedicaidNews NorthCarolinaNews SupremeCtNews

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