IS THE BIPARTISAN BUDGET ACT OF 2013 THE DEATH OF AHLBORN?

Article by Thomas D. Begley Jr.

As a condition of Medicaid eligibility, a Medicaid applicant is required to assign to the state any rights to payment of medical care from any third party.[1]  If the individual fails to pursue the claim, the state has the option of pursuing it.  Federal law requires that each state Medicaid program have procedures for determining the legal liability of third parties to pay for medical assistance provided by the state’s Medicaid plan, and for recovery from third parties of the cost of medical assistance provided, whenever recovery is feasible.[2]  In New Jersey, the Attorney General is responsible to enforce any rights against third parties for recovery of liens.[3]  A Medicaid lien applies only to medical assistance related to the injury and the lien applies only to payments made from the date of the injury to the date of settlement.  Where there are multiple parties involved in an action, the Medicaid lien applies only to assets recovered by the personal injury victim, if no medical expenses were paid as a result of the injury to other parties such as parents or spouses.  Where the third party suffered no physical injury resulting in any payment by Medicaid, but who have only a derivative claim, no Medicaid lien attaches to their claim.

A Medicaid lien may be reduced by procurement costs.  Procurement costs are counsel fees, costs or other expenses incurred by the recipient or the recipient’s attorney.[4]  In 2006, the United States Supreme Court in the case of Arkansas Department of Health and Human Services v Ahlborn[5] held that the State Medicaid Agency was only entitled to recover from that portion of the settlement earmarked for medical expenses.  The court held that the agency could only recover a pro rata share of its claim, which is determined by the ratio that the settlement amount bears to the reasonable value of the total claim.  By taking advantage of an Ahlborn reduction, the plaintiff was guaranteed some compensation for pain and suffering, economic damages, and other losses sustained as a result of the injury.  If the settlement was less than the true value of the case because of limits on insurance, issues with liability or other mitigating factors, both the plaintiff and the State Medicaid Agency shared the loss proportionately.

The issue has always been how to determine the true value of the claim.  The three principal ways of making this determination are through an Expert Witness Report citing similar cases and explaining why the case in question resolved for less than true value, utilizing Jury Verdict, which is the method used by the Division of Medical Assistance and Health Services in New Jersey, or by a Court Order.  A Court Order may be obtained allocating the settlement on various categories of damages.  The State Medicaid Agency should be notified of any such hearing.

In cases where a special needs trust was involved for purposes of preserving the plaintiff’s future eligibility for Medicaid, an issue frequently arose as to whether the Medicaid lien had to be satisfied prior to funding the special needs trust, or whether it could be satisfied from the payback provision on the death of the plaintiff/trust beneficiary.  In Cricchio v. Pennisi, a New York Court of Appeals ruled that Medicaid is entitled to repayment of the lien prior to funding the special needs trust..[6] New Jersey has followed the same reasoning as Cricchio.[7]  The Health Care Financing Administration (HCFA), now CMS, takes the position that if a special needs trust is funded prior to satisfaction of the Medicaid lien, the individual will lose Medicaid eligibility.[8]

At the end of 2013, Congress passed the Bipartisan Budget Act of 2013 (BBA 2013).  Beginning on October 1, 2014, states will be required to seek reimbursement from portions of personal injuries recoveries beyond what is directly attributable to past medical expenses.  Under the amended statute,[9] the state is deemed to have acquired not only the right to payment by third parties for health care items or services, but also to “any payment by [a] third party” with respect to legal liability to make payments for assistance provided by the state.  Also under the amended statute,[10] applicants must assign to the state their rights for “any payment for a third party that has a legal liability to pay for care and services under the plan” as opposed to simply assigning their rights to payment for medical care by a third party.  The BBA also carves out an express exception to the Medicaid anti-lien provisions to allow for rights acquired by or assigned to the state under 42 U.S.C. §§1396a(a)(25)(H) and 1396k(a)(1)(A).  Therefore, under the amended statute, the states’ assigned rights extended to any payments from a third party with legal liability to pay for care or services available under the plan.  CMS has adopted the broad policy that states are required to seek reimbursement from portions of tort recoveries not attributable to medical expenses.[11]  These amendments supersede Ahlborn.

These amendments become effective on October 1, 2014.  It is not clear from the legislation whether this date will apply to applications for reduction made as of that date, to cases settled as of that date, or to injuries sustained as of that date.  If the amendments remain in effect, litigation is sure to follow.  AAJ and other advocacy groups are working to repeal this amendment.

This provision in the Bipartisan Budget Act amounts to a tax on catastrophically disabled individuals who may be left with little or no recovery after payment of the Medicaid lien. In fact, the policy may be counterproductive in that it will lessen plaintiffs’ incentive to pursue otherwise valid claims.  The ironic result may be that with fewer plaintiffs pursuing claims, the supposedly revenue-raising amendments actually states’ total reimbursements.[12]