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Argument preview: North Carolina spars with Medicaid claimant over reimbursement

Today’s argument in Delia v. E.M.A. presents a straightforward dispute about federal preemption in the Medicaid context.

The federal Medicaid program advances funds to the states to defray the medical expenses of the poor.  As a condition of that funding, the program imposes numerous requirements on the state.  One set of requirements involves Medicaid funding of medical expenses for an individual who subsequently recovers funds from a third party as compensation for the injury that led to the expenses.  In this case, for example, a child received a multi-million-dollar settlement in tort litigation against physicians for injuries sustained at the time of her birth.  The state is permitted (indeed obligated) to insist on recovering from Medicaid recipients any funds they receive from third parties to compensate for the cost of medical services that were funded by Medicaid.  However, the state cannot impose a lien on any of the recipient’s property, which means in practice that the state cannot take any part of the tort recovery that is not compensation for Medicaid-funded services.

In response to those provisions (and an earlier Supreme Court decision interpreting them, Arkansas Dep’t of Health & Human Services v. Ahlborn), North Carolina adopted a statute that creates a lien on any tort recovery equal to the lesser of (a) the total funds advanced by the state Medicaid program; or (b) one-third of the total recovery.  Thus, the state plans to take one-third of any tort recovery, except in the case in which that payment would exceed the payments previously made to the injured party by Medicaid.

The obvious question is what happens in a case in which medical expenses are less than one third of the claimant’s total injury – in which case a recovery by the state of one-third of the tort settlement would give the state an inappropriately large share of the settlement.  The child and her guardian justifiably claim this is such a case, because birth-related injuries have caused the child life-long pain and suffering and quality-of-life injuries that seem to dwarf the medical expenses reimbursed by Medicaid.  The Fourth Circuit concluded that the North Carolina statute was preempted because it impermissibly took a share of the recovery that was not related to medical expenses.

The most puzzling thing about the case is why the Court granted review.  North Carolina’s arguments are surprisingly thin.  Its principal argument is that the concept of a “true” allocation of any tort settlement is so meaningless as to be incoherent.  Thus, because there is no coherent way to allocate funds from a tort settlement between Medicaid-related medical expenses and other types of injury, it is reasonable for the State to establish a presumption that one third of the settlement relates to medical expenses.  To somebody (like me) who knows almost nothing about medical-related tort judgments, the one-third figure even sounds like a reasonable guess at a typical allocation.

The state also emphasizes how unfair it would be to allow the tort plaintiff and defendants to establish the share of proceeds related to medical expenses; the plaintiff obviously would have an incentive to allocate the settlement to non-Medicaid injuries so that the plaintiff could retain more of the settlement.  Finally, the state claims that the federal Medicaid authorities in the Department of Health and Human Services have approved its system.

Although those arguments seem reasonable enough in a vacuum, the response from the injured child (the respondent in the Supreme Court) and the United States (appearing as an amicus in support of the child) is devastating.  For one thing, as discussed above, it seems pretty clear that this is a case in which the share of injury related to medical expenses is far less than one third; the settlement is for only a fraction of the total injuries because the only defendant is a marginally solvent individual.  Thus, the statute in this case appears to result in the state getting reimbursement from the defendant for a much larger share of its injuries than the Medicaid plaintiff recovers.  That result seems so inconsistent with the point of the statute and Ahlborn that it is hard to believe the Court will spring for it.

Even if the Court is not sure that this is a case of egregious over-reaching by the state, it is hard to doubt after reading the child’s presentation that such cases are common.  After reading both sides’ briefs, the Justices are quite likely to believe that the share of injuries related by medical expenses varies so widely that one third is a reasonable estimate only in a small number of cases.  So the Court would be likely to accept such a rough estimate as tolerable only if there was some strong procedural reason to tolerate it.

The strong position of the United States in support of the child undermines that idea completely.  Most importantly, the United States persuasively contends that the document supposedly approving the state’s system was an informal letter in the nature of constituent advice that would not have been viewed as binding on the agency in any way.  Because the agency has a formal method for issuing binding opinions and because this was not such an opinion, it seems unlikely that the Court would have given it weight even if the agency had not appeared explicitly to disavow it.  Because the federal Medicaid authorities appear here to reject the state’s approach as wholly self-interested and unfair to the claimant, the state’s position seems quite tenuous.

Finally, and perhaps most importantly, the child and the United States also provide a substantially complete response to North Carolina’s concerns about settlement manipulation: the child concedes that the allocation in a settlement would never bind the state, insisting that in any such case a judge should allocate the settlement if the state and the injured party cannot agree.  The United States buttresses that presentation by discussing the statutes of numerous states that have established just such a process.  Because that process would ensure that the state always receives a “fair” share – in the sense that judicial determination should strike the Justices as presumptively fair – North Carolina’s concerns about settlement manipulation largely evaporate.

As Supreme Court cases go, this one seems surprisingly one-sided and unimportant.  I started this post by wondering why the Court granted review.  My guess is that it was a combination of the tension between the decision of the Fourth Circuit here and a prior decision of North Carolina’s highest court (upholding the statute); and a sensibility that a holding invalidating a state statute is presumptively entitled to review.  So at the end of the day I read this as an unusual case in which the Court took the case with a view toward affirming.  We’ll know more after the oral argument.

Cases: Wos v. E.M.A.

Recommended Citation: Ronald Mann, Argument preview: North Carolina spars with Medicaid claimant over reimbursement, SCOTUSblog (Jan. 8, 2013, 12:01 AM),