April 18, 2013

The U.S. Supreme Court recently struck down a North Carolina law that allowed state officials to seize one-third of a medical malpractice settlement paid to a Medicaid recipient.

In the case, Wos v. EMA, North Carolina claimed over $900,000 of a legal settlement won by the parents of a 13-year-old girl born with serious injuries that left her unable to live or work independently.  The case settled for $2.8 million; however, the settlement did not indicate what part of the $2.8 million was meant to cover EMA’s medical expenses, which were paid, in part, by Medicaid.  North Carolina claimed over $900,000 of that amount under a state law that allows it to recover one-third of any legal verdict or settlement as a reimbursement for the state’s Medicaid costs.  EMA’s family sued North Carolina, arguing that the amount was disproportionately large and violated the federal Medicaid law, which limits a state’s recovery to medical expenses.

The federal Medicaid Act requires states to recoup their medical expenses from beneficiaries’ tort winnings.  It does not specify what percentage of tort winnings should be allocated as medical expenses if the verdict or settlement is silent on that point.

The U.S. District Court for the Western District of North Carolina found the state’s method for determining its reimbursement was reasonable, but in 2012 the Fourth U.S. Circuit Court of Appeal in Richmond, Virginia disagreed.  The Supreme Court upheld the Fourth Circuit’s ruling in a 6-3 opinion, holding that North Carolina’s law conflicted with the federal law’s requirement that a state not claim more than what it paid for medical expenses, known as the anti-lien provision.

Eleven states supported North Carolina in an amicus brief, arguing that the federal Medicaid law was an agreement between the federal government and the states, and did not provide Medicaid beneficiaries with a legal claim.  Three justices from the court’s conservative wing dissented, siding with North Carolina.

Several states have laws that allow the states to recover a fixed percentage of the tort recoveries for Medicaid costs; others conduct administrative hearings on a case-by-case basis to determine what percentage of the verdict or settlement was for medical costs.  The majority of the justices supported the case-specific hearing approach.