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Health Care

Steptoe & Johnson PLLC: U.S. Supreme Court Limits State Medicaid Recoveries to Medical Expenses

What happened?

In a decision released last week, Wos v. E.M.A. [enhanced version available to subscribers], the U.S. Supreme Court invalidated North Carolina's Medicaid subrogation laws because they allowed the state to recover more than the medical expense portion of a Medicaid beneficiary's settlement. The beneficiaries in Wos settled a medical malpractice suit involving injuries to their child for $2.8 million. The trial court approved the unallocated settlement but set aside 1/3 in an escrow account, pursuant to the Medicaid subrogation laws, until the amount of the Medicaid lien could be judicially determined.

The Supreme Court reasoned that the subrogation laws were flawed because they set forth no process for determining what portion of the beneficiary's recovery was attributable to medical expenses, the 1/3 number was "arbitrary" and created an "irrebuttable, one-size-fits all statutory presumption" that was incompatible with federal Medicaid laws. The Court also encouraged states to adopt judicial or administrative proceedings, case-by-case evidentiary hearings, or other procedures to allocate settlements between medical and non-medical expenses when the parties do not.

Click here to read the full decision.

How does it relate to Medicaid subrogation in West Virginia?

The Wos opinion reinforces a West Virginia Supreme Court of Appeals decision released in 2012, In re E.B. [enhanced version], which similarly struck down the West Virginia subrogation law because the state's subrogation rights were not limited to past medical expenses. Importantly, the West Virginia Supreme Court of Appeals in E.B. already instructed trial courts to implement the same types of allocation procedures suggested last week in Wos. The West Virginia Legislature is also in the process of considering proposed Medicaid subrogation legislation that includes these procedures.

Click here to read the full client alert regarding In re E.B.

Why does it matter?

The Wos and E.B. opinions incentivize litigants to allocate Medicaid beneficiaries' settlements between past medical expenses and non-medical damages, and to further work with Medicaid to agree to the allocation to determine its total lien amount. This has the potential to lengthen and complicate settlement negotiations. The alternative is to participate in time-consuming and costly evidentiary hearings that will be required for judicial allocations where the parties and Medicaid do not agree on the allocations themselves.

Randy Fife has litigated in the areas of product liability, civil rights, and labor and employment law in state and federal courts. Mr. Fife leads the firm's General Litigation Practice Group. Devin Daines focuses his practice in the area of litigation.

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