The United States Supreme Court Rules Medicaid May Seek Recovery from Settlement Payments Representing Future Medical Care

In a major development on the Medicaid compliance front, the United States Supreme Court (“Court”) in Gallardo v. Marstiller, 2022 WL 1914096 (U.S. June 6, 2022), held, in part, that the Medicaid Act’s anti-lien provision did not preempt Florida’s Medicaid Third-Party Liability Act and that under the Medicaid Act a state may seek reimbursement of its Medicaid expenses from tort settlement amounts representing payment for past and future medical care.[1]  In doing so, the Court rejected the plaintiff’s argument that Medicaid’s recovery was limited to only that portion of the settlement representing past medical care.

In this 7-2 decision,[2] the Court affirmed the United States District Court of Appeals for the Eleventh Circuit’s ruling in Gallardo v. Dudek, 963 F.3d 1167 (11th Cir. 2020) in which the Eleventh Circuit held, in part, that Florida Medicaid could seek recovery of payments it made from the amounts of the settlement agreement representing both past and future medical care.  In addition, the Court’s ruling abrogated the Florida Supreme Court’s ruling in Giraldo v. Agency for Health Care Admin., 248 So.3d 53 (2018) which had, in part, limited Florida Medicaid’s recovery from a personal injury settlement to only that portion of the settlement representing past medical expenses.  Going forward, the Court’s ruling may propel some state Medicaid programs to more aggressively pursue their Medicaid recovery claims. 

The following provides a general overview of the Supreme Court’s ruling:

Facts 

The case arises from a 2008 Florida accident in which a truck struck petitioner Gianinna Gallardo (who was 13 years-old at the time) after she stepped off her school bus.[3]  Gallardo suffered catastrophic injuries and remains in a persistent vegetative state.[4] Florida Medicaid paid $862,688.77 to cover her initial medical expenses and as a condition of receiving Medicaid assistance, Gallardo had assigned Florida Medicaid her right to recover from third parties.[5]  In addition, a private insurer, WellCare of Florida, paid $21,499.30.[6]

As a result of this accident, Gallardo, through her parents, sued the truck’s owner and driver, as well as the county school board seeking compensation for past and future medical expenses, lost earnings, and other damages.[7]  Gallardo sought over $20 million in damages; however, the parties ultimately settled for $800,000 – noted by the Court as a 4% recovery.[8] The settlement expressly designated $35,367.52 of that amount as compensation for past medical expenses – 4% of the $884,188.07 paid by Medicaid and WellCare.[9] In addition, the settlement also recognized that “some portion of th[e] settlement may represent compensation for future medical expenses,” but did not specifically allocate any amount for future medical expenses.[10]

Under Florida’s statutory Medicaid recovery formula, Florida Medicaid was presumptively entitled to $300,000 of Gallardo’s settlement (37.5% of $800,000).[11]  On this point, the Court explained that “[t]o satisfy its Medicaid obligations, Florida has enacted its Medicaid Third-Party Liability Act, which directs the State’s Medicaid agency to ‘seek reimbursement from third-party benefits to the limit of legal liability and for the full amount of third-party benefits, but not in excess of the amount of medical assistance paid by Medicaid.’ Fla. Stat. § 409.910(4) (2017).  To this end, the statute provides that when a beneficiary ‘accept[s] medical assistance’ from Medicaid, the beneficiary ‘automatically assigns to the [state] agency any right’ to third-party payments for medical care. § 409.910(6)(b). A lien ‘for the full amount of medical assistance provided’ then ‘attaches automatically’ to any settlements related to an injury ‘that necessitated that Medicaid provide medical assistance’ §§ 409.910(6)(c), (6)(c)(1), 409.901(7)(a).”  The Court continued that ‘[r]ather than permit the State to recover from a beneficiary’s entire settlement, the statute entitles Florida to half a beneficiary’s total recovery, after deducting 25% for attorney’s fees and costs (i.e., 37.5% of the total). See § 409.910(11)(f)(1). This amount presumptively represents the portion of the tort recovery that is for ‘past and future medical expenses.’ § 409.910(17)(b). Beneficiaries can rebut that presumption by proving with clear and convincing evidence ‘that the portion of the total recovery which should be allocated as past and future medical expenses is less than the amount calculated by [Florida’s] formula.’”[12]

However, Gallardo, citing the settlement’s explicit allocation of only $35,367.52 as compensation for past medical expenses, asked Florida Medicaid what amount it would accept to satisfy its lien.[13] Receiving no response, Gallardo put $300,000 in escrow and challenged the presumptive allocation in an administrative proceeding.[14]  As part of Gallardo’s administrative challenge, Florida Medicaid defended the presumptive allocation on grounds that it could seek reimbursement from settlement payments for both past and future medical expenses, and, thus, was not limited to recovering only the portion allocated for past expenses.[15]

Prior court rulings

In addition to her administrative challenge, Gallardo filed lawsuits in state and federal court seeking a declaration that Florida Medicaid was violating the Medicaid Act by trying to recover from settlement monies representing “future medicals.”  

At the state level, Gallardo’s action was ultimately heard by the Florida Supreme Court which ruled in her favor.  See Giraldo v. Agency for Health Care Admin., 248 So.3d 53 (2018).  On the federal level, the United States District Court for the Northern District of Florida also ruled in Gallardo’s favor. Gallardo v. Dudek, 263 F.Supp.3d 1247 (2017). 

However, on appeal, the United States Eleventh Circuit Court of Appeals in Gallardo v. Dudek, 963 F.3d 1167 (11th Cir. 2020) reversed the district court.  The 11th Circuit framed the question before it as “[w]hether [Florida Medicaid] when it has not consented to the settlement agreement in a personal injury lawsuit … is limited to recovering the expenses it has paid only from amounts of a third-party recovery representing compensation for past medical expenses or whether it can also recover from those amounts that may be compensation for future medical expenses. That determination turns on whether federal Medicaid law preempts the way Florida pursues reimbursement from Medicaid recipients’ personal injury settlements.”  Gallardo, 963 F.3d at 1171.  Further, the 11th Circuit referenced it was “worth noting what this appeal is not about” stating that the issue before it “[was] not about whether [Florida Medicaid] can recover for medical expenses it has not yet paid” for Ms. Gallardo’s treatment but may have to pay in the future. Gallardo, 963 F.3d at 1197, n 2. In reversing the district court, the 11th Circuit ruled, in part, that the relevant Medicaid Act provisions “d[o] not in any way prohibit [a State] from seeking reimbursement from settlement monies for medical care allocated to future care.” Gallardo, 963 F.3d at 1178.[16]  

Given the conflict between the Florida Supreme Court’s decision and the Eleventh Circuit’s ruling, the United States Supreme Court granted certiorari and agreed to hear this case. 594 U.S. ----- , 141 S.Ct. 2884, 210 L.Ed.2d 990 (2021). [17] 

Supreme Court affirms the 11th Circuit’s decision --- Medicaid may seek recovery from settlement payments allocated for “future” medical care

The majority opinion in this case was delivered by Justice Thomas, who was joined by Chief Judge Roberts, along with Justice Alito, Justice Kagan, Justice Gorsuch, Justice Kavanaugh, and Justice Barrett.  Justice Sotomayor filed a dissenting opinion in which she was joined by Justice Breyer. 

The majority framed the question to be decided  as follows: “The question presented is whether § 1396k(a)(1)(A) permits a State to seek reimbursement from settlement payments allocated for future medical care. We conclude that it does.”[18]

A general summary of the majority’s ruling is provided as follows:

Medicaid’s anti-lien provision does not preempt Florida’s Medicaid Third-Party Liability Act

On appeal before the Supreme Court, Gallardo argued that Medicaid Act’s anti-lien provision, 42 U.S.C. § 1396p(a)(1), limits Medicaid’s recovery to only those settlement sums designated for past medicals – not both past and future medicals.[19]  This provision, in general, prohibits States from recovering medical payments from a beneficiary’s property.[20]   Gallardo argued that this provision forecloses recovery from settlement amounts other than those allocated for past medical care paid for by Medicaid and, accordingly, that  the anti-lien provision preempts any state law that permits additional recovery.[21]

However, the Supreme Court rejected this argument finding in part, that Florida’s Medicaid Third Party Liability Act,[22] under which the Court noted that Florida Medicaid may seek recovery for sums representing “payment for medical care,” was an exception to Medicaid’s anti-lien provision per 42 U.S.C. § 1396k(a)(1)(A).[23]  On this point, the Court noted that 42 U.S.C. 1396k(a)(1)(A) requires, in part, that States make reasonable efforts to recoup payments from liable third parties.[24]  Based on this statute, the Court found that the “plain text of § 1396k(a)(1)(A) decides this case [and] [n]othing in 1396k(a)(1)(A) limits a beneficiary’s assignment to payments for past ’medical care’ already paid for by Medicaid. To the contrary, the grant of ’any rights ... to payment for medical care’ most naturally covers not only rights to payment for past medical expenses, but also rights to payment for future medical expenses … [t]he relevant distinction is thus ’between medical and nonmedical expenses’” …  not between past expenses and future expenses it has not.”[25]  On this point, the Court stated further that “[i] short, § 1396k(a)(1)(A) and § 1396a(a)(45) distinguish only between medical and nonmedical care, not between past (paid) medical care payments and future (unpaid) medical care payments” and had Congress could have drawn such a distinction if they had intended to do so. [26]

In further support of this conclusion, the Court noted that “[s]tatutory context reinforces that § 1396k(a)(1)(A)’s reference to’ to ’payment for medical care’ is not limited to only past medical expense as Gallardo suggests.”[27]  On this point, the Court embarked on an exacting analysis of several different statutory provisions and ultimately concluded, in general, that this authority did not restrict Medicaid’s rights to only those settlement sums representing past medical expenses.[28]   

Based on this review, the Court concluded that “[i]n sum, because the plain meaning of § 1396k(a)(1)(A), informed by statutory context, allows Florida to seek reimbursement from settlement amounts representing past or future ‘payments for medical care,’ Florida’s assignment provision falls within the ‘exception to the anti-lien provision.’”[29]  

In reaching this conclusion, the Court also rejected Gallardo’s argument that the language of § 1396k(a)(1)(A) limited Medicaid’s recovery.  On this point, the Court stated, in part:  “Insofar as she confronts § 1396k(a)(1)(A) itself, Gallardo largely focuses on its prefatory clause, which provides that the ‘purpose’ of the assignment provision is to “assis[t] in the collection of medical support payments and other payments for medical care owed to recipients of medical assistance under the State plan.” § 1396k(a). Gallardo construes this language to limit the assignment provision to payments that are already “owed” for “past medical care provided under the [state] plan” [and in doing so] Gallardo’s argument misreads the statutory text. The prefatory clause does not refer to payments “owed” “under the State plan,” but rather to “payments owed to recipients of medical assistance under the State plan.” § 1396k(a) (emphasis added). In other words, the prefatory language Gallardo invokes defines to whom the third-party payments are “owed”—“recipients of medical assistance under the State plan.” It does not specify the purpose for which those payments must be made. On that score, the prefatory clause refers to  ‘medical support’ and ‘medical care’ payments, consistent with the adjacent language in § 1396k(a)(1)(A).”[30]

Court rejects arguments that other statutory provisions limit Medicaid’s recovery

From another angle, Gallardo also argued that 42 U.S.C. §§ 1396a(a)(25)(A) and (B) requires States to “’take all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services available under the [Medicaid] plan’ and to ’seek reimbursement ... to the extent of such legal liability.’”[31]  Gallardo argued that these provisions limited the State’s recovery under any other provision “’to the extent of’ a third party’s payments ’for care and services available under the plan,’ §§ 1396a(a)(25)(A)–(B) to include only payments for medical care that Medicaid has already covered.”[32]

However, the Supreme Court also rejected this argument concluding that it was “far from clear that §§ 1396a(a)(25)(A) and (B) refer only to past expenses the State has already paid. The relevant language—’pay[ment] for care and services available under the plan’—could just as readily refer to payment for medical care ’available/ in the future. Regardless, even if this language means what Gallardo says it does, Congress did not use this language to define the scope of an assignment under § 1396k(a)(1)(A), implying again that the provisions should not be interpreted the same way .. This implication is strengthened by the fact that § 1396k(a)(1)(A) was enacted after §§ 1396a(a)(25)(A) and (B). It would have been easy for Congress to use the existing language in §§ 1396a(a)(25)(A) and (B) to define the scope of the mandatory assignment. But it did not.” [33]

Court also rejects policy considerations should restrict Medicaid’s recovery

In addition, Gallardo argued that policy considerations supported the view that Medicaid’s recovery right should be limited only to those settlement sums representing “past” medicals – both of which the Court rejected. 

First, Gallardo argued that based on a footnote in the Supreme Court’s prior ruling in Arkansas Dept. of Health and Human Svcs. v. Ahlborn, 547 U.S. 268 (2006) it would be “absurd and fundamentally unjust” for a State to “share in damages for which it has provided no compensation.”[34]  In rejecting this argument, the Court noted  “[a]lthough Ahlborn noted possible unfairness if States were given ’absolute priority’ to collect from the entirety of a tort settlement …  our holding there was dictated by the Medicaid Act's ’text,’ not by our sense of fairness[.] Had the text of the Medicaid Act authorized ’absolute priority,’ Ahlborn would have been decided differently.” [35]

Second, Gallardo argued that the Court’s interpretation of  § 1396k(a)(1)(A) would authorize a “lifetime assignment” covering not only the rights an individual has while he or she is a Medicaid beneficiary but also any rights he acquires in the future when he is no longer a Medicaid beneficiary.[36]  In rejecting this argument the Court stated that “Section 1396k(a)(1)(A) only assigns ’any rights ... of the individual’ (emphasis added), which is most naturally read as covering those rights ’the individual’ possesses while on Medicaid. We must also read § 1396k(a)(1)(A)’s text in light of background legal principles, and it is blackletter law that assignments typically cover ’only [those] rights possessed by the assignors at the time of the assignments’ … Given that legal backdrop, § 1396k(a)(1)(A) cannot cover the sort of ’lifetime assignment’ Gallardo invokes.”[37]

Based the foregoing, the Supreme Court affirmed the 11th Circuits ruling and abrogated the Florida Supreme Court’s ruling in Giraldo v. Agency for Health Care Admin., 248 So.3d 53 (2018).

As noted above, Justice Sotomayor filed a dissenting opinion in which she was joined by Justice Breyer.  The dissent started its review by framing the question presented as “whether the exception to the anti-lien provision recognized in Ahlborn extends to permit Florida to claim the share of Gallardo’s settlement allocated for her future medical expenses as compensation for the State’s expenditures for her past medical expenses.”[38] In regard to that question, the dissent noted that “[b]efore  answering that question, a note is in order about what is not in dispute.”[39]

On this point the court outlined the following: “Consider a hypothetical example in which Florida has spent $1,000 on a beneficiary’s medical care, after which the beneficiary secures a $1,500 tort settlement, $200 of which is allocated for those already-incurred medical expenses, $500 of which is allocated for future medical care, and the remainder of which ($800) compensates for nonmedical expenses. The parties agree, as they must, that Florida cannot recover anticipated expenses for services it has not furnished, but may pursue reimbursement only for expenses it has paid (i.e., Florida can recover no more than $1,000). The parties further agree that Florida can recover these expenses from the portion of the beneficiary’s settlement allocated for these expenses (i.e., the $200), and that Florida can challenge the allocation of the settlement if it contends that too low a portion was designated for past medical expenses. The parties also do not dispute that Florida cannot recover from the $800 representing nonmedical expenses. The only dispute is whether Florida also may recover its past medical costs from the distinct portion of the beneficiary’s settlement representing future medical expenses (i.e., the $500)—expenses it has not paid and might never pay. Under a proper reading of the applicable statutory provisions in context, Florida may not do so.”[40]

While the dissent’s detailed analysis is beyond the scope of this article, very generally, the dissenting Justices undertook a very exacting statutory analysis of the Medicaid Act’s anti-lien, anti-recovery, and assignment provisions, and, in doing so, pointed out various issues and disagreements they had with the majority’s interpretation and conclusion that Medicaid could recover from sums designated in a settlement for past and future medicals.  In general, the dissent viewed the Court’s holding as “inconsistent with the structure of the Medicaid program” which they feel “will cause needless unfairness and disruption” going forward.[41]  

Further, the dissent voiced concerns that the Court’s decision could reduce a beneficiary’s incentive to bring a claim which, in turn, would impact Medicaid’s ability to recover expenses. On this point, the dissent commented: “Over the long term, the Court’s alteration of the balance Congress struck between preserving Medicaid’s status as payer of last resort and protecting Medicaid beneficiaries’ property might frustrate both aims. As a State’s right of recovery from any damages payout expands, a Medicaid beneficiary’s share shrinks, reducing the beneficiary’s incentive to pursue a tort action in the first place.”[42]  Continuing on the point, the dissent stated: “Under the provisions of the Act at issue here, States may sue tortfeasors directly, but as Florida itself explains, it is ’more cost-effective’ for beneficiaries to sue … By diminishing beneficiaries’ interests in doing so, the Court’s expansion of States’ assignment rights could perversely cause States to recover fewer overall expenses, all while unsettling expectations in the States that have relied on a contrary reading of federal law.”[43]

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