Understanding Medicaid 3rd Party Liability Lien Reduction in Florida

Two recent cases decided by the Florida Division of Administrative Hearings provide a unique comparison and understanding of Medicaid third party liability lien reduction in Florida.

42 U.S.C. § 1396a(a)(25)(A) requires that a state plan for Medicaid medical assistance must provide that states or local agencies take all reasonable measures to identify legally liable third parties and that states pursue reimbursement from such responsible third parties. As a result of this federal law, all states have passed laws that provide a process to identify responsible liability third parties, and a system for reimbursement of any payments made by the state Medicaid system related to the injuries resulting from the third-party liability claim. Those responsible liability third parties may include parties on both sides of the ‘V’.

Generally, states have passed laws that provide a specific formula that dictates the amount to be reimbursed to the state Medicaid program from the third party liability settlement, judgment, award, or payment. However, considering the facts of each situation, the financial components of each case, and the laws applicable to the legal circumstances, state formulas may not produce a fair result. As a result, some states also allow for an exception to the applicability of such state specific formulas by allowing the injured party to request a hearing for a determination of how much should be reimbursed to the state Medicaid agency from settlement proceeds.

Florida is one such state. It has adopted statutory provisions that require reimbursement to the state Medicaid program whenever Medicaid has paid for medical services related to the underlying third party liability claim. In addition, case law has adopted an exception to the statutory formula provided for resolution of such claims. This article explores two recent cases decided by the Florida Division of Administrative Hearings providing for an exception to the state formula adopted.

Martel v. AHCA.

On May 7, 2021, the State of Florida, Division of Administrative Hearings published its decision on?Jonathan Martel, by and through his guardian Nancy Hudack v. Agency for Health Care Administration, finding that although Florida Medicaid paid $261,000 in medical expenses related to the injuries associated with the claim, applying the formula in section 409.910(11)(f), Fla. Stat. to the $510,000.00 settlement would have resulted in AHCA being owed $191,188. However, Mr. Martel argued that since under "the pro rata approach," he only recovered 2.55% of his total past medical expenses of $261,000.00, AHCA should only be entitled to $6,663.61.

Facts.

Mr. Martel was catastrophically and permanently injured on February 14, 2019, when another vehicle struck his motorcycle. Mr. Martel, who was in his 30's at the time, suffered severe orthopedic injuries along with catastrophic brain damage leaving him unable to ambulate or care for himself in any manner. He will need continuous care for the rest of his life.?

The Medicaid program, through Florida’s Agency for Health Care Administration (“AHCA”), paid $261,318.10 to cover the medical care related to Mr. Martel's injuries. Accordingly, $261,318.10 constitutes Mr. Martel's entire claim for past medical expenses.?

Through his guardian, Mr. Martel pursued a personal injury claim against the parties (the “Defendants") allegedly liable for his injuries. The Defendants maintained insurance coverage with policy limits of $510,000.00 and had no other collectible assets.?

As a result, Mr. Martel settled his personal injury claim via a series of confidential settlements resulting in an unallocated, lump-sum amount of $510,000.00. In other words, the settlement did not identify how the lump-sum amount was allocated between components of damages, such as past medical expenses, economic damages, and noneconomic damages.?

During the pendency of Mr. Martel's personal injury claim, AHCA asserted a $261,318.10 Medicaid lien against Mr. Martel's cause of action and any settlement of that action. However, applying the formula in Fla. Stat. section 409.910(11)(f) to Mr. Martel's $510,000.00 settlement would require a payment of $191,188.00 to AHCA. Consequently, Mr. Martel deposited $191,188.00 into an interest-bearing account for AHCA's benefit pending an administrative determination of AHCA's rights.?

At hearing, attorney Jack Fine, who represented Mr. Martel during the personal injury action, and subject matter expert, attorney Vincent Barrett, testified that $20 million would be a conservative valuation of Mr. Martel's injuries. Therefore, by accepting policy limits of $510,000, their testimony was that Mr. Martel only recovered 2.55% of his damages via the settlement. Accordingly, under the “pro rata approach," Mr. Martel only recovered 2.55% of his total past medical expenses of $261,000.00, or $6,663.61.?

Federal and Florida Law.

Though participation in the Medicaid system is optional, once a State elects to participate in the Medicaid program, it must comply with all federal requirements. One condition for receipt of federal Medicaid funds requires states to seek reimbursement for medical expenses incurred on behalf of Medicaid recipients who later recover from legally liable third parties.?See?Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 276 (2006).

Consistent with this federal requirement, the Florida Legislature enacted Fla. Stat. section 409.910, designated as the "Medicaid Third-Party Liability Act," which authorizes and requires the state to be reimbursed for Medicaid funds paid for a recipient's medical care when that recipient later receives a personal injury judgment, award, or settlement from a third party. Section 409.910(1) sets forth the Florida Legislature's clear intent that Medicaid be repaid in full for medical care furnished to Medicaid recipients.

Section 409.910(1) provides that “it is the intent of the Legislature that Medicaid be the payor of last resort for medically necessary goods and services furnished to Medicaid recipients. Medicaid is to be repaid in full from, and to the extent of, any third-party benefits, regardless of whether a recipient is made whole or other creditors paid. Principles of common law and equity as to assignment, lien, and subrogation are abrogated to the extent necessary to ensure full recovery by Medicaid from third-party resources. It is intended that if the resources of a liable third party become available at any time, the public treasury should not bear the burden of medical assistance to the extent of such resources.”?

To this end, Section 409.910(11)(f) provides that notwithstanding any provision in this section to the contrary, in the event of an action in tort against a third party in which the recipient or his or her legal representative is a party which results in a judgment, award, or settlement from a third party, the amount recovered shall be distributed as follows:?

1. After attorney's fees and taxable costs as defined by the Florida Rules of Civil Procedure, one-half of the remaining recovery shall be paid to the agency up to the total amount of medical assistance provided by Medicaid.?

2. The remaining amount of the recovery shall be paid to the recipient.?

3. For purposes of calculating the agency's recovery of medical assistance benefits paid, the fee for services of an attorney retained by the recipient or his or her legal representative shall be calculated at 25 percent of the judgment, award, or settlement.?

Conclusion.

Applying the formula in Section 409.910(11)(f) to the $510,000.00 settlement in the instant case results in AHCA being owed $191,188. However, Mr. Martel argues here that since under "the pro rata approach," he only recovered 2.55%, or $6,663.61, of his total past medical expenses of $261,000.00, AHCA should only be entitled to $6,663.61.

In this regard, Section 409.910(17)(b) provides that a recipient may contest the amount designated as recovered medical expense damages payable to the agency pursuant to the formula specified in paragraph (11)(f) by filing a petition under chapter 120 within 21 days after the date of payment of funds to the agency or after the date of placing the full amount of the third- party benefits in the trust account for the benefit of the agency. In order to successfully challenge the amount payable to the agency, the recipient must prove, by clear and convincing evidence, that a lesser portion of the total recovery should be allocated as reimbursement for past and future medical expenses than the amount calculated by the agency pursuant to the formula set forth in paragraph (11)(f) or that Medicaid provided a lesser amount of medical assistance than that asserted by the agency.?

The judge finds that the testimony from Mr. Fine and Mr. Barrett was “compelling and persuasive as to: (a) the total damages incurred by Mr. Martel; (b) that Mr. Martel only recovered 2.55% of his total damages; and (c) that Mr. Martel only recovered 2.55% of his past medical expenses. The pro rata approach, the ratio resulting from dividing the settlement amount by total damages, is a reasonable method to determine how much of a party's past medical expenses were recovered through a settlement. Therefore, Mr. Martel has proven by clear and convincing evidence that $6,663.61 amounts to a fair and reasonable determination of the past medical expenses actually recovered by Mr. Martel and is the amount payable to AHCA.”?

Harley v. AHCA.

On June 16, 2021, the State of Florida, Division of Administrative Hearings published its opinion on?Kanesha Harley v. Agency for Health Care Administrationfinding that having failed to establish, by either a preponderance of the evidence or by clear and convincing evidence, that a 5% allocation of the settlement proceeds of the underlying lawsuit is an appropriate reduction of Petitioner's Medicaid lien, the court concludes that AHCA is entitled to payment of $128,032.84, pursuant to the formula set forth in Fla. Stat. Section 409.910(11)(f), and not the $18,500 proposed by claimant based on her 5% equity allocation theory.

Facts.

In October 2013, Ms. Harley, then 19 years old, was struck by a bullet while on the property of liable third parties (the “Underlying Defendants”). Ms. Harley received medical care as a result of her injuries, which included a diagnosis of being an incomplete paraplegic (meaning, among other things, that Ms. Harley is unable to walk and cannot feel the bottom of her legs). Ms. Harley underwent a prolonged hospitalization, is currently unable to work, expects a lifetime of partial paralysis, and relies on friends and family members for assistance.?

Ms. Harley's medical care related to her injury was paid by Medicaid. AHCA, through the Medicaid program, provided $123,931.54. Another Medicaid entity, Equian, paid $15,648.50 on her behalf as well. Ms. Harley's past medical expenses total $139,580.04.

More than seven years after Ms. Harley's injury, Petitioner and the Underlying Defendants settled the lawsuit for a total of $370,000.00. A "Letter of Understanding" authored by Petitioner's counsel, stated the Plaintiff allocated 5% of the total settlement of $370,000, or $18,500 of the total settlement amount for Kanesha Harley's past medical bills, including Florida Medicaid liens and other liens.?

“The basis for this reduction is simple equity. Ms. Harley, then 19, was diagnosed as an incomplete paraplegic after the subject incident in October of 2013. The Plaintiff filed suit against the Underlying Defendants and was able to obtain a total settlement of $ 370,000.00, which took into account the serious liability issues under Florida premises liability, negligent security standards. These facts, along with difficulty in prosecuting the case under COVID-19, other technical difficulties, the fact that the case is almost 8 years old, and the unknown affect COVID-19 may have on a jury is potentially fatal to Plaintiff's cause of action, made this a fair and reasonable settlement, and makes this allocation necessary.”

Application of the formula set forth in Section 409.910(11)(f) to Petitioner's $370,000.00 settlement authorizes payment to AHCA of $128,032.84.?

Expert Testimony.

Ms. Harley’s expert witness, Mr. Holland, opined, based on his experience, that an estimate of the overall value of the damages to Petitioner was in the $15 to $20 million range. Neither Ms. Harley nor Mr. Holland offered any evidence of similar jury verdicts or settlements to substantiate this opinion; rather, Mr. Holland's opinion was based on his experience to arrive at this estimate.?

Mr. Holland further opined that allocating 5% of the settlement--which is $18,500.00--to Petitioner's past medical expenses was a "reasonable allocation." Mr. Holland's opinion on the allocation of 5% of the settlement of Petitioner's lawsuit to her past medical expenses was not based on the typical calculation of comparing the value of the damages in the lawsuit to the actual recovery in the settlement, and deriving a ratio or percentage from that calculation that could be used to reduce the amount of the Medicaid lien (the pro rata allocation methodology).?

In fact, Petitioner's request to reduce the Medicaid lien, which Mr. Holland supported, was not based on the pro rata allocation methodology, but rather, based on Petitioner's "Letter of Understanding," which designated 5% of the entire settlement proceeds as an appropriate amount to satisfy the Medicaid lien, based on "simple equity."?

Conclusion.

The court found that the opinion of Mr. Holland concerning the value of Petitioner's lawsuit, which, after cross-examination, he admitted was $10 million, was not based upon sufficient facts or data, such as a comparison to actual similar verdicts or settlements of these types of lawsuit, but rather his personal estimate based on his experience.?

Further, the court found that Petitioner did not, in any way, attempt to establish that the undersigned should reduce her Medicaid lien pursuant to the pro rata allocation methodology, which has been approved in numerous proceedings before the Division of Administrative Hearings (DOAH), as well as Florida's appellate courts, as a reasonable, fair, and accurate methodology for allocating the settlement proceeds when the underlying third-party action is settled for less than the full value of the case.?

The court therefore found that Petitioner failed to establish, by either clear and convincing evidence, or a preponderance of the evidence, support for Petitioner's allocation of 5% of the settlement proceeds ($18,500.00) to Petitioner's past medical expenses as a basis for reducing the Medicaid lien. Accordingly, DOAH concluded AHCA is entitled to payment of $128,032.84, pursuant to the formula set forth in Section 409.910(11)(f).

Conclusion.

In?Martel, Florida Medicaid paid $261,000. The case was valued at $20 million, but settled for $510,000. Therefore case settled for 2.55% of what it was worth/valued.

Under the state formula, Medicaid entitled to reimbursement of $191,250 ($510,000 – 25% attorney fee $127,500) % ? = $191,250)

Under pro-rata formula, Medicaid entitled to reimbursement of $6,655.50 ($261,000 x .0255 = $6,655.50)

AHCA orders reimbursement of $6,655.50

In?Harley, Florida Medicaid paid $139,580.04. The case was valued at $10 million, but settled for $370,000.00. Therefore case settled for 3.70% of what it was worth/valued.

Under the state formula, Medicaid entitled to reimbursement of $128,032.84 ($370,000 – 25% attorney fee $92,500 and $12,000 costs) % ? = $128,032.84)

Claimant offered Medicaid 5% of $370,000 settlement, or $18,500. Under pro-rata formula, Medicaid entitled to reimbursement of $5,164.46 ($139,580.04 x .0370 = $5,164.46)

AHCA orders reimbursement of $128,032.84

Just doesn’t seem right, does it? Medicaid paid more in?Martel, case settled for more, but AHCA orders less than $7,000 in reimbursement. Medicaid paid less in?Harley, case settled for less, but AHCA orders more than $128,000 in reimbursement. Just doesn’t make much sense from a policy perspective, from an administrative perspective, or from a substantive perspective. Only difference was the awareness and understanding of the exception to the statutory formula in Florida Medicaid third party liability liens by Martel’s counsel, as compared to the lack of awareness and understanding of same by Harley’s counsel. The lesson here is to make sure you are hiring the right expert when dealing with Medicaid liens, applicable statutory formulas, and pro rata share or?Ahlborn?based exceptions. The details matter.?

About Rafael Gonzalez, Esq.

Rafael is a partner in Cattie & Gonzalez, PLLC, a national law firm focusing its practice on federal Medicare/Medicaid secondary payer compliance and legal issues. In addition to assisting clients with Medicare mandatory reporting, conditional payments, and set asides issues, he helps clients with Medicaid third party liability liens and Medicaid special needs trusts issues. He has over 35 years experience in the liability, no-fault, and work comp insurance industry. You can connect with him on LinkedIn, Twitter, Facebook, and YouTube, or reach him at?[email protected], 844.546.3500, or?www.cattielaw.com.