Supreme Court Expands States' Ability to Recoup Future Medicaid Costs from Tort Recoveries

The U.S. Supreme Court interpreted the Medicaid Act on June 6, 2022, to permit state Medicaid programs to recover costs for future medical care that has not yet been provided and may never be provided from Medicaid beneficiaries who obtain a recovery in a tort action. The decision has implications for all Medicaid beneficiaries who obtain settlements or judgments in personal injury actions.

In Gallardo v. Marstiller, Justice Clarence Thomas wrote the opinion for the 7-2 majority, ruling in favor of Florida's Medicaid program. The case surrounded Gianinna Gallardo, who has been in a vegetative state since 2008 when a truck hit her as she was disembarking from a school bus. Gallardo received an $800,000 settlement in a case brought against the school district, the truck's owner and the truck driver, of which $35,367.52 was allocated for past medical expenses but no funds for future medical expenses.

The Medicaid Act requires states to pay beneficiaries' medical costs and then make reasonable efforts to recoup those costs from liable third parties. In its majority opinion, the court determined that the plain language of the Medicaid Act allows Florida's Medicaid program to recoup not only past expenses, but also more than $300,000 for Gallardo's future medical care.¹

The decision hinged on 42 U.S.C. §1396k(a)(1)(A), which requires Medicaid beneficiaries to assign the state "any rights … to payment for medical care from any third party." While the Medicaid Act prohibits reimbursement from a beneficiary's property (known as the anti-lien provision), Thomas determined a private tort settlement represents a right to payment for medical care.

Thomas relied upon 42 U.S.C. §1396a(a)(25)(H), where Congress placed limiting language on the ability of states to enact laws granting themselves automatic rights to certain third-party payments. 42 U.S.C. §1396a(a)(25)(H) applies only when "payment has been made under the State plan for medical assistance for health care items or services," and prohibits the state from reaching into future expenses. The specific provision did not apply in Gallardo's case, but Thomas used it to reason that had Congress intended to restrict 42 U.S.C. §1396k(a)(1)(A), it "would have done so expressly as it did in" 42 U.S.C. §1396a(a)(25)(H).

Justice Sonia Sotomayor penned the dissent, writing that the majority "is inconsistent with the structure of the Medicaid program and will cause needless unfairness and disruption." She added that Medicaid "is not a loan."

The ruling has broad implications for Medicaid beneficiaries and attorneys negotiating settlements for their clients. Now, Medicaid State Plans may claim a significant portion of tort settlements through a personal injury recovery lien, forcing both plaintiff's attorneys and victims to factor in the anticipated future medical costs in negotiations. This is particularly of note for clients who have capped available compensation through settlement. Injured people may want to consider demanding the tortfeasor pay past medical expenses in full in addition to funds necessary to compel the injured to forgo trial.

While the ruling may not have an immediate impact on private insurance providers – who will still get their regular reimbursements and have the ability to subrogate lawsuits – the state now has broader power to reach into settlement funds.

Reimbursement continues to be central to the work of providers, but there remains changes to how Medicare and Medicaid reimbursements occur. Other states may follow Florida's statutory lead in allowing recovery for future medical expenses.

Notes

¹ The dissent remarks that the following cases came to the opposite result of the majority: Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U. S. 268 (2006); FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120  (2000); National Assn. of Mfrs. v. Department of Defense, 583 U. S. ___, ___ (2018); Russello v. United States, 464 U. S. 16, 23 (1983); United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U. S. 365, 371 (1988).