Arkansas Dept. of Human Services, et al. v. Ahlborn, Heidi (05/01/2006)

Question presented: Whether federal Medicaid statutes, which provide for the assignment of rights to third party payments, but prohibit placing a lien on a Medicaid recipient's property, limit the state's recovery to only those portions of the payments made for medical expenses?

BY SAMANTHA FREEDMAN, MEDILL NEWS SERVICE

In 1996, 19-year old Heidi Ahlborn was seriously injured in a car accident, resulting in severe physical injuries, especially to her head. As a result, Ahlborn is now permanently disabled.

While under extensive medical care, Ahlborn received benefits under the Arkansas Medicaid program administered by the Arkansas Department of Human Services (ADHS). In applying for benefits, Arkansas law required Ahlborn to assign to ADHS her "right to any settlement, judgment, or award" she may receive from third parties, "to the full extent of any amount which may be paid by Medicaid for the benefit of the applicant." In total, Ahlborn received approximately $215,645 for her medical care from Medicaid.

In 2002, Ahlborn was paid $550,000 in a settlement between her insurance company and the third parties liable for her injuries. Ahlborn's settlement included past and future pain and suffering, medical claims, loss of earnings and working time, and her permanent impairment of ability to earn in the future. Based on Arkansas law and the required assignment, ADHS declared a lien against Ahlborn's settlement.

Ahlborn sued ADHS seeking a declaratory judgment that ADHS could only recover $35,581, the portion of the settlement that represented her claim to medical expenses. Ahlborn reasoned that the Medicaid recovery was limited to third-party payments for health care services. To do otherwise, Ahlborn claimed, would violate federal anti-lien provisions, which ensure that a Medicaid recipient's property will not be depleted during the recipient's life by a state seeking reimbursement for its medical assistance.

ADHS argued that its lien did not conflict with the federal anti-lien statutes, as Ahlborn's third party settlement was not her "property" until the state was fully reimbursed for all funds expended on medical care.

In August 2003, a federal court in Arkansas granted ADHS's summary judgment motion. Judge Garnett Thomas Eisele interpreted the relevant federal statutes to allow ADHS to recover Ahlborn's settlement as the total amount paid to Medicaid, regardless what portion of the settlement was allocated for medical services. Judge Eisele ruled that there was nothing incongruent about requiring an applicant, as a condition of eligibility, to assign to the state the entire "rights to payment from third parties."

On Feb. 9, 2005, an 8th Circuit Court of Appeals panel unanimously reversed. Writing for the court, Judge Steven Colloton agreed with Ahlborn that the federal statutory scheme required only that the state recover payments from third parties that compensate the recipient for medical care and services because the rest of that money was her property and therefore the state could not make a claim for reimbursement on her property.

The 8th Circuit stressed that both state and federal Medicaid plans limit rights to third party payments that compensated medical care payments. Although the federal statutory scheme required Ahlborn to assign her rights to recover from third parties for the costs of medical care and services incurred as a result of the accident, it also protects all of Ahlborn's non-assigned property from recovery by the state through the anti-lien statute.

The 8th Circuit held that the Arkansas statutes that required Ahlborn to assign her entire settlement against the third party tortfeasors and establish a statutory lien on settlement proceeds for matters other than medical care and services conflict with and frustrate the federal scheme. Accordingly, the court remanded the case with directions to enter a judgment for the state in the amount of $35,581.47, the amount of the settlement allocated for medical care.

On Sept. 27, 2005, a few days prior to the commencement of the U.S. Supreme Court's 2005-2006 term, the Court accepted the case for review.

David Blair, attorney for Ahlborn, argued that the 8th Circuit's holding be upheld. Blair asserted that "this case is not about fairness or unfairness [to Ms. Ahlborn]… this is simply a matter of statutory construction" and the 8th Circuit correctly interpreted the statutes.

Matt Decample, press secretary for Arkansas Attorney General's Office, asserted that it's a common practice of the state to recoup Medicaid funds when settlements pay for medical care in order to then use those taxpayer funds to financially assist others in the state with medical needs.

Decample further argued that when Ahlborn originally applied for and received Medicaid assistance for her medical treatment, she agreed that the full amount of Medicaid money would be paid back to the state from any settlements reached with or judgments rendered against another party. Because Ahlborn signed over those funds before reaching the settlement, ADHS claims that the settlement funds were never legally her property.

On May 1, 2006, the Court unanimously agreed with the 8th Circuit, holding that the federal Medicaid law doesn't authorize ADHS to assert a lien on Ahlborn's settlement in an amount exceeding the $35,000 for medical care, and the federal anti-lien provision actually prohibits the state from doing so.

Justice John Paul Stevens wrote the Court's opinion.