Special Needs Trust, Supplemental Needs Trust, Medicaid lien, Ahlborn

 

Jay J. Sangerman, PLLC

 

 See: New York State Department
of Health Analysis of Ahlborn

 

NEW SUPPLEMENTAL NEEDS DECISIONThis is the first known published decision setting forth the extent of Medicaid’s remainder interest in supplemental needs trusts.   Upon reading the decision, one will note the importance of the decision to case settlement.   Ruben N., Appellate Division, New York State, Second Department, September 16, 2008.

 

 

 

Comments on Ahlborn

SEE LUGO, BY HON. ALICE SCHLESSINGER, SETTING FORTH APPLICABILITY OF AHLBORN, AND THAT THE DECISION REVERSES NEW YORK COURT OF APPEALS DECISIONS ON MEDICAID LIENS AND SUPPLEMENTAL NEEDS TRUSTS

 (Slip Opinion) OCTOBER TERM, 2005

Syllabus

  • NOTE: Where it is feasible, a syllabus (headnote) will be released, as isbeing done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has beenprepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
  • SUPREME COURT OF THE UNITED STATES
  • Syllabus

    ARKANSAS DEPARTMENT OF HEALTH AND HUMANSERVICES ET AL. v. AHLBORN

    CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

    No. 04–1506. Argued February 27, 2006—Decided May 1, 2006

    Federal Medicaid law requires participating States to “ascertain the legal liability of third parties . . . to pay for [an individual benefits re-cipient’s] care and services available under the [State’s] plan,” 42

U. S. C. 1396a(a)(25)(A); to “seek reimbursement for [medical] assis-tance to the extent of such legal liability,” 1396a(a)(25)(B); to enact “laws under which, to the extent that payment has been made . . . formedical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services,” 1396a(a)(25)(H); to “provide that, as a condition of [Medicaid] eligibility . . . , the individual is required . . . (A) to assign the State any rights . . . to payment for medical care from any third party; . . . (B) to cooperate with the State . . . in obtaining [such]payments . . . and . . . (C) . . . in identifying, and providing informa-tion to assist the State in pursuing, any third party who may be li-able,” 1396k(a)(1). Finally, “any amount collected by the State underan assignment made” as described above “shall be retained by the State . . . to reimburse it for [Medicaid] payments made on behalf of” the recipient. 1396k(b). “[T]he remainder of such amount collected shall be paid” to the recipient. Ibid. Acting pursuant to its under-standing of these provisions, Arkansas passed laws under which,when a state Medicaid recipient obtains a tort settlement followingpayment of medical costs on her behalf, a lien is automatically im-posed on the settlement in an amount equal to Medicaid’s costs.When that amount exceeds the portion of the settlement representing medical costs, satisfaction of the State’s lien requires payment out of proceeds meant to compensate the recipient for damages distinct

2

ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Syllabus

from medical costs, such as pain and suffering, lost wages, and loss of future earnings.

Following respondent Ahlborn’s car accident with allegedly negligent third parties, petitioner Arkansas Department of Health Services (ADHS) determined that Ahlborn was eligible for Medicaid and paid providers $215,645.30 on her behalf. She filed a state-court suit against the alleged tortfeasors seeking damages for past medicalcosts and for other items including pain and suffering, loss of earnings and working time, and permanent impairment of her future earning ability. The case was settled out of court for $550,000, which was not allocated between categories of damages. ADHS did not participate or ask to participate in the settlement negotiations, and didnot seek to reopen the judgment after the case was dismissed, but didintervene in the suit and assert a lien against the settlement proceeds for the full amount it had paid for Ahlborn’s care. She filed this action in Federal District Court seeking a declaration that the State’slien violated federal law insofar as its satisfaction would require depletion of compensation for her injuries other than past medical expenses. The parties stipulated, inter alia, that the settlement amounted to approximately one-sixth of the reasonable value of Ahlborn’s claim and that, if her construction of federal law was correct, ADHS would be entitled to only the portion of the settlement($35,581.47) that constituted reimbursement for medical paymentsmade. In granting ADHS summary judgment, the court held that under Arkansas law, which it concluded did not conflict with federal law, Ahlborn had assigned ADHS her right to recover the full amountof Medicaid’s payments for her benefit. The Eighth Circuit reversed,holding that ADHS was entitled only to that portion of the settlementthat represented payments for medical care.

Held: Federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn’s settlement in an amount exceeding $35,581.47, and thefederal anti-lien provision affirmatively prohibits it from doing so.Arkansas’ third-party liability provisions are unenforceable insofaras they compel a different conclusion. Pp. 9–23.

(a) Arkansas’ statute finds no support in the federal third-party liability provisions. That ADHS cannot claim more than the portion of Ahlborn’s settlement that represents medical expenses is suggested by 1396k(a)(1)(A), which requires that Medicaid recipients, as acondition of eligibility, “assign the State any rights . . . to payment for medical care from any third party” (emphasis added), not their rights to payment for, e.g., lost wages. The other statutory language ADHSrelies on is not to the contrary, but reinforces the assignment provision’s implicit limitation. First, statutory context shows that 1396a(a)(25)(B)’s requirement that States “seek reimbursement for

3 Cite as: 547 U. S. ____ (2006)

Syllabus

[medical] assistance to the extent of such legal liability” refers to “the legal liability of third parties . . . to pay for care and services available under the plan,” 1396a(a)(25)(A) (emphases added). Here, because the tortfeasors accepted liability for only one-sixth of Ahlborn’s overall damages, and ADHS has stipulated that only $35,581.47 of thatsum represents compensation for medical expenses, the relevant “liability” extends no further than that amount. Second, 1396a(a)(25)(H)’s requirement that the State enact laws giving it the right to recover from liable third parties “to the extent [it made] payment . . . for medical assistance for health care items or servicesfurnished to an individual” does not limit the State’s recovery only bythe amount it paid out on the recipient’s behalf, since the rest of theprovision makes clear that the State must be assigned “the rights of [the recipient] to payment by any other party for such health care items or services.” (Emphasis added.) Finally, 1396k(b)’s requirement that, where the State actively pursues recovery from the third party, Medicaid be reimbursed fully from “any amount collected bythe State under an assignment” before “the remainder of such amount collected” is remitted to the recipient does not show that the State must be paid in full from any settlement. Rather, because the State’s assigned rights extend only to recovery of medical payments,what 1396k(b) requires is that the State be paid first out of anydamages for medical care before the recipient can recover any of herown medical costs. Pp. 9–13.

 

 (b) Arkansas’ statute squarely conflicts with the federal Medicaid law’s anti-lien provision, 1396p(a)(1), which prohibits States fromimposing liens “against the property of any individual prior to hisdeath on account of medical assistance paid . . . on his behalf underthe State plan.” Even if the State’s lien is assumed to be consistent with federal law insofar as it encumbers proceeds designated asmedical payments, the anti-lien provision precludes attachment orencumbrance of the remainder of the settlement. ADHS’ attempt toavoid the anti-lien provision by characterizing the settlement proceeds as not Ahlborn’s “property,” but as the State’s, fails for two reasons. First, because the settlement is not “received from a third party,” as required by the state statute, until Ahlborn’s chose in action has been reduced to proceeds in her possession, the assertionthat any of the proceeds belonged to the State all along lacks merit. Second, the State’s argument that Ahlborn lost her property rights inthe proceeds the instant she applied for medical assistance is inconsistent with the creation of a statutory lien on those proceeds: ADHS would not need a lien on its own property. Pp. 13–17.

 (c) The Court rejects as unpersuasive ADHS’ and the UnitedStates’ arguments that a rule permitting a lien on more than medical

 

4

ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Syllabus

damages ought to apply here either because Ahlborn breached herduty to “cooperate” with ADHS or because there is an inherent danger of manipulation in cases where the parties to a tort case settle without judicial oversight or input from the State. As 1396k(a)(1)(C) demonstrates, the duty to cooperate arises principally, if not exclusively, in proceedings initiated by the State to recover from third parties. In any event, the aspersions cast upon Ahlborn are entirely unsupported; all the record reveals is that ADHS neither asked to be nor was involved in the settlement negotiations.Whatever the bounds of the duty to cooperate, there is no evidencethat it was breached here. Although more colorable, the alternativeargument that a rule of full reimbursement is needed generally toavoid the risk of settlement manipulation also fails. The risk that parties to a tort suit will allocate away the State’s interest can beavoided either by obtaining the State’s advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision. Pp. 17–19.

(d) Also rejected is ADHS’ contention that the Eighth Circuit accorded insufficient weight to two decisions by the Departmental Appeals Board (Board) of the federal Department of Health and Human Services (HHS) rejecting appeals by two States from denial of reimbursement for costs they paid on behalf of Medicaid recipients whohad settled tort claims. Although HHS generally has broad regulatory authority in the Medicaid area, the Court declines to treat theBoard’s reasoning in those cases as controlling because they address adifferent question from the one posed here, make no mention of the anti-lien provision, and rest on a questionable construction of thefederal third-party liability provisions. Pp. 19–23.

397 F. 3d 620, affirmed.

STEVENS, J., delivered the opinion for a unanimous Court.

_________________ _________________ 1 Cite as: 547 U. S. ____ (2006)

Opinion of the Court

  • NOTICE: This opinion is subject to formal revision before publication in thepreliminary print of the United States Reports. Readers are requested tonotify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in orderthat corrections may be made before the preliminary print goes to press.
  • SUPREME COURT OF THE UNITED STATES

    No. 04–1506

ARKANSAS DEPARTMENT OF HEALTH AND HUMAN SERVICES, ET AL., PETITIONERS v. HEIDI AHLBORN

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OFAPPEALS FOR THE EIGHTH CIRCUIT

[May 1, 2006]

JUSTICE STEVENS delivered the opinion of the Court.

When a Medicaid recipient in Arkansas obtains a tortsettlement following payment of medical costs on her behalf by Medicaid, Arkansas law automatically imposes alien on the settlement in an amount equal to Medicaid’s costs. When that amount exceeds the portion of the settlement that represents medical costs, satisfaction of theState’s lien requires payment out of proceeds meant tocompensate the recipient for damages distinct from medical costs—like pain and suffering, lost wages, and loss of future earnings. The Court of Appeals for the Eighth Circuit held that this statutory lien contravened federallaw and was therefore unenforceable. Ahlborn v. Arkansas Dept. of Human Servs., 397 F. 3d 620 (2005). Other courts have upheld similar lien provisions. See, e.g., Houghton v. Dept. of Health, 2002 UT 101, 57 P. 3d 1067; Wilson v. Washington, 142 Wash. 2d 40, 10 P. 3d 1061 (2000) (en banc). We granted certiorari to resolve theconflict, 545 U. S. ___ (2005), and now affirm.

I On January 2, 1996, respondent Heidi Ahlborn, then a

2

ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court

19-year-old college student and aspiring teacher, sufferedsevere and permanent injuries as a result of a car accident. She was left brain damaged, unable to complete her college education, and incapable of pursuing her chosen career. Although she possessed a claim of uncertain value against the alleged tortfeasors who caused her injuries, Ahlborn’s liquid assets were insufficient to pay for hermedical care. Petitioner Arkansas Department of HealthServices (ADHS) accordingly determined that she waseligible for medical assistance and paid providers$215,645.30 on her behalf under the State’s Medicaid plan.

ADHS required Ahlborn to complete a questionnaire about her accident, and sent her attorney periodic letters advising him about Medicaid outlays. These letters noted that, under Arkansas law, ADHS had a claim to reimbursement from “any settlement, judgment, or award” obtained by Ahlborn from “a third party who may be liable for” her injuries, and that no settlement “shall be satisfiedwithout first giving [ADHS] notice and a reasonable opportunity to establish its interest.”1 ADHS has never asserted, however, that Ahlborn has a duty to reimburse it out of any other subsequently acquired assets or earnings.

On April 11, 1997, Ahlborn filed suit against two alleged tortfeasors in Arkansas state court seeking compensationfor the injuries she sustained in the January 1996 car accident. She claimed damages not only for past medical costs, but also for permanent physical injury; future medical expenses; past and future pain, suffering, and mentalanguish; past loss of earnings and working time; and permanent impairment of the ability to earn in the future.

ADHS was neither named as a party nor formally notified of the suit. Ahlborn’s counsel did, however, keep ADHS informed of details concerning insurance coverage

—————— 1Affidavit of Wayne E. Olive, Exhs. 5 and 6 (Mar. 6, 2003).

3 Cite as: 547 U. S. ____ (2006) Opinion of the Court

as they became known during the litigation.

In February 1998, ADHS intervened in Ahlborn’s lawsuit to assert a lien on the proceeds of any third-partyrecovery Ahlborn might obtain. In October 1998, ADHS asked Ahlborn’s counsel to notify the agency if there was a hearing in the case. No hearing apparently occurred, and the case was settled out of court sometime in 2002 for a total of $550,000. The parties did not allocate the settlement between categories of damages. ADHS did not participate or ask to participate in settlement negotiations. Nor did it seek to reopen the judgment after the case hadbeen dismissed. ADHS did, however, assert a lien against the settlement proceeds in the amount of $215,645.30—the total cost of payments made by ADHS for Ahlborn’s care.

On September 30, 2002, Ahlborn filed this action in theUnited States District Court for the Eastern District of Arkansas seeking a declaration that the lien violated the federal Medicaid laws insofar as its satisfaction would require depletion of compensation for injuries other thanpast medical expenses. To facilitate the District Court’s resolution of the legal questions presented, the parties stipulated that Ahlborn’s entire claim was reasonablyvalued at $3,040,708.18; that the settlement amounted to approximately one-sixth of that sum; and that, if Ahlborn’s construction of federal law was correct, ADHS would be entitled to only the portion of the settlement ($35,581.47) that constituted reimbursement for medical paymentsmade. See App. 17–20.

Ruling on cross-motions for summary judgment, theDistrict Court held that under Arkansas law, which it concluded did not conflict with federal law, Ahlborn had assigned to ADHS her right to any recovery from the third-party tortfeasors to the full extent of Medicaid’spayments for her benefit. Accordingly, ADHS was entitled to a lien in the amount of $215,645.30.

4

ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court

The Eighth Circuit reversed. It held that ADHS was entitled only to that portion of the judgment that represented payments for medical care. For the reasons that follow, we affirm.

II The crux of the parties’ dispute lies in their competing constructions of the federal Medicaid laws. The Medicaid program, which provides joint federal and state funding of medical care for individuals who cannot afford to pay their own medical costs, was launched in 1965 with the enactment of Title XIX of the Social Security Act (SSA), asadded 79 Stat. 343, 42 U. S. C. 1396 et seq. (2000 ed. and Supp. III). Its administration is entrusted to the Secretary of Health and Human Services (HHS), who in turnexercises his authority through the Centers for Medicare and Medicaid Services (CMS).2 States are not required to participate in Medicaid, butall of them do. The program is a cooperative one; theFederal Government pays between 50% and 83% of thecosts the State incurs for patient care,3 and, in return, the State pays its portion of the costs and complies with certain statutory requirements for making eligibility determinations, collecting and maintaining information, and administering the program. See 1396a.One such requirement is that the state agency in charge of Medicaid (here, ADHS) “take all reasonable measures to ascertain the legal liability of third parties . . . to pay for care and services available under the plan.”1396a(a)(25)(A) (2000 ed.).4 The agency’s obligation

—————— 2Until 2001, CMS was known as the Health Care Financing Administration or HCFA. See 66 Fed. Reg. 35437. 3The exact percentage of the federal contribution is calculated pursuant to a formula keyed to each State’s per capita income. See 42

U. S. C. 1396d(b). 4A “third party” is defined by regulation as “any individual, entity or

5 Cite as: 547 U. S. ____ (2006)

Opinion of the Court

extends beyond mere identification, however;

  • “in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State orlocal agency will seek reimbursement for such assistance to the extent of such legal liability.”1396a(a)(25)(B).
  • To facilitate its reimbursement from liable third parties,
  • the State must, “to the extent that payment has been made under theState plan for medical assistance in any case where athird party has a legal liability to make payment forsuch assistance, [have] in effect laws under which, to the extent that payment has been made under theState plan for medical assistance for health care itemsor services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such healthcare items or services.” 1396a(a)(25)(H).
  • The obligation to enact assignment laws is reiterated in another provision of the SSA, which reads as follows:
  • “(a) For the purpose of assisting in the collection ofmedical support payments and other payments formedical care owed to recipients of medical assistanceunder the State plan approved under this subchapter, a State plan for medical assistance shall—
  • “(1) provide that, as a condition of eligibility for medical assistance under the State plan to an indi
  • ——————
  • program that is or may be liable to pay all or part of the expenditures

    for medical assistance furnished under a State plan.” 42 CFR 433.136

    (2005).

    6

    ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court

  • vidual who has the legal capacity to execute an assignment for himself, the individual is required—
  • “(A) to assign the State any rights . . . to support(specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party;
  • “(B) to cooperate with the State . . . in obtaining support and payments (described in paragraph (A))for himself . . . ; and
  • “(C) to cooperate with the State in identifying, andproviding information to assist the State in pursuing, any third party who may be liable to pay for care andservices available under the plan . . . .” 1396k(a).
  • Finally, “any amount collected by the State under anassignment made” as described above “shall be retained bythe State as is necessary to reimburse it for medical assistance payments made on behalf of” the Medicaid recipient. 1396k(b). “[T]he remainder of such amount collected shall be paid” to the recipient. Ibid.
  • Acting pursuant to its understanding of these third-party liability provisions, the State of Arkansas passed laws that purport to allow both ADHS and the Medicaidrecipient, either independently or together, to recover “thecost of benefits” from third parties. Ark. Code Ann. 20–77–301 through 20–77–309 (2001). Initially, “[a]s a condition of eligibility” for Medicaid, an applicant “shall automatically assign his or her right to any settlement, judgment, or award which may be obtained against any third party to [ADHS] to the full extent of any amount whichmay be paid by Medicaid for the benefit of the applicant.” 20–77–307(a). Accordingly, “[w]hen medical assistancebenefits are provided” to the recipient “because of injury,disease, or disability for which another person is liable,” ADHS “shall have a right to recover from the person the

    7 Cite as: 547 U. S. ____ (2006)

    Opinion of the Court

    cost of benefits so provided.” 20–77–301(a).5 ADHS’ suit “shall” not, however, “be a bar to any action upon the claim or cause of action of the recipient.” 20–77–301(b).Indeed, the statute envisions that the recipient will sometimes sue together with ADHS, see 20–77–303, or evenalone. If the latter, the assignment described in 20–77–307(a) “shall be considered a statutory lien on any settlement, judgment, or award received . . . from a third party.” 20–77–307(c); see also 20–77–302(a) (“When an action or claim is brought by a medical assistance recipient . . . , any settlement, judgment, or award obtained is subject to thedivision’s claim for reimbursement of the benefits provided to the recipient under the medical assistance program”).6

    The State, through this statute, claims an entitlement to more than just that portion of a judgment or settlement that represents payment for medical expenses. It claims a right to recover the entirety of the costs it paid on theMedicaid recipient’s behalf. Accordingly, if, for example, a recipient sues alone and settles her entire action against athird-party tortfeasor for $20,000, and ADHS has paid that amount or more to medical providers on her behalf, ADHS gets the whole settlement and the recipient is leftwith nothing. This is so even when the parties to the settlement allocate damages between medical costs, on the one hand, and other injuries like lost wages, on the other.

    —————— 5Under the Arkansas statute, ADHS’ right to recover medical costs appears to be broader than that of the recipient. When ADHS sues, “no contributory or comparative fault of a recipient shall be attributed tothe state, nor shall any restitution awarded to the state be denied or reduced by any amount or percentage of fault attributed to a recipient.”20–77–301(d)(1) (2001). 6The Arkansas Supreme Court has held that ADHS has an independent, nonderivative right to recover the cost of benefits from a third-party tortfeasor under 20–77–301 even when the Medicaid recipient also sues for recovery of medical expenses. See National Bank of Commerce v. Quirk, 323 Ark. 769, 792–794, 918 S. W. 2d 138, 151–152 (1996).

    8

    ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court

    The same rule also would apply, it seems, if the recoverywere the result not of a settlement but of a jury verdict. In that case, under the Arkansas statute, ADHS could recover the full $20,000 in the face of a jury allocation of, say, only $10,000 for medical expenses.7

    That this is what the Arkansas statute requires has been confirmed by the State’s Supreme Court. In Arkansas Dept. of Human Servs. v. Ferrel, 336 Ark. 297, 984

    S. W. 2d 807 (1999), the court refused to endorse an equitable, nontextual interpretation of the statute. Rejecting aMedicaid recipient’s argument that he ought to retain some of a settlement that was insufficient to cover both his and Medicaid’s expenses, the court explained:

  • “Given the clear, unambiguous language of the statute, it is apparent that the legislature intended that ADHS’s ability to recoup Medicaid payments fromthird parties or recipients not be restricted by equitable subrogation principles such as the ‘made whole’rule stated in [Franklin v. Healthsource of Arkansas, 328 Ark. 163, 942 S. W. 2d 837 (1997)]. By creatingan automatic legal assignment which expressly becomes a statutory lien, [Ark. Code Ann. 20–77–307(1991)] makes an unequivocal statement that the ADHS’s ability to recover Medicaid payments from insurance settlements, if it so chooses, is superior tothat of the recipient even when the settlement does not pay all the recipient’s medical costs.” Id., at 308, 984 S. W. 2d, at 811.
  • Accordingly, the Arkansas statute, if enforceable againstAhlborn, authorizes imposition of a lien on her settlement proceeds in the amount of $215,645.30. Ahlborn’s argu
  • —————— 7ADHS denies that it would actually demand the full $20,000 in sucha case, see Brief for Petitioners 49, n. 13, but points to no provision ofthe Arkansas statute that would prevent it from doing so.

    9 Cite as: 547 U. S. ____ (2006) Opinion of the Court

    ment before the District Court, the Eighth Circuit, and this Court has been that Arkansas law goes too far. We agree. Arkansas’ statute finds no support in the federal third-party liability provisions, and in fact squarely conflicts with the anti-lien provision of the federal Medicaidlaws.

    III We must decide whether ADHS can lay claim to morethan the portion of Ahlborn’s settlement that represents medical expenses.8 The text of the federal third-party liability provisions suggests not; it focuses on recovery of payments for medical care. Medicaid recipients must, as acondition of eligibility, “assign the State any rights . . . to payment for medical care from any third party,” 42

    U. S. C. 1396k(a) (1)(A) (emphasis added), not rights to payment for, for example, lost wages. The other statutory language that ADHS relies upon is not to the contrary; indeed, it reinforces the limitation implicit in the assignment provision.

    First, ADHS points to 1396a(a)(25)(B)’s requirement that States “seek reimbursement for [medical] assistance to the extent of such legal liability” (emphasis added) and suggests that this means that the entirety of a recipient’s settlement is fair game. In fact, as is evident from the context of the emphasized language, “such legal liability”refers to “the legal liability of third parties . . . to pay for care and services available under the plan.” 1396a(a)(25)(A) (emphasis added). Here, the tortfeasor

    —————— 8The parties here assume, as do we, that a State can fulfill its obligations under the federal third-party liability provisions by requiring an “assignment” of part of, or placing a lien on, the settlement that aMedicaid recipient procures on her own. Cf. 1396k(a)(B)–(C) (therecipient has a duty to identify liable third parties and to “provid[e]information to assist the State in pursuing” those parties (emphasis added)).

     

  • 10 ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court
  • has accepted liability for only one-sixth of the recipient’s overall damages, and ADHS has stipulated that only $35,581.47 of that sum represents compensation for medical expenses. Under the circumstances, the relevant “liability” extends no further than that amount.9
      •  

     Second, ADHS argues that the language of 1396a(a)(25)(H) favors its view that it can demand full reimbursement of its costs from Ahlborn’s settlement. That provision, which echoes the requirement of a mandatory assignment of rights in 1396k(a), says that the State must have in effect laws that, “to the extent that paymenthas been made under the State plan for medical assistance for health care items or services furnished to an individual,” give the State the right to recover from liable third parties. This must mean, says ADHS, that the agency’s recovery is limited only by the amount it paid out on the recipient’s behalf—and not by the third-party tortfeasor’sparticular liability for medical expenses. But that reading ignores the rest of the provision, which makes clear thatthe State must be assigned “the rights of [the recipient] topayment by any other party for such health care items or services.” 1396a(a)(25)(H) (emphasis added). Again, thestatute does not sanction an assignment of rights to payment for anything other than medical expenses—not lost wages, not pain and suffering, not an inheritance.

    Finally, ADHS points to the provision requiring that, where the State actively pursues recovery from the third party, Medicaid be reimbursed fully from “any amount collected by the State under an assignment” before “the remainder of such amount collected” is remitted to the recipient. 1396k(b). In ADHS’ view, this shows that the

    —————— 9The effect of the stipulation is the same as if a trial judge had found that Ahlborn’s damages amounted to $3,040,708.12 (of which $215,645.30 were for medical expenses), but because of her contributory negligence, she could only recover one-sixth of those damages.

        11 Cite as: 547 U. S. ____ (2006) Opinion of the Court

    State must be paid in full from any settlement. See Brief for Petitioners 13. But, even assuming the provision applies in cases where the State does not actively participate in the litigation, ADHS’ conclusion rests on a false premise: The “amount recovered . . . under an assignment” is not, as ADHS assumes, the entire settlement; as explained above, under the federal statute the State’s assigned rights extend only to recovery of payments formedical care. Accordingly, what 1396k(b) requires is thatthe State be paid first out of any damages representingpayments for medical care before the recipient can recover any of her own costs for medical care.10

    At the very least, then, the federal third-party liability provisions require an assignment of no more than theright to recover that portion of a settlement that represents payments for medical care.11 They did not mandate

        ——————

    10Implicit in ADHS’ interpretation of this provision is the assumptionthat there can be no “remainder” to remit to the Medicaid recipient ifall the State has been assigned is the right to damages for medical expenses. That view in turn seems to rest on an assumption either thatMedicaid will have paid all the recipient’s medical expenses or that Medicaid’s expenses will always exceed the portion of any third-party recovery earmarked for medical expenses. Neither assumption holds up. First, as both the Solicitor General and CMS acknowledge, therecipient often will have paid medical expenses out of her own pocket. See Brief for United States as Amicus Curiae 12 (under 1396k(b), “the beneficiary retains the right to payment for any additional medicalexpenses personally incurred either before or subsequent to Medicaid eligibility and for other damages”); CMS, State Medicaid Manual 3907 (last modified Sept. 16, 2005) (envisioning that “medical insurancepayments,” for example, will be remitted to the recipient if possible). Second, even if Medicaid’s outlays often exceed the portion of the recovery earmarked for medical expenses in tort cases, the third-party liability provisions were not drafted exclusively with tort settlements inmind. In the case of health insurance, for example, the funds available under the policy may be enough to cover both Medicaid’s costs and therecipient’s own medical expenses.

    11ADHS concedes that, had a jury or judge allocated a sum for medical payments out of a larger award in this case, the agency would be

         

  • 12 ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court
  • the enactment of the Arkansas scheme that we have described.
  • IV If there were no other relevant provisions in the federalstatute, the State might plausibly argue that federal law supplied a recovery “floor” upon which States were free tobuild. In fact, though, the federal statute places express limits on the State’s powers to pursue recovery of funds it paid on the recipient’s behalf. These limitations are contained in 42 U. S. C. 1396a(a)(18) and 1396p. Section 1396a(a)(18) requires that a State Medicaid plan comply with 1396p, which in turn prohibits States (except incircumstances not relevant here) from placing liensagainst, or seeking recovery of benefits paid from, a Medicaid recipient:

         

  • “(a) Imposition of lien against property of an individual on account of medical assistance rendered to him under a State plan
  • “(1) No lien may be imposed against the property of any individual prior to his death on account of medicalassistance paid or to be paid on his behalf under the State plan, except—
  • “(A) pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or
  • “(B) [in certain circumstances not relevant here] . . . . ——————

    entitled to reimburse itself only from the portion so allocated. See Brief for Petitioners 49, n. 13; see also Brief for United States as Amicus Curiae 22, n. 14 (noting that the Secretary of HHS “ordinarily accepts”a jury allocation of medical damages in satisfaction of the Medicaiddebt, even where smaller than the amount of Medicaid’s expenses). Given the stipulation between ADHS and Ahlborn, there is no textualbasis for treating the settlement here differently from a judge-allocatedsettlement or even a jury award; all such awards typically establish a third party’s “liability” for both “payment for medical care” and otherheads of damages.

    13 Cite as: 547 U. S. ____ (2006)

Opinion of the Court

  • “(b) Adjustment or recovery of medical assistance
  • correctly paid under a State plan
  • “(1) No adjustment or recovery of any medical assis
  • tance correctly paid on behalf of an individual under
  • the State plan may be made, except [in circumstances
  • not relevant here].” 1396p.
  • Read literally and in isolation, the anti-lien prohibition contained in 1396p(a) would appear to ban even a lien on that portion of the settlement proceeds that represents payments for medical care.12 Ahlborn does not ask us to go so far, though; she assumes that the State’s lien is consistent with federal law insofar as it encumbers proceeds designated as payments for medical care. Her argument, rather, is that the anti-lien provision precludes attachment or encumbrance of the remainder of the settlement.
  • We agree. There is no question that the State can require an assignment of the right, or chose in action, to receive payments for medical care. So much is expressly provided for by 1396a(a)(25) and 1396k(a). And we assume, as do the parties, that the State can also demand as a condition of Medicaid eligibility that the recipient “assign” in advance any payments that may constitute reimbursement for medical costs. To the extent that the forced assignment is expressly authorized by the terms of 1396a(a)(25) and 1396k(a), it is an exception to the anti

    —————— 12Likewise, subsection (b) would appear to forestall any attempt bythe State to recover benefits paid, at least from the “individual.” See, e.g., Martin ex rel. Hoff v. Rochester, 642 N. W. 2d 1, 8, n. 6 (Minn. 2002); Wallace v. Estate of Jackson, 972 P. 2d 446, 450 (Utah 1998)(Durham, J., dissenting) (reading 1396p to “prohibi[t] not only liens against Medicaid recipients but also any recovery for medical assistance correctly paid”). The parties here, however, neither cite nordiscuss the anti-recovery provision of 1396p(b). Accordingly, we leavefor another day the question of its impact on the analysis.

     

  • 14 ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court
  • lien provision. See Washington State Dept. of Social and Health Servs. v. Guardianship Estate of Keffeler, 537 U. S. 371, 383–385, and n. 7 (2003). But that does not mean that the State can force an assignment of, or place a lien on, any other portion of Ahlborn’s property. As explained above, the exception carved out by 1396a(a)(25) and 1396k(a) is limited to payments for medical care. Beyond that, the anti-lien provision applies.
  • ADHS tries to avoid the anti-lien provision by characterizing the settlement proceeds as not Ahlborn’s “property.”13 Its argument appears to be that the automatic assignment effected by the Arkansas statute rendered the proceeds the property of the State.14 See Brief for Petitioners 31 (“[U]nder Arkansas law, the lien does not attach to the recipient’s ‘property’ because it attaches only to those proceeds already assigned to the Department as a condition of Medicaid eligibility”). That argument fails for two reasons. First, ADHS insists that Ahlborn at all times until judgment retained her entire chose in action—a right that included her claim for medical damages. The statutory lien, then, cannot have attached until the proceeds materialized. That much is clear from the text of the Arkansas statute, which says that the “assignment shall be considered a statutory lien on any settlement . . . received by the recipient from a third party.” Ark. Code Ann. 20–77–307(c) (2001) (emphasis added). The settle

                ——————

    13“Property” is defined by regulation as “the homestead and all other personal and real property in which the recipient has a legal interest.” 42 CFR 433.36(b) (2005).

    14The United States as amicus curiae makes the different argumentthat the proceeds never became Ahlborn’s “property” because “to the extent the third party’s payment passes through the recipient’s hands en route to the State, it comes with the State’s lien already attached.” Brief as Amicus Curiae 18. Even if that reading were consistent with the Arkansas statute (and it is not, see infra, at 16), the United States’characterization of the “assignment” simply reinforces Ahlborn’s point:This is a lien that attaches to the property of the recipient.

    15 Cite as: 547 U. S. ____ (2006) Opinion of the Court

    ment is not “received” until the chose in action has been reduced to proceeds in Ahlborn’s possession. Accordingly, the assertion that any of the proceeds belonged to the State all along lacks merit.

    Second, the State’s argument that Ahlborn lost her property rights in the proceeds the instant she applied for medical assistance is inconsistent with the creation of a statutory lien on those proceeds. Why, after all, wouldADHS need a lien on its own property? A lien typically is imposed on the property of another for payment of a debt owed by that other. See Black’s Law Dictionary 922 (6th ed. 1990). Nothing in the Arkansas statute defines the term otherwise.

That the lien is also called an “assignment” does not alter the analysis. The terms that Arkansas employs to describe the mechanism by which it lays claim to the settlement proceeds do not, by themselves, tell us whetherthe statute violates the anti-lien provision. See United States v. Craft, 535 U. S. 274, 279 (2002); Drye v. United States, 528 U. S. 49, 58–61 (1999). Although denominatedan “assignment,” the effect of the statute here was not to divest Ahlborn of all her property interest; instead, Ahlborn retained the right to sue for medical care payments,and the State asserted a right to the fruits of that suitonce they materialized. In effect, and as at least some of the statutory language recognizes, Arkansas has imposed a lien on Ahlborn’s property.15 Since none of the federal

    —————— 15Because ADHS insists that “Arkansas law did not require Ahlbornto assign her claim or her right to sue,” Brief for Petitioners 33 (emphasis in original), we need not reach the question whether a State mayforce a recipient to assign a chose in action to receive as much of the settlement as is necessary to pay Medicaid’s costs. The Eighth Circuit thought this would be impermissible because the State cannot “circumvent the restrictions of the federal anti-lien statute simply by requiring an applicant for Medicaid benefits to assign property rights to the Statebefore the applicant liquidates the property to a sum certain.” App. toPet. for Cert. 6. Indeed, ADHS acknowledges that Arkansas cannot, for

     

  • 16 ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court
  • third-party liability provisions excepts that lien fromoperation of the anti-lien provision, its imposition violates federal law.
  • V ADHS and its amici urge, however, that even if a lien onmore than medical damages would violate federal law insome cases, a rule permitting such a lien ought to applyhere either because Ahlborn breached her duty to “cooperate” with ADHS or because there is an inherent danger ofmanipulation in cases where the parties to a tort casesettle without judicial oversight or input from the State.Neither argument is persuasive.The United States proposes a default rule of full reimbursement whenever the recipient breaches her duty to“cooperate,” and asserts that Ahlborn in fact breached that duty.16 But, even if the Government’s allegations of obstruction were supported by the record, its conception of the duty to cooperate strays far beyond the text of thestatute and the relevant regulations. The duty to cooperate arises principally, if not exclusively, in proceedings initiated by the State to recover from third parties. See 42

    U. S. C. 1396k(a)(1)(C) (recipients must “cooperate with

    —————— example, require a Medicaid applicant to assign in advance any right she may have to recover an inheritance or an award in a civil case notrelated to her injuries or medical care. This arguably is no different; aswith assignment of those other choses in action, assignment of the right to compensation for lost wages and other nonmedical damages is nowhere authorized by the federal third-party liability provisions. 16See, e.g., Brief for United States as Amicus Curiae 14 (alleging that Ahlborn “omitt[ed] or understat[ed] the medical damages claim fromher lawsuit and attempt[ed] to horde for herself the third-party liabilitypayments”); id., at 15 (“[H]aving forsaken her federal and state statutory duties of candid and forthcoming cooperation . . . [,] respondent, rather than the taxpayers, must bear the financial consequences of her actions”); id., at 21, 24 (referring to Ahlborn’s “backdoor settlement” and “obstruction and attrition,” as well as her “calculated evasion of her legal obligations”).

    17 Cite as: 547 U. S. ____ (2006) Opinion of the Court

    the State in identifying . . . and providing information toassist the State in pursuing” third parties). Most of the accompanying federal regulations simply echo this basicduty; all they add is that the recipient must “[p]ay to theagency any support or medical care funds received thatare covered by the assignment of rights.” 42 CFR 433.147(b)(4) (2005).

    In any event, the aspersions the United States casts upon Ahlborn are entirely unsupported; all the recordreveals is that ADHS, despite having intervened in thelawsuit and asked to be apprised of any hearings, neither asked to be nor was involved in the settlement negotiations. Whatever the bounds of the duty to cooperate, there is no evidence that it was breached here.

    ADHS’ and the United States’ alternative argumentthat a rule of full reimbursement is needed generally toavoid the risk of settlement manipulation is more colorable, but ultimately also unpersuasive. The issue is not, of course, squarely presented here; ADHS has stipulated that only $35,581.47 of Ahlborn’s settlement proceeds properly are designated as payments for medical costs. Even in the absence of such a post-settlement agreement, though, the risk that parties to a tort suit will allocateaway the State’s interest can be avoided either by obtaining the State’s advance agreement to an allocation or, ifnecessary, by submitting the matter to a court for decision.17 For just as there are risks in underestimating thevalue of readily calculable damages in settlement negotiations, so also is there a countervailing concern that a rule

    —————— 17As one amicus observes, some States have adopted special rules and procedures for allocating tort settlements in circumstances where, for example, private insurers’ rights to recovery are at issue. See Brief for Association of Trial Lawyers of America 20–21. Although we express no view on the matter, we leave open the possibility that such rules and procedures might be employed to meet concerns about settlement manipulation.

     

  • 18 ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court
  • of absolute priority might preclude settlement in a largenumber of cases, and be unfair to the recipient in others.18
  • VI Finally, ADHS contends that the Court of Appeals’ decision below accords insufficient weight to two decisionsby the Departmental Appeals Board of HHS (Board) rejecting appeals by the States of California and Washington from denial of reimbursement for costs those States paid on behalf of Medicaid recipients who had settled tortclaims. See App. to Pet. for Cert. 45–67 (reproducing In re Washington State Dept. of Social & Health Servs., Dec. No. 1561, 1996 WL 157123 (HHS Dept. App. Bd., Feb. 7, 1996)); App. to Pet. for Cert. 68–86 (reproducing In re California Dept. of Health Servs., Dec. No. 1504, 1995 WL 66334 (HHS Dept. App. Bd., Jan. 5, 1995)). Because the opinions in those cases address a different question fromthe one posed here, make no mention of the anti-lien provision, and, in any event, rest on a questionable construction of the federal third-party liability provisions, weconclude that they do not control our analysis.Normally, if a State recovers from a third party the costof Medicaid benefits paid on behalf of a recipient, theFederal Government owes the State no reimbursement, and any funds already paid by the Federal Government

    must be returned. See 42 CFR 433.140(a)(2) (2005)(federal financial participation “is not available in Medi——————

    18The point is illustrated by state cases involving the recovery ofworkers’ compensation benefits paid to an employee (or the family of an employee) whose injuries were caused by a third-party tortfeasor. In Flanigan v. Department of Labor and Industry, 123 Wash. 2d 418, 869

    P. 2d 14 (1994), for example, the court concluded that the state agencycould not satisfy its lien out of damages the injured worker’s spouserecovered as compensation for loss of consortium. The court explained that the department could not “share in damages for which it hasprovided no compensation” because such a result would be “absurd and fundamentally unjust.” Id., at 426, 869 P. 2d, at 17.

    19 Cite as: 547 U. S. ____ (2006)

    Opinion of the Court

    caid payments if . . . [t]he agency received reimbursementfrom a liable third party”); 433.140(c). Washington and California both had adopted schemes according to whichthe State refrained from claiming full reimbursement fromtort settlements and instead took only a portion of eachsettlement. (In California, the recipient typically could keep at least 50% of her settlement, see App. to Pet. forCert. 72; in Washington, the proportion varied from case to case, see id., at 48–51.) Each scheme resulted in the State’s having to pay a portion of the recipient’s medical costs—a portion for which the State sought partial reimbursement from the Federal Government. CMS (thencalled HCFA) denied this partial reimbursement on theground that the States had an absolute duty to seek full payment of medical expenses from third-party tortfeasors.

    The Board upheld CMS’ determinations. In California’s appeal, which came first, the Board concluded that the State’s duty to seek recovery of benefits “from available third party sources to the fullest extent possible” includeddemanding full reimbursement from the entire proceeds of a Medicaid recipient’s tort settlement. Id., at 76. The Board acknowledged that 1396k(a) “refers to assignment only of ‘payment for medical care,’” but thought that “thestatutory scheme as a whole contemplates that the actual recovery might be greater and, if it is, that Medicaidshould be paid first.” Ibid. The Board gave two otherreasons for siding with CMS: First, the legislative historyof the third-party liability evinced a congressional intent that “the Medicaid program . . . be reimbursed from available third party sources to the fullest extent possible,” ibid.; and, second, California had long been on notice thatit would not be reimbursed for any shortfall resulting fromfailure to fully recoup Medicaid’s costs from tort settlements, see id., at 77. The Board also opined that the State could not escape its duty to seek full reimbursement byrelying on the Medicaid recipient’s efforts in litigating her

     

  • 20 ARKANSAS DEPT. OF HEALTH AND HUMAN SERVS. v. AHLBORN Opinion of the Court
  • claims. See id., at 79–80.
  • Finally, responding to the State’s argument that itsscheme gave Medicaid recipients incentives to sue third-party tortfeasors and thus resulted in both greater recovery and lower costs for the State, the Board observed that“a state is free to allow recipients to retain the state’sshare” of any recovery, so long as it does not compromise the Federal Government’s share. Id., at 85.

    The Board reached the same conclusion, by the same means, in the Washington case. See id., at 53–64.

    Neither of these adjudications compels us to conclude that Arkansas’ statutory lien comports with federal law. First, the Board’s rulings address a different question from the one presented here. The Board was concerned with the Federal Government’s obligation to reimburse States that had, in its view, failed to seek full recovery ofMedicaid’s costs and had instead relied on recipients to actas private attorneys general. The Board neither discussed nor even so much as cited the federal anti-lien provision.

    Second, the Board’s acknowledgment that the assignment of rights required by 1396k(a) is limited to payments for medical care only reinforces the clarity of thestatutory language. Moreover, its resort to “the statutory scheme as a whole” as justification for muddying that clarity is nowhere explained. Given that the only statutory provisions CMS relied on are 1396a(a)(25),1396k(a), and 1396k(b), see id., at 75–76; id., at 54–55, and given the Board’s concession that the first two of theselimit the State’s assignment to payments for medical care, the “statutory scheme” must mean 1396k(b). But that provision does not authorize the State to demand reimbursement from portions of the settlement allocated orallocable to nonmedical damages; instead, it gives theState a priority disbursement from the medical expensesportion alone. See supra, at 12. In fact, in its adjudicationin the Washington case, the Board conceded as much:

    21 Cite as: 547 U. S. ____ (2006)

    Opinion of the Court

    “[CMS] may require a state to assert a collection priorityover funds obtained by Medicaid recipients in [third-partyliability] suits even though the distribution methodology set forth in section [1396k(b)] refers only to payments collected pursuant to assignments for medical care.” App. to Pet. for Cert. 54 (emphasis added). The Board’s reasoningtherefore is internally inconsistent.

    Third, the Board’s reliance on legislative history ismisplaced. The Board properly observed that Congress, in crafting the Medicaid legislation, intended that Medicaid be a “payer of last resort.” S. Rep. No. 99–146, p. 313 (1985). That does not mean, however, that Congressmeant to authorize States to seek reimbursement from Medicaid recipients themselves; in fact, with the possibleexception of a lien on payments for medical care, the statute expressly prohibits liens against the property ofMedicaid beneficiaries. See 42 U. S. C. 1396p(a). We recognize that Congress has delegated “broad regulatoryauthority to the Secretary [of HHS] in the Medicaid area,” Wisconsin Dept. of Health and Family Servs. v. Blumer, 534

    U. S. 473, 496, n. 13 (2002), and that agency adjudications typically warrant deference. Here, however, the Board’s reasoning couples internal inconsistency with a consciousdisregard for the statutory text. Under these circumstances, we decline to treat the agency’s reasoning as controlling.

    VII Federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn’s settlement in an amount exceeding $35,581.47, and the federal anti-lien provision affirmatively prohibits it from doing so. Arkansas’ third-partyliability provisions are unenforceable insofar as they compel a different conclusion. The judgment of the Courtof Appeals is affirmed.

  • It is so ordered.

Jay J. Sangerman, PLLC
171 East 84th Street, Unit 21B
New York, New York 10028
Telephone (212) 922-0711
Facsimile (212) 922-0709
 

               

Special Needs Trust, Supplemental Needs Trust, Ahlborn, Medicaid lien