How Will States Reclaim Medicaid Funds From Medical Malpractice Settlements And Judgments?


A Supreme Court case that recently heard oral arguments will determine how North Carolina and other states will reclaim some of the Medicaid funds spent on patient’s care. The court is expected to answer this question in June. Under current law, North Carolina can claim one-third of a Medicaid patient’s medical malpractice settlement or judgment. However the patient’s attorney claims that the automatic one-third recovery may be excessive.

This case comes out of an allegedly botched caesarian section delivery. The child, Emily, was born in February 2000 in Hickory, North Carolina. The severe injuries she suffered during childbirth led to her diagnosis of cerebral palsy. Emily is deaf, blind, and for the most part immobile. She does not talk and she suffers seizures and periodically requires suctioning of her airway.

The family sued the obstetrician, the medical center, and others. The obstetrician had a history of drug abuse and voluntarily surrendered his North Carolina medical license. The lawsuit was settled in 2006 for $2.8 million. A lien was placed on the settlement for one-third of the total, or $933,333.33, by North Carolina officials who estimated they spent more than $1.9 million in Medicaid funds providing for Emily’s medical care.

In North Carolina, the law permits the state to take the lesser of either the total Medicaid spending on the patient or one-third of the medical malpractice payment. In this case the lesser of the two would be to take one-third of the settlement. However, under federal Medicaid law state governments are prohibited from placing liens on Medicaid patients’ property, including medical malpractice settlements. There is a prior Supreme Court ruling though that specified that the ban on Medicaid liens only applies to the portions of the settlement that does not cover medical care, such as pain and suffering. States fear that if they cannot use the entirety of the settlement to determine reimbursement that beneficiaries could seek to shield medical malpractice settlements by characterizing the money as recovery for pain and suffering rather than for medical care.

One question the Supreme Court asked was how to determine a figure for the cost of medical expenses. The settlement for Emily’s claim did not specify the amount for medical expenses and what was for other claims. The amount of the settlement that would be for medical expenses would potentially be subject to state claim for reimbursement for Medicaid expenses. The outcome of this case will determine how much of the $2.8 million they can keep and how much will go to reimburse the state for Medicaid expenses.

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