Medicaid Clawback Ruling Threatens to Personal Injury Lawsuits against Dash Bloomberg Law

A Supreme Court ruling allowing state Medicaid programs to claw back a greater share of personal injury awards could close the courthouse door to beneficiaries with less-than-blockbuster claims.

The court ruled that states who provide care for Medicaid patients may claim reimbursement through settlements for personal injury that are allocated to cover eventual medical bills. Lawyers argue that the broad interpretation of justices of the Medicaid statute is likely to discourage recipients from having lawsuits filed from the beginning.

“The Supreme Court’s ruling can reduce the incentive for litigants to pursue personal injury claims,” said Nora Engstrom who is a professor of Stanford Law School. “Damages constitute the main fuel source for the system of torts. Without it the system won’t function.”

The issue was about Florida’s part of the $850,000 settlement that was negotiated from parents of a child who had been left in a vegetative state after being struck by the truck as she got off the school bus. Florida said it was entitled to 37.5% of the settlement–$300,000–the percentage set by the Medicaid statute for past and future medical expenses.

Gianinna Gallardo’s parents claimed that the state could only draw money from previous expenses. However, Justice Clarence Thomas, writing for the court, ruled that the government can take funds from an award to cover future medical bills to help pay for the expenses that have already been incurred.

“This ruling is bound to cause a ripple effect,” said Paul Cannon who is a shareholder at Simmons Fletcher PC, a Houston personal injury company. “Not always on cases that are as large as those that was ruled upon in this case–you’ll always be able have to pursue a case that can result in an amount of $800,000 in settlements, regardless of the fact that the state receives 37.5 percent. The majority of cases are less, which is likely cause a significant incentive to avoid cases in which Medicaid is involved.”

This could lead to reduced total recovery through states’ Medicaid programs, if lawsuits which promise only small settlements–which comprise most personal injury suits–end up never getting filed in the first place.

Third Part Recoveries

States have been required by Medicaid law Medicaid Act to seek reimbursement from other parties who are accountable for Medicaid patient’s treatment, such as settlements or jury awards made by third party.

This requirement comes with a significant limit that was in the law prior to its passage in 1965. It states the state cannot claim against the assets of Medicaid participants.

It has been the case that the state can recover through jury verdicts to cover medical costs, however, not lost wages or for pain and suffering as per Cannon.

The Supreme Court’s decision that states have the right to access future medical costs and prior costs could have a devastating impact on the plaintiffs of small-dollar personal injury instances, Cannon said. This is particularly true for states like Florida which only requires motorists to have $10,000 of liability insurance per car. The amount of liability insurance a motorist will carry effectively is the maximum amount for recovery in many instances according to him.

“If I’m considering cases that has a maximum amount of $20,000 or $10,000 it’s not a lot of cash available once you’ve completed the payment and subtract the portion paid by the state for medical bills which have been covered,” he said.

“And when the government is able to grab the fund for the cost of future medical and other expenses, the amount will decrease. Many of these lawsuits will never be heard.”

‘Shrinking Pie’

This ruling may also result in reduced funding for the state’s Medicaid programs, if it stops the vast majority of Medicaid-related lawsuits from being initiated, Cannon said.

“They might have to pay a high price to take a bigger piece of a declining pie,” he said. “It may mean less cash all-in.”

The Florida law appears to threaten the functioning of a system that gives the state with real benefits Medicaid programs that take on the sway of personal injury lawyers in order to get the money from third-party people, Cannon said.

“The State can at any time take over and start an action on behalf of itself,” he said. “But that would mean they’d need engage lawyers for the job, while today they have the benefits of each personal injury attorney that works in their place for no charge.”

This ruling leaves unclear as to the degree of aggressiveness that states may attempt to recuperate costs already paid, according to Justice Sonia Sotomayor in her decision in her dissenting opinions.

These questions concern whether the state can recoup the money it allocated to a potential non-related, not directly related injury in order to pay the costs associated with an Medicaid client’s prior incident, explained Sara Rosenbaum, a professor of health law and policies in George Washington University’s School of Public Health and Health Services.

States might also be able to begin expanding what is considered “medical health care” so as to expand the range of money subject to reimbursement.

“They’ve opened the way for states to step in and collect money from Medicaid beneficiaries. When it happens, the person who is affected must be in court fighting against the state’s authority.” Rosenbaum said.

“This is not a rule that has any limiting principles, and it isn’t a stopping place,” she said.

The decision is Gallardo in v. Marstiller, U.S. The case is No. 20-1263 and opinion of 6/6/22.