John M. Kirby April 2, 2014

On March 20, 2013, the United States Supreme Court held that North Carolina’s statutory scheme for handling Medicaid liens violates federal law. The opinion in Wos v. E.M.A. the federal anti-lien provision pre-empts North Carolina’s irrebuttable presumption that one-third of a tort recovery is attributable to medical expenses. North Carolina’s statute (which allows Medicaid to recover one-third of the settlement) “would [in some circumstances] permit the State to take a portion of a Medicaid beneficiary’s tort judgment or settlement not ‘designatedas payments for medical care.'”

The Fourth Circuit in Armstrong v. Cansler had ruled otherwise on March 22, 2012. The Supreme Court’s opinion overturned the 2-1 Fourth Circuit decision.

In this case, the minor was injured by the negligence of doctors at her birth. She sustained significant injuries (including blindness and seizure disorder). Medicaid ultimately paid $1.9 million for her treatment. Her parents filed suit to recover for (a) the child’s injuries (e.g. impairment of her life), (b) medical expenses (which are claims of the parents until the child attains the age of majority), and (c) the parents’ emotional distress. This claim ultimately settled for $2.8 million dollars. The settlement was approved by a North Carolina court, but the settlement was not apportioned among these different claims.

Medicaid then asserted its lien, and sought recovery of $933,333, pursuant to G.S. 108A-57, -59. These statutes give Medicaid a lien in the amount of one-third of the settlement. (I.e. one-third of $2.8 million is $933,333.) The minor argued that under Albhorn (decided by the U.S. Supreme Court in 2006), the lien attaches only to that portion of the settlement reflecting medical bills, because that is the only element of damage that Medicaid paid.

The case was slightly more complicated because the North Carolina Supreme Court had ruled on this issue in Andrews v. Haygood (2008), ruling in favor of Medicaid.

The upshot of the ruling of the Fourth Circuit was that the North Carolina statute providing for a lien against the entire settlement was inconsistent with the federal scheme (which contains an anti-lien provision, which prevents the states from recovering Medicaid payments from the beneficiary except for payments to that beneficiary for the same loss paid by Medicaid). Because North Carolina does not have a procedure for allocating the settlement, the District Court on remand would have to hold a hearing to allocate the settlement. “The sum certainallocable to medical expenses must be determined by way of a fair and impartial adversarial procedure that affords the Medicaid beneficiary an opportunity to rebut the statutory presumption in favor of the state that allocation of one-thirdof a lump sum settlement is consistent with the anti-lien provision in federal law.” The burden thus appears to be on the minor to allocate the settlement.

Of some note is that the federal court rejected the argument that the Medicaid lien does not apply to the child’s recovery on the ground that the child’s claim simply does not include medical expenses under North Carolina law. The court held that this common law doctrine was abrogated by statute in this context.

Judge Agee at the Fourth Circuit dissented from the Fourth Circuit’s holding (majority panel), and found that the statutes do not abrogate the common-law rule. He nevertheless would remand for further hearings to allocate the settlement. (The full analysis of his dissent is not provided here.) Judge Agee reasoned that the minor is not liable for his medical expenses under North Carolina law. In my opinion, this legal issue is not entirely clear. Under the doctrine of “necessaries,” the minor can be held liable for his medical expenses. Most parents cannot pay $1.9 in medical expenses, in which case the minor can be liable for those expenses under the necessaries doctrine. This issue is addressed in an Article written by John Kirby to be published in the Campbell Law Review, regarding minor’s claims and settlements in North Carolina.

This website contains other recent North Carolina cases.