How the 2013 Supreme Court decision in Wos v. E.M.A. constrained the state statutory schemes that tried to work around Ahlborn, and what trial lawyers can do with the framework today.
Why does a 2013 Supreme Court case still control how state Medicaid agencies recover from your client’s personal injury settlement? Because Wos v. E.M.A. answered a question Ahlborn did not. Federal law limits state Medicaid recovery to the medical portion of a settlement. But what happens when a state writes a statute that simply declares a fixed share of every recovery to be “medical,” with no procedure to rebut? The Court answered that question in March of 2013. The state cannot do it. And the language of that holding still controls every state allocation default in effect today.
The Ahlborn Ceiling, and Why It Was Not Enough
In Arkansas Department of Health and Human Services v. Ahlborn (2006), the Supreme Court read the federal anti-lien statute at 42 U.S.C. § 1396p as a strict limit on state Medicaid recovery from a tort settlement. State Medicaid reaches the portion of a recovery attributable to medical expenses. It cannot reach pain and suffering, lost wages, or other non-medical damages.
The Ahlborn parties stipulated that Heidi Ahlborn’s total damages were $3,040,708 and that her settlement represented one-sixth of that amount. Arkansas was therefore entitled to one-sixth of its $215,645 medical lien, or $35,581. That ratio, called the pro-rata methodology, became the starting point in most jurisdictions.
What Ahlborn did not decide was how a state should determine the medical portion when the settlement is unallocated and the parties have not stipulated.
The State Statutory Response
After Ahlborn, states with third-party liability statutes had a problem. Their default rules, often written before Ahlborn, typically allowed Medicaid to recover its full lien from a settlement without any allocation analysis. That position no longer worked.
Some states amended their statutes to incorporate the pro-rata methodology. Others took a different route. They wrote in a fixed percentage that the statute deemed to be the medical portion of every recovery. North Carolina was one of those states. Its statute provided that up to one-third of any damages recovered by a Medicaid beneficiary in a third-party action must be paid to Medicaid to reimburse it for the cost of care.
On its face, the rule looked like a compromise. Medicaid would never take more than a third. On any settlement large enough to cover the full Medicaid lien within that one-third figure, the rule was easy to apply and predictable.
But Ahlborn had said something more specific than “do not take too much.” It had said that the state could only reach the portion of the settlement attributable to medical expenses, full stop. A statute that declared one-third of every recovery to be medical, regardless of the case, was not applying Ahlborn. It was working around it.
Wos v. E.M.A.: Facts, Holding, Reasoning
The case that drew the question to the Supreme Court began in the Fourth Circuit. In E.M.A. v. Cansler, a North Carolina toddler suffered catastrophic injuries during birth. Her medical care was covered in part by North Carolina Medicaid. The case settled in a tort action for an amount substantially less than the value of her future care needs. North Carolina invoked its statute and demanded one-third of the settlement as reimbursement, without any allocation between her medical damages and the future loss claims at the center of the case.
The Fourth Circuit held that the statute was preempted by federal law. The state could not place a lien on, or force an assignment of, settlement proceeds that were not properly allocable to past medical expenses. A statutory default that imposed a fixed percentage without any opportunity to rebut violated that rule.
The Supreme Court granted certiorari and, in March of 2013, affirmed the Fourth Circuit in a 6-3 decision. The opinion in Wos v. E.M.A. is short and direct. The majority pointed out that an injury victim has a property right in the proceeds of a settlement, which brings it within the protection of the federal anti-lien provision. That property right is subject to the narrow exception that requires a state to seek reimbursement for the medical portion of the recovery. The remainder of the settlement is protected.
North Carolina’s statute did not respect that line. The Court wrote that if “a State arbitrarily may designate one-third of any recovery as payment for medical expenses, there is no logical reason why it could not designate half, three-quarters, or all of a tort recovery in the same way.” That observation captured the structural problem with any fixed allocation rule that has no factual basis in the particular case.
The holding follows from that observation. “An irrebuttable, one-size-fits-all statutory presumption is incompatible with the Medicaid Act’s clear mandate that a State may not demand any portion of a beneficiary’s tort recovery except the share that is attributable to medical expenses.”
The Procedure Requirement
The Supreme Court did not stop at striking down the North Carolina statute. It explained what kind of state procedure could survive.
A state may use a default allocation rule as a starting point. But it must also provide a procedure that allows a dissatisfied beneficiary to challenge that default through a fair and impartial adversarial process. The Court did not require that the procedure be a separate judicial proceeding. A hearing within the Medicaid administrative system, a special master, a probate court order, or a stipulation built into the underlying settlement can all work, depending on the state.
What it cannot be is nothing. The Wos Court reaffirmed an earlier observation from Ahlborn about how a sound procedure looks. When “there has been a judicial finding or approval of an allocation between medical and nonmedical damages, in the form of either a jury verdict, court decree, or stipulation binding on all parties, that is the end of the matter.” The federal anti-lien provision protects the portion of the recovery that the allocation does not assign to medical expenses.
Legal professionals should read that language closely. It defines both the trigger for federal protection and the form of order that triggers it.
Reading Your State’s Third-Party Liability Statute
Most state third-party liability statutes still rely on a default rule of some kind. Some apply a fixed percentage. Others apply a pro-rata formula at the agency’s discretion. A few have written in a full hearing procedure. After Wos, the analysis for legal professionals is the same in every state.
First, identify what the state’s default allocation rule is and how it is applied in practice. Statutory text and recovery contractor practice are not always the same thing. Recovery contractors including Optum, Conduent, and others assigned to state Medicaid recovery work often start with the statutory default in their first demand. Whether the agency itself will entertain a challenge depends on state procedure.
Second, ask whether the state has a procedure for challenging the default. Some states require a Medicaid lien hearing. Others permit a probate court order that allocates damages. A few allow the parties to stipulate to an allocation that binds the agency, provided proper notice is given.
Third, you can attempt to build the allocation into the resolution of the case. A binding stipulation between the parties, a court order approving the settlement that includes a damages allocation, or a probate court order can all satisfy the Wos procedure requirement, depending on the state. The form matters less than the substance. Was there a fair allocation, was it on the record, and is it binding.
Where Synergy Fits
Synergy resolves state Medicaid liens for personal injury firms across all fifty states. The Synergy team includes attorneys and lien specialists who apply the Ahlborn framework to each state’s third-party liability statute and to the recovery contractor handling the file.
If you have an open state Medicaid lien where the default formula does not work for the case, or where the recovery contractor is not engaging in fair negotiations, send it over. Synergy will give you our read on the lien and the state-specific posture.
