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Fourth Circuit applies Ahlborn to Determine State Medicaid Reimbursement

In E.M.A. v. Cansler, 2012 WL 956187 (March 22, 2012), the minor appellant, E.M.A., sustained serious injuries at birth due to negligence. The North Carolina Department of Health and Human Services (DHHS) paid more than $1.9 million for E.M.A.’s medical and health expenses. E.M.A. settled a medical malpractice lawsuit, before North Carolina’s Superior Court, for $2.8 million. The settlement agreement filed in Superior Court did not allocate separate amounts for medical expenses incurred and other damages.

Pursuant to North Carolina’s third-party liability statutes (N.C. Gen.Stat. ยง 108A-57 and-59), which allow the state to recover the lesser of its actual medical expenditures or one-third of the total recovery, DHHS was entitled to around $933 thousand. E.M.A. sought injunctive relief in federal district court to prevent the payment to DHHS. The District Court held with the State. E.M.A. appealed to the Fourth Circuit Court of Appeals.

The Fourth Circuit Court of Appeals applied Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006), which held a State was entitled to only recover settlement proceeds representing payments for medical expenses. In the event of a lump-sum settlement, as in this case, before a state may recoup its Medicaid outlay, the sum allocable to medical expenses must be determined, in the absence of a stipulation by the affected parties, by judicial determination or some similar adversarial process.

Under North Carolina law, a minor cannot recover for medical expenses. Therfore any portion of the settlement allocable to E.M.A. could not be subrogated by DHHS for medical expenses.

E.M.A. argued that the Superior Court allocated 88% of the settlement proceeds to E.M.A., leaving 12% available for medical costs. This is not evident from that court’s order. The Fourth Circuit therefore remanded the case back to the District Court to determine the proper allocation of the settlement between E.M.A. and medical expenses. After the allocation, DHHS would then be entitled to recover the lesser of its actual medical expenditures or one-third of the total recovery.