I. Introduction
This fact sheet will discuss the Medicaid Act?s third party liability and balance billing provisions as they relate to liens imposed on tort recoveries of Medicaid beneficiaries and how the courts have interpreted those provisions. It will also describe similar provisions in the Medicare program, including recent changes to Medicare regulations that involve liens on tort recoveries and how those changes impact relevant case law. Finally, this fact sheet will explain the significance of these liens and provide tips for advocates whose clients may face state and provider liens.
II. Medicaid Provisions
A. Third Party Liability
1. Medicaid Statutes and Regulations
A basic principle of the Medicaid program is that Medicaid is the payer of last resort.2 This means that other third party resources must be used before Medicaid pays for medical services provided to an individual enrolled in the Medicaid program.3 Further, states are
required to take ?all reasonable measures? to determine third party liability for the medical costs of injury, disease or disability of a Medicaid beneficiary.4 A third party, for purposes of this discussion, is any individual, entity of program that is or may be liable to pay all or part of the expenditures for medical assistance furnished under a state plan; examples include commercial insurance, casualty insurance, unions and state workers? compensation commissions.5 The State Medicaid Manual mandates that each state participating in the Medicaid program maintain laws allowing it to acquire the right of the Medicaid beneficiary to payment by any other party for health care items or services for which that third party is responsible.6 Medicaid will pay benefits only to the extent that the medical costs of the beneficiary?s injury or illness exceed the amount of third party liability.7 As a condition of eligibility, Medicaid beneficiaries must assign their right to payment from any liable third party to the state Medicaid agency.8 Additionally, states must have subrogation laws in effect so that the state Medicaid agency can acquire the rights of the beneficiary to payment by other payers of health care services.9 Collected funds are used to reimburse the state for medical assistance payments made on behalf of the beneficiary, but the remainder, if there is any, must be paid to the individual.10
2. Case Law Analysis
Several state and federal cases have examined the issue of state liens against the tort recoveries of Medicaid beneficiaries. Evaluating the third party liability provisions of the federal Medicaid Act and regulations, the courts have consistently upheld state liens, though
there has been significant variation regarding the extent to which those liens can be imposed on beneficiary recovery. In Wilson v. Washington,11 the Court examined the issue of whether Washington state law allowing Medicaid recovery of amounts beyond those specifically allocated to medical expenses was preempted by federal law. The Supreme Court found that the state law was not preempted because there was no federal statute or regulation limiting recovery to the portion earmarked for medical expenses.12 Rather, the federal Medicaid statute permitted recovery ?to the extent that payment has been made? under the State plan.13 Several other courts came to the same conclusion: that a lien may be imposed on the entire settlement.14
Another issue that is frequently raised in state lien cases involves the timing of satisfaction of the lien. In Norwest Bank of North Dakota v. Doth,15 the Eighth Circuit held that the Minnesota Department of Health Services could require that the Medicaid lien imposed on
the proceeds of the personal injury award be satisfied before remaining funds were placed in a special needs trust. The Court found that the state had a right to enforce its lien, stating that the Medicaid beneficiaries in this case should not be able to avoid reimbursing the state by simply placing the third party recovery in a special need trust.16 Similarly, in Wallace v. Estate of Jackson,17 the Utah Supreme Court found that third party payments did not become the property of the Medicaid beneficiary until after settlement ?because third party settlement proceeds have been specified by the recipient as belonging to the State Medicaid Agency as a precondition of the recipient?s eligibility.?
B. Balance Billing
1. Medicaid Statutes and Regulations
Another basic tenet of the Medicaid program is that Medicaid participating providers accept the Medicaid payment as ?payment in full.?18 That is, by accepting Medicaid reimbursement, they waive their right to bill Medicaid beneficiaries for any amount over the Medicaid payment, other than copayments, co-insurance and deductibles.19 Specifically, the balance billing provision of the Medicaid statute prohibits providers who have rendered a service from seeking to collect
payment of an amount for that service (i) if the total of the amount of the liabilities of third parties for that service is at least equal to the amount payable for that service under the plan … or (ii) in an amount which exceeds the lesser of (I) the [nominal copayment] amount which may be collected under section 1936o of this title, or (II) the amount by which the amount payable for that service under the plan … exceeds the total of the amount of the liabilities of third parties for that service.20
This prohibition on balance billing was enacted by Congress and promulgated as regulations by the Secretary of Health, Education and Welfare in recognition of the fact that any amount charged to a Medicaid beneficiary for health care services would interfere with or impede the beneficiary?s access to medically necessary care.21 To ensure that Medicaid beneficiaries would not be charged amounts exceeding the Medicaid reimbursement, the regulations required states to limit providers to only those who accepted Medicaid payment as ?payment in full.? Congress went a step further and provided that, in addition to any other sanction available to a state, the state may provide for a reduction in payment equal to up to three times the amount of any payment sought to be collected by a provider in violation of the statute.22
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