Eleventh Circuit rules that Florida Medicaid may seek recovery of its past payments from those portions of the settlement agreement representing past and future medical care

By Mark Popolizio, J.D., Kate Riordan, J.D.

July 2, 2020 / 21 min read

In an interesting new Florida Medicaid decision, the U.S. Circuit Court of Appeals for the Eleventh Circuit,[1] in Gallardo v. Dudek, 2020 WL 3478027 (11^th Cir. June 26, 2020) ruled Florida Medicaid may seek recovery of payments made for a beneficiary’s treatment from the amounts of a settlement agreement representing both past and future medical care.

Summary

The parents of a severely injured minor (“Gallardo”), who received medical benefits from Florida Medicaid, settled their personal injury action with the alleged tortfeasors for $800,000. As part of this settlement, the parties agreed to designate $35,367.52 toward “past” medical expenses. The Florida Agency for Health Care Administration (“FAHCA”), which administers the Florida Medicaid program, did not participate in the settlement or agree to the amount allocated for past medical expenses.

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A dispute then developed regarding the amount owed to FAHCA for recovery of its medical expenses. Gallardo argued that certain parts of Florida’s Medicaid law were preempted by federal Medicaid law, thereby limiting FAHCA’s recovery to only those amounts allocated for past medical expenses. FAHCA, on the other hand, argued that it was entitled to seek recovery from those amounts of the settlement representing both past and future medical care.

In reversing a lower court ruling, the 11^th Circuit held that federal Medicaid law did not preempt the relevant Florida Medicaid statutes and that FAHCA was permitted to seek recovery of its payments from all medical expenses – past and future.

In the bigger picture, this decision involved, to a large degree, the 11^th Circuit providing its interpretation and application of the U.S. Supreme Court’s ruling in Arkansas Dept. of Health and Human Svcs. v. Ahlborn, 547 U.S. 268 (2006), which, in general, limited a state Medicaid program’s recovery to that portion of the settlement attributable to medical damages. In a nutshell, the court in Gallardo interpreted this to mean both past and future medicals. In this regard, the decision will likely engender interesting debate going forward as to whether the court properly interpreted and applied the Ahlborn ruling – as already evidenced by a very lengthy and spirited dissenting opinion filed in Gallardo which, in part, argued that the court reached the wrong conclusions based on Ahlborn.[2]

In terms of impact, this decision will enable Florida Medicaid to seek recovery of its past payments from those monies designated for past and future medical care as part of tort settlements, which would seemingly provide the agency with a larger pool of funds from which to obtain its reimbursement.

For those interested in a more detailed analysis of this lengthy court decision, the authors present the following:

Facts

Gianinna Gallardo, a minor, sustained severe injuries leaving her in a persistent vegetative state after she was hit by a truck coming off her school bus. Ms. Gallardo’s parents (“Gallardo” or “plaintiffs”) filed suit on her behalf in state court against the truck’s owner, the truck’s driver, and the school district. The Florida Medicaid program, which is administered by the Florida Agency for Health Care Administration (“FAHCA”), paid $862,688.77 for Ms. Gallardo’s medical care and attached a lien in this amount on Ms. Gallardo’s cause of action and any future settlement.

Parties reach a settlement, which includes a specific sum for “past” medical expenses

In 2015, the parties settled Ms. Gallardo’s personal injury suit for $800,000, which Ms. Gallardo’s parents viewed as covering only a “small fraction” of the total damages and future costs their daughter will likely incur, which they estimated to be $20 million.[3] As part of this settlement, the parties agreed to allocate $35,367.52 from the settlement for past medical expenses. The settlement further stated that while some of the balance of the remaining amount may represent compensation for future medicals expenses, no portion of the settlement was for reimbursement of future medical expenses since none had yet been paid. The state court approved the parties’ settlement agreement. Of note and eventual importance to the 11^th Circuit, FAHCA did not participate in or agree to the settlement terms.

Dispute develops regarding Florida Medicaid’s recovery amount

After settling, Ms. Gallardo’s counsel asked FAHCA how much it would accept in satisfaction of its lien. Receiving no response, Ms. Gallardo’s counsel placed $300,000 into a trust account and commenced an administrative action to challenge that amount per Fla. Stat. § 409.910(11)(f).[4]

Under this section, where a Medicaid recipient secures a third-party tort settlement, FAHCA is automatically entitled to half of the recovery (after 25% attorney’s fees and costs), up to the total amount provided in medical assistance by Medicaid.[5] The Medicaid beneficiary may then attempt to reduce this automatic allocation formula as part of an administrative hearing by proving through “clear and convincing evidence, that the portion of the total recovery which should be allocated as past and future medical expenses is less than the amount calculated by the agency.” Fla. Stat. § 409.910(17)(b).[6]

Regarding other pertinent points of Florida law discussed by the court, it was noted that Florida’s Medicaid Third-Party Liability Act instructs FAHCA to “seek reimbursement from third-party benefits to the limit of legal liability and for the full amount of third-party benefits, but not in excess of the amount of medical assistance paid by Medicaid.” Fla. Stat. § 409.910(4) (emphasis added by the court).[7] To help effectuate these rights, Florida law grants FAHCA “an automatic lien for the full amount of medical assistance provided by Medicaid to or on behalf of the recipient for medical care furnished as a result of any covered injury or illness for which a third party is or may be liable.” Fla. Stat. §409.910(6)(c).[8]

Gallardo files suit to determine the amount owed to Florida Medicaid

Having reached an impasse as to the amount owed to reimburse Florida Medicaid, Gallardo sued FAHCA[9] in federal district court seeking a declaration that FAHCA was only entitled to be reimbursed from that portion of the settlement representing compensation for past medical expenses. Gallardo also sought a declaration that Florida’s administrative procedure for challenging Medicaid’s automatic allocation formula violated federal law. In addition, Gallardo argued that the issue before the court was moot given the Florida Supreme Court’s ruling in Giraldo v. Agency for Health Care Admin., 248 So.3d 53 (Fla. 2018) holding that federal Medicaid law authorizes Florida Medicaid to obtain reimbursement from a personal injury settlement only from that portion of the settlement representing past medical expenses.

As for FAHCA, it sought to recover more than the $35,367.52 specifically allocated by the parties for past medical expenses, arguing that it was also entitled to recover the amounts it paid from the portion of the settlement representing compensation for the recipient’s future medical expenses. FAHCA argued federal law did not preempt it from seeking reimbursement for medical expenses it paid from the portion of a third-party settlement, to which it did not consent, representing both past and future expenses, or Florida’s statutory recovery formula and administrative challenge procedure.

District court limits Medicaid’s recovery

The district ruled in favor of Gallardo finding that Florida Medicaid’s recovery rights under Fla. Stat. § 409.910 were preempted by federal Medicaid law, thereby prohibiting FAHCA from “seeking reimbursement of past Medicaid payments from portions of a recipient’s recovery that represents future medical expenses.”[10]

Also, the district court ruled the federal Medicaid Act prohibited FAHCA from requiring a Medicaid recipient to affirmatively disapprove Florida Medicaid’s formula-based allocation per Fla. Stat. § 409.910(17)(b) with clear and convincing evidence in situations “where, as here, that allocation is arbitrary, and there is no evidence that it is likely to yield reasonable results in the mine run of cases.”[11]

FAHCA appealed this ruling to the 11^th Circuit Court of Appeals.

An issue on appeal: Can Florida Medicaid recover its past payment made from that portion of the plaintiff’s settlement for both past and future medical expenses?

The 11^th Circuit framed the issue before it as follows:

[W]hether [FAHCA] when it has not consented to the settlement agreement in a personal injury lawsuit … is limited to recovering the expenses it has paid only from amounts of a third-party recovery representing compensation for past medical expenses or whether it can also recover from those amounts that may be compensation for future medical expenses. That determination turns on whether federal Medicaid law preempts the way Florida pursues reimbursement from Medicaid recipients’ personal injury settlements.[12]

Further, and importantly, the court referenced it was “worth noting what this appeal is not about” stating that the issue before it “[was] not about whether FAHCA can recover for medical expenses it has not yet paid” for Ms. Gallardo’s treatment but may have to pay in the future.[13]

11^th Circuit reverses the district court and rules that Florida Medicaid may seek recovery of its past expenses from those portions of the settlement representing past and future medical care

The 11^th Circuit reversed the district court’s decision holding federal law did not preempt Florida Medicaid’s statutes in this instance and, thus, FAHCA could seek recovery of its past expenses from those portions of the settlement representing both past and future medical care.

In reaching this decision, the 11^th Circuit’s reasoning can be broken down into the following four bases:

Parties’ allocation of past medical expenses does not bind FAHCA

The 11^th Circuit first ruled the parties’ allocation of the $35,367.52 for “past medical expenses” does not bind FAHCA.[14] On this point, the court noted the U.S. Supreme Court in its recent Ahlborn and Wos decisions[15] “worried about just this type of situation” noting that the court “anticipated the concern that some settlements would not include an itemized allocation” and “recognized the possibility that Medicaid beneficiaries and tortfeasors might collaborate to allocate an artificially low portion of a settlement to medical expenses.”[16]

In this regard, the court rejected the idea that FAHCA’s recovery would be limited to what the parties had decided to allocate for past medical expenses stating that “[p]arties’ unilateral allocations as to what constitutes ‘past medical expenses’ do not, and should not, bind FAHCA.” [17]

As such, the court ruled when the parties do not seek FAHCA’s input on the settlement allocation for medical expenses, Florida’s statutory allocation formula is applicable and not preempted by federal law stating as follows:

[W]hen the parties do not seek FAHCA input on the settlement allocation for medical expenses on the front end, FAHCA has its statutory allocation formula on the back end to determine how much of the settlement should be allocated to medical expenses … to the extent that the Florida law permits FAHCA to recover monies it paid from settlement monies ultimately allocated to all medical care, past and future, “but not in excess of medical assistance paid by Medicaid,” (citation omitted) it does not conflict with the text of the federal Medicaid statutes and is thus not preempted on this basis.[18]

Thus, based on this reasoning, the court ruled FAHCA is permitted to seek reimbursement from parts of the settlement money that represent medical care —including those the parties have designated as “future medical care.”

Federal Medicaid law does not preempt FAHCA from seeking recovery from portions of a settlement representing all medical expenses – past and future

In the most detailed part of its ruling, summarized more generally here, the court ruled that the “text and structure” of the federal Medicaid recovery statutes do not conflict with Florida law and thereby not preempt it.[19] In reaching this decision, the court, in part, noted under 42 U.S.C. 1396a(a)(25) federal law requires state Medicaid agencies to pursue recovery from liable third parties “to the extent of such legal liability” which is limited only to medical expenses, and not for other damages that may be covered by a tort settlement, such as lost wages or pain and suffering.[20]

In addition, the court noted under 42 U.S.C. 1396a(a)(25)(H) federal law requires states to enact third-party liability laws under which “the State is considered to have acquired the rights ... to payment by any other party,” “to the extent that payment has been made under the State plan for medical assistance for health care items or services furnished.” (emphasis by the court).[21]

Regarding this latter statute, the court rejected Gallardo’s and the district court’s interpretation that the past tense language utilized means that Medicaid would only be entitled to recovery from that portion of a settlement allocated for past expenses. Rather, from the 11^th Circuit’s view the “plain language” of this provision “clearly contains no such limitation” stating as follows:

Gallardo, the district court, and the dissent … all make the same leap-in-logic mistake here and assert that because the agency is limited to recovering monies it paid in the past, it necessarily is limited to recovering these monies from what represents compensation in the settlement for “past medical expenses.” But while the language of the federal Medicaid statutes clearly prohibits FAHCA from seeking reimbursement for future expenses it has not yet paid (which it is not seeking to do in this case), the language does not in any way prohibit the agency from seeking reimbursement from settlement monies for medical care allocated to future care.[22]

Further, the court viewed its position on this point to align with the Supreme Court’s ruling and reasoning in Ahlborn noting, in part, that although Ahlborn did not resolve how to determine what portion of a settlement represents medical care, “the Supreme Court repeatedly made clear that the State’s assignment and reimbursement was from the portion of a settlement that represented “medical expenses” and “medical care” and did not limit it solely to “past” medical expenses.”[23] On this point, the court noted in Ahlborn, the state Medicaid agency, unlike in Gallardo, had stipulated at trial to an amount in the settlement agreement attributable to “medical payments made.”[24]

In contrast, the court noted in Gallardo, FAHCA never agreed to an amount to be attributable to past and future medical expenses. Accordingly, the court found that Florida’s Medicaid Third Party Liability Act allowed FAHCA to recover monies it paid up to the amount allowed under Florida’s allocation formula per Fla. Stat. § 409.910(17)(b), “unless Gallardo is able to show that the amounts she recovered from a third party for her medical expenses, past, and future, are less than that amount” as permitted under Florida law.[25] As such, the court concluded “that 409.910(17)(b) of Florida’s Medicaid Third-Party Liability Act does not conflict with federal law and is not preempted.”[26]

Prior Florida Supreme Court ruling is not binding on the 11^th Circuit

The court also rejected Gallardo’s argument that the Florida Supreme Court’s 2018 ruling in Giraldo v. Agency for Health Care Admin., 248 So.3d 53 (Fla. 2018) holding that federal Medicaid law authorizes Florida Medicaid to obtain reimbursement from a personal injury settlement only from that portion of the settlement representing past medical expenses, rendered the issue before the 11^th Circuit moot on grounds that it is not bound by a state court’s interpretation of federal law.[27] Further, the court noted from its view, the Florida Supreme Court in the Giraldo case “makes the same mistake in logic” about section 1396a(a)(25)(H) that the district court made.[28] Based on this reasoning, the court ruled “[b]ecause we can give meaningful relief, this case is not moot.”[29]

Federal Medicaid law does not preempt Florida’s statutory formula and challenge procedure

The court then addressed the district court’s conclusion that federal law preempts Florida’s statute allocating Medicaid’s reimbursement share of a personal injury settlement under Fla. Stat. § 409.910(11)(f), along with its procedure allowing a recipient to challenge that allocation formula by clear and convincing evidence as part of an administrative hearing.

In reversing on this point, the court rejected the district court’s reliance on Wos where the U.S. Supreme Court ruled, in part, that federal law preempted a North Carolina statute which automatically allocated one-third of a recipient’s tort settlement as reimbursement for medical expenses finding North Carolina’s law statutory scheme conflicted with federal law since it “[set] forth no process” for determining what portion was actually for medical expenses.”[30] The district court ruled that Florida’s process also suffered from this same flaw finding that the formula’s allocation “is nearly impossible to rebut” and this standard basically amounted to a “quasi-irrebuttable presumption.”[31]

However, the court rejected the district court’s view of Florida’s statute, finding “[Florida’s allocation] scheme differs significantly from the North Carolina scheme … [and] does not directly conflict with federal law,” noting, in the main part, that Florida’s statute allows a recipient to challenge the statutory formula.[32] On this latter point, the court rejected the district court’s assessment was “nearly impossible” to rebut noting the “clear and convincing” standard is a widely used standard of proof and, “most importantly for our preemption analysis, nothing about this standard of proof stands in clear on conflict with federal law ….”[33]

The court concluded “[b]ecause we find that Florida’s approach to threading the needle of federal third-party reimbursement requirements does not directly conflict with them, we conclude that it is not preempted.”[34]

Based on the above analysis and reasoning, the 11^th Circuit reversed the district court’s ruling.

Medicaid recovery – claims considerations

The Gallardo case is the latest decision in the continuing roller coaster ride regarding Medicaid reimbursement rights. While Medicare is entitled to recover its conditional payments up to the full amount of the settlement under federal law,[35] Medicaid’s recovery rights have been found, in general, to be more limited by the U.S. Supreme Court as highlighted by its 2006 Ahlborn decision and its 2013 Wos ruling.[36] In relation to these cases, the court, in part, limited the state Medicaid recoveries claims at issue to that portion of the settlement attributable to medical damages.

In Gallardo, the 11^th Circuit was called upon to address the extent to which Medicaid could seek recovery from the medical damages aspect of the settlement – more specifically whether Florida Medicaid could only seek recovery from the amount designated by the parties for “past” medical expenses, or whether future medical amounts were also at play. For the reasons outlined above, based on its interpretation of Ahlborn, we learned the 11^th Circuit ultimately concluded that Florida Medicaid could seek recovery from all medical care – past and future. In this sense, from the majority’s view in Gallardo, its ruling fell in line with the court’s conclusions and reasoning in Ahlborn. As mentioned above, Judge Wilson, in dissent took a strong contrary view, and this aspect of the 11^th Circuit’s decision will likely spur much debate and discussion.[37]

In terms of Gallardo’s actual claims impact, this decision, at least with respect to Florida Medicaid recovery actions, could result in Florida Medicaid being able to seek recovery from all medicals (past and future) related to the settlement – meaning it could have a larger pool of money to draw from. Furthermore, based on this decision, parties dealing with a Florida Medicaid recovery action should keep in mind that their designation of monies regarding past versus future medical care, without FAHCA’s approvals, will likely not prevent Florida Medicaid from seeking its recovery from the entire amount designated for medicals (past and future). These considerations may also arise outside of Florida depending on how courts in other jurisdictions address similar issues under their specific state Medicaid recovery statutes for that state.

On this latter note, it will be interesting to see how courts in other jurisdictions view Gallardo in the context of their applicable Medicaid statutes. Likewise, it will be interesting to see whether the plaintiffs in Gallardo request a review of this decision before the full 11^th Circuit panel and potentially to the U.S. Supreme Court which, if accepted for review by the court, could set the stage for the Supreme Court to revisit its prior rulings in this area.

While these items will be interesting to watch, going forward parties should make sure they are addressing potential Medicaid recovery issues as part of claims handling and settlement practices. Also keep in mind ISO Claims Partners can help you address and resolve Medicaid lien issues. Feel free to reach out to the authors if you have any questions or need our assistance in address Medicaid recovery actions.

In the interim, ISO Claims Partners will continue to closely monitor all developments at both federal and state levels regarding Medicaid recovery issues and provide updates as warranted.

[1] The 11^th Circuit has jurisdiction over the U.S. District courts for Alabama, Florida, and Georgia.

[2] On this point, the authors have prepared their analysis primarily from the standpoint of breaking down the court’s opinion in Gallardo in terms of its ruling, analysis, and potential impact. With that said, the authors recognize that this decision presents larger issues, many of which are outlined in the dissenting opinion, regarding the court’s application and interpretation of Ahlborn, various federal Medicaid statutes, and other considerations. However, for the purposes of this article, the authors’ main focus is breaking down the 11^th Circuit’s decision so that the reader has an understanding of how the court ruled and what it may mean, as opposed to analyzing it in terms of whether it has properly applied Ahlborn. Notwithstanding, the authors understand that this decision can certainly be analyzed and dissected from a more interpretative and comparative analysis.

[3] Gallardo, 2020 WL 3478027 at 1 and n. 4.

[4] As noted by the court, $300,000 is the amount Florida Medicaid is presumptively entitled to under the statutory formula: 25 percent was deducted from the $800,000 settlement for attorney’s fees ($200,000), then half of the remaining $600,000 was $300,000. Gallardo, 2020 WL 3478027 at n. 7.

[5] Gallardo, 2020 WL 3478027 at 2.

[6] Id.

[7] Id.

[8] Id.

[9] The named defendant in this case is Elizabeth Dudek who was the Secretary of FAHCA when this suit was filed. That office is now held by Mary Mayhew, who was later substituted as a party. Gallardo, 2020 WL 3478027 at n. 8.

[10] Gallardo, 2020 WL 3478027 at 3.

[11] Id. at 3.

[12] Id. at 1.

[13] Id. at n. 2.

[14] Id. at 4.

[15] A significant part of the court’s decision involves references to the United States Supreme Court’s recent rulings in Arkansas Dept. of Health and Human Svcs. v. Ahlborn, 547 U.S. 268 (2006) and Wos v. E.M.A. ex rel. Johnson, 568 U.S. 627 (2013). In Ahlborn, the Supreme Court ruled, in part, that federal Medicaid statutes limit a state program’s recovery to that portion of the settlement attributable to medical damages. In Wos, the court ruled, in part, that federal law preempted a North Carolina statute which automatically allocated one-third of a recipient’s tort settlement as reimbursement for Medicaid’s expenses.

[16] Gallardo, 2020 WL 3478027 at 4.

[17] Id.

[18] Id. at 5.

[19] Id.

[20] Court citing Ark. Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 284–85, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006).

[21] Gallardo, 2020 WL 3478027 at 6.

[22] Id. at 6.

[23] Id. at 7.

[24] Id.

[25] Id.

[26] Id.

[27] Id. at 8.

[28] Id.

[29] Id.

[30] Id.

[31] Id.

[32] Id. at 9.

[33] Id.

[34] Id.

[35] See e.g., 42 CFR 411.37(c).

[36] Arkansas Dept. of Health and Human Svcs. v. Ahlborn, 547 U.S. 268 (2006) and Wos v. E.M.A. ex rel. Johnson, 568 U.S. 627 (2013).

[37] It is noted that Judge Charles R. Wilson filed a separate opinion concurring in part and dissenting in part. Judge Wilson concur with the majority’s ruling that federal law did not preempt Florida’s statutory calculation formula and administrative challenge process given the rebuttable nature of the statute. However, in a detailed, lengthy, and spirited dissent, Judge Wilson disagreed with the majority’s decision regarding FAHCA’s right to access allocations to future medical costs. In general, Judge Wilson believed the majority misapplied Ahlborn and that under that decision FAHCA’s ability to recover its payments was limited only to those monies allocated as “past payments.” On this point, Judge Wilson commented that “today this court tells Florida that it can pocket funds marked for things it never paid for.” From another angle, Judge Wilson noted his concern that the majority’s decision opened the door to the potential for jurisdiction shopping given the difference in state and federal court rulings on this point.