SIDEBAR: Gallardo v. Marstiller, No. 20-1263 (U.S. 6-6-22)—A Possible Chilling Effect On Personal Injury Litigation Brought By Medicaid Beneficiaries

July 26, 2022 / CM Reports / Writing and Speaking

By Melinda S. Kollross

In Gallardo, the United States Supreme Court held that the Medicaid Act permits a State to seek reimbursement from tort settlement payments or judgments allocated for future medical care. This could cause Medicaid beneficiaries and their personal injury lawyers to think twice before undertaking personal injury litigation depending on the size of the case and the amount of the expected state reimbursement.

Facts

Gallardo suffered catastrophic injuries resulting in permanent disability when a truck struck her as she stepped off her Florida school bus. Florida’s Medicaid agency paid $862,688.77 to cover Gallardo’s initial medical expenses, and the agency continues to pay her medical expenses. Gallardo, through her parents, sued the truck’s owner and driver, as well as the school board. She sought compensation in the amount of $20 million for past medical expenses, future medical expenses, lost earnings, and other damages. This litigation resulted in a settlement for $800,000, with $35,367.52 expressly designated as compensation for past medical expenses. The settlement recognized that some portion of the settlement could represent compensation for future medical expenses, but it did not specifically allocate an amount for future medical expenses.

Where a Medicaid beneficiary recovers an award or settlement from a tortfeasor for medical expenses, specific provisions of the Medicaid Act direct a State to reimburse itself from that recovery for care for which it has paid. Accordingly, a State may claim portions of the beneficiary’s tort award or settlement representing payments for the beneficiary’s medical care, but not any other types of personal injury damages.

To comply with its Medicaid obligations, Florida law required Medicaid beneficiaries like Gallardo to assign to the State any right to third party payments for medical care. By virtue of Florida law, a lien automatically attached on any recovery thru settlement or judgment of those medical expenses. The lien is imposed in a statutory amount representing 37.5% of the portion of the tort recovery that is for past and future medical expenses.

Florida sought to recover its statutory lien of 37.5% from the Gallardo settlement, or $300,000 contending it was entitled to a recovery of both past and future medical expenses and was not limited to collecting on the amount allocated for past medical expenses. Gallardo contended otherwise, and initially succeeded on summary judgment in federal court that Florida could not recover from portions of the settlement representing future medical expenses. The Eleventh Circuit reversed, but at nearly the same time the Florida Supreme Court in a different case ruled that Medicaid law allowed the State to obtain reimbursement from a personal injury settlement/judgment only from the portion of a settlement/judgment that represented past medical expenses. Because of the conflict between the Eleventh Circuit and the Florida Supreme Court, the United States Supreme Court granted certiorari.

Ruling

According to the Court, the plain language of the Medicaid statute resolved this case in favor of Florida. Federal law required the State to acquire from each Medicaid beneficiary an assignment of any rights of the individual to support for the purpose of medical care and to payment for medical care from any third party.  Nothing in the statutory language limited a beneficiary’s assignment to payment for past medical care already paid for by Medicaid. To the contrary, the grant of any rights to payment for medical care most naturally would cover not only rights to payment for past medical expenses, but also rights to payment for future medical expenses. According to the Court, the relevant distinction as to what can and cannot be recovered is “between medical and nonmedical expenses,” not between past expenses Medicaid has paid and future expenses it has not yet paid.

Learning Point: Justice Sotomayor in her dissent observed that as a state’s right of recovery from any damages payout expands, a Medicaid beneficiary’s share shrinks, reducing the beneficiary’s incentive to pursue a tort action in the first place. This is in fact the way commentators are viewing the effect of this decision. Stanford Law School professor Nora Engstrom stated “The court’s decision will reduce the incentive for litigants to bring personal injury lawsuits” . . . “Damage is the fuel that powers the tort system. Without fuel, the system cannot run.” Another observer noted that the decision would certainly have a “chilling effect” in small dollar personal injury cases that may now never be brought given the high Court’s ruling.

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