Medicaid Reimbursement Claim by State Limited to Benefits Actually Paid

An Indiana appeals court rules that the state’s Medicaid lien on settlement proceeds should be based on the state’s actual payments rather than on the total amount billed by the medical provider.


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 Southwest Fiduciary v. Willingham, Ind. App. Ct., Nos. 1 CA-CV 10-0300, 1 CA-CV 10-0301, March 10, 2011.

Facts.  Medicaid recipients Rhoda Lundy and James Flynn were both injured in unrelated car accidents, and a portion of their medical expenses incurred due to these accidents were paid by Medicaid.  Ms. Lundy and Mr. Flynn both sued third parties who were involved in the accidents to recover damages allegedly caused by them.  

In filing claims for medical-expenses against the third parties, both Ms. Lundy and Mr. Flynn requested reimbursement for the entire amounts billed by all medical providers, and did not limit their respective settlement claims to the actual amounts paid out-of-pocket. 

Upon learning of the settlements to be awarded to Ms. Lundy and Mr. Flynn, the state Medicaid agency filed liens against these amounts.  Medicaid representatives requested that their liens be determined based on the total amounts billed by the medical providers, rather than the actual amounts that Medicaid paid on behalf of each claimant.   

The trial court in Indiana held that each lien would be reduced to the actual amounts paid by Medicaid rather than the total medical expenses billed to Ms. Lundy and Mr. Flynn.  Since the cases were similar in facts, the cases were consolidated on appeal by the state. 

Court’s Ruling.  The Indiana Court of Appeals affirmed the trial court’s decision, finding that the state could not enforce its lien against any part of a Medicaid recipient’s settlement award that was not directly attributable to the actual payments made by the state on behalf of the recipient.  The court further explained that the share of the settlement award that is reimbursable to Medicaid should be calculated based on the amount the state actually paid for medical care and services on behalf of the recipient, not the inflated amounts on invoices from medical providers and hospitals that can later be negotiated and reduced.