State Can Recover Medicaid Payments from Personal Injury Settlement Award

State Medicaid agency is entitled to complete reimbursement of medical expenses, without offset for attorneys’ fees, from personal injury settlement awarded to Medicaid recipient and transferred into a special needs trust.

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Special Needs Trust for K.C.S. v. Folkemer.  (D. Maryland, No. C8:10-CV-1077-AW, March 28, 2011).

Facts.  A female minor identified as “K.C.S.” suffered multiple injuries during her birth, resulting in her lifetime need for constant medical care.  Between 2004 and 2009, the Maryland Department of Health and Mental Hygiene paid $298,585.75 toward her care; however, in 2009, K.C.S was awarded $3 million from a personal injury settlement with her doctors.  In the final settlement agreement, the awarded funds were not specifically allocated among past medical expenses, pain and suffering, or future medical expenses.  Her attorney charged a contingency fee of $1 million for legal services, and the remaining $2 million was placed in a Special Needs Trust for the benefit of K.C.S.  Upon learning of this award, the state initiated proceedings for its recovery for the full amount spent on her care during the previous five years, and K.C.S., by her guardians, requested a declaratory judgment preventing the state’s recovery from the Special Needs Trust.  Since there was no discrepancy regarding the facts of the case, both parties filed motions for summary judgment.

K.C.S. argued that the Maryland Medicaid recovery statute is in violation of federal law since it authorizes the state to seek recovery directly from her settlement award, rather than seeking recovery directly from the doctors.  K.C.S. alternatively argued that, if the state was allowed to recover its expenses from her settlement award, the amount should be calculated from the portion of her award that was given towards her past medical expenses, including a pro-rata set-off for attorneys’ fees attributable to the settlement.  In opposition, the state argued that K.C.S. had automatically assigned her rights to any recovery or settlement to the state by accepting the state’s medical assistance and payments, and that the state should be allowed to recover the amounts actually paid on her behalf.

Court’s Decision.  The U.S. District Court for Maryland granted the state’s motion for summary judgment, and held that the state is entitled to full recovery without offset for attorneys’ fees.  Although the settlement agreement did not address the portion of the award attributable to past medical expenses, the court found that the state was not prevented from recovering the actual amount paid on behalf of K.C.S. because “it was inevitable that the damage award represented payments for both past and future medical costs. The fact that these two compensation categories were placed in the same award should not result in the Department being prohibited from recouping amounts for past awards. Again, there is no indication from the record that [the state is] attempting to recover anything more than expenses for past medical care.”  Further, the court also held that the Maryland statute authorizing such recovery was implemented specifically to prevent the state from being responsible for attorneys’ fees associated with recovery actions.