State-law formula for allocating tort settlement funds between past and future medical expenses not preempted by the Medicaid Act
Gallardo v. Marstiller, 596 U.S. __, No. 20–1263, 2022 WL 1914096 (June 6, 2022)
Daniel C. was born with severe disabilities after his congenital abnormalities were not detected during his mother’s pregnancy until after viability. The California Department of Health Care Services (DHCS) paid for his medical care through the Medi-Cal program. Daniel filed a wrongful life suit against his mother’s prenatal doctors, eventually settling with one. DHCS asserted a lien on this settlement, seeking to recover what it had paid for his medical care. The trial court granted DHCS the full amount of Daniel’s past medical expenses, reduced by 25 percent as required by statute to account for its share of attorney fees. Daniel appealed, contending (1) the Medi-Cal Act provision authorizing the DHCS to assert a lien is preempted by the anti-lien and anti-recovery provisions of the federal Medicaid Act, (2) there was no evidence the parties allocated any portion of the settlement to past medical expenses, and (3) the court failed to equitably allocate the settlement.
The Court of Appeal reversed in part. As a threshold matter, the court agreed with DHCS in holding the lien was not preempted by the Medicaid provisions. The Court of Appeal followed L.Q. v. California Hospital Medical Center (2021) 69 Cal.App.5th 1026, which held that the federal anti-lien and anti-recovery provisions did not preempt California law because the DHCS lien attaches only to the portion of the settlement that is State property. The court rejected Daniel’s argument that the parties to the settlement agreement control its allocation, since Medi-Cal directs the trial court to determine that allocation.
However, relying on Arkansas Department of Health and Human Services v. Ahlborn (2006) 547 U.S. 268, the Court of Appeal also held the trial court erred in failing to apportion the settlement between past medical expense damages, which DHCS is entitled to recover, and other damages beyond its reach. The court must make such an allocation to avoid creating a lien contrary to the anti-lien provision of the Medicaid Act. Because neither the state statute nor Ahlborn specifies an allocation formula, the court sought to identify “ ‘a rational approach.’ ” The Court of Appeal explained that a trial court may allocate most or all of a settlement to past medical expense damages (which the DHCS may lien) if it finds, based on competent evidence, that DHCS probably will pay all future medical expenses. Here, the Court of Appeal instructed the trial court to use the following formula on remand to calculate DHCS’s recovery amount: (Total Settlement ÷ [Full Value of Claim – Future Expenses To Be Paid By DHCS]) x (Reasonable Value of Past Benefits Provided by DHCS – DHCS’s Share of Attorney Fees and Costs).