Case

In Gallardo v. Marstiller1, the U.S. Supreme Court held that The Medicaid Act permits a state to seek reimbursement from the amount of a settlement allocated for medical care.

Comments

The prior Supreme Court decisions in Arkansas DHHS v. Ahlborn2 and Wos v. EMA3 helped protect the non-medical portions of a settlement from Medicaid recovery but also set the stage for the decision in Gallardo. In those decisions, if the parties provided evidence of the full value of the case based on damages apart from medical damages and could show that the case settled for an amount lower than the full value and the plaintiff was not fully made whole, then the Medicaid reimbursement should come from medical compensation only, and a request could be made to reduce the Medicaid recovery accordingly. All three cases recognize that states must comply with federal Medicaid laws, including statutory third-party liability requirements. The cases prior to Gallardo emphasized that this exception is strictly limited to compensation or property that does not constitute reimbursement for medical expenses.

Case Facts

Gianinna Gallardo suffered catastrophic injuries in a Florida truck accident. Florida Medicaid paid $862,688.77 to cover Gallardo’s initial medical expenses and Medicaid continues to pay her medical expenses.

Gallardo sued the truck owner, driver and the Lee County School Board for past medical expenses, future medical expenses, lost earnings, and other damages, settling for $800,000, with $35,367.52 expressly designated as compensation for past medical expenses. The settlement did not specifically allocate any amount for future medical expenses.

The Medicaid Act requires participating States to pay for certain needy individuals’ medical costs and then to make reasonable efforts to recoup those costs from liable third parties under 42 U. S. C. §1396k(a)(1)(A). Under Florida’s Medicaid Third-Party Liability Act, a beneficiary like Gallardo who accepts medical assistance from Medicaid automatically assigns to the state any right to third-party payments for medical care. Florida’s statutory framework under their Medicaid Act presumptively entitles the State to 37.5% of a third-party recovery, representing the portion of the tort recovery that is for “past and future medical expenses,” absent clear and convincing rebuttal evidence.

Gallardo sued, seeking a declaration that Florida was violating the Medicaid Act by trying to recover from portions of the settlement compensating for future medical expenses. The Supreme Court upheld the 11th Circuit’s decision that the Medicaid Act recovery provisions are not limited to past medical expenses and do not prevent a State from seeking reimbursement from settlement monies allocated for future medical care.

Final Thoughts

While this case has significant implications for Medicaid beneficiaries, there are a number of considerations. Each state has its Medicaid recovery framework, and Gallardo had no specific allocation for future medical expenses. While not discussed in detail in the decision, the offer amounted to 4% of the Medicaid lien and the fact that Medicaid continued paying for Gallardo’s ongoing medical expenses may have influenced the decision. Going forward, attorneys may have to offer higher amounts to resolve Medicaid liens, include better allocation language in settlement agreements and leverage Special Needs Trusts with structured settlements to help defray the overall impact of medical expenses.

by John McCulloch, JD/MBA, CSSC

  1. Gallardo v. Marstiller, 596 U.S. ___ (2022)
  2. Arkansas Dep’t of Health & Human Services v. Ahlborn, U.S. Sup. Ct., 126 S. Ct. 1752 (2006)
  3. Wos v. EMA, 568 U.S. 627 (2013)