On March 8th, 2023, Daniel Tsai (Deputy Administrator and Director of CMS) sent a letter to all state Medicaid agencies providing guidance related to changes in third-party liability (TPL) requirements based upon the holding in Gallardo v. Marstiller. The Supreme Court’s ruling in Gallardo v. Marstiller clarifies the interpretation of the Medicaid anti-lien provisions and allows states to recover their payments in a third party liability situation from the future medical expense portion of a personal injury settlement.
The Gallardo v. Marstiller case revisits similar issues presented in two previous cases, Wos v. E.M.A. (2013) and Arkansas Dept. of Health and Human Services v. Ahlborn (2006). In both cases, the Supreme Court interpreted Medicaid’s anti-lien provisions as stating that states could only recover the medical expense portion of an injury settlement, not including other damages such as pain and suffering, lost wages, and other property rights recovered. The Court reasoned that the anti-lien provisions were intended to protect Medicaid beneficiaries’ rights to keep any compensation for non-medical expenses they might receive from a settlement or judgment.
However, in Gallardo v. Marstiller, the Supreme Court clarified that a state may recover its Medicaid payments from the portion of a settlement, judgment, or award designated for medical expenses, whether past or future. Specifically, the Court held that section 1917 of the Act permits a state to create a lien against personal injury settlement proceeds attributable to future medical expenses. The Court reasoned that the Act’s assignment-of-rights provision at section 1912(a)(1)(A) does not limit a beneficiary’s assignment of medical support and payment of medical care from a third party to the Medicaid program to payments for past medical care already paid for by Medicaid.
The Gallardo v. Marstiller ruling has significant implications for state Medicaid agencies and trial lawyers. States may now pursue recovery for medical care furnished on behalf of a beneficiary not only from the portions of the beneficiary’s settlement representing compensation for past medical expenses but also from settlement funds that compensate the Medicaid beneficiary for future medical care.
This ruling may lead to an increase in Medicaid lien recoveries for states, as they can now recover from a broader range of settlement funds. States may also benefit from a reduction in the cost of future medical care for Medicaid beneficiaries, as the recovery of settlement funds designated for future medical care may offset future Medicaid expenses.
However, the Gallardo ruling may also have adverse consequences for Medicaid beneficiaries. Medicaid beneficiaries may receive less compensation from their personal injury settlements or judgments due to the increased recovery by the state Medicaid agency. Additionally, trial lawyers may need to adjust their strategies when representing Medicaid beneficiaries to ensure that the portion designated for future medical expenses is protected from Medicaid liens as best you can.
The Gallardo v. Marstiller ruling clarified the interpretation of Medicaid’s anti-lien provisions and allowed states to recover their Medicaid payments from the portion of a settlement, judgment, or award designated for medical expenses, whether past or future. This ruling has significant implications for state Medicaid agencies and trial lawyers. Given the recent letter sent by CMS to state Medicaid agencies, it is likely that changes may be on the horizon related to policies around recovery by state agencies as well as HMOs based upon Gallardo.
Jason D. Lazarus is the managing partner and founder of the Special Needs Law Firm; a Florida law firm that provides legal services related to public benefit preservation, liens and Medicare Secondary Payer compliance. He is also the founder and Chief Executive Officer of Synergy Settlement Services, which offers healthcare lien resolution, Medicare secondary payer compliance services, public benefit preservation and complex settlement consulting.