Supreme Court Curtails Plaintiffs’ Ability To Avoid Repaying

Although it is not a drug/device case (if it were, we would have discussed it before now), the recent Supreme Court decision in Gallardo v. Marstiller, 142 S. Ct. 1751 (2022), raises some interesting issues that attorneys defending personal injury action of any sort should consider. Settlement of any personal injury case involving a Medicaid-recipient plaintiff could potentially be affected.

Gallardo involved the applicability a state (Florida) clawback statute requiring personal injury plaintiffs to reimburse the state for Medicaid expenses from any recoveries received in subsequent personal injury litigation. The Medicaid statute requires states to seek such reimbursement, but only from certain assets. 142 S. Ct. at 1755. The Medicaid statute’s clawback language allows states to require assignment of “rights … to support … for the purpose of medical care” and to “payment for medical care from any third party.” 42 U.S.C. §1396k(a)(1)(A). Thus, “a State may seek reimbursement from the portion of a settlement designated for the “medical care.” 142 S. Ct. at 1756.

Although the state’s actual Medicaid costs exceeded the total $800,000 settlement the plaintiff in Gallardo negotiated, plaintiff structured the settlement so that it allocated under 5% to “past medical expenses.” Id. at 1757. The state refused to be bound by that questionable allocation and sought recovery of its full statutory clawback amount of 37.5.%. Id. The plaintiff responded to the state’s enforcement effort with a §1983 action claiming that the statute violated the federal Medicaid Act. Id. By a 7-2 margin, the Court held that state clawback statutes can obtain reimbursement from personal injury-related recoveries of Medicare recipients notwithstanding how a settlement may have been structured.

We’ll spare our readers a detailed analysis of the Medicaid statute’s complicated scheme and get right to the bottom line. “Medical care” as used in the Medicaid statute’s anti-lien provisions, means just that – all “medical care.” Id. at 1759. The plaintiff’s argument that would have limited clawback to sums designated (by interested parties) to “past” medical care was rejected as contrary to the plain statutory meaning.

[The state] may seek reimbursement from settlement amounts representing “payment for medical care,” past or future. Thus, because [the state’s] assignment statute “is expressly authorized by the terms of [the Medicaid Act]” it falls squarely within the “exception to the anti-lien provision” that this Court has recognized.

The plain text of [the Act] decides this case.

Gallardo, 142 S. Ct. at 1758 (citations omitted). Thus, all personal injury recoveries for “medical care” may be tapped by state clawback statutes seeking reimbursement of funds expended.

Beyond statutory interpretation, Gallardo rejected the plaintiff’s policy arguments. Since statutory interpretation is textually driven, it would not be “absurd and fundamentally unjust” for a State to “share in damages for which it has provided no compensation,” if the Medicare statute so provided (which it currently does not). Id. at 1761. Nor did the Medicare statute create (although presumably Congress could have) any onerous “lifetime assignment” reaching “not only the rights an individual has while he is a Medicaid beneficiary but also any rights he acquires in the future” after no longer receiving benefits. That reading would be contrary to how the common law treats assignments, which is to “cover only those rights possessed by the assignors at the time of the assignments.” Id. (citation and quotation marks omitted).

Our clients are routinely sued by plaintiffs who also receive Medicaid. Sometimes they claim that that our clients are liable for the same disability that also caused their Medicaid eligibility. Sometimes these plaintiffs’ Medicaid status is merely coincidental. How will Gallardo affect such litigation? At the outset, anything (such as state clawbacks) that reduces how much a plaintiff can recover likely has the beneficial collateral effect of reducing incentives to sue. However, that kind of negative impact does not affect what defense lawyers have to consider when a suit is brought.

Gallardo’s emphasis on the distinction between “medical care” – which a state can claw back – and other sorts of damages – which are exempt – is something that defense lawyers should think about come settlement time. Under Gallardo a plaintiff can no longer try to shield settlement proceeds from clawback by attributing an artificially low percentage of any settlement to reimbursable expenses. Plaintiffs routinely seek to manipulate damages allocations in settlement for tax and other reasons, but such attempts do not trump state Medicaid clawback statutes. Not all plaintiffs’ counsel will know about Gallardo, however, and defense counsel should take that into account.

Then there is the larger, unanswered, question whether states and/or the federal government could redraft other statutes to override potentially collusive settlement allocations, as Gallardo held that the Medicaid Act did.

Defense counsel should also consider the interplay between what Gallardo held and relevant secondary payer statutes. Such statutes could potentially impose liability on defendants if they collude with plaintiffs to help plaintiffs evade statutory clawbacks, so defense counsel should familiarize themselves with these statutes – particularly in the Medicaid (as opposed to Medicare) context − before agreeing to any allocation that might be difficult to justify to the government.

Finally, Gallardo contains an interesting closing footnote, addressed to a situation that the particular facts did not involve – must a state-law mandatory assignment of rights be “germane” – that is, must it be limited “to an injury or illness for which Medicaid covered treatment.” 142 S. Ct. at 1761 n.5. Thus, Gallardo neither requires nor prevents a state from seeking recovery of Medicaid payments from any personal injury litigation that a plaintiff contemporaneously pursued while on Medicaid, even if that litigation involved injuries not being reimbursed by Medicaid (or, indeed, not being treated at all). See also Id. at 1759 n.2 (statute could authorize “broader recovery” than a traditional assignment). Thus, if the plaintiff in Gallardo were hypothetically also a vaginal mesh plaintiff at the time of the incident at issue, nothing in Gallardo would preclude a state’s Medicaid clawback statute from seeking recovery from that plaintiff’s hypothetical mesh settlement. We don’t know whether any state has actually been seeking non-“germane” clawbacks, but Gallardo could encourage such efforts. Thus, mass tort defendants contemplating settlements with Medicaid plaintiffs, even in factually unrelated litigation, should consider whether it is prudent to require the plaintiff to obtain a signoff from the Medicaid system of the plaintiff’s state of residence.

Structured Settlements