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High court considers interplay of state, federal lien statues

The Minnesota Supreme Court has been asked to resolve a potential conflict between a state lien statute and federal Medicare law.

When an injured person can’t pay his or her own medical bills, the state’s medical assistance program provides medical care. In return, the recipient of the care must, under federal Medicaid law, assign to the state all legal right to collect from third parties for the cost of that care.

Additionally, Minn. Stat. secs. 256.015 and 256B.045 allow the state to place a lien on claims the care recipient might have against the tortfeasors for other types of damages, including pain and suffering, wage loss, and other damages beyond medical care costs.

In Martin v. State of Minnesota, a case currently pending before the Minnesota Supreme Court — the plaintiff argues that Minn. Stat. secs. 256.015 and 256B.045 are preempted by a federal law, 42 U.S.C.1396p. The federal statute prohibits the placing of a lien on the property of a Medicare recipient during the recipient’s lifetime.

Thus, the high court must decide whether the so-called federal “anti-lien” provision applies and whether it preempts the state law.

The court heard arguments for the Martin case at Hamline University School of Law in St. Paul on Feb. 28.


After a motor vehicle accident, Troy Hoff was left permanently and totally disabled and mentally incompetent. His mother, the petitioner, applied for medical assistance on his behalf and executed an assignment of “any rights available to me under automobile or private health care coverage and any rights to payment for medical care from any third party,” as required by 42 U.S.C. sec. 1396k. The petitioner also agreed to “cooperate” with the state in any legal action brought against a third party for payment of legal assistance.

Shortly thereafter, the state filed a lien “for the cost of the … public assistance benefits provided to the injured person, upon any and all causes of action accruing to said injured person, or to his legal representative [as a result of the accident].”

The petitioner filed suit against the alleged tortfeasor, seeking damages for lost wages, loss of future earning capacity, disability, past and future pain and suffering, disfigurement and emotional distress. The petitioner joined the state as petitioner on impleader.

The state pled two cross claims based upon the assignment and the lien.

The petitioner eventually settled her claims for $220,000 after spending $42,423 in costs.

The state did not participate in the lawsuit until after it was settled, according to the petitioner’s brief.

The allocation formula in the state lien statute provides “upon any judgment, award, or settlement of a cause of action, or any part of it, upon which the state agency has filed its lien … reasonable costs of collection, including attorney fees, must be deducted first. The full amount of medical assistance paid to or on behalf of the person as a result of the injury must be deducted next, and paid to the state agency. The rest must be paid to the medical assistance recipient or other plaintiff. The plaintiff, however, must receive at least one-third of the net recovery after attorney fees and other collection costs.” Minn. Stat. sec. 256B.042, subd. 5.

The state sought reimbursement of $58,561.82 pursuant to the allocation formula outlined in the statute.

No lien, no subrogation

After the settlements were concluded, the petitioner filed a motion to dismiss the state’s claims based on the federal anti-lien statute. In its memorandum opposing the motion, the state asserted a subrogation claim for the first time. It also asserted that the federal law was ambiguous and offered evidence of agency interpretation to resolve the ambiguity and uphold the lien.

Olmsted County District Court Judge James Mork dismissed the state’s claims to the settlement proceeds and held that the federal law was not ambiguous and plainly prohibited a lien. He also ruled that the state’s claim for subrogation was invalid — but even if it was valid it was not timely asserted.

The Court of Appeals reversed, finding that compliance with both the state and federal laws was possible. It determined that the lien is simply a device to protect the state’s legitimate subrogation interest and does not have the effect of allowing the state to make a claim on property that is not connected to the medical assistance it has provided.

Direct conflict

“The current Minnesota system, which relies entirely on tort victims to recover for the state, is unlawful and inadequate,” petitioner’s attorney Charles Bird told the Supreme Court justices at the Feb. 28 oral argument. “It applies an arbitrary formula which always gives the state 2/3 of the net recovery after attorney fees are paid, a formula that has no support in state and federal law.”

Furthermore, Bird argued, the laws directly conflict with the Medicaid statute. The state must, under federal law, obtain an assignment of all rights pertaining to medical care, but cannot impose a lien on the recipient’s property before his or her death, Bird said. The state cannot recover from a recipient during his or her lifetime, he stated, adding that it is the state’s obligation to sue third parties to enforce the right of payment it acquired during the assignment.

Justice Russell Anderson asked Bird whether it was his position that the only way states can recover their costs is through a separate lawsuit.

Bird replied, “Not a separate lawsuit but a separate claim. Rule 19 (MRCP) requires joinder — that’s part of our law already. It would be reasonable to require joinder where such a claim exists. The specter of splitting the cause of action I don’t think really exists.”

The federal statute that allows states to recover medical assistance for medical costs should not be construed to cover the entire cause of action, Bird continued.

Bird pointed out that the petitioner could not recover any damages for medical expenses. After the assignment, the petitioner no longer owned the claim for medical expenses and could not collect it in her cause of action, he observed.

It is not necessary to place a lien on the portion of the claim that was assigned, Bird further explained. “You can’t have a lien on anything I own if I’ve already assigned it,” he said. “I’ve already given them the entire claim for medical benefits.”

Justice Paul Anderson observed: “My problem is that I look at the federal law with respect to the assignment, but the [reach of the state] lien statute seems to be much broader than what [the state] has paid in medical benefits.”

Bird replied, “Right. That’s the problem with it.”

What the state should do, Bird told the justices, is sue the third parties themselves for medical benefits they have paid and also for the benefits the recipient or his or her insurer his paid. The assignment already covers all those claims, he said.

No preemption, no problem

Assistant Attorney General Suzette Schommer told the justices that the “Minnesota statutes are consistent with federal Medicaid law, the federal agency interpretations an
d three other states’ (Washington, New York, and Utah) high courts that have decided this issue.

“When Congress passed the Medicaid act its intent was clear,” she argued. “It was to provide necessary medical care. But it also understood that this was an enormous fiscal and administrative undertaking. Its intent was that Medicaid would be a payer of last resort. Congress passed laws explicitly requiring states to be reimbursed for medical assistance payments when a third party is responsible. This makes sense from both a policy and a fiscal perspective. Congress [directed] states to use all reasonable methods.”

The two laws are not in conflict because the anti-lien law does not apply to third party recoveries, Schommer said.

In her brief, Schommer described the petitioner’s position as follows: “[The petitioner] has attempted to take the ‘anti-lien’ provision from section 1396p and apply it to third party recovery matters found in section 1396a(a)(25) in contravention of established case law, consistent agency interpretation and congressional intent. Section 1396p makes no reference, on its face or its legislative history, which relates to third party recoveries. Furthermore, the federal regulations … specifically state which statutory sections the regulations implement, and section 1396a(a)(25), which deals with third party recoveries, is not among them.”

Schommer argued that the state may place a lien on a tort claim to secure reimbursement of medical assistance benefits because the lien is on property that already has been assigned to the state — and is therefore not the recipient’s property.

“The assignment isn’t [just] what the parties say is for medical care,” Schommer explained. “The assignment is for the amount that has been paid. The state will pursue to the extent that it has paid medical assistance and it will pursue all recovery. … The state gets the first dollar of any recovery. That is supported by federal law and by Congress’ intent in passing the Medicaid law — that the state be the payment source of last resort.”

Justice James Gilbert questioned Schommer repeatedly about whether a claim is personal property. “Is it the state’s position that a claim for pain and suffering is not personal property?” the justice asked.

Schommer replied: “It is personal property to the extent it has not been assigned to the state of Minnesota.”

Schommer also pointed out that federal agencies have ruled that the lien statute does not apply to third party recoveries. Schommer had provided seven different examples of agency interpretation of the statutes that supported the state’s position.

Chief Justice Kathleen Blatz noted that “people make mistakes and if they get repeated long enough they are supposed to be the truth. What in your list do you consider most persuasive?”

Schommer observed that the Health Care Financing Administration (HCFA), the federal agency responsible for administering the Medicaid Act, has specifically endorsed state’s use of lien statutes to comply with the federal Medicaid reimbursement requirements.

By Barbara L. Jones

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