What portion of a personal injury settlement, verdict, or judgment goes to the government if the aggrieved party was insured through Medicaid? Just a few weeks ago, the Supreme Court of Virginia answered that question in Farah v. Commonwealth of Virginia, Department of Medical Assistance Services in an opinion authored by Justice Stephen R. McCullough.

Farah’s Case

Plaintiff Farah was working as a cab driver when he was gravely injured in a head-on crash by a driver traveling in the wrong lane. Farah’s skull, face, leg, and foot bones were fractured, and his front teeth were knocked out. He had to undergo over 20 surgeries, was in the ICU for over a month, then had to go through rehabilitation. Farah’s face was cosmetically disfigured because of the incident, and he had permanent scars from the surgeries on his legs and neck. The retail price of Farah’s medical expenses was almost $600,000. He was a Medicaid recipient at the time of the crash, so the cost of his extensive medical treatment was covered by the program.

Farah sued the driver of the vehicle that struck him for $3 million in compensatory damages and $350,000 in punitive damages. Ultimately, the parties settled the case for $375,000, which amounted to the policy limit of the driver’s insurance policy plus a $25,000 contribution from the driver. The Department of Medical Assistance Services (DMAS) asserted a lien for $96,481 against Farah’s settlement proceeds. Farah and DMAS were not able to come to an agreement regarding the reduction of Farah’s settlement for the Medicaid lien, so Farah filed a motion to apportion his settlement under Virginia Code § 8.01-669, which states:

The court in which a suit by an injured person or his personal representative has been filed against the person, firm or corporation alleged to have caused such injuries or in which such suit may properly be filed, may, upon motion or petition by the injured person, his personal representative or his attorney, and after written notice is given to all those holding liens attaching to the recovery, reduce the amount of the liens and apportion the recovery, whether by verdict or negotiated settlement, between the plaintiff, the plaintiff’s attorney, and the Commonwealth or such Department or institution as the equities of the case may appear, provided that the injured person, his personal representative or attorney has made a good faith effort to negotiate a compromise pursuant to § 2.2-514. The court shall set forth the basis for any such reduction in a written order.

At the apportionment hearing in Fairfax County Circuit Court, Farah testified about his injuries, as well as the physical and mental suffering he endured and continues to endure. Farah could no longer work or care for himself and had to use a cane to move around. An orthopedic surgeon testified Farah had permanent injuries to his face, mouth, neck, teeth, left arm, left hand, hips, knees, ankles, and feet. Evidence presented addressed Farah’s lost earnings as well. Farah was almost 35 when he was injured in the crash and had not been able to work since. He was earning approximately $27,000 a year at the time of the accident and was estimated to have approximately 32 years left to work. A rehabilitation counselor testified that Farah was unlikely to work again in any capacity given his injuries and his background as an immigrant with limited education. His lost wages for his entire lifetime were estimated to be $832,000. A personal injury attorney who testified at the proceeding estimated $4 million was a conservative valuation of Farah’s case.

Farah argued U.S. Supreme Court precedent compelled the court to use a specific formula to calculate the apportionment of his settlement. The Fairfax County judge disagreed and apportioned the settlement as follows:

$85,000 to DMAS for its reduced lien;

$100,000 to Farah’s counsel for attorney’s fees;

$15,807 to Farah’s counsel for costs advanced; and

$173,693 to Farah.

The Medicaid lien to DMAS was approximately 23% of Farah’s settlement. Farah, displeased with this result, appealed.

The Law Regarding Medicaid’s Cut

Under federal law, state Medicaid plans are required to try and recoup funds spent on behalf of Medicaid recipients from liable third parties. Medicaid recipients must also sign over their rights to seek and collect payment for medical care from a liable third party. However, an “anti-lien” provision in the same federal statute limits a state’s ability to recover the full value of their lien for medical expenses incurred. That provision says that a lien cannot be imposed against an individual’s property on account of medical assistance paid under a state plan.

Obviously, there is tension between the law’s third-party liability requirement and anti-lien prohibition when a Medicaid recipient receives a tort recovery that does not fully compensate him for damages, while also not covering Medicaid’s expenditures for treatment. The U.S. Supreme Court spoke to this tension in Arkansas Department of Health & Human Services v. Ahlborn, ultimately holding that a state cannot satisfy its lien for medical expenses by encumbering a plaintiff’s other recovered damages, such as pain and suffering or lost wages. In Wos v. E.M.A. ex rel Johnson, the U.S. Supreme Court later stressed that apportioning an arbitrary fraction of a settlement to a Medicaid lien, such as one-third, was also not appropriate. The Wos court emphasized that a hearing is the most appropriate mechanism for apportioning a settlement when a state and the settlement beneficiary cannot agree.

Virginia’s Medicaid apportionment statute § 8.01-669 is consistent with the Wos court’s position, allowing for a court to reduce a Medicaid lien “as the equities of a case may appear.” However, that does not mean courts can just pick a number out of the air that they think is fair. As Justice McCullough explained in Farah, “courts must examine the totality of a plaintiff’s damages, such as lost wages, and damages for pain and suffering, disfigurement, deformity, humiliation, and embarrassment, and make a reasonable allocation for what portion of the verdict, judgment or settlement is attributable to medical expenses paid for by Medicaid.”

Medicaid’s Actual Expenses are What Matters

In Farah, there was also a disagreement about whether the court should consider the entirety of Farah’s medical expenses, or just the actual portion the Medicaid program had paid. The Commonwealth tried to argue the court should consider the total amount billed, regardless of whether said amount had been paid in full to medical providers. The Farah court disagreed with the Commonwealth and concluded the amount the state Medicaid program actually paid—not medical expenses billed by the provider but never paid by the Medicaid program—was the relevant amount for purposes of allocating the Medicaid lien.

Ultimately, the Farah court upheld the Fairfax County court’s apportionment of Farah’s settlement, finding the circuit court made reasonable fact findings in its decision to reduce the Medicaid lien to $83,000 and apportion the settlement as described above.

What You Need to Know

So, what are the key takeaways from Virginia Code § 8.01-669 and the Farah decision? Most importantly, anyone participating in a settlement negotiation in which an aggrieved party’s medical expenses were covered by Medicaid should be aware that DMAS will likely assert a lien against the settlement proceeds. All parties should keep that in mind when coming to a final figure for settlement, as that may affect calculations on all sides. Remember, Medicaid is only allowed to assert a lien for actual expenses paid, not the amount billed for medical treatment. Ascertaining what that amount is prior to a settlement negotiation will be of utmost importance to understanding what constitutes a reasonable settlement figure. This should be information all parties to a settlement negotiation seek to obtain in advance of any mediation or settlement conference.

Note, the above analysis also applies to damages recovered by a plaintiff via a verdict or judgment. If a plaintiff and DMAS cannot reach an agreed figure for Medicaid’s lien, that amount will be determined after an evidentiary hearing on the matter. At said hearing, a judge will examine the totality of the plaintiff’s damages, then make a reasonable allocation of the verdict, judgment, or settlement a plaintiff received to Medicaid.

If you have any questions about this article, or about personal injury negotiations in general, please contact Shannon Kohler (skohler@setlifflaw.com) at (804) 377-1268 or Steve Setliff (ssetliff@settlifflaw.com) at (804) 377-1261.