GALLARDO V. MARSTILLER: ARE THERE MEDICAID SET-ASIDES IN OUR FUTURE?

By Thomas D. Begley, Jr., CELA and Emily Schurr

Background

            In the case of Gallardo v. Marstiller, U.S. Supreme Court No. 20-1263 (June 6, 2022), Gianinna Gallardo, a thirteen-year-old girl, sustained a permanent disability when she was struck by a truck as she stepped off of her Florida school bus.  She has been in a persistent vegetative state since that time.  The Florida Medicaid Agency covered her expenses totaling $862,688.  An expert evaluated the pecuniary losses to be in excess of $20,000,000.  However, the case settled for $800,000.  There was no allocation between past and future medical expenses.  The plaintiff contended that the State of Florida could only recover $35,367 for past care, which was designated in the settlement.  The state contended it was entitled to $300,000 including the plaintiff’s future medical expenses.  The state calculated the $300,000 based on a formula.  Florida had enacted a statute authorizing Medicaid to recover for past Medicaid payments from the amounts allocated to both past and future payments in the third-party liability (TPL) case recovery.

New Jersey and Pennsylvania Statutes

            New Jersey statute N.J.S.A. 30:4D-7.1b authorizes Medicaid to recover from the proceeds of settlement, judgment, or other recovery in any action or claim initiated against a third party subject to a pro rata reduction for counsel fees, costs, and other expenses.  The right to recovery is not limited to the recovery for past medical expenses received by the plaintiff.

            The Pennsylvania Statute, 55 Pa. Code §259.3, states that the Department will only recover for that portion of a tort recovery that represents payment for medical care by the third party.  However, the statute does not limit the recovery to payment for past medical care paid by the third party.

Medicaid and Tort Recoveries

            Medicaid is a joint federal-state program that pays medical benefits for people who qualify.  The law was enacted in 1964 and contains the anti-lien and anti-recovery provisions.  In 1977, assignment provisions were include in the statute, and in 1993, a payment-recovery provision was added.  The issue then became to what extent can Medicaid recover from a TPL case for payments made on the plaintiff’s behalf.  In 2006, the Supreme Court decided the case of Arkansas Department of Health and Human Services v. Ahlborn.  This case established that a State Medicaid Agency may not recover from a non-medical portion of a tort recovery.  Under Ahlborn and subsequent cases, it was clear that Medicaid could only recover from a TPL case for past medical expenses.  In 2013, Florida amended its statute to provide for a lien against both past and future medical expenses recovered in the tort case.  During the 2000s and 2010s, litigation around the country split on whether a Medicaid lien attached to both past and future medical expenses recovered in a TPL case.   The case found its way to the U.S. Supreme Court where the majority opinion written by Justice Thomas held that states may recover their past Medicaid payments from the portion of a tort recovery representing medical expenses, both past and future.

How Does This Change Things?

1. Medicaid Set-Asides. Many Personal Injury attorneys are concerned that as a result of this case Medicaid Set-Asides will be required for future medical expenses anticipated to be paid by Medicaid.  This was absolutely not discussed in the Gallardo  The Gallardo case was limited to Medicaid recovering past medical assistance from the TPL settlement.  The lien could be enforced against the recovery, not only for past medical expenses but also future medical expenses recovered by the plaintiff.  It does not deal with future medical expenses not yet made by Medicaid.  Therefore, no Medicaid Set-Aside is required.
2. Effect on Ahlborn. What does change is that Medicaid now has a larger pot against which to enforce its lien for past Medicaid payments.  Usually if the plaintiff recovered $1,000,000 for past medical expenses and $2,000,000 for future medical expenses, Medicaid could only enforce its lien against the $1,000,000 recovery for past medical expenses.  Now the pot is enlarged to $3,000,000 encompassing both past and future medical expenses recovered by the plaintiff.  In most cases, people did not appear to distinguish between past and future medical expenses with respect to the Medicaid lien.  In the future this may become important, especially in cases involving an attempt to obtain an Ahlborn
3. Increased Gross Recovery. In states like Florida with statutes authorizing Medicaid recovery from all medical expenses, past and future, in a TPL case, the amount to be pocketed by the plaintiff could be significantly reduced.  This is because the gross recovery is reduced by fees, costs, and liens.  The Medicaid lien may be larger in some cases.  This means that in cases involving large Medicaid liens, more money must be recovered from the defendant to satisfy these liens.  Defendants and insurance carriers must expect larger settlement demands.
4. Medical and Non-Medical Expenses. It is not important to make an allocation between past and future medical expenses in the TPL recovery in cases where Medicaid can recover from both.  However, it may be important to make an allocation between medical and non-medical expenses.  In most cases probably not, but in some cases it may be helpful to retain the services of a qualified professional to make that determination.
5. Ratio Between Recovery and Lien. In cases involving significant recoveries and relatively small Medicaid liens, this case will probably have little significance.  However, in cases with smaller recoveries and large Medicaid liens, this can be a game changer.