Trial News

The U.S. Supreme Court heard oral arguments on January 10 in a case where Florida asserts it has a right to recover Medicaid funds from a girl who was hit by a truck and left with catastrophic injuries. The girl’s family asked the Court to reverse an Eleventh Circuit decision granting the state’s lien on a portion of the settlement proceeds from a tort claim against the truck driver. (Gallardo v. Marstiller, Jan. 10, 2022, oral arg.)

In 2008, Gianinna Gallardo, then 13, was struck by a pickup truck after getting off her school bus in Florida. She suffered a catastrophic brain injury and was left in a persistent vegetative state—she can no longer walk, communicate, eat, or care for herself. Her parents sued the truck’s driver, the truck’s owner, and the school district. The parties settled in 2015 for $800,000. The settlement explicitly allocated over $35,000 for past medical expenses and stated that no portion of the $800,000 was reimbursement for future medical expenses.

The Florida Agency for Health Care Administration (AHCA), the state’s Medicaid agency, was not a party to the settlement. Nevertheless, AHCA has asserted a lien of more than $300,000 on the settlement. The agency seeks to satisfy the lien with funds allocated to both Gallardo’s past and future medical expenses. But to participate in Medicaid, a joint federal-state program, states must “comply with federal statutory and regulatory requirements” including anti-lien and antirecovery requirements that prohibit liens “against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the [s]tate plan.” (42 U.S.C. §1396p(a)(1) (2012).) Narrow exceptions do exist to the federal anti-lien and anti-recovery provisions, but these are limited to settlement funds paid for medical care. (42 U.S.C. §§1396a(a)(25) and 1369k(a).)

Florida state law, however, applies a statutory formula to Medicaid recipients’ tort recoveries to determine through a “one-size-fits-all approach” the amount that constitutes reimbursement for medical expenses. (Fla. Stat. §409.910 (2016).) Under Florida’s formula, the Medicaid recipient’s total recovery is reduced by 25% for attorney fees and then up to half of the remainder is allocated to AHCA. Medicaid recipients can dispute this allocation to AHCA through an administrative procedure, while placing the disputed funds in an interest-bearing trust account. Gallardo’s guardians chose this route and then filed a claim in Florida federal district court seeking a declaratory judgment that Florida’s statute violates federal law in that it allows AHCA to claim settlement proceeds beyond those compensating plaintiffs for past medical expenses and requires clear and convincing evidence that funds claimed by AHCA do not represent compensation for past medical expenses.

The district court agreed with Gallardo, finding Florida’s formula-based baseline to be “wholly divorced from reality” and the requirement that Medicaid recipients affirmatively disprove the baseline to be in “direct conflict” with and therefore preempted by federal anti-lien and anti-recovery provisions. On appeal, the Eleventh Circuit disagreed, finding no conflict preemption. While federal law prohibits state Medicaid agencies from seeking reimbursement for “future expenses [they] have not yet paid,” the appellate court distinguished this from AHCA “seeking reimbursement from settlement monies for medical care allocated to future care.” The Eleventh Circuit also held that Florida’s formula does not run afoul of federal law because a mechanism is provided to determine whether allocations under the formula are “a reasonable approximation of a recipient’s medical expenses.” The plaintiffs sought Supreme Court review.

AAJ filed an amicus brief in support of Gallardo written by Tampa, Fla., attorney Celene Humphries and AAJ senior associate general counsel Jeffrey White. The amicus argues that Florida’s position erroneously assumes that Medicaid will cover all of an injured plaintiff’s future medical expenses. This ignores reality, the amicus states, because many tort plaintiffs become ineligible for Medicaid after receiving settlement funds. To stay on Medicaid after receiving a tort recovery, plaintiffs must have no more than $2,000 in total countable assets or must transfer funds to a special needs trust—a trust meeting stringent federal statutory requirements and used to pay for “things directly relevant to the recipient’s care.” This includes “those expenses that Medicaid would never pay,” such as additional home nursing care or a home ramp for a wheelchair. The amicus also argues that Florida law ignores the “undisputed fact that Medicaid coverage is limited” and does not cover all medical expenses. And if injured people receiving Medicaid know that the state will claim “full reimbursement of past medical expenses,” they have “little or no incentive to settle, let alone bring a lawsuit,” the amicus authors note.

At oral arguments, Jacksonville, Fla., attorney Bryan Gowdy argued on Gallardo’s behalf that Florida’s “isolated reading of the assignment clause” leads to “absurd results that convert Medicaid from a benefit to a loan.” Gowdy emphasized that it’s impossible to know whether a tort claimant will remain eligible for Medicaid for future care and that you cannot know specifically what future care a tort claimant will even require. When Justice Sonia Sotomayor questioned whether the settlement proceeds were a “windfall” for Gallardo, Gowdy replied that when settlement proceeds are placed in a special needs trust, they are used exclusively for medical care and care-related expenses—and that any remaining trust money will go to Medicaid after a recipient’s death.

Vivek Suri, speaking on behalf of the Department of Justice, another amicus supporting Gallardo, argued that rather than going after the tortfeasor, Florida is “going after the victim of the accident, and . . . seeking funds that don’t correspond to the things it paid for.” This, added Suri, is exactly what the federal anti-lien clause “prevents the state from doing.”

Humphries said that “Florida’s argument lacks a sound statutory basis, and it is also premised on the erroneous, unspoken assumption that all of an injured person’s future medical expenses will be paid by Medicaid. Instead, most Medicaid recipients will lose Medicaid qualification; others will be subject to restrictive limitations. And Florida’s position ignores the reality that allowing states to recover an inequitable share of the settlement funds is not only unfair to the injured person, it also discourages settlements—meaning that states will recover less.”

Voorhees, N.J., attorney Franklin Solomon, whose practice focuses on health care liens, added that “the Gallardo case could have a major impact on the way Medicaid liens are asserted against personal injury recoveries—particularly in the scope of settlement funds subject to lien claims and the deference courts may be required to give to state agency determinations in states that have set up an administrative process to address lien challenges.”