July 28, 2022 • Legislative & Regulatory

Gallardo v. Marstiller, A Recent US Supreme Court Decision That Merits the Attention of the Workers’ Comp and Liability Communities

In Gallardo v Marstiller, a case decided by the United States Supreme Court this year, the Court considered the question: Does the federal Medicaid Act provide for a state Medicaid program to recover reimbursement for Medicaid’s payment of a beneficiary’s past medical expenses by taking funds from the portion of the beneficiary’s tort recovery that compensates for future medical expenses? The 11th Circuit Court of Appeals held it could. The Florida State Supreme Court held it could not. The Supreme Court was therefore presented with a clear interpretation conflict between two appellate courts, one state and the other federal. The Supreme Court affirmed the 11th Circuit decision holding a state could recover from settlement funds allocated to both past and future medical expenses.

The facts of this case tell a tragic story of a 13-year-old child who was struck by a truck after stepping from a school bus. Since the accident, the child has been in a persistent vegetative state. The state of Florida Medicaid agency stepped in and paid the medical bills associated with the accident. At settlement they totaled $868,688. Experts surmised the case had a settlement value in excess of $20 million. Suit was filed against the school system and those owning and operating the truck. After negotiations the case settled for the sum of $800,000. It appears that sum represents the tortfeasors’ policy limits. The state of Florida has a statutory recovery formula when Medicaid has paid medical bills in circumstances like this. Pursuant to the formula the state Medicaid system was entitled to half of the sum recovered less attorney fees - in this case that was $300,000. Plaintiffs’ counsel, using a damages formula, designated the amount of $35,367 to satisfy the state’s Medicaid lien. This sum represented the valuation of past owed medical expenses. It was their contention the lien could only be satisfied from sums designated for past medical expenses. The state Medicaid system argued they could recover from sums identified for both past and future (post settlement) medicals.

The Court held the Federal Medicare Act allows a state reimbursement from settlement payments allocated for medical care without the qualifier “past.” Essentially Gallardo under this decision is now obligated to settle the Florida Medicaid lien for the past allocation of $35,367 and any sums allocated for future or post settlement medical expenses.

What is the take-away lesson for those settling workers’ compensation cases where the case was contested, and the injured worker resorted to Medicaid for the payment of bills associated with needed medical care?

State Medicaid agencies have likely been emboldened by the Gallardo decision. It however makes no substantive change in the obligation the parties have at settlement to secure and resolve a Medicaid lien. Payment of the lien typically rests with the carrier/self-insured employer. Most are negotiated and paid before the claim is settled. If not already the practice, counsel, should ensure the settlement documents make clear any unresolved Medicaid lien is the carrier’s obligation. If the settlement involves a Medicare eligible party and there is an MSA, those funds need to be insulated from any Medicaid lien activity.

What is the take-away lesson if settling a liability case? Plaintiff counsel will need to bring their “A-game” to the settlement negotiations. It can be anticipated settlement calculations will need adjusting so that more money is available to settle Medicaid liens. Carriers and defense counsel can correspondingly anticipate larger settlement demands to ensure there are adequate funds available to satisfy Medicaid liens.

What if a case involves a workers’ compensation claim arising from a third party’s negligence? These factual scenarios always require careful attention and strategic planning. With Gallardo now in the mix it would be prudent in most cases to make the workers’ compensation settlement an initial priority with the Medicaid lien satisfied by the carrier. The carrier would then have lien rights against a settlement of the liability claim. A global settlement should be considered and as part of the global settlement, the carrier’s lien will likely be larger than seen in the past and will be a priority for any meaningful claim resolution.

We have not seen the fallout that can be anticipated once the legal and insurance communities fully digest and strategize on how to adapt to the new Gallardo reality. The same is true on how state Medicaid agencies view what the decision means for their recoupment efforts. There are a lot of thoughtful, clever and creative folks in the industries impacted by this Supreme Court ruling. In the short-term all should be cautious and focused on what is known and how it can be best utilized to protect those we serve.

Gallardo is an important decision, one providing a simple answer to the question of the limits on a state’s Medicaid lien when payments are associated with a viable negligence claim. How all involved will adjust, adapt and plan-around the decision has yet to be seen. Knowing the extent of state Medicaid liens is only the beginning of the legacy Gallardo will bring this area of the law.

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