Gallardo v. Marstiller
Gianinna Gallardo suffered catastrophic injuries when a truck struck her as she stepped off her school bus. Gallardo, slip op. at 4. She was 13 years old at the time. The accident left her permanently disabled in a persistent vegetative state. Florida’s state Medicaid agency paid $862,688.77 to cover Gallardo’s initial medical expenses, and the agency continues to pay her medical expenses to this day. In connection with the accident, Gallardo sued the truck’s owner and driver, as well as the Lee County School Board. She sought compensation for past medical expenses, future medical expenses, lost earnings, and other damages. That litigation settled for $800,000, with only $35,367.52 expressly designated as compensation for past medical expenses. The settlement did not specifically allocate any amount of the remaining $764,633.48 for anticipated future medical expenses. Id.
As required by the federal Medicaid statute, Florida’s Medicaid Third-Party Liability Act assigns the state Medicaid agency a right to seek reimbursement from third-party payments for medical care, including in tort recoveries or settlements. Having paid for Gallardo’s past and future medical expenses, the secretary of the Florida Agency for Healthcare Administration sued Gallardo to try to recoup the statutorily assigned percentage—37.5 percent of $800,000—that Gallardo had received from the settlement. Gallardo challenged the presumptive allocation of settlement funds in an administrative proceeding and also sought a declaration that Florida was violating the same federal Medicaid Act by trying to recover settlement funds paid as compensation for future medical expenses. Id.
The U.S. District Court for the Northern District of Florida agreed with Gallardo, granting summary judgment. Id. at 5. On appeal, the Eleventh Circuit Court of Appeals sided with the State of Florida and held that the Medicaid Act does not prohibit a state from seeking reimbursement for settlement payments allocated for future medical care. Id. Gallardo further appealed to the U.S. Supreme Court.
Justice Thomas, writing for the 7–2 majority, noted that the Supreme Court of Florida had reached the opposite conclusion of the Eleventh Circuit’s in a similar case, Giraldo v. Agency for Health Care Administration, 248 So. 3d 53, 56 (Fla. 2018), and so the U.S. Supreme Court had granted certiorari to resolve the apparent dispute. Id.
Statutes at Issue
The Gallardo case addressed a potential conflict between the federal Medicaid Act and, in this instance, Florida’s Medicaid Third-Party Liability Act. The federal Medicaid Act requires participating states to pay for certain individuals’ medical costs and then to make reasonable efforts to recoup those costs from liable third parties. 42 U.S.C. §1396k(a)(1)(A). To satisfy its obligations as a participant in the Medicaid Act, Florida is required to implement a statutory scheme that conditions an individual’s right to receive benefits under Medicaid on the assignment of that individual’s rights to support for the purpose of medical care and payments from any third party for the purpose of medical care to the state. Thus, the state must condition payment of Medicaid benefits on the state having the future right to seek reimbursement directly from the Medicaid recipient from any litigation proceeds, whether obtained by settlement or judgment at trial, that are attributable to medical care paid for by Medicaid.
Florida enacted a statutory scheme as required, its Medicaid Third-Party Liability Act, under which a beneficiary like Gallardo who “accept[s] medical assistance” from Medicaid “automatically assigns to the [state] agency any right” to third-party payments for medical care. Fla. Stat. §409.910(6)(b). Florida’s statutory framework limits the state’s right of recovery to 50 percent of a given Medicaid patient’s settlement proceeds, minus 25 percent for attorney fees (for an effective total of 37.5 percent). The statute presumptively assumes that this amount represents the portion of the tort recovery that is attributable to “past and future medical expenses,” absent clear and convincing rebuttal evidence demonstrating otherwise. Fla. Stat. §§409.910(11)(f )(1), (17)(b).
Notably, the Court’s opinion in Gallardo did not address recovery under Medicare, only Medicaid. The text of the Medicare statute, unlike the Medicaid Act, does not address payment or recovery of future medical expenses. See 42 U.S.C. §1395y(b)(2)(A)(i) & (ii).
The Decision
The Supreme Court ultimately held that the federal Medicaid Act permits a state to seek reimbursement from a Medicaid recipient who has received a third-party settlement that allocates a portion of the payment to cover future medical expenses, not just settlement payments allocated by the parties as being for past medical care. The decision came down to an interpretation of the language in a specific provision in the federal Medicaid Act—42 U.S.C. 1396k(a)(1)(A). The Court rejected Gallardo’s arguments that the Florida statute’s automatic assignment of her rights to recovery of future medical costs from a third party back to the state Medicaid agency violated the federal Medicaid Act. Gallardo tried to construe the text of the federal Medicaid Act to limit the definition of recovery to amounts paid for “past” medical expenses, thus arguing that Florida’s statutory scheme granting a right to future medical expenses exceeded the state’s authority in administering the Medicaid Act. The Court explained that nothing in the text of 42 U.S.C. §1395k(a)(1)(A), on which Gallardo relied, limits the state from collecting against past or future medical payments from a third party. Specifically, the Court held:
Nothing in this provision purports to limit a beneficiary’s assignment to “payment for” past “medical care” already paid for by Medicaid. To the contrary, the grant of “any rights . . . to payment for medical care” most naturally covers not only rights to payment for past medical expenses, but also rights to payment for future medical expenses.
Gallardo, slip op. at 6.
The Court noted that, elsewhere in the Medicaid Act, Congress had included language restricting certain payments to moneys paid for past medical expenses but had not done so with regard to §1396k(a)(1)(A).
The Court rejected and generally found unpersuasive several policy-based arguments by Gallardo. The Medicaid Act grants states wide authority to design and administer their own state Medicaid programs, so long as a state satisfies basic federal requirements. The Florida Medicaid Third-Party Liability Act represents Florida’s exercise of that authority, and the Supreme Court held that Florida had not exceeded its rights or authority under the federal Medicaid Act in enacting the provision requiring assignment of rights to reimbursement for future medical expenses.
Practical Tips
- Attorneys involved in such cases should check to see if the state in which a tort action is pending has a Medicaid third-party liability statute that automatically assigns a right to reimbursement to the state Medicaid program from third-party recoveries attributable to past and future medical expenses. Most states will, because not to have such a statutory scheme violates the federal Medicaid Act’s requirements. See 42 U.S.C. §1396k(a)(1)(A); see also 42 U.S.C. §1396a(a)(45) (mandating states’ compliance with §1396k). If the state has a statutory scheme similar to Florida’s that presumptively assigns a right to reimbursement of Medicaid payments made for past and future medical expenses from tort recoveries, then under Gallardo any past or future medical costs recovered by a plaintiff may be subject to repayment to the state.
- Gallardo makes clear it is important during discovery to fully explore the amounts paid for past medical expenses and by whom, the amount of future medical expenses anticipated, and whether Medicaid has paid or may pay any portion of those expenses. Written discovery should be sure to encompass any lien letters or subrogation demands received.
- While the Florida statutory scheme does not differentiate between past and future medical expense recoveries for reimbursement purposes, other states’ statutory schemes may currently draw this distinction. State legislatures may opt to modify their statutory scheme in response to Gallardo to either expand their statutory language to encompass future medical expenses or to make clear they are seeking only recovery of payments made for past medical expenses. It will be important to monitor changes in state Medicaid-implementing laws and in particular whether those changes may apply retroactively.
- Attorneys engaging in settlement negotiations and crafting settlement agreements need a firm understanding of the law in each jurisdiction, including how the state views designations of settlement payments for particular categories of damages in terms of the applicability of a right to reimbursement. For example, can a plaintiff attempt to allocate all of a settlement to pain and suffering only, despite having received Medicaid funds for past medical expenses and being likely to have future medical needs paid by Medicaid? And will such an allocation be effective in all or some circumstances to preclude reimbursement rights to the state? These are issues that will continue to be litigated and may turn on the law of each particular state and appellate court decisions still to come. And plaintiffs’ counsel may seek higher settlement amounts in states where the right to reimbursement is strong and require payment of a higher percentage of any such recovery. Conversely, defense counsel should be prepared to point out the double recovery inherent in settlements for past and future medical expenses that have already been paid or will be paid by Medicaid, particularly in states where there is no current right to reimbursement from payments of both past and future medical expenses.
- Invariably, some creative plaintiffs’ counsel may seek to allocate certain portions of a total settlement in order to make those settlement proceeds more difficult for the state to target for Medicaid reimbursement. Defense counsel should be mindful both of the ethical obligations that could arise from proposing certain designations in a settlement agreement—particularly as they relate to future medical needs and associated costs either documented in medical records or set forth in a life care planner’s or similar expert’s report—and of their own possible liability for accepting opposing counsel’s proposed designation of settlement proceeds without performing the necessary due diligence to justify that allocation.
