Ahlborn v. Arkansas Dept. of Human Services, 03-3377.

Decision Date09 February 2005
Docket NumberNo. 03-3377.,03-3377.
Citation397 F.3d 620
PartiesHeidi AHLBORN, Appellant, v. ARKANSAS DEPARTMENT OF HUMAN SERVICES; Kurt Knickrehm, Director of the Arkansas Department of Human Services; Wayne Olive, Director of the Third Party Liability Unit; Roy Jeffus, Interim Director, Division of Medical Services of the Arkansas Department of Human Services, Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

H. David Blair, argued, Batesville, Arkansas (Phillip Farris, on the brief), for appellant.

Richard B. Dahlgren, argued, Little Rock, Arkansas, for appellee.

Before MORRIS SHEPPARD ARNOLD, RILEY, and COLLOTON, Circuit Judges.

COLLOTON, Circuit Judge.

Heidi Ahlborn appeals the district court's grant of summary judgment in favor of the Arkansas Department of Human Services and employees thereof (collectively "the State") in a dispute concerning the extent to which her recovery from a tortfeasor may be taken by the State as reimbursement for the cost of medical care and services provided to Ahlborn by the Medicaid program. After careful review of the various statutes involved, we conclude that Ahlborn has the better of the argument, and we therefore reverse.

I.

Ahlborn was seriously injured in a motor vehicle accident on January 2, 1996. As a result of this accident, she suffered severe personal injuries, especially to her head, which required extensive medical care and rendered her permanently disabled. While under treatment, Ahlborn applied and qualified for medical benefits under the Arkansas Medicaid program, administered in the State by appellee Arkansas Department of Human Services ("ADHS"). In applying for benefits, Arkansas law required Ahlborn to assign to ADHS her "right to any settlement, judgment, or award" she might receive from third parties, "to the full extent of any amount which may be paid by Medicaid for the benefit of the applicant." Ark.Code Ann. § 20-77-307(a). In total, ADHS provided Medicaid benefits to or on behalf of Ahlborn in the amount of at least $215,645.30, which fully relieved her debt to health care providers.

The parties agree that Ahlborn's injuries gave rise to claims other than past medical care, including loss of earnings and working time, pain and suffering, and permanent impairment of ability to earn in the future. The parties also stipulated that an estimate of Ahlborn's damages totals approximately $3,040,708.12. However, in mid-2002, Ahlborn was paid $550,000 following a compromise settlement reached through negotiations with her insurance company and third parties allegedly liable for her injuries. This was a lump-sum settlement that did not allocate Ahlborn's recovery among her various claims. The State was not a party to the settlement. The Director of ADHS asserted a lien against Ahlborn's settlement for the amount of benefits ADHS provided, pursuant to Arkansas Code Sections 20-77-301 through 20-77-313 (third-party liability).

Ahlborn brought suit seeking a declaratory judgment, arguing that ADHS can only recover that portion of her settlement representing payment for past medical expenses. The parties characterize the sole issue in this case as one of statutory construction: whether federal Medicaid statutes, which provide for the assignment of rights to third-party payments, but prohibit placing a lien on a Medicaid recipient's property, limit the State's recovery to only those portions of the payments made for medical expenses. The parties have entered into a stipulation regarding damages, whereby the State will recover $215,645.30 if it prevails on the statutory construction issue, but only $35,581.47 if Ahlborn prevails. This first figure represents the total amount the parties stipulated the State paid in relation to Ahlborn's care. The parties stipulated that the second figure, which represents 16.5 percent of this total amount, is a fair representation of the percentage of the settlement constituting payment by the tortfeasor for past medical care.

The parties filed cross-motions for summary judgment, and the district court granted the State's motion. The court interpreted the relevant federal statutory provisions to mean that the State may recover from Ahlborn's settlement the sum stipulated as the total amount of benefits provided under the Medicaid program, regardless whether the settlement funds represent payments for the cost of medical services. We review the grant of summary judgment de novo, applying the same standard as the district court. Murphey v. City of Minneapolis, 358 F.3d 1074, 1077 (8th Cir.2004). We will affirm the grant of summary judgment if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Shelter Ins. Cos. v. Hildreth, 255 F.3d 921, 924 (8th Cir.2001).

II.

The Medicaid program was established in 1965 by Title XIX of the Social Security Act ("the Act"), codified at 42 U.S.C. § 1396-1396v. The primary purpose of the program is to provide federal financial assistance to States that elect to reimburse certain costs of medical treatment for needy individuals. See Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980). States voluntarily agree to participate in the program, but must comply with federal requirements once they do so. Id. It is often said that Congress wanted Medicaid to be a "payer of last resort, that is, other available resources must be used before Medicaid pays for the care of an individual enrolled in the Medicaid program." S.Rep. No. 99-146, at 312 (1985), reprinted in 1986 U.S.C.C.A.N. 42, 279. The sole issue presented by the parties in this case is whether the Arkansas statutory scheme for recovering Medicaid payments comports with the federal statutes governing how state Medicaid recovery programs must operate. The essential disagreement is whether the State may recover from Ahlborn's settlement any amount beyond that stipulated to be expenses for medical care.

Under Arkansas law, applicants for Medicaid benefits "automatically assign" their rights to "any settlement, judgment, or award which may be obtained against any third party to [ADHS] to the full extent of any amount which may be paid by Medicaid for the benefit of the applicant." Ark.Code Ann. § 20-77-307(a). "The assignment shall be considered a statutory lien on any settlement, judgment, or award received by the recipient from a third party." Id. § 20-77-307(c). Further, Arkansas Code Section 20-77-302(a) provides that when a Medicaid recipient brings a claim against a liable third party, "any settlement, judgment, or award obtained is subject to the division's claim for reimbursement of the benefits provided to the recipient under the medical assistance program." Arkansas thus requires recoupment from, and places a lien on, the entirety of third-party payments — not just that portion of third-party payments made for medical care.

Ahlborn argues that the Arkansas scheme conflicts with federal law. She relies on 42 U.S.C. § 1396p(a)(1), which prohibits (with certain exceptions not applicable here) the imposition of a lien "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 State plan[.]" This provision, sometimes referred to as the "anti-lien statute," generally prevents a State from attaching property of a recipient to reimburse the State for benefits paid under a state Medicaid plan. Under the statute's implementing regulation, "property" is defined as "the homestead and all other personal and real property in which the recipient has a legal interest." 42 C.F.R. § 433.36(b).

The State argues that the Arkansas statutory lien "on any settlement, judgment, or award received by the recipient from a third party" does not conflict with the federal anti-lien statute, because the settlement that Ahlborn received from the tortfeasor is not Ahlborn's property. The State contends that because Ahlborn assigned to the State her right to any settlement as a condition of receiving Medicaid benefits, the settlement remains property of the tortfeasor until the State is fully reimbursed for all funds expended on Ahlborn's medical care. This appears to be the reasoning adopted by the majorities of two divided state court decisions on which the State relies. Houghton v. Dep't of Health, 57 P.3d 1067, 1069 (Utah 2002); Wilson v. State, 142 Wash.2d 40, 10 P.3d 1061, 1066 (2000).

We believe that Ahlborn's right to a settlement that may be received from a third party, which the Arkansas statute required her to assign to the State, was Ahlborn's "property." Her unliquidated tort claim, in other words, is a form of "personal... property in which the recipient has a legal interest." 42 C.F.R. § 433.36(b). "It is basic property law that a chose in action is personal property," and that "the right to sue for damages is property." Gregory v. Colvin, 235 Ark. 1007, 363 S.W.2d 539, 540 (1963). The Arkansas assignment statute, moreover, contemplates that the lien arises after Ahlborn receives her settlement from the tortfeasor: "The assignment shall be considered a statutory lien on any settlement, judgment, or award received by the recipient from a third party." Ark.Code Ann. § 20-77-307(c) (emphasis added). Thus, whether the State's assignment and lien act upon Ahlborn's cause of action or the settlement she received from the third-party tortfeasors, we see no basis in the governing federal regulations or the common law of property to conclude that the assignment or lien acted upon something other than Ahlborn's property.

We do not believe, moreover, that the State may circumvent the restrictions of the federal anti-lien statute simply by requiring an applicant for Medicaid benefits to assign property rights to the State before the applicant liquidates the property to a sum certain. If the State could proceed in that manner, then we do not see what...

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