Andrews ex rel. Andrews v. Haygood

• Decision Date: 12 December 2008
• Docket Number: No. 57A07-2.,57A07-2.
• Citation: 669 S.E.2d 310,362 N.C. 599
• Court: North Carolina Supreme Court
• Parties: Katelyn ANDREWS, a minor, Through her Guardian ad Litem, David ANDREWS; and David Andrews and Andrea Andrews, individually v. Vanessa P. HAYGOOD, M.D., individually; Central Carolina Obstetrics and Gynecology, P.A., a North Carolina Corporation; The Women's Hospital of Greensboro, a North Carolina Not-for-Profit Corporation; Kim Richey, R.N., individually; and Jennifer Daley, R.N., individually v. North Carolina Department of Health and Human Services, Division of Medical Assistance, Intervenor.

669 S.E.2d 310

362 N.C. 599

Katelyn ANDREWS, a minor, Through her Guardian ad Litem, David ANDREWS; and David Andrews and Andrea Andrews, individually v. Vanessa P. HAYGOOD, M.D., individually; Central Carolina Obstetrics and Gynecology, P.A., a North Carolina Corporation; The Women's Hospital of Greensboro, a North Carolina Not-for-Profit Corporation; Kim Richey, R.N., individually; and Jennifer Daley, R.N., individually v. North Carolina Department of Health and Human Services, Division of Medical Assistance, Intervenor.

No. 57A07-2.

Supreme Court of North Carolina.

December 12, 2008.

Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of a divided panel of the Court of Appeals, ___ N.C.App. ___, 655 S.E.2d 440 (2008), affirming an order entered on 27 July 2006 by Judge Steve A. Balog in Superior Court, Alamance County. On 10 April 2008, the Supreme Court allowed appellant's petition for discretionary review of additional issues. Heard in the Supreme Court 13 October 2008.

Wishart, Norris, Henninger & Pittman, P.A., by Pamela S. Duffy and Molly A. Orndorff, Burlington, for trustee-appellant Charlie D. Brown.

Roy Cooper, Attorney General, by Susannah P. Holloway, Assistant Attorney General, for intervenor-appellee North Carolina Department of Health and Human Services, Division of Medical Assistance.

Glenn, Mills, Fisher & Mahoney, P.A., by Carlos E. Mahoney, Durham, for North Carolina Academy of Trial Lawyers, amicus curiae.

NEWBY, Justice.

This case presents the question of whether the statutory framework governing the State's subrogation claim for medical expenses on a Medicaid recipient's tort claim settlement complies with federal Medicaid law as interpreted by the Supreme Court of the United States in Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006). Because Ahlborn does not mandate a specific method for determining the medical expense portion of a plaintiff's settlement, we uphold North Carolina's reasonable statutory scheme and accordingly affirm the Court of Appeals.

Plaintiff Katelyn Andrews brought suit against defendants, alleging medical malpractice and seeking recovery for injuries she sustained at birth. The parties entered into confidential settlement agreements and established a settlement account for the proceeds. Because Katelyn is a North Carolina Medicaid recipient, the North Carolina Division of Medical Assistance ("DMA") sought to recover from the account the amount it paid for her medical expenses, $1,046,681.94. The trial court determined the DMA has subrogation rights to the entire amount of the settlement, limited by the statutory provision that only one-third of a recovery is subject to subrogation. N.C.G.S. § 108A-57(a) (2005). Because the amount expended by the DMA was less than one-third of the settlement, the trial court ordered full reimbursement. The trustee of the settlement account appealed.

The Court of Appeals affirmed the trial court's order based on our prior decision in Ezell v. Grace Hospital, Inc., 360 N.C. 529, 631 S.E.2d 131 (2006), rev'g per curiam for reasons stated in the dissenting opinion, 175 N.C.App. 56, 623 S.E.2d 79 (2005), reh'g denied, 361 N.C. 180, 641 S.E.2d 4 (2006). Andrews v. Haygood, ___ N.C.App. ___, ___, 655 S.E.2d 440, 444 (2008). However, a dissent questioned the majority's reliance on Ezell because in reversing the Court of Appeals, we did not specifically address the applicability of the holding in Ahlborn to the issues in Ezell. Id. at ___, 655 S.E.2d at 444-45 (Wynn, J., dissenting).

Based on the dissent, the trustee appealed to this Court, and we granted review of additional issues arising from the trial court's denial of requests for an evidentiary allocation hearing and for a delay in resolution of the case until a third party could be joined. The trustee contends that absent an agreement between the parties, federal law requires a judicial determination of the portion of a tort claim settlement that represents the recovery of medical expenses. In response, the DMA contends the statutory one-third limiting provision complies with Ahlborn's interpretation of federal Medicaid law. The DMA thus argues that judicial apportionment of medical expenses from the settlement is not required. We agree.

Medicaid is a cooperative program that provides federal and state medical care funding for certain individuals who are unable to afford their own medical costs. See Ahlborn, 547 U.S. at 275, 126 S.Ct. at 1758, 164 L.Ed.2d at 468. Participating states are required by federal law to "take all reasonable measures to ascertain the legal liability of third parties . . . to pay for care and services available under the plan" and to "seek reimbursement for [medical] assistance [made available on behalf of a recipient] to the extent of such legal liability." 42 U.S.C. § 1396a(a)(25)(A)-(B) (2000). State laws control the administration of the program, including the method by which a state may seek reimbursement for prior Medicaid assistance. See Ahlborn, 547 U.S. at 275-77, 126 S.Ct. at 1758-59, 164 L.Ed.2d at 468-70. State laws, however, must comply with federal Medicaid law. Id.

The Supreme Court of the United States addressed the operation of a state's Medicaid reimbursement statute in Ahlborn, in which the Court was asked to determine whether the Arkansas Department of Health and Human Services ("ADHS") could claim a statutory lien on a settlement for more than the portion that by stipulation represented the recovery of medical expenses. Ahlborn, 547 U.S. at 279-80, 126 S.Ct. at 1760-61, 164 L.Ed.2d at 470-71. The Arkansas statutes in question¹ allowed total reimbursement to ADHS for all previous medical payments made on the plaintiff's behalf. Id. at 278-79, 126 S.Ct. at 1759-60, 164 L.Ed.2d at 470-71. Ahlborn, a Medicaid recipient, challenged the statute because it permitted reimbursement from settlement proceeds recovered for damages other than medical expenses. Id. at 274, 126 S.Ct. at 1757-58, 164 L.Ed.2d at 468. In her suit against the alleged tortfeasors, she sought compensation for medical expenses, pain and suffering, lost wages, and permanent impairment of her future wage-earning ability. Id. at 273, 126 S.Ct. at 1757, 164 L.Ed.2d at 467. After the parties settled for $550,000, ADHS asserted a lien against the settlement for $215,645.30—the total amount of prior payments made by ADHS for Ahlborn's medical care. Id. at 274, 126 S.Ct. at 1757, 164 L.Ed.2d at 468. Ahlborn challenged the lien, alleging it violated federal Medicaid law "insofar as its satisfaction would require depletion of compensation for injuries other than past medical expenses." Id.

Before trial, Ahlborn and ADHS stipulated to several facts. Id. at 274, 126 S.Ct. at 1757-58, 164 L.Ed.2d at 468. The reasonable value of Ahlborn's claim, absent any consideration of liability, was specified to be approximately $3,040,708.18. Id. The parties agreed the settlement amount of $550,000 represented approximately one-sixth of the estimated total damages. Id. ADHS further stipulated that if Ahlborn's construction of the Arkansas statute were correct, ADHS would only be entitled to reimbursement for one-sixth of the total past medical payments, or $35,581.47. Id.

The Supreme Court of the United States determined that ADHS was entitled to recover $35,581.47, the portion of the settlement stipulated to represent Ahlborn's recovery of medical expenses. Id. at 292, 126 S.Ct. at 1767, 164 L.Ed.2d at 479. The Court held: "Federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn's settlement in an amount exceeding $35,581.47. . . . Arkansas' third-party liability provisions are unenforceable insofar as they compel a different conclusion." Id. Ahlborn thus controls when there has been a prior determination or stipulation as to the medical expense portion of a plaintiff's settlement. In those cases, the State may not receive reimbursement in excess of the portion so designated.

The Ahlborn holding, limited by the parties' stipulations, did not require a specific method for determining the portion of a settlement that represents the recovery of medical expenses. See id. at 288, 126 S.Ct. at 1765, 164 L.Ed.2d at 476. The Court recognized that "some States have adopted special rules and procedures for allocating tort settlements" under certain circumstances, but ultimately "express[ed] no view on the matter" and "le[ft] open the possibility that such rules and procedures might be employed to meet concerns about settlement manipulation." Id. at 288 n. 18, 126 S.Ct. at 1765 n. 18, 164 L.Ed.2d at 476 n. 18. Ahlborn thus does not mandate a judicial determination of the portion of a settlement from which the State may be reimbursed for prior medical expenditures. Instead, the Supreme Court left to the States the decision on the measures to employ in the operation of their Medicaid programs. Id.

Our General Assembly created a statutory method to determine the amount of the State's reimbursements for prior medical payments. North Carolina law provides that Medicaid recipients are "deemed to have made an assignment to the State of the right to third party benefits, contractual or otherwise to which [the recipient] may be entitled." N.C.G.S. § 108A-59(a) (2005). Implementation of the recipient's statutory assignment is governed by section 108A-57(a) of our General Statutes:

Notwithstanding any other provisions of the law, to the extent of payments under this Part, the State . . . shall be subrogated to all rights of recovery, contractual or otherwise, of the beneficiary of this assistance . . . against any person. . . . Any attorney retained by the beneficiary of the assistance shall, out of the proceeds obtained on behalf of the beneficiary by settlement with . . . a third party . . . distribute to the Department the amount of assistance paid by the Department . . . but the amount paid to the Department...