Latham v. Office of Recovery Servs.

• Decision Date: 22 August 2019
• Docket Number: No. 20170556,20170556
• Citation: 448 P.3d 1241
• Parties: John R. LATHAM, Appellant, v. OFFICE OF RECOVERY SERVICES, Appellee.
• Court: Utah Supreme Court

448 P.3d 1241

John R. LATHAM, Appellant,

v.OFFICE OF RECOVERY SERVICES, Appellee.

No. 20170556

Supreme Court of Utah.

Filed August 22, 2019

Paul R. Smith, Jeffrey D. Gooch, C. Michael Judd, Salt Lake City, for appellant

Sean D. Reyes, Att'y Gen., Brent A. Burnett, Asst. Solic. Gen., Tony S. LeBlanc, Asst. Att'y Gen., Salt Lake City, for appellee

Justice Petersen authored the opinion of the Court, in which Chief Justice Durrant, Associate Chief Justice Lee, Justice Himonas, and Justice Pearce joined.

Justice Petersen, opinion of the Court:

INTRODUCTION

¶1 John R. Latham suffered a stroke and his injuries were exacerbated by a hospital's failure to properly diagnose it. Latham sought compensation from the hospital for past and future medical expenses as well as other damages. He ultimately settled his claim for an amount much less than what he believed it was worth.

¶2 At the time of his injury, Latham was receiving Medicaid, which paid for his treatment. When a third party is legally liable for medical expenses paid by Medicaid—like the hospital here—federal law requires that state Medicaid plans seek reimbursement from the third-party tortfeasor.

¶3 The parties dispute how much of Latham's settlement award the Office of Recovery Services (ORS)¹ is permitted to collect. Latham argues ORS may place a lien on only the part of his award allocable to past medical expenses. And according to Latham's calculations, the State's expenditures far exceed that portion of his award. He argues that if the State is fully reimbursed, it would violate a federal Medicaid statute that prohibits states from imposing a lien on recipient's property because ORS would be taking settlement proceeds intended to compensate him for damages other than past medical expenses.

¶4 The district court disagreed with this argument and ruled against Latham on a motion for judgment on the pleadings. The court held that ORS was entitled to recover from the portion of Latham's settlement award representing all medical expenses, both past and future.

¶5 Latham appeals. The question before us is whether ORS may place a lien on and collect from the portion of Latham's tort recovery allocable to all medical expenses, both past and future, or only past medical expenses. Based on the language of the relevant federal statutes and United States Supreme Court precedent, we conclude that ORS may recover from only that portion of an award representing past medical expenses. Accordingly, we reverse and remand.

BACKGROUND

¶6 Latham suffered a stroke in early 2014. When he began to experience symptoms, he went to the hospital. Without conducting a neurological exam, doctors there examined Latham, provided him with some pain and anti-nausea medication, and then discharged him.

¶7 Throughout the day, Latham's condition worsened. In the evening, he went by ambulance to a different hospital. There, doctors performed a brain scan, which revealed that he had suffered a stroke.

¶8 Latham brought malpractice and negligence claims against the first hospital. He alleged that the hospital's failure to diagnose his stroke caused severe and permanent injuries.

¶9 At the time of his injuries, Latham received Medicaid through the State of Utah. The parties agree that Medicaid paid a total of $104,065.32 in medical expenses related to Latham's stroke.

¶10 Generally, Medicaid does not seek reimbursement from Medicaid recipients when it pays for their medical treatment. But if a third party is liable for any or all of a recipient's injuries, then federal law requires state Medicaid programs to seek reimbursement from those third-party tortfeasors. See 42 U.S.C. § 1396a(a)(25)(A)–(B) ; UTAH CODE § 26-19-401.² And it requires recipients to assign to the State any proceeds they receive from the third party. See 42 U.S.C. § 1396k(a)(1)(A).

¶11 To that end, ORS entered into a collection agreement with Latham that permitted Latham to "include medical costs paid by the State of Utah when making a claim against" the hospital and allowed ORS to recover from funds Latham was able to recover from the hospital. The collection agreement provided that "ORS' recovery shall be the statutory claim, as reduced by the attorney's fee of 33.3% of ORS' recovery." Both parties agree that ORS' potential recovery of $104,065.32 must be reduced by at least $34,688.44 in attorney fees. Thus, the most ORS could recover from the settlement is $69,376.88.

¶12 Latham ultimately settled his claim for $800,000—an amount not nearly what he believed his claim was worth. ORS participated in the settlement negotiations and approved the agreement. Latham and ORS agree that the full value of Latham's claim was $7,257,972.52. This amount includes, among other damages, $104,065.32 in past medical expenses paid by Medicaid and $6,430,614 in future medical expenses that Medicaid is not currently obligated to pay.

¶13 Latham filed a complaint for declaratory relief in the district court, seeking a determination of how much ORS was entitled to collect from his settlement award. Citing federal Medicaid law, Latham argued that ORS was permitted to place a lien on only that portion of the settlement amount attributable to past medical expenses. He argued that the district court should divide the settlement amount ($800,000) by the total value of the claim ($7,257,972.52) and then multiply the resulting ratio (11 percent) by the total past medical expenses ($104,065.32). According to Latham's calculations, that meant ORS' recovery was capped at $7,631.46 after attorney fees.

¶14 ORS countered that it was entitled to collect from the portion of the award representing all medical expenses—be it for past or future expenses. Under ORS' calculation, this meant it could collect from up to 90 percent of the settlement amount (or $720,000), permitting a full recovery for ORS.

¶15 Latham filed a motion for judgment on the pleadings, which the district court denied. Instead, the court entered judgment in favor of ORS, ruling that ORS could place a lien on the portion of Latham's settlement amount representing all medical expenses. And because $720,000 was greater than the State's lien amount, the State could recoup its entire claim of $69,376.88 ($104,065.32 minus attorney fees of $34,688.44).

¶16 Latham appeals. We exercise jurisdiction pursuant to Utah Code section 78A-3-102(3)(j).

STANDARD OF REVIEW

¶17 This court reviews a decision on a motion for judgment on the pleadings de novo, giving no deference to the district court's analysis. See DIRECTV v. Utah State Tax Comm'n , 2015 UT 93, ¶ 11, 364 P.3d 1036.

ANALYSIS

¶18 The parties dispute how much ORS is entitled to collect from Latham's settlement award. The answer lies in whether federal Medicaid law permits ORS to attach its lien to settlement funds allocable to all medical expenses—both past and future—or to only the portion of the settlement representing past medical expenses.

¶19 We first analyze applicable federal law and conclude that ORS may place its lien only on settlement funds allocable to past medical expenses. We then address how a district court should make such a calculation.

I. APPLICABLE FEDERAL LAW

¶20 Medicaid is a federal-state program that provides medical assistance to residents of participating states who cannot afford medical care. See 42 U.S.C. § 1396a(a). In a state's implementation of its Medicaid plan, federal law broadly prohibits states from seeking reimbursement from individual Medicaid recipients for benefits they have received (except in some circumstances not relevant here). Specifically, the law prohibits a state from imposing a lien "against property of an individual on account of medical assistance rendered to him [or her] under a State plan" before his or her death. Id. § 1396p(a) (anti-lien provision).

¶21 But the third-party liability provisions of the federal Medicaid law create an exception to this general rule. If a third party is liable for medical costs paid by Medicaid on behalf of a recipient, federal law requires states to first "take all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services available under the plan." Id. § 1396a(a)(25)(A). If the State determines such legal liability exists and Medicaid has paid for medical costs for which the third party is liable, then the state plan must "seek reimbursement for such assistance to the extent of such legal liability." Id. § 1396a(a)(25)(B). Finally, federal law requires participating states to have in place laws under which the state plan is considered to have acquired the right of the recipient to payment by the third party, to the extent that Medicaid payments have been made. Id. § 1396a(a)(25)(H).

¶22 The third-party liability provisions may be in tension with the anti-lien provision when a Medicaid recipient receives a tort recovery that is insufficient to both cover Medicaid's expenditures and fully compensate the recipient for his or her other damages. The United States Supreme Court provided some clarification on the interaction of these provisions in Arkansas Department of Health & Human Services v. Ahlborn , 547 U.S. 268, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006).

¶23 In that case, Arkansas resident Heidi Ahlborn suffered injuries in a car accident and the Arkansas Department of Health and Human Services (ADHS) paid medical providers $215,645.30 on her behalf under the state's Medicaid plan. Id. at 272–75, 126 S.Ct. 1752. Although the parties agreed that Ahlborn's total claim was reasonably valued at $3,040,708.12, the settlement she received from the tortfeasor was only $550,000. Id. at 274, 126 S.Ct. 1752. At the time, "Arkansas law automatically impose[d] a lien on the settlement in an amount equal to Medicaid's costs." Id. at 272, 126 S.Ct. 1752. Pursuant to that law, ADHS asserted a lien on Ahlborn's settlement for the full amount of its expenditures related to her injury. Id. at 274, 126 S.Ct. 1752.

¶24 Ahlborn filed an action seeking a declaration that...