Rathbun vs Health Net

Medicaid and Medicare are secondary payers when a third party has a legal obligation to pay certain medical benefits for the beneficiary in the programs. In the past, Medicaid’s recovery of its payments from the third party tort settlement or award was limited to the portion of the settlement or award that was allocated for medical expenses. The passage of the Bipartisan Budget Act of 2013 modified this and will allow Medicaid to recover its costs from a beneficiary’s full personal injury settlement or award. The implementation of this portion of the budget bill is set for October 1, 2016. Medicaid’s scope of recovery will now be consistent with that allowed under the Medicare program. Medicare’s regulation, found in section 411.37 of 42 CFR, provides that Medicare may recover up to the amount of settlement or award less procurement costs, when the conditional payments exceed the settlement or award.

State Medicaid programs are becoming increasingly aggressive in their reimbursement efforts. The recent case of Amy Rathbun et al vs Health Net of the Northeast, Inc. (SC 18928) decided by the Supreme Court of Connecticut on March 10, 2015, addressed the right of the Medicaid program administrator to pursue reimbursement for medical costs directly from the beneficiaries’ third party settlements. The beneficiaries, Rathbun and Brayboy’s daughter had both been involved in separate motor vehicle accidents that resulted in Medicaid’s payment of medical expenses. When Rathbun and Brayboy on behalf of her deceased daughter, settled their third party claims, Health Net, the administrator of the state of Connecticut’s Medicaid program, sought to recover the amounts paid by Medicaid from the plaintiffs’ settlements. The plaintiffs challenged this right in court arguing that the General Statutes Section 17b-265 (a) that pertained to Medicaid’s right of reimbursement, only allowed Health Net to bring an action against the alleged tortfeasors and not the plaintiffs. Health Net countered that such an action would be unnecessary since it had been assigned the rights of the Medicaid program.

The Supreme Court of Connecticut reviewed the language of the statute and legislative history in analyzing the case. It noted Congress’ mandate that Medicaid be a payer of last resort and that states must seek reimbursement of Medicaid funds paid to recipients. Reimbursement may be effectuated through an assignment of rights, a right of subrogation and through a lien. The Court concluded that Health Net was entitled to pursue reimbursement from the plaintiffs’ settlements. It found that the Connecticut General Statutes Section 17b-265(a) should be viewed as one that incorporates common-law subrogation principles into its statutory subrogation right. It saw no reason why the Section would exclude the Medicaid program’s right to seek reimbursement from Medicaid recipients that receive a settlement.

In light of the Medicaid and Medicare programs reimbursement rights, parties to a settlement should investigate the existence of such payments early on in the settlement discussion process. Information regarding payments may be secured through the state Medicaid programs and Medicare’s Coordination of Benefits contractors. It is also important that the settlement agreement outline the parties’ responsibilities to satisfy or negotiate the reimbursement claims.

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