Court of Appeals Rules Michigan Medicaid Lien Recovery Law is Pre-empted by Federal Statute

May 24, 2017


Court of Appeals Rules Michigan Medicaid Lien Recovery Law is Pre-empted by Federal Statute

Ladonna Neal v Detroit Receiving Hospital

On May 17, 2017, the Court of Appeals, in an opinion by Judge Cavanagh (Panel: Servitto, P.J., Cavanagh and Fort Hood, J.J.), ruled that “Medicaid” was not entitled by law to full recovery of its asserted lien following settlement by the principal parties in a medical malpractice case.

Plaintiff Ladonna Neal and Defendant Detroit Receiving Hospital settled a medical malpractice action allotting percentages for economic, non-economic and medical damages. Meridian Health Plan of Michigan, a Medicaid plan, had paid for Plaintiff’s medical care, and was billed $298,869.10, but paid $110,283.19.  A lien was asserted for $110,283.19.  The 5% allotted in the settlement totaled $26,775.

First Recovery Group, representing Meridian Health Plan, moved to reopen the case and recover the entire amount of the lien on the basis of MCL 400.106(5), the statute providing the state’s subrogation and assignment rights to recovery of funds paid for a patient’s medical care.  The statute provides that the state is “subrogated to any right of recovery that a patient may have for the cost of [medical care and services] not to exceed the amount of funds expended by the state. . .”

Plaintiff Neal argued this law was pre-empted by 42 USC 1396p(a)(1), an anti-lien provision preventing liens against property of a recipient on account of medical expenses paid under a state plan.

The Court of Appeals held the Michigan statute was preempted under Ahlborn v Arkansas Dep’t of Human Serv, 547 US 268 (2006), which ruled on a nearly identical Arkansas Medicaid recovery statute that provided for recovery of the entire amount of a lien from a settlement or judgment.  Ahlborn held that a state may not recover any amount that is in excess of the recipient’s recovery for medical expenses. Instead, under federal law, Arkansas could recover only the portion of settlement proceeds designated as payment for medical expenses, and the remainder constituted “property” under §1369p(a)(1) and was not subject to a Medicaid lien.

Plaintiff Neal argued that the stipulated amount (5%) for medical damages was a reasonable and proper allocation, and should be enforced. The Court of Appeals did not agree holding that if they were to accept such allocations by the parties, “the state’s Medicaid recovery would be subject to manipulation by the artificially low allocations to medical care, while the beneficiary keeps artificially high allocations to other damage categories like pain and suffering, lost wages, and loss of future earnings.”

The Court of Appeals, following  Wos v EMA, ____US____, 133 S Ct 1391(2013), held that  where the parties, with Medicaid participating,  cannot agree to an allocation, the trial court must conduct an evidentiary hearing to determine the amount of the Medicaid lien that may be recovered considering the true value of the case and the plaintiff’s claimed losses.  This amount would generally be the Medicaid claimant’s pro rata share based on the reduction between the full value claimed by the Plaintiff and the settlement amount.


The Michigan Supreme Court will likely grant leave on this case.  As it stands, the Court of Appeals has essentially held that if, for example, the Plaintiff can support an argument that the “full” value of the case was $1 million, and the case settled in total for $100,000, the Medicaid lien should be reduced by 90%.

Future settlements should clearly allocate between economic, medical and non-economic damages, and the Medicaid provider should participate before settlement is reached. As the defendant, this negotiation should be entirely between Medicaid and the Plaintiff, and no position should be taken on the reasonableness of the allocation.  As always, if the Plaintiff and Medicaid cannot reach an agreement the Plaintiff’s counsel will need to hold the full amount of the Medicaid lien in escrow until the allocation issue is resolved.