One of the big issues that’s been floating around the personal injury / wrongful death world over the past few years is the extent to which states can recoup the money they spent on an injured person’s care if that person later sues the person who caused the injury and obtains a settlement.

The Supreme Court gave us a partial answer in Arkansas Dept. of Health and Human Servs. v. Ahlborn:

There is no question that the State can require an assignment of the right, or chose in action, to receive payments for medical care. So much is expressly provided for by §§ 1396a(a)(25) and 1396k(a). And we assume, as do the parties, that the State can also demand as a condition of Medicaid eligibility that the recipient “assign” in advance any payments that may constitute reimbursement for medical costs. To the extent that the forced assignment is expressly authorized by the terms of §§ 1396a(a)(25) and 1396k(a), it is an exception to the anti-lien provision. See Washington State Dept. of Social and Health Servs. v. Guardianship Estate of Keffeler, 537 U. S. 371, 383-385, and n. 7 (2003). But that does not mean that the State can force an assignment of, or place a lien on, any other portion of Ahlborn’s property.

The issue became all the more pressing when the Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”), effective July 1, 2009, named tort defendants as “responsible reporting entities” that also have to assess the plaintiff’s Medicare / Medicaid status and ensure that those government liens have been paid. Defendants have, understandably, been annoyed by that.

Plaintiffs, of course, have already been responsible for clearing these liens.

Let’s pause and consider the background of these cases: a plaintiff is injured, has some care paid for by the government, and hires an attorney. The attorney then spends his or her own time, and own money, pursuing the case, until the plaintiff — who, despite their injury and resulting hardship, has tried to hold out for an appropriate settlement figure — and the defendant reach an agreement on how much the case is worth. The attorney then takes a cut of the settlement, covering their costs and paying themselves a fee for all that time and risk they put into the case.

Then the government wants a piece. It didn’t do anything to get the money, but it thinks it deserves to be reimbursed in full.

The vast majority of these claims are resolved amicably between then plaintiff’s attorney and the government, with the government waiving a chunk of the claim in order to get payment now, rather than later, and to not have to litigate the issue and risk having a judge rule against them.

But sometimes the plaintiff’s attorney and the government can’t reach an agreement, and so have to get the court to figure it out.

The big question has been: how does a court figure it out?

We just got one answer:

In a decision that is sure to grab the attention of the personal injury bar, a federal judge has ruled that a settling plaintiff cannot be automatically required to reimburse the Pennsylvania Department of Public Welfare for 100 percent of her Medicaid expenses because a settlement always reflects a compromise.

The ruling by U.S. District Judge Berle M. Schiller comes just a few months after lawyers at Kline & Specter secured a settlement worth nearly $12 million in a “state-created danger” suit against the Philadelphia Housing Authority over persistent mold in a home that allegedly triggered an acute asthma attack and left a teenage girl brain damaged.

The settlement in McKinney v. PHA sparked a new court battle when lawyers for DPW moved to vacate the settlement and to intervene in the suit to assert a $1.2 million lien.

Schiller decided instead that the proper approach was for the trial judge to “assess the factors that would have influenced the parties’ settlement positions and to make an ultimate determination of what portion of the settlement represents compensation for past medical expenses.”

As the judge who presided over the McKinney case through summary judgment and Daubert hearings, as well as settlement talks, Schiller concluded that the plaintiffs had settled for two-thirds of the value of the case.

That’s not a perfect answer, but it’s not a bad one. There’s no basis for the government to claim full reimbursement for a settlement in which a claim is, by definition, compromised. There’s also no easy way to figure out just how much of an overall settlement “should” be allocated to medical expenses, and it doesn’t make sense to engage in full-blown litigation over that question when the case itself has been settled.

Hence the shoot-from-the-hip approach. It’s not what I’d prefer — I think the plaintiff was right about the parties, who know the most about the case and the reasons for settlement, establishing the portion attributable to medical expenses — but I’ll take it.

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