The Courts and Healthcare Policy - August 2021

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The courts continue to play an important role in health policy. 2020 saw several notable lawsuits related to the Affordable Care Act (ACA). Several other Trump administration policies were challenged, including Medicare payment policies, price transparency, how the Medicaid program can change and whether Medicaid beneficiaries can sue over curtailed benefits, and immigration changes affecting access to programs like Medicaid. By June 2021, the Supreme Court had ruled in the risk corridors case and the case of Texas v. United States.

The courts will play an important role going forward, and the Supreme Court has agreed to take up several cases related to healthcare in the next term.

Cases Related to the Affordable Care Act

Texas v. United States. In April 2018, a group of Republican-controlled states and two Texas residents argued that the entire ACA became unconstitutional when Congress eliminated the penalty for individuals who fail to obtain health insurance, known as the individual mandate. The initial ruling was that the provision was now unconstitutional. The case was then appealed. On February 14, 2019, 5th U.S. Circuit Court of Appeals permitted a coalition of 17 states to intervene in the case and defend the ACA (the “state intervener-defendants”). On May 13, 2020, the 5th Circuit allowed four more states to intervene in the case on appeal, bringing the total number of states defending the ACA to 21.

In Oct. 2020, a divided three-judge panel of the 5th U.S. Circuit Court of Appeals issued a ruling stating the individual mandate was unconstitutional and can no longer be justified as a tax since Congress set the penalty at zero. However, the panel also remanded the case to the lower court to determine what portions of the ACA are or are not severable from the individual mandate.

The coalition of Democratic attorneys general asked the U.S. Supreme Court to take up the case and not wait for the Texas court to rule on the constitutionality of the ACA and its provisions.

On Feb. 10, 2021, the Department of Justice (DOJ) sent a letter to the U.S. Supreme Court stating that the Biden administration believes the individual mandate and its tax penalty are constitutional, and if the Court deemed them unconstitutional, the individual mandate could be severed from the rest of the ACA. With this letter, the Trump administration position that the tax provision is unconstitutional and inseparable from the ACA was reversed.

Update: On June 17, 2021, the Supreme Court threw out the challenge to the ACA in a 7-2 decision, citing lack of standing by the plaintiffs. 

Risk Corridors. The temporary risk corridors program was created to serve as one of Affordable Care Act’s (ACA) three stabilization programs. The goal of risk corridors was to persuade risk-averse insurers to participate in the new health insurance marketplaces by limiting participating plans’ profits and losses during the first three years of exchange operations.

In Dec. 2014, Congress passed an appropriations rider that limited the Department of Health and Human Services’ (HHS) ability to make payments to cover risk corridors payments. In response to a request from Congress in Feb. 2014, the Government Accountability Office (GAO) reported that HHS could use “CMS program management” funds to make risk corridors payments. Congress included identical riders in appropriations legislation and continuing resolutions for 2016 and 2017.

By 2016, HHS owed more than $12 billion to insurers under its risk corridors formula. There are dozens of lawsuits over unpaid risk corridors payments, including a class action with at least 116 insurers.

Lower court rulings were mixed. Of the four insurers whose cases are pending before the Supreme Court, judges in the Court of Federal Claims ruled against three insurers (Land of Lincoln, Blue Cross and Blue Shield of North Carolina, and Maine Community Health Options) and in favor of one insurer (Moda Health Plan). In June 2018, a three-judge panel of the Federal Circuit held that the government did not need to pay insurers the full amount owed to them in risk corridors payments.

The insurers’ request for en banc review by the Federal Circuit was denied in Nov. 2018. The insurers then petitioned the Supreme Court to hear their appeal in early Feb. 2019. The Supreme Court consolidated the three cases into one and heard it in Dec. 2019.

Update: On April 27, 2020, The Supreme Court ruled 8-1 in favor of commercial health insurers, stating that they are owed $12 billion in unpaid risk corridors payments from 2014-2016. The case, Maine Community Health Options v. United States consisted of three consolidated cases brought by four insurers.

Association Health Plans. In June 2018, the Department of Labor (DOL) expanded the circumstances when an aggregation of small groups could be considered a large-group health plan. These association health plans (AHP) sought to make it easier for small employers to band together and offer plans that do not comply with Affordable Care Act (ACA) consumer protections. In July 2018, 11 states and D.C. sued in federal court to block the rule in the case of New York v. U.S. Department of Labor. The District Judge ruled that the DOL had stretched the definition of employer beyond what the Employee Retirement Income Security Act (ERISA) intended.

In a March 28, 2019 decision, a federal judge struck down the rule that had relaxed restrictions on multiemployer AHPs.

On November 14, 2019, the D.C. Circuit Court heard oral arguments for the case.

On July 22, 2020, two employers brought parallel litigation in Texas, asking for a declaratory judgment that their health coverage arrangement was a single-employer self-insured group health plan, and thus exempt from most ACA rules. The employers had requested an advisory opinion from the DOL, which concluded that the arrangement did not qualify as a single-employer group health plan.

On Aug. 3, 2020, the District Court for the Southern District of New York gave its opinion in favor of New York State, ruling that the DOL too broadly defined the term “healthcare worker,” and exceeded its authority as a result. The Court ruled that the DOL’s definition was not in line with what Congress intended when it enacted the Families First Coronavirus Response Act (FFCRA) and, as a result, could lead to non-clinical employees or medical practice affiliates being excluded from the FFCRA protections.

Update: On Jan. 28, 2021 the Department of Justice (DOJ) requested a 60-day abeyance to give the Biden Administration time to review the issues in the case and determine how to proceed.

Short-Term Plans. On Aug. 1, 2018, the Departments of Health and Human Services (HHS) and Treasury issued a final rule to expand access to short-term, limited-duration insurance coverage that does not need to comply with ACA requirements.

On July 17, 2020, the D.C. Court of Appeals ruled 2-1 to uphold the short-term plan rule, thereby rejecting the plaintiffs’ claim that the rule is contrary to Congressional intent in implementing the Health Insurance Portability and Accountability Act (HIPAA).

Update: On Feb. 8, 2021, the D.C District Court agreed to the Department of Justice’s (DOJ) request to delay proceedings in order to give the Biden Administration an opportunity to review the case. The parties are to update the court again on April 9, 2021 and every 60 days thereafter.

Cost-Sharing Reductions (CSR). ACA’s cost-sharing reduction program was intended to compensate insurers for setting low deductibles and copayments on the exchanges. In 2017, the Trump administration decided to stop making the CSR payments, prompting numerous lawsuits from insurers. Insurers created a work-around, called “silver-loading,” that allowed the plans to mitigate the CSR losses through increased tax credits. The insurers have won various lower-court rulings, and a consolidated group of the lawsuits was on appeal at the U.S. Court of Appeals for the Federal Circuit. Oral arguments were held Jan. 9, 2020.

On Aug.14, 2020, the Court of Appeals for the Federal Circuit affirmed a lower court ruling that the federal government is liable to insurers for the loss of CSR reimbursements. The court determined that the federal government could reduce the amount owed to insurers since many insurers utilized a practice called silver-loading to mitigate losses.

On Aug. 17, 2020, a three-judge panel of the Court of Appeals for the Federal Circuit issued two decisions for Sanford Health Plan v. United States and Community Health Choice v. United States. The Court concluded that under Section 1402 of the ACA, insurers are entitled to unpaid CSRs. The Federal Circuit agreed with the lower courts that Section 1402 imposes an “unambiguous obligation” on the federal government to make CSR payments to insurers and that this obligation is enforceable for damages. The three-judge panel limited the amount of unpaid CSRs that insurers can recover based on premium loading. 

On Feb. 19, 2021, insurers Maine Community Health Options and Community Health Choice asked the Supreme Court to review the Federal Circuit decision. On Feb. 24, 2021, Common Ground Healthcare Cooperative filed its own cert petition.

Update: On June 21, 2021, the Supreme Court denied the insurers’ request to take up the CSR case, leaving in place the Aug. 2020 Federal Circuit decision that the insurers’ reimbursement for money owed could be offset by other income received from the government in the form of premium tax credits. Litigation will continue in the lower courts to determine how much the insurers can claim.  

Contraceptive Mandate. The ACA exempts non-profit religious organizations from complying with the contraceptive mandate. In 2017, the Department of Health and Human Services (HHS) created new rules to give for-profits groups the ability to exempt themselves from the mandate for religious or moral reasons. As a result, several states sued the government.

On July 12, 2019, the U.S. Court of Appeals for the Third Circuit upheld a temporary injunction on the HHS rules, stating they were arbitrary, capricious, and violated the Administrative Procedure Act (APA).The Little Sisters of the Poor and the government petitioned the Supreme Court following the third Circuit decision. The Supreme Court consolidated the two petitions and heard oral arguments on May 6, 2020.

Update: On July 8, 2020, the U.S. Supreme Court issued a 7-2 decision in Little Sisters of the Poor v. Pennsylvaniaupholding the Trump Administration’s rules that allow religious and moral exemptions to the Affordable Care Act’s (ACA) contraceptive mandate. The ruling reversed the Third Circuit decision. Litigation continues before the district courts in California, Pennsylvania, and the First Circuit Court of Appeals. 

Nondiscrimination Provisions. On June 19, 2020, the Trump administration issued a final rule that amended a 2016 rule implementing Section 1557 of the Affordable Care Act (ACA). Section 1557 prohibits discrimination based on race, color, origin, sex, age, and disability in health programs receiving federal financing. The Trump administration final rule eliminated provisions protecting against discrimination based on gender identity and sex-stereotyping that had been explicitly included in the 2016 final rule.

At least five lawsuits challenged the 2020 final rule and asked the court to vacate it and prevent HHS from implementing or enforcing its provisions. The lawsuits argued that the 2020 rule violated the Administrative Procedure Act (APA) as it was arbitrary, capricious, and contrary to law. They also argued that the rule exceeded HHS’s statutory authority and violated the Fifth Amendment.

On June 15, 2020, the Supreme Court ruled in Bostock v. Clayton County that discrimination based on gender encompasses sexual orientation and gender identity in the context of employment. Based on this decision, two federal courts have issued nationwide preliminary injunctions blocking the Trump administration from implementing parts of the final rule.

On Aug. 17, 2020, a New York court blocked the implementation of provisions excluding sex stereotyping from the definition of sex discrimination. After the plaintiffs requested clarification of the preliminary injunction order, the court directed the plaintiffs to submit a list of the 2020 rule’s provisions other than gender discrimination that can be kept despite the Supreme Court’s decision.

On Sep. 2, 2020 the D.C. Federal District Court blocked the implementation of provisions excluding gender stereotyping from the definition of sex discrimination as well as provisions incorporating a blanket religious freedom exemption from claims of sex discrimination. Several other legal challenges are pending.

Update: Lawsuits challenging the Trump administration’s rule to implement Section 1557 of the Affordable Care Act (ACA) are pending. The Trump administration had appealed the decisions made by the 2nd and D.C. district courts, and the appeals as well as pending litigation in D.C. and New York are held in abeyance.

Columbus et al. v. Trump - “Take care” Clause. The 2018 case of Columbus et al. v. Trump brought by a group of five cities: Columbus, Baltimore, Cincinnati, Chicago, and Philadelphia, argued that President Trump administration violated the Constitution by sabotaging the ACA, since the President is required to “take care that the laws be faithfully executed.” In addition, the plaintiffs stated that they had to spend more money on uncompensated care for their residents after the Trump administration limited care.

In April 2020, the district court held that the lawsuit could proceed under the Administrative Procedure Act (APA) but not the Take Care Clause of the Constitution.

Update: On March 4, 2021 a federal court in Baltimore ruled that the Trump administration unlawfully undermined the Affordable Care Act (ACA) and struck down four provisions of a 2019 Trump administration rule. The provisions vacated by the federal court include requiring federal review of network adequacy, income verification, standardized options, and a medical loss ratio.

Section 1332. On Oct. 22, 2018, the Departments of Health and Human Services (HHS) and Treasury released new guidance on Section 1332 that allowed states to waive certain requirements of the ACA following approval from HHS and Treasury. The Trump administration created “state innovation waivers” with the objective of enabling states to pursue alternative coverage approaches in the individual and small group markets.

On Nov. 1, 2020, the Trump administration approved a waiver request from Georgia under Section 1332 that authorized the state to establish a reinsurance program for plan year 2022 and eliminate the use of healthcare.gov starting in 2023.

On Jan. 14, 2021, Planned Parenthood Southeast and the Feminist Women’s Health Center filed a lawsuit in D.C.’s federal district court challenging the Trump administration’s approval of Georgia’s Section 1332 waiver. The lawsuit alleged that the Trump administration’s 2018 guidance and approval of Georgia’s waiver were unlawful because these actions violate Section 1332 of the ACA and the Administrative Procedure Act (APA).

Update: On March 26, 2021, a district judge granted Georgia permission to intervene in a lawsuit filed by Planned Parenthood Southeast and the Feminist Women’s Health Center that challenged the Trump Administration’s approval of Georgia’s waiver under Section 1332 of the Affordable Care Act (ACA). The state of Georgia had previously submitted a motion to intervene, stating its interests were not adequately served by either party in the case.

Medicaid in the Courts

Section 1115 of the Social Security Act gives the Secretary of Health and Human Services (HHS) the ability to approve experimental or pilot projects that are deemed likely to help promote the objectives of the Medicaid program. The Centers for Medicare and Medicaid Services (CMS) carries out a review of each proposal to determine if its objectives align with those of Medicaid. Some states have requested that Medicaid eligibility be contingent on whether an individual is working, volunteering, or in some way participating in the community.

On Dec. 4, 2020, Supreme Court granted the Arkansas and Trump administration petitions for certiorari in Arkansas v. Gresham and Azar v. Gresham.

As waivers including work requirements were approved, opponents responded with lawsuits challenging those waivers. D.C. District Court Judge James Boasberg repeatedly sided with the opponents of work requirements, ordering Arkansas to suspend its work requirement program and blocking the policy from taking effect in Kentucky and New Hampshire.

Other lawsuits challenged the policy in Indiana and Michigan. Judge Boasberg’s rulings against work requirements were on appeal at the D.C. Circuit, which heard oral arguments in October 2020. The D.C. Circuit considered the case on an expedited schedule.

On July 22, 2020, the Supreme Court heard Gresham v. Azar. The D.C. District Court set aside state Medicaid waivers with work requirements. That decision was affirmed by a unanimous panel of the D.C. Court of Appeals in a decision written by Judge David Sentelle. The attorney general of Arkansas and the Trump administration filed cert petitions on July 13, 2020.

On March 11, 2021 HHS Report found that a number of state Medicaid waivers correlated to coverage losses and negative health outcomes. The report stated this is partly because beneficiaries do not understand the new conditions of the waivers related to work requirements, health savings accounts, premiums, and more. HHS issued the report in response to an executive order that directed the agency to review demonstrations that could reduce Medicaid coverage.

On Feb. 12, 2021, CMS told states it does not believe that Medicaid work requirements promote Medicaid objectives. States had thirty days to provide CMS with information on why they disagreed.

The Supreme Court canceled oral arguments in the Medicaid work requirements lawsuit on March 11, 2021.

Update: On April 5, 2021, the Supreme Court announced it temporarily suspended its review of the Medicaid work requirements that the Trump administration had approved for Arkansas and New Hampshire. The Biden administration revoked Arkansas’s and New Hampshire’s Medicaid work requirement 1115 waivers on March 17, 2021. On April 6, 2021, the Biden administration revoked Wisconsin’s and Michigan’s Medicaid work requirement waivers, bringing the current total of states with revoked 1115 waivers to four. Unlike several other states, Michigan and Wisconsin did not defend their work requirement programs to CMS in March. On June 25, 2021, CMS rescinded work requirement waivers granted to Arizona and Indiana under the Trump Administration. The cases are still on hold, pending another Supreme Court order.

Beneficiaries’ right to sue. Another policy tested in the courts is the extent to which beneficiaries have a right to sue state officials to challenge state actions that curtail Medicaid benefits. The ability to bring such lawsuits in federal court has long been viewed as an important safeguard for beneficiaries, but in recent years, some courts have expressed doubt about the legal theories underlying such lawsuits.

The U.S. Supreme Court declined to weigh in on the issue in 2018. However, a lawsuit was brought to the 5th Circuit by beneficiaries challenging Texas’ attempt to remove abortion providers from its Medicaid program. In a Nov. 2020 decision, the 5th Circuit Court of Appeals allowed Texas to remove Planned Parenthood from its state Medicaid Program, saying that states have a right to determine which providers are qualified.

Several Texas Planned Parenthood affiliates filed a lawsuit in Feb. 2021, stating that they had not been issued a proper notice of termination from the Medicaid program.

Update: On March 10, 2021, a state district judge ruled that Texas can remove Planned Parenthood from its Medicaid program.

Medicare Payment Policy Challenges

In Medicare, the Centers for Medicare and Medicaid Services (CMS) took part in two controversial payment policies that the agency said would bring down costs. Hospitals claim these policies are illegal, and fighting the policies is a priority for the hospital industry.

340B cuts. One lawsuit challenges the agency’s 2018 and 2019 reimbursement cuts for drugs in the 340B drug discount program. Hospitals argued that the agency did not have the authority to make those cuts, and a federal district judge agreed. Oral arguments were heard in Nov. 2019.

On July 31, 2020, the Court of Appeals for the D.C. Circuit overturned the 2018 district court decision that found the Department of Health and Human Services (HHS) exceeded its statutory authority when it reduced 2018 and 2019 Medicare payment rates by 30 percent for many of the hospitals in the 340B Drug-Pricing Program.

In Dec. 2020, the American Hospital Association, joined by four other national hospital groups and hospital pharmacists, filed a federal lawsuit against HHS over its failure to enforce program requirements and halt drug company actions that undermined the program, such as limiting the 340b program through contract pharmacies.

The hospital groups were joined by three 340B hospitals serving patient communities in need that have been harmed by companies’ refusals to provide discounts on prescription drugs dispensed at community-based pharmacies as required by the 340B program.

On Feb. 11, 2021, the American Hospital Association (AHA) and member hospitals filed petitions asking the Supreme Court to reverse two appeals courts decisions related to hospital payments.

Update: On Feb. 17, 2021, a federal judge from the U.S. District Court for the Northern District of California dismissed the lawsuit, stating that hospitals cannot sue individually under federal law for 340B violations. The judge stated that hospitals must use the dispute resolution process.

The Supreme Court will hear the lawsuit in the upcoming session.

Site neutrality. American Hospital Association et al. v. Azar challenged CMS’ 2019 site-neutral policy, which cut payments for outpatient clinic visits at certain off-campus hospital facilities. Under the policy, the agency reimbursed hospitals for those visits at a rate equivalent to the cost of such services provided in doctors’ offices under the physician fee schedule. In Sep. 2019, a judge from the D.C. District Court said CMS lacked authority to make the cuts and vacated them. As with the 340B reimbursement cuts, the litigation did not stop CMS from going ahead with phasing in the cuts in its 2020 outpatient rule.

On July 17, 2020, the Court of Appeals for the D.C. Circuit reversed the district court decision to uphold the 2019 Medicare payment rule, expanding outpatient “site neutral” payment policies to apply to all hospital outpatient clinic visits, including longstanding off-campus provider-based hospital departments (PBDs). The decision by the Court of Appeals allowed the Expanded Site-Neutral Policy to stand, unless reversed by the Supreme Court.

Update: On June 28, 2021, the Supreme Court announced it would not take up AHA’s site-neutral cuts lawsuit. This decision allows the Department of Health and Human Services (HHS) to move forward with the reimbursement cuts included in the 2019 Outpatient Prospective Payment System rule.

Transparency Policy

CMS faced drug and hospital industry-led legal challenges to two 2019 final rules issued that required drug companies and hospitals to disclose more information about pricing. Both challenges were based on the First Amendment.

Drug prices. A May 2019 drug pricing rule by the U.S. Food and Drug Administration (FDA) required pharmaceutical companies to include the list prices of their drugs in television advertising, which led to the lawsuit Merck & Co. Inc. et al. v. U.S. Department of Health and Human Services et al.

Update: On June 16, 2020, a three-judge panel from the D.C. Circuit Court backed a lower court's decision that the Department of Health and Human Services (HHS) overstepped its regulatory authority by requiring pharmaceutical companies to list their drug prices in television advertising. The case is on appeal at the D.C. Circuit.

Hospital prices and transparency. CMS issued a Transparency Final Rule in Nov. 2019 that required hospitals to publish the confidential rates they negotiated with private insurers. The rule was promulgated under Section 2718(e) of the Public Health Service Act, a provision of the ACA known as the medical loss ratio provision. The hospital industry sued, arguing that the rule was highly burdensome and violated hospitals’ free speech.

In late June 2020, the district court upheld the Transparency Final Rule. The American Hospital Association, the lead plaintiff, quickly appealed to the decision to the D.C. Circuit. However, on Dec. 29, 2020, the D.C. Court of Appeals upheld the district court’s ruling and rejected the American Hospital Association (AHA) and other hospital groups’ challenge of the hospital price transparency rule.

Update: On Dec. 29, 2020, a Federal Appeals Court ruled against the AHA’s legal challenge to the Centers for Medicare and Medicaid Services (CMS) final rule requiring hospitals to disclose their private negotiated charges with health insurers. The rule went into effect Jan. 1, 2021.

Other Health Law Issues

Immigrants and health insurance. The “Public Charge” rule, issued in Aug. 2019 by DHS, made it harder for individuals who immigrated to the U.S. legally and received certain forms of public assistance, including Medicaid, to remain in the U.S. and become permanent residents. The proclamation required new immigrants seeking entry into the country to demonstrate that they would be able to obtain health insurance other than the ACA or Medicaid.

On Aug. 5, 2020, a Fourth Circuit panel ruled 2-1 in favor of the Trump administration policy and reversed the nationwide injunction of the policy issued by a federal judge in Maryland. On Jan. 11, 2020, the U.S. Court of Appeals for the Fourth Circuit was the only federal appeals court to allow the rule to proceed.

On March 9, 2021, the Supreme Court dismissed the case. A court order vacating the 2019 Public Charge Rule went into effect, and the Department of Homeland Security (DHS) immediately stopped applying the rule.

Update: On March 15, 2021, the Biden Administration officially removed the 2019 Public Charge rule from the Code of Federal Regulations.

Conscience rule. On May 2, 2019, the U.S. Department of Health and Human Services (HHS) and Office of Civil Rights (OCR) released a final rule that expanded the ability of medical professionals to refuse to provide care based on religious or moral objections.

The state of California and two additional states and cities sued the Trump Administration on May 21, 2019, stating that the conscience rule would encourage discrimination against women and the LGBT community.

On Nov. 6, 2019, a federal judge voided the conscience rule, stating that HHS did not have the authority to impose major portions of the rule.

Update: The Trump Administration appealed multiple district court decisions related to the provider conscience rule to the 2nd and 9th Circuit Courts of Appeal. Oral arguments before the 9th Circuit were scheduled for Feb. 2021, but the court granted the government’s request to hold the appeals in abeyance. A status report was due by June 1, 2021. Oral arguments scheduled for March 17, 2021 in the 2nd Circuit were also removed from the calendar after the court agreed to hold the appeals in abeyance, and status reports were filed on March 8, 2021.

2022 Cases

340B Reimbursement. On July 2, 2021, the Supreme Court stated that it would hear American Hospital Association v. Becerra, a lawsuit by hospitals over cuts to Medicare reimbursement for 340B drugs and will also hear arguments on whether a review is precluded by statute.

The Centers for Medicare and Medicaid Services (CMS) cut Medicare pay for 340B drugs by approximately 30 percent in 2018, and the district court ruled that CMS did not have the authority to make this change. CMS appealed the decision, and an appeals court upheld the pay cuts.

Medicare Disproportionate Share Payments. On July 2, 2021, the U.S. Supreme Court accepted the Department of Health and Human Services’ (HHS) request to review HHS Secretary Xavier Becerra v. Empire Health Foundation since the courts’ decisions are split. The case involves the question of whether or not the Centers for Medicare and Medicaid Services (CMS) must include patients who have exhausted their Medicare Part A benefits when calculating disproportionate share hospital (DSH) payments.

The issue stems from a 2005 rule in which HHS stated that although patients are entitled to benefits under Medicare if they have used all of their Part A benefits, Medicare will no longer pay providers for their care. As a result, hospitals sued HHS, accusing the Department of incorrectly equating the statutory language of “entitled” to with “eligible” for benefits. Two circuit courts sided with HHS, finding the law was ambiguous and the secretary’s interpretation of the law was reasonable. However, the 9th Circuit Court ruled earlier this year in favor of the hospitals, stating that “entitled” and “eligible” cannot be considered interchangeable if the statute includes both words.

States’ Ability to Recover Medicaid Beneficiaries’ Settlement Costs. On July 2, 2021, the Supreme Court agreed to hear Gallardo v. Marstiller, a case on whether state Medicaid agencies can recover costs for Medicaid beneficiaries’ past medical expenses from settlements that are aimed at compensating them for their future medical costs.  

The case revolves around a Florida woman, Gianinna Gallardo, who was hit by a truck while getting off a school bus at 13 years of age in 2008, and has been in a vegetative state since. She received an $800,000 settlement for her medical expenses and other damages, but the amount only covered a fraction of the expenses. The Florida Agency for Health Care Administration wanted to recover $300,000 from the settlement after its state Medicaid program paid over $860,000 for Gallardo’s care, but only $35,000 of Gallardo’s settlement was earmarked for past medical expenses. Florida statute allows Medicaid to recoup costs from payments earmarked for future expenses. Lawyers argued that Florida’s law violates federal Medicaid statute. The District Court for the Northern District of Florida agreed that the Medicaid statute preempted Florida’s statute. However, the 11th Circuit Court reversed the decision three years later.  

States laws vary on whether costs can be recouped from settlements designated for future medical costs, and state supreme court decisions have been similarly varied.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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