Effective Date of Medicaid Secondary Payer Provision Delayed Until October 1, 2016



On March 31, 2014, Congress passed a bill that will delay the effective date of the 2013 Budget Act’s Medicaid Secondary Payer Provision until October 1, 2016. As written in the Budget Act, this Provision substantially broadens the States’ right to Medicaid reimbursement by allowing the States to recover medical costs from a Beneficiary’s entire liability settlement. The two-year delay will allow Federal and State governments more time to evaluate the effect of expanding State Medicaid recovery rights and how this Provision should be implemented at the State level.

The Bipartisan Budget Act of 2013 (“Budget Act”), passed in December 2013, included a Medicaid Secondary Payer provision which gave State agencies the ability to recover costs from a beneficiary’s entire liability settlement, rather than only those settlement proceeds designated as compensation for medical expenses. Under the Budget Act, the Medicaid Secondary Payer provision was initially set to be effective on October 1, 2014.

However, on March 31, 2014, Congress passed a Bill that delays the effective date for Medicaid Secondary Payer until October 1, 2016. Essentially, this creates an additional two-year period for Congress and the States to evaluate the impact of the Budget Act’s Medicaid Secondary Payer provision.

For background, in Arkansas Dep’t of Health & Human Servs. v. Ahlborn (2006), the Supreme Court held that the State’s third-party liability provisions allowing for Medicaid to recover against the entire settlement was pre-empted by the Federal Medicaid Anti-Lien provision. As a result of this decision, the general rule developed by Ahlborn and its progeny of cases was that the States cannot place a lien on a Medicaid beneficiary’s third party liability settlement during his/her life for more than the amount allocated for medical expenses.

It is important to note that the Medicaid Secondary Payer provision of the Budget Act seemingly overturns the general rule established by the Supreme Court’s decision in Ahlborn.

In general, this Medicaid Secondary Payer Provision substantially broadens States’ rights to Medicaid reimbursement and could have a major impact on the resolution of cases involving Medicaid. More specifically, this Provision directly targets and removes the Federal Medicaid statutory language specifically relied on by the Supreme Court in Ahlborn. The language revises the reach of State Medicaid agencies to recoup costs from a third party in a liability settlement from being limited to “health care items or services” to recovering against “any payments.”

In essence, the Budget Act adds an exception to the Federal Medicaid Anti-Lien Provision that allows a lien to be placed on a Medicaid Beneficiary’s third party liability settlement for the entire amount of the Beneficiary’s award, and not just the amount allocated to medical expenses. Essentially, depending on how the Budget Act is implemented by the States, third-party settlement funds meant to compensate beneficiaries for pain and suffering, lost wages, or any damages other than medical expenses could be subject to the reach of State Medicaid agencies seeking recovery.

At this point, since the effective date for the Medicaid Secondary Payer provision of the Budget Act is delayed until October 1, 2016, you should continue to apply the general rule established by Ahlborn and its progeny. For at least another two and a half years the States will not be able to use the expanded Medicaid Secondary Provision of the Budget Act to recover more funds from Medicaid Beneficiary third party liability settlements than those identified as recovery for past medical expenses. We anticipate more research and evaluation will be done on both the Federal and State level as to the overall impact of the Medicaid Secondary Provision during the next couple of years.

The Garretson Resolution Group will continue to monitor the changes in the Medicaid compliance world, and will keep you updated on all relevant developments. If you need more information, please contact Sylvius von Saucken at svs@garretsongroup.com or (704) 559-4300.

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