On February 4, 2020, the Michigan Court of Appeals issued its published opinion in the matter of Theresa Byrnes, et al. v. Jacob Martinez, M.D., et al. This opinion provides much-needed guidance to attorneys and courts regarding the methods used to consider and implement when attempting to settle a lawsuit involving a Medicaid lienholder. The opinion also provides specific guidance regarding how to apportion amounts owed to a Medicaid lien out of already agreed upon settlement proceeds when the Medicaid lienholder was not involved in the settlement negotiations. Byrnes makes clear that litigants and courts need to give some consideration to potential Medicaid liens when settling claims involving damages for medical expenses. And the best time for doing so is prior to finalizing any settlement.

Byrnes involved an underlying medical malpractice lawsuit brought by a patient against a rehabilitative care center where she received care following a subarachnoid hemorrhage. While at the rehab center, it was eventually discovered that the patient suffered another subarachnoid hemorrhage. As a result, the patient was rendered left-sided hemiplegic and dependent on skilled nursing care for her daily needs. The patient received Medicaid benefits while being treated at the rehab center.

After the patient filed her medical malpractice lawsuit against the rehab center, the Department of Health and Human Services intervened to protect its subrogation interest relative to the Medicaid lien. Ultimately, the plaintiffs settled their claim with the rehab center for approximately 1/3 of what they demanded. While the Department participated in the facilitation, it was not a party to the settlement agreement. The plaintiffs and the Department each filed a motion requesting the trial court to apportion the settlement proceeds and address how much the Department would receive in Medicaid reimbursement. The Department argued that the trial court had to allocate the settlement proceeds into medical and non-medical expenses or hold an evidentiary hearing to allocate the proceeds before the amount of the Medicaid claim. The trial court ordered that the Department was entitled to reimbursement for a portion of the Medicaid lien and reduced the Department’s claimed lien proportionate to the amount of the entire settlement and then reduced that amount by a proportionate amount for attorney fees. The Department then appealed.

In its unanimous decision, the Court of Appeals reversed the trial court with respect to the method it used to calculate the amount that the Department could recover pursuant to the Medicaid lien. The panel specified two methods for dealing with a Medicaid lien and reiterated that the factors and calculations specified in Neal v Detroit Receiving Hospital, 319 Mich App 557; 903 NW2d 832 (2017) control. The parties and the Medicaid lienholder can either stipulate to the amount that the lienholder expects to recover, or the trial court can determine the proper and fair allocation of the settlement. With respect to the latter option, the Court held that the Trial Court must conduct an evidentiary hearing in order to determine the amount of the Medicaid lien and apportion that from the plaintiff’s settlement proceeds taking into consideration the true value of the case and the plaintiffs’ claimed losses. The Court of Appeals reversed the Trial Court’s apportionment of the settlement proceeds and remanded for the Trial Court to conduct an evidentiary hearing pursuant to Neal.

With respect to the evidentiary hearing, the Court of Appeals offered specific direction to the Trial Court as to how to evaluate the settlement proceeds under Neal. When calculating “medical expenses,” the trial court should consider what amount, if any, of the settlement should be attributed to future medical expenses. This determination is made based on what type of damages are claimed by the plaintiff in the complaint and may include past as well as future medical expenses. The Court of Appeals also directed that the trial court may not reduce a Medicaid lienholder’s share by a pro rata reduction of attorney fees; attorney fees and costs should be deducted from the settlement amount first—before the Medicaid lienholder receives its share.

In issuing its Opinion, the Byrnes Court also affirmed that when a Medicaid lienholder is an intervening plaintiff in a lawsuit, it does not have to assume the plaintiff’s burden of proving every element of a medical malpractice claim before a court can make a determination as to whether it is entitled to reimbursement for a portion of its lien. The panel also affirmed that when a Medicaid lienholder does intervene by right in a lawsuit, it is not an absolute right and a trial court is permitted to place restrictions on the Medicaid lienholder’s involvement in the litigation as long as the restrictions do not impose conditions precedent which violate a statute or court rule.

Strategically, it is advantageous for a defendant to either (1) assess all past and future medical expenses that will go towards a Medicaid lien prior to settlement or, (2) allow Medicaid to participate in the settlement negotiations. This allows the defendant to assess how much of the initial demand is meant to go towards medical expenses and how much the plaintiff is attempting to collect for non-economic damages. Most importantly, this assures the defendant that the Medicaid lien is satisfied in full thereby ensuring that its potential liability to Medicaid has been satisfied.

Keys of the Case:

• When settling a lawsuit involving a Medicaid lien, the parties should either (1) ascertain the exact amount the Medicaid lienholder expects to recoup and negotiate that amount prior to settling the underlying tort claim, or (2) involve the Medicaid lienholder in the settlement process in order to reach an agreement on the Medicaid lien.
• If a settlement agreement is reached without involving the Medicaid lienholder, a trial court should conduct an evidentiary hearing to determine the portion of the settlement amount attributable to medical expenses and apportion that amount from the settlement proceeds to the Medicaid lienholder while taking into consideration the plaintiff’s claimed damages and the true value of the case.
• When apportioning settlement proceeds into “medical expenses” and “non-medical expenses,” future medical expenses may be factored into the medical expenses to be apportioned to Medicaid reimbursement proceeds, depending on what damages are claimed by the plaintiff.
• Attorney fees and costs should be deducted from the settlement amount before a Medicaid lienholder receives its share of the settlement proceeds.
• A Medicaid lienholder is not required to assume the plaintiff’s burden and prove elements of an underlying medical malpractice claim for a court to find that the lienholder is entitled to reimbursement.
• The right to intervene is not an absolute right and a court may place restrictions on the intervention, as long as the restrictions do not impose conditions precedent violating statutes or court rules.

For more information on this opinion or other medical malpractice issues, please contact FBMJ attorneys Nicole C. Joseph-Windecker or Anthony Pignotti at 734-742-1800.