Medicaid and the “Made-Whole” Rule

July 13, 2015 § Leave a comment

In Mississippi, an insurer is not entitled to equitable subrogation unless and until the insured has been fully compensated. It’s known as the “made-whole” rule. Hare v. State, 733 So.2d 277, 284 (¶26) (Miss. 1999).

Can a chancellor rely on the made-whole rule to deny Medicaid’s claim of subrogation in a minor’s settlement?

A chancellor did deny Medicaid’s right of subrogation that would have left Javas Pittman, a minor, with only $6,000 from a $25,000 settlement. Javas had been seriously injured when he was riding on the hood of a car that was involved in a crash. There is no explanation in the record for the reason why the child was on the hood of a moving automobile. If his medical bills are any indication of the gravity of his injuries, they must have been severe, because they totaled more than $170,000, of which Medicaid paid around $66,000. The judge relied on Hare to deny Medicaid’s claim.

The COA reversed the trial court ruling in the case of Medicaid v. Pittman, handed down June 30, 2014. Judge Maxwell wrote for the court:

¶14. Unlike Hare, here there are no “issues of unilateral contracts and bargaining power in negotiations.” Miss. Ins. Guar. Ass’n v. Brewer, 922 So. 2d 807, 812 (¶23) (Miss. Ct. App. 2005). Instead, we are faced with a statute creating a clear right to reimbursement. Miss. Code Ann. § 43-13-125. [Footnote omitted] And according to the supreme court, when the “right of reimbursement ‘exists by virtue of statute,’” the equitable made-whole rule does not apply. Federated Mut. Ins. v. McNeal, 943 So. 2d 658, 661 (¶¶13-14) (Miss. 2006) (quoting Miss.Food & Fuel Workers’ Comp. Trust v. Tackett, 778 So. 2d 136, 143 (¶27) (Miss. Ct. App. 2000)). Instead, the existence of this right “must rise or fall strictly as a matter of statutory interpretation.” Id. at (¶13).

¶15. Melissa [Javas’s guardian] argues McNeal’s holding is narrow and only applies to the specific statute addressed in that case, Mississippi Code Annotated section 71-3-71 (Rev. 2011), which is part of the workers’ compensation act. But what distinguished the subrogation rights in McNeal from the rights in Hare was not workers’ compensation. Rather, the key distinction in McNeal was the fact the insurer’s subrogation rights “do not spring from a contractual agreement as in Hare, but rather are conferred by [s]ection 71-3-71.” McNeal, 943 So. 2d at 661 (¶13); see also Brewer, 922 So. 2d at 812 (¶23) (distinguishing legislatively established subrogation rights from the contractual rights subject to the made-whole rule in Hare). In other words, it was the source of the subrogation right—statute versus contract—that made the equitable made-whole doctrine inapplicable. McNeal, 943 So. 2d at 661 (¶¶13-14); see also Proulx, 121 So. 3d at 223-24 n.1 (acknowledging Medicaid’s statutory right to impose a lien on a settlement that did not make the injured party whole).

¶16. Here, Medicaid’s right to reimbursement did “not spring from a contractual agreement” but rather was conferred by section 43-13-125. McNeal, 943 So. 2d at 661 (¶13). Thus, the chancellor “erred when [he] applied the equitable made-whole doctrine to [this] statutory right[.]” Id. Like section 71-3-71,7 section 43-13-125(2) “unambiguously provides the method for distributing proceeds when, as here, an injured [Medicaid recipient] recovers from a third party.” McNeal, 943 So. 2d at 661 (¶14). So like section 71-3-71, the clear directive of section 43-13-125(2) could not be disregarded. See McNeal, 943 So. 2d at 661 (¶¶13-14).

¶17. Under section 43-13-125(2), “Any amount recovered by a recipient or his or her legal representative shall be applied,” first, to the recipient’s attorney’s fees and legal costs of recovery, second, to the amount of Medicaid’s interest, and, last, to the recipient, should there be “any excess.” While the chancellor recognized Javas’s attorney’s right to a priority payment of $8,640.89 for legal fees and expenses, the chancellor improperly ordered that Melissa could receive the excess on Javas’s behalf without first reimbursing Medicaid $10,308.40.

¶18. The chancellor based his decision not to follow section 43-13-125(2)’s directive by asserting Medicaid’s $10,308.40 recovery would unfairly leave Javas with a little over $6,000—a “neglible [sic] sum,” as he put it. While this may be true, “a chancellor, despite his broad equitable powers, is not free to disregard the clear guidance of a pertinent statute simply because he concludes that it would be unfair on the particular facts of the case to apply the statute according to its terms.” McNeal, 943 So. 2d at 661 (¶13) (quoting Tackett, 778 So. 2d at 143 (¶27)). Further, were Melissa to comply with the order and receive the settlement proceeds without first reimbursing Medicaid, she would be in clear violation of section 43-11-125(2), which in turn would jeopardize her and Javas’s Medicaid-eligibility status. See Miss. Code Ann. § 43-13-307 (Rev. 2009). [Footnote omitted]

¶19. Though the Mississippi Constitution vests chancery courts with subject-matter jurisdiction over equitable matters involving minors [Footnote omitted], such jurisdiction does not permit exceptions to clear statutes because they apply to minors. “[E]quity follows the law,” and “courts of equity cannot modify or ignore an unambiguous statutory principle in an effort to shape relief.” In re Estate of Smith, 891 So. 2d 811, 813 (¶5) (Miss. 2005) (citing In re Estate of Miller, 840 So. 2d 703, 708 (¶14) (Miss. 2003)). Because the order approving the minor’s settlement contained a condition that conflicts with the clear statutory principle that Medicaid shall recover its interest from the settlement, the order cannot stand. We have no option but to reverse the chancellor’s judgment and remand this case back to the chancery court to oversee a settlement that both takes into account Javas’s best interest and Medicaid’s unambiguous statutory right to reimbursement from the settlement.

Don’t forget that Medicaid will negotiate the amount of its lien. I have seen cases in which Medicaid has foregone its claim altogether, although I understand from one of the participants in this case that Medicaid refused to reduce its claim for some reason.

Always make sure you inquire about whether the minor for whom the settlement is sought is a Medicaid recipient. Carefully study the medical bills to see whether Medicaid paid anything. If it did, you must notify it of the settlement and get a letter specifying the amount of the lien it is claiming, and make that letter a part of the record.

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