Justice Stevens concluded:

Federal Medicaid law does not authorize ADHS to assert a lien on Ahlborn’s settlement in an amount exceeding $35,581.47, and the federal anti-lien provision affirmatively prohibits it from doing so. Arkansas’ third-party liability provisions are unenforceable insofar as they compel a different conclusion. Id. at 292

Ms. Ahlborn had recovered approximately one-sixth of the value of her injury. ADHS was entitled to approximately one-sixth the value of its medical lien, and was prohibited by statute from obtaining more. While the parties had stipulated to the full value of the settlement and the amount representing payment for past medical expenses, the Supreme Court treated the stipulation as having the same effect as a judicial decision. “The effect of the stipulation is the same as if a trial judge had found that Ahlborn’s damages amounted to $3,040,708.12 (of which $215,645.30 were for medical expenses), but because of her contributory negligence, she could only recover one-sixth of those damages.” It noted that, where the parties could not reach a similar stipulation, the issue could be resolved, “if necessary, by submitting the matter to a court for decision.”

Application in New York

Prior to Ahlborn, the New York courts held that public agencies had broad authority to satisfy their liens from the entire amount of a personal injury judgment or settlement. Gold ex rel. Gold v. United Health Services Hospitals Inc., 95 NY2d 683 (2001). In Calvanese v. Calvanese, 93 NY2d 111 (1999), the Court of Appeals had held that Medicaid agencies were entitled to fully recoup their liens from the proceeds of lawsuits. The entire amount of a personal injury settlement would be available to satisfy the lien, not only that portion of the settlement specifically allocated to past medical expenses.

In a significant post-Ahlborn decision, in Lugo v. Beth Israel Medical Center, 13 Misc.3d 681 (N.Y.Sup. 2006), Justice Alice Schlesinger aptly observed that Ahlborn has had a “significant impact on New York law.” In Lugo, Justice Schlesinger directly resolved an important question that was implicitly addressed by Ahlborn: what should happen if the parties do not agree upon what proportion of a settlement was attributable to past medical expenses?

The judge held that the appropriate action is for the court to hold a hearing to determine the “full value of the case and the value of the various items of damages, including plaintiff’s injuries and how they compare to verdicts awarded in other cases.” The value of the medical lien, as in Ahlborn, would be reduced in that proportion. The court in Lugo stated that Ahlborn must be read to limit the Department of Social Services’ recoupment to the amount of the settlement proceeds allocated to past medical expenses.

In reaching this decision, Justice Schlesinger rejected the argument of the Department of Social Services that Ahlborn did not require or sanction the use of a formula at all, because the formula applied in that case was by stipulation between the parties limited to that case. The judge stated that the Supreme Court had equated the stipulation to a judicial determination allocating the award, and thereby effectively sanctioned the use of the formula. Moreover, she reasoned that such a formula was rational. The plaintiff, on the other hand, had argued that the court could determine the true value of an injury based purely by comparison to similar cases, and simply adopting the allocation of damages that these cases had employed.

Justice Schlesinger rejected this argument, stating:

[T]o the extent that plaintiff Lugo suggests that the Ahlborn decision mandates the use of the same formula here and obviates the need for a hearing, this court does not necessarily agree. A court determination is necessary to confirm the full value of the case and the value of the various items of damages, including plaintiff’s injuries and how they compare to verdicts awarded in other cases. The parties are also entitled to be heard on the fair allocation of the settlement proceeds.

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