Medicaid Liens After Gallardo

State Medicaid Lien Recovery From Personal-Injury Settlements After Gallardo v. Marstiller

The Medicaid Act pulls in two directions. As a condition of eligibility, 42 U.S.C. § 1396k requires the beneficiary to assign the State her rights "to payment for medical care from any third party," and directs that amounts collected under the assignment "shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of an individual with respect to whom such assignment was executed," with "the remainder of such amount collected" paid to the individual. The anti-lien provision of 42 U.S.C. § 1396p runs the other way: "[n]o lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan," outside narrow exceptions for incorrectly paid benefits and certain institutionalized recipients’ real property. Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006) reconciled the provisions: a State’s lien is consistent with federal law insofar as it encumbers "proceeds designated as payments for medical care," but "the anti-lien provision precludes attachment or encumbrance of the remainder of the settlement" — the recipient assigns rights to payment for medical care, "not rights to payment for, for example, lost wages."

The question Ahlborn left open was whether the medical portion includes expenses Medicaid has not yet paid. Gallardo v. Marstiller, 596 U.S. 420 (2022) held that it does: "The Medicaid Act permits a State to seek reimbursement from settlement payments allocated for future medical care." The grant of "any rights . . . to payment for medical care" in section 1396k(a)(1)(A) "most naturally covers not only rights to payment for past medical expenses, but also rights to payment for future medical expenses"; the relevant distinction is "between medical and nonmedical expenses," "not between past and future medical expenses." The anti-lien provision did not bar that result, because Florida’s third-party recovery statute "is expressly authorized by the terms of . . . [§]1396k(a)" and falls within the "exception to the anti lien provision" the Court has recognized. Florida’s agency could therefore reach the settlement amounts compensating Gallardo’s future care even though Medicaid had paid only her past expenses — while everything allocated to lost earnings and other nonmedical damages remained out of reach.

How the medical share is identified matters as much as its scope. Wos v. E.M.A., 568 U.S. 627 (2013) struck down North Carolina’s statute deeming one-third of every tort recovery to be medical expenses: "An irrebuttable, one-size-fits-all statutory presumption is incompatible with the Medicaid Act’s clear mandate that a State may not demand any portion of a beneficiary’s tort recovery except the share that is attributable to medical expenses." The Court fixed the hierarchy of allocation methods. "When there has been a judicial finding or approval of an allocation between medical and nonmedical damages— in the form of either a jury verdict, court decree, or stipulation binding on all parties—that is the end of the matter." Short of that, "States have considerable latitude to design administrative and judicial procedures to ensure a prompt and fair allocation of damages," including rebuttable presumptions and adjusted burdens of proof — what federal law forbids is a fixed percentage that no beneficiary can contest.

Post-Gallardo litigation turns on that proof. Under Florida’s formula-based statute, Mejia Palacios v. Agency for Health Care Administration, No. 1D2022-2037 (Fla. Dist. Ct. App. Aug. 20, 2025) explained that a beneficiary challenging the presumptive lien amount "must prove, by clear and convincing evidence, that the portion of the total recovery which should be allocated as past and future medical expenses is less than the amount calculated by the agency pursuant to the formula set forth in paragraph (11)(f)." The court accepted the proportionality methodology — "applying the same ratio the settlement bore to the total value of the damages to the" claimed medical expenses to reach "a reasonable and conservative allocation of" the proceeds — reasoning that "[i]f Palacios's medical expenses made up one-eighth of his total claim—and taking this is as proven, which we must do in this appeal—they also should be allocated as one-eighth of the settlement amount." It also rejected the agency's attempt to shrink the ratio through the beneficiary's fault, concluding that comparative negligence is not "a factor relevant to determining how much of the lump settlement proceeds fairly constitutes the beneficiary's medical expenses." A concurring judge would have gone the other way on methodology, calling the proportionality approach "entirely speculative and therefore legally insufficient to meet the burden" because it "fails to tether the actual settlement allocation to the projected total-case-damages allocation."

Courts scrutinize the beneficiary’s side of the allocation as well. Perez v. City of New York, 2025 NY Slip Op 06879 (N.Y. App. Div. Dec. 10, 2025) restated the federal boundary — the agency recovers from the portion of a tort recovery "designated as payments for medical costs" and "not from other damages awards, such as pain and suffering or lost wages" — but refused to let settlement drafting do the allocating: "a Medicaid lien will not be defeated by the mere declaration of a plaintiff's attorney that the settlement does not relate to medical expenses," and the court's determination "is not foreclosed by the form of the settlement documents or the language used by the attorneys in the settlement stipulation, if that form and language do not truly reflect the consideration of the settlement, or are chosen merely as a means to defeat DSS' recovery." Because "[t]he plaintiff failed to provide any proof, such as the pleadings or bills of particulars, to demonstrate whether the plaintiff sought recompense for medical care," the lien stood. The rules thus converge from both directions: after Gallardo the State’s recovery runs to the full medical share of a settlement, past and future, and no further; an allocation fixed by jury verdict, court decree, or a stipulation binding on all parties controls; and where the settlement is unallocated, the medical share is set through state procedures in which neither an arbitrary statutory formula nor a self-serving settlement label substitutes for case-specific proof of what the recovery actually compensated.