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F I S C A L I M P A C T R E P O R T

SPONSOR Park

DATE TYPED 03/08/05 HB 436

SHORT TITLE Third Party Medicaid Liability

SB

ANALYST Weber

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates Appropriation in the General Appropriation Act

Relates to Appropriation in the General Appropriation Act

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$350.0

$700.0

Recurring Other State Funds

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Human Services Department

SUMMARY

Synopsis of Bill

House Bill 436 amends Section 27-2-23 NMSA 1978 to clarify that Medicaid is the payor of last

resort; to require an applicant, recipient or legal representative to inform HSD when the recipient

has any rights to third-party benefits; and to require health care providers to notify HSD that a

third party may be liable for payment of health care services provided to a Medicaid recipient.

Further the bill states that an application for Medicaid benefits constitutes an assignment to HSD

of the applicant’s right to any settlement, judgment or award from a third party for the total

House Bill 436 -- Page 2

amount of medical assistance that the Medicaid program paid on the applicant’s behalf, and that

the assignment to HSD shall be considered a statutory lien on any settlement, judgment or award

the applicant/recipient receives from a liable third party.

With respect to HSD’s lien rights, the bill permits HSD to compromise or even waive its lien, the

latter only in cases of hardship. Finally, the bill provides that when a Medicaid recipient initiates

the action that leads to the Department’s recovery under its lien, the recipient’s attorney is enti-

tled to one third of the settlement for a case settled pre-trial or to two fifths of the settlement,

judgment or award in a case that goes to trial.

Significant Issues

Human Services reports.

HB 436 provides that a Medicaid applicant’s assignment of rights to the Department of any set-

tlement, judgment or award the applicant receives from a liable third party constitutes a statutory

lien to the Department for the full amount of medical assistance the Medicaid program paid on

the applicant’s behalf. The bill permits the Department to compromise or even waive its liens in

hardship cases and to make allowance for the efforts of the attorneys of Medicaid recipients who

brought the cases.

As a lien holder, the Department will have a stronger legal remedy to collect Medicaid’s share of

judgments, settlements or awards from liable third parties in cases Medicaid recipients have ini-

tiated. On the basis of the two New Mexico court cases construing the Department’s subrogation

and assignment statutes, the Department has been forced to reach “equitable” settlements of its

third-party liability claims. See Other Substantive Issues below. This law will take precedence

over those cases and enable the Department to recover a larger percentage of its Medicaid

claims. Many other states have similar lien laws, and those have been upheld in every state but

one.

This amendment clearly defines the duties and rights of all parties with respect to third-party li-

ability when the Medicaid program has provided medical assistance on behalf of Medicaid re-

cipients.

FISCAL IMPLICATIONS

HB 436 should significantly increase collections to offset Medicaid program expenditures made

on behalf of recipients. Since Medicaid costs continue to escalate, this bill should help to ensure

that Medicaid funds are returned to the program for the use of future needy recipients. Currently,

HSD collects about one third of the potential available on third party liability cases that the

Medicaid program has expended. Under this law, HSD expects to recover two thirds or more of

the potential collections.

ADMINISTRATIVE IMPLICATIONS

This amendment to Section 27-2-23 should simplify the Department’s efforts to recover Medi-

caid’s share of settlements, judgments or awards from liable third parties in cases initiated by

Medicaid recipients. The bill is expected to reduce both program and legal staff time devoted to

the Department’s collection efforts.

House Bill 436 -- Page 3

TECHNICAL ISSUES

Human Services advises the following technical issues deserve attention.

For clarification, on page 3, line 8, in paragraph I of Section 27-2-23, insert “of its payment for

medical assistance” after the words “department’s recovery”.

On page 3, line 12, in paragraph I of Section 27-2-23, insert “ and costs” after “Attorney fees”

before “shall not exceed.” The preceding sentence cites to “attorney fees and costs.” The word

“costs” was inadvertently omitted.

OTHER SUBSTANTIVE ISSUES

Human Services notes that New Mexico courts construing the current third-party liability statutes

that describe the Department’s subrogation (NMSA 1978, Section 27-2-23) and assignment

rights (NMSA 1978, Section 27-2-28(G)) have severely limited the Department’s third-party li-

ability recoveries by concluding in White v. Sutherland, 92 N.M.187 (Ct. App. 1978), and in

Kahrs v. Sanchez, 125 N.M. 1 (Ct. App. 1997, cert.denied 1998), that the Department’s reim-

bursement rights are subject to equitable reduction. The net result of those two cases is that the

Department’s recoveries from third-party liability cases have been severely compromised.

Many states have been sanctioned by the federal government for their failure to collect sufficient

funds from liable third parties. This bill should prevent New Mexico from receiving a federal

sanction.

MW/lg:yr