Legal News



Division Six of the Second Appellate District recently explained how to properly allocate the amount of noneconomic damages in a medical malpractice settlement in which a Medi-Cal lien has been asserted but no allocation of medical versus noneconomic damages has been made in the settlement documents. As modified, the decision in Martinez v. Department of Health Care Services (2018) Case #B278117 explains how to apply MICRA limitations and also the allocation of damages in Medicaid reimbursement cases set out in Arkansas Department of Health and Human Services v. Ahlborn (2006) 547 U.S. 268.

Plaintiff and appellant Martinez had been injured during the course of medical treatment and brought a case against the doctor for medical negligence. He applied for and received Medi-Cal payments to cover the actual cost (not the billed cost) of care in the amount of $86,676.46. Martinez then sued and settled with the allegedly negligent physician for $150,000. The Department asserted a lien against the settlement for the full cost of the medical care. Martinez and the Department attempted to negotiate a reduction in the amount of the lien, but the Department eventually sought the assistance of the trial court to determine the correct amount of the lien.

Using a somewhat novel technique, the trial court began by adding $250,000 in non-economic damages to the actual amount of medical services paid by the Department; the $250,000, the court reasoned, would be the maximum amount of non-economic damages to which any med mal plaintiff would be entitled to under MICRA. The total amount came to $366,676.46. The court then determined the $150,000 settlement paid by the defendant represented 45 percent of the $366,676.46, and used that valuation to determine the Department was entitled to 45 percent of its total lien, or $39,004.41.

On appeal, Martinez contended the court erred because he claimed the actual value of his case was $3 million, the court did not consider his future lost wages, and the amount billed by, rather than actually paid to the hospital should have been the number used by the court to assess damages. Finally, he claimed that he was entitled to $2.5 million for general damages.

The court made rather quick work of Martinez’s contentions. Since there was no credible evidence of lost earning capacity because of, among other things, a pre-existing condition, there was no amount that should be allocated for such damages. Since this case was a medical negligence case, the non-economic damages would be limited to $250,000 per MICRA and in no event would be $2.5 million. The amount billed by the hospital was irrelevant since the lien was based on the amount actually paid by the Department.

With respect to the trial court’s reduction of the lien amount, the court emphasized that under Ahlborn, “the entire settlement is not subject to Medicaid reimbursement, but only that portion of the settlement attributable to medical benefits.” Per Ahlborn, a Medicaid lien can only be repaid from the amount of damages that represent medical benefits, not general or other damages. Ahlborn “does not mandate a particular formula for allocating medical benefits where the settlement makes no such allocation,” but only requires a court to take a “rational approach” to determining an allocation. Here, the appellate court found the trial court made use of a “rational approach” to determine the damages allocation and reduction of the lien amount when it added the amount of MICRA capped general damages to the amount of actual medical costs and calculated what percentage of that sum was represented by the $150,000 settlement, then awarding the Department that percentage of its lien (45 percent of $86,676.46, or $39,004.41). In other words, Medi-Cal’s lien claim is reduced in proportion to the ratio of the settlement amount to the “full value” of the plaintiff’s claim.

Of importance, after this decision was filed in December, the court issued an order modifying the opinion and certifying it for publication on January 12, 2018. The additional language in the modification order clearly spells out the court’s holding re: the interplay between Ahlborn and MICRA for purposes of allocating medical and noneconomic damages where a Medi-Cal lien is being asserted in a med mal case that has settled:

In Arkansas Department of Health and Human Services v. Ahlborn (2006) 547 U.S. 268 (Ahlborn), the Supreme Court held that a state’s lien on a Medicaid recipient’s tort settlement is limited to the recipient’s medical costs.

Here, we hold that where a tort settlement in a medical malpractice case does not allocate between medical and noneconomic costs, the noneconomic damages may not exceed $250,000, the maximum allowed under the Medical Injury Compensation Reform Act (MICRA) (Civ. Code Section 3333.2).

Plaintiff did prevail on his claim that the “court erred in failing to reduce the amount of the lien by 25 percent for attorney fees as required” by statute. The Department conceded the point, and rather than remand for further calculation, the appellate court reduced the lien by 25 percent to $29,253.31.

Points raised by plaintiff for the first time in his appellate brief were not considered. With the exception of the reduction of the lien amount for attorney fees, the order of the trial court was affirmed and both parties are to bear their own costs.

From a practice standpoint, getting all parties to agree on what amount represents the “full value of the claim” for purposes of allocating general versus special damages in a settlement may be difficult and will be different in every case. This is likely why the parties in Martinez sought the assistance of the trial court to make such an allocation. (For example, plaintiff thought he was entitled to $2.5 million in non-economic damages despite MICRA limitations.) The task presented to the trial court in Martinez was simplified somewhat by the fact plaintiff’s general damages were limited to $250,000 under MICRA and his future wage loss was apparently non-existent due to a preexisting condition. Obtaining Medi-Cal’s agreement regarding the “full value” of the plaintiff’s claim or to the amount of the settlement to which Medi-Cal is entitled would be desirable.

For more information on this and other recent decisions, please reach out to Reneé A. Richards.