Wos v. E.M.A., No. 12-98; U.S. Supreme Court; opinion by Kennedy, J.; concurrence by Breyer, J.; dissent by Roberts, C.J.; decided March 20, 2013. On certiorari to the U.S. Court of Appeals for the Fourth Circuit.

The federal Medicaid statute’s anti-lien provision, 42 U.S.C. § 1396p(a)(1), pre-empts a state’s effort to take any portion of a Medicaid beneficiary’s tort judgment or settlement not "designated as payments for medical care," Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 284. A North Carolina statute requires that up to one-third of any damages recovered by a beneficiary for a tortious injury be paid to the state to reimburse it for payments it made for medical treatment on account of the injury. Respondent E.M.A. was born with multiple serious birth injuries that require her to receive between 12 and 18 hours of skilled nursing care per day and that will prevent her from being able to work, live independently, or provide for her basic needs. North Carolina’s Medicaid program pays part of the cost of her ongoing medical care.

E.M.A. and her parents filed a medical-malpractice suit against the physician who delivered her and the hospital where she was born. They presented expert testimony estimating their damages to exceed $42 million, but they ultimately settled for $2.8 million, due in large part to insurance policy limits. The settlement did not allocate money among their various medical and nonmedical claims. In approving the settlement, the state court placed one-third of the recovery into escrow pending a judicial determination of the amount of the lien owed by E.M.A. to the state. E.M.A. and her parents then sought declaratory and injunctive relief in federal district court, claiming that the state’s reimbursement scheme violated the Medicaid anti-lien provision. While that litigation was pending, the North Carolina Supreme Court held in another case that the irrebuttable statutory one-third presumption was a reasonable method for determining the amount due the state for medical expenses. The federal district court, in this case, agreed. But the Fourth Circuit vacated and remanded, concluding that the state’s statutory scheme could not be reconciled with Ahlborn.

Held: The federal anti-lien provision pre-empts North Carolina’s irrebuttable statutory presumption that one-third of a tort recovery is attributable to medical expenses. Pp. 4-16.

(a) In Ahlborn, the court held that the federal Medicaid statute sets both a floor and a ceiling on a state’s potential share of a beneficiary’s tort recovery. Federal law requires an assignment to the state of "the right to recover that portion of a settlement that represents payments for medical care," but also "precludes attachment or encumbrance of the remainder of the settlement." See 547 U.S. at 282, 284. Ahlborn did not, however, resolve the question of how to determine what portion of a settlement represents payment for medical care. As North Carolina construes its statute, when the state’s Medicaid expenditures exceed one-third of a beneficiary’s tort recovery, the statute establishes a conclusive presumption that one-third of the recovery represents compensation for medical expenses, even if the settlement or verdict expressly allocates a lower percentage of the judgment to medical expenses. Pp. 4-7.

(b) North Carolina’s law is pre-empted insofar as it would permit the state to take a portion of a Medicaid beneficiary’s tort judgment or settlement not designated for medical care. It directly conflicts with the federal Medicaid statute and therefore "must give way." PLIVA Inc. v. Mensing, 564 U.S. —. The state law has no process for determining what portion of a beneficiary’s tort recovery is attributable to medical expenses. Instead, the state has picked an arbitrary percentage and by statutory command labeled that portion of a beneficiary’s tort recovery as representing payment for medical care. A state may not evade pre-emption through creative statutory interpretation or description, "framing" its law in a way that is at odds with the statute’s intended operation and effect. National Meat Assn. v. Harris, 565 U.S. —. North Carolina’s argument, if accepted, would frustrate the Medicaid anti-lien provision in the context of tort recoveries. It lacks any limiting principle: If a state could arbitrarily designate one-third of any recovery as payment for medical expenses, it could arbitrarily designate half or all of the recovery in the same way. The state offers no evidence showing that its allocation is reasonable in the mine run of cases, and the law provides no mechanism for determining whether its allocation is reasonable in any particular case.

No estimate of an allocation will be necessary where there has been a judicial finding or approval of an allocation between medical and nonmedical damages. In some cases, including Ahlborn, this binding stipulation or judgment will attribute to medical expenses less than one-third of the settlement. Yet even in these circumstances, North Carolina’s statute would permit the state to take one-third of the total recovery. A conflict thus exists between North Carolina’s law and the Medicaid anti-lien provision.

This case is not as clear-cut as Ahlborn was, for here there was no such stipulation or judgment. But Ahlborn‘s reasoning and the federal statute’s design contemplate that possibility: They envisioned that a judicial or administrative proceeding would be necessary where a beneficiary and the state are unable to agree on what portion of a settlement represents compensation for medical expenses.See 547 U.S. at 288. North Carolina’s 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. Pp. 7-10.

(c) None of North Carolina’s responses to this reasoning is persuasive. Pp. 10-15.

674 F.3d 290, affirmed.