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Latham v. Office of Recovery Services

Supreme Court of Utah

August 22, 2019

John R. Latham, Appellant,
v.
Office of Recovery Services, Appellee.

          On Direct Appeal Third District, Salt Lake The Honorable Richard D. McKelvie No. 160904935

          Paul R. Smith, Jeffrey D. Gooch, C. Michael Judd, Salt Lake City, for appellant

          Sean D. Reyes, Att'y Gen., Brent A. Burnett, Asst. Solic. Gen., Tony S. LeBlanc, Asst. Att'y Gen., Salt Lake City, for appellee

          Justice Petersen authored the opinion of the Court, in which Chief Justice Durrant, Associate Chief Justice Lee, Justice Himonas, and Justice Pearce joined.

          PETERSEN, JUSTICE

         INTRODUCTION

         ¶1 John R. Latham suffered a stroke and his injuries were exacerbated by a hospital's failure to properly diagnose it. Latham sought compensation from the hospital for past and future medical expenses as well as other damages. He ultimately settled his claim for an amount much less than what he believed it was worth.

         ¶2 At the time of his injury, Latham was receiving Medicaid, which paid for his treatment. When a third party is legally liable for medical expenses paid by Medicaid-like the hospital here-federal law requires that state Medicaid plans seek reimbursement from the third-party tortfeasor.

         ¶3 The parties dispute how much of Latham's settlement award the Office of Recovery Services (ORS)[1] is permitted to collect. Latham argues ORS may place a lien on only the part of his award allocable to past medical expenses. And according to Latham's calculations, the State's expenditures far exceed that portion of his award. He argues that if the State is fully reimbursed, it would violate a federal Medicaid statute that prohibits states from imposing a lien on recipient's property because ORS would be taking settlement proceeds intended to compensate him for damages other than past medical expenses.

         ¶4 The district court disagreed with this argument and ruled against Latham on a motion for judgment on the pleadings. The court held that ORS was entitled to recover from the portion of Latham's settlement award representing all medical expenses, both past and future.

         ¶5 Latham appeals. The question before us is whether ORS may place a lien on and collect from the portion of Latham's tort recovery allocable to all medical expenses, both past and future, or only past medical expenses. Based on the language of the relevant federal statutes and United States Supreme Court precedent, we conclude that ORS may recover from only that portion of an award representing past medical expenses. Accordingly, we reverse and remand.

         BACKGROUND

         ¶6 Latham suffered a stroke in early 2014. When he began to experience symptoms, he went to the hospital. Without conducting a neurological exam, doctors there examined Latham, provided him with some pain and anti-nausea medication, and then discharged him.

         ¶7 Throughout the day, Latham's condition worsened. In the evening, he went by ambulance to a different hospital. There, doctors performed a brain scan, which revealed that he had suffered a stroke.

         ¶8 Latham brought malpractice and negligence claims against the first hospital. He alleged that the hospital's failure to diagnose his stroke caused severe and permanent injuries.

         ¶9 At the time of his injuries, Latham received Medicaid through the State of Utah. The parties agree that Medicaid paid a total of $104, 065.32 in medical expenses related to Latham's stroke.

         ¶10 Generally, Medicaid does not seek reimbursement from Medicaid recipients when it pays for their medical treatment. But if a third party is liable for any or all of a recipient's injuries, then federal law requires state Medicaid programs to seek reimbursement from those third-party tortfeasors. See 42 U.S.C. § 1396a(a)(25)(A)-(B); Utah Code § 26-19-401.[2] And it requires recipients to assign to the State any proceeds they receive from the third party. See 42 U.S.C. § 1396k(a)(1)(A).

         ¶11 To that end, ORS entered into a collection agreement with Latham that permitted Latham to "include medical costs paid by the State of Utah when making a claim against" the hospital and allowed ORS to recover from funds Latham was able to recover from the hospital. The collection agreement provided that "ORS' recovery shall be the statutory claim, as reduced by the attorney's fee of 33.3% of ORS' recovery." Both parties agree that ORS' potential recovery of $104, 065.32 must be reduced by at least $34, 688.44 in attorney fees. Thus, the most ORS could recover from the settlement is $69, 376.88.

         ¶12 Latham ultimately settled his claim for $800, 000-an amount not nearly what he believed his claim was worth. ORS participated in the settlement negotiations and approved the agreement. Latham and ORS agree that the full value of Latham's claim was $7, 257, 972.52. This amount includes, among other damages, $104, 065.32 in past medical expenses paid by Medicaid and $6, 430, 614 in future medical expenses that Medicaid is not currently obligated to pay.

         ¶13 Latham filed a complaint for declaratory relief in the district court, seeking a determination of how much ORS was entitled to collect from his settlement award. Citing federal Medicaid law, Latham argued that ORS was permitted to place a lien on only that portion of the settlement amount attributable to past medical expenses. He argued that the district court should divide the settlement amount ($800, 000) by the total value of the claim ($7, 257, 972.52) and then multiple the resulting ratio (11 percent) by the total past medical expenses ($104, 065.32). According to Latham's calculations, that meant ORS' recovery was capped at $7, 631.46 after attorney fees.

         ¶14 ORS countered that it was entitled to collect from the portion of the award representing all medical expenses-be it for past or future expenses. Under ORS' calculation, this meant it could collect from up to 90 percent of the settlement amount (or $720, 000), permitting a full recovery for ORS.

         ¶15 Latham filed a motion for judgment on the pleadings, which the district court denied. Instead, the court entered judgment in favor of ORS, ruling that ORS could place a lien on the portion of Latham's settlement amount representing all medical expenses. And because $720, 000 was greater than the State's lien amount, the State ...


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