The Supreme Court of the United States recently expanded the ability of states to recoup health care costs from accident victims under the Medicaid Act. The case, Gallardo v. Marstiller, involved injuries sustained by a plaintiff when she was hit by a motor vehicle as she stepped off a school bus in Florida.  Florida’s Medicaid agency paid $862,688.77 for Ms. Gallardo’s initial medical expenses.  Ms. Gallardo, through her parents, sued the vehicle’s owner and driver, as well as the county school board that controlled the school bus.  This litigation ultimately settled for $800,000.00.  The settlement agreement expressly stated that $35,367.52 of the settlement was designated as compensation for past medical expenses.  There was no amount designated for future medical expenses.  Florida argued that the Medicaid Act extends to medical expenses that the state is likely to pay in the future.  The Supreme Court agreed, ruling that states can also seek reimbursement from settlements for future medical expenses that they have not yet paid.

The Medicaid Act requires participating states to pay qualifying individuals’ medical costs and to then make reasonable efforts to recoup those costs from liable third parties.  Following Gallardo, a state Medicaid program can now seek reimbursement for medical expenses that it has paid or is likely to pay in the future on behalf of an injured party from any portion of a settlement that is allocated to “medical expenses” — even future medical expenses that the state Medicaid program has not yet paid (and might never pay).

Along with the federal Medicaid Act, the Supreme Court relied on Florida’s Medicaid Third-Party Liability Act in interpreting the issue.  Florida’s statute applies a formula that presumes 37.5% of a total settlement will represent the portion for “past and future medical expenses,” absent clear and convincing evidence that the portion should be lower.  The result in Gallardo was that, rather than the approximately $35,000.00 listed in the settlement agreement, Florida’s Medicaid program was entitled to $300,000.00.  This greatly reduced the cash-in-hand actually received by the plaintiff in the settlement.

Why is this important?

From either a plaintiff’s or defendant’s perspective, a party’s goal in arriving at a settlement is to fully resolve the underlying dispute.  To the extent that Gallardo creates uncertainty as to how much money will actually make it to a plaintiff, the case is likely to impact settlement negotiations.  At a minimum, informed counsel should be familiar with Gallardo and the state’s applicable statute for Medicaid reimbursement when drafting language in a settlement agreement.

When a plaintiff has received Medicaid benefits, parties intending to settle a lawsuit should include in any settlement agreement language that encompasses all medical expenses, both past and future.  In states that have adopted a presumptive formula for these expenses, the parties should be familiar with the formula and craft settlement agreements carefully to achieve the desired outcome for the parties.

What is the impact in Nebraska?

Nebraska’s equivalent of Florida’s Third-Party Liability Act places the burden for payment on the third party to pay the Department of Health and Human Services directly once it receives notice that a plaintiff has received funds for medical care.  See Neb. Rev. Stat. §§ 68-716, 921 – 925. By applying for these funds, a plaintiff grants a right of subrogation to the state.  Id. This places the onus on the defendant to confirm the amount the state is claiming it paid, and potentially the amount the state will claim for future expenses, and set aside settlement funds to go directly to the state to satisfy this amount.

Importantly, Nebraska’s statute does not contain a similar formula to that of Florida, removing the presumption of a set amount as reasonable.  Still, counsel should be aware of the obligations under Gallardo and Nebraska law to make sure there are no issues with Medicaid reimbursement funds after the execution of the settlement agreement.

What is the impact in Iowa?

Iowa’s equivalent of Florida’s Third-Party Liability Act contains language that the Iowa Department of Human Services has a lien on all monetary claims which a Medicaid recipient has against a third party.  Iowa Code § 249A.54.  The state must file notice of the lien with the clerk of the district court and send notice to plaintiff’s counsel. Id. Importantly, Iowa law requires that notice must be sent prior to final settlement between the parties.  Id.  The state can then enforce its lien against any liable third party. Id.

Like Florida, Iowa’s statute contains a formula for calculating the amount paid to the state.  Of the total amount received by the plaintiff, attorney fees and costs are deducted, then one-third of the remaining balance is paid to the plaintiff.  Iowa Code § 249A.54(5).  The state is then paid from the remaining balance after the deductions.  Id.


The takeaway from Gallardo is that reimbursement to state Medicaid funds can greatly impact the actual dollars a plaintiff receives in settlement.   Further, states often place the onus on defendants to satisfy outstanding balances.  In settling a case, all parties seek to bring a dispute to a final resolution. Understanding Gallardo is an essential tool in successfully achieving that result.