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I received a good question today and thought I would share my thoughts on the issue.  The question concerns Medicaid and "med pay".  In NC, Medicaid gets 100% of med pay (first party) insurance proceeds.  The problem is that quite often physicians and chiropractors often receive the med pay before the lawyer is involved.  Or, alternatively, the medpay is the only way for the client to receive certain non-Medicaid covered treatment. 

So when you make a settlement which will not cover "all" the bills, how do you handle this scenario?  I see two ways to go about making the disbursement.  I can't say if one or the other is "right" as I don't think the statutes clearly cover this.

It should go like this, hypothetically:

Scenario 1

Assume:

Med pay $2,000 (already paid to Chiro 1)

Settlement $10,000
Medicaid Lien: $5,000
Chiro 1:  $1,000 (balance after med pay received of $2,000)
Chiro 2: $2,000 balance

So, now let's apply the law and do the math:

$10,000 Settlement
-$3,333.33 Atty Fees
$6,666.66   Balance

1/3 of settlement is $3,333.33 for Medicaid purposes (Medicaid is limited to recovering 1/3 of settlement)

1/2 of Net is $3,333.33 for NCGS 44-49 lien purposes (Medical liens can only force the attorney to pay 1/2 of the Net settlement after attorney fees and it makes it easier when 1/2 of net and 1/3 are the same thing).

Medicaid shares pro-rata with unpaid medical providers within the 1/3.

$5,000 Medicaid
$1,000 Chiro 1
$2,000 chiro 2
$8,000                    $3,333,3/$8,000 = 41.66% shares of the 1/3

Now we figure the prorata share for each lien holder using the percentage from above:

5,000 x 41.66% =$2,083.31
1,000 x 41.66% = $416.6
2,000 x 41.66% = 833.20

That's how the 1/3 should be distributed BUT, since Medicaid is entitled to 100% of the medpay, they will get another $2,000 on top of the share above.

So:
$10,000 Settlement
-$3,333.33 Atty Fees
$6,666.66   Balance

-$2,083.31  Medicaid
-$416.6  Chiro 1
-833.20  Chiro 2
$3,333.50

-$2,000 Medicaid Med pay
1,333.50 to Client

But there appears to be another way to do this.  In the first scenario above we prorated Medicaid's full lien,  then paid Medicaid the $2,000 from the remainder of the settlement.

The second method would pay Medicaid the $2k medpay FIRST, then use the balance of the lien for proration purposes.  That would give the other providers more money under pro-ration.

The second method would look like this:

Scenario 2

$10,000 Settlement
-$3,333.33 Atty Fees
$6,666.66   Balance

1/3 of settlement is $3,333.33 for Medicaid purposes

1/2 of Net is $3,333.33 for 44-49 lien purposes (makes it easier when 1/2 of net and 1/3 are the same thing)

Medicaid shares pro-rata with unpaid medical providers within the 1/3.  (We've already taken out the $2k Medicaid will receive)

$3,000 Medicaid lien
$1,000 Chiro 1
$2,000 chiro 2
$6,000                    $3,333.33/$6,000 =  55.55% shares of the 1/3

Now we figure the prorata share for each lien holder using the percentage from above:

3,000 x 55.55% = $1,666.50
1,000 x 55.55% = $555.55
2,000 x 55.55% = $1111.11

Since Medicaid is entitled to 100% of the medpay, they will get another $2,000 on top of the share above.

So:
$10,000 Settlement
-$3,333.33 Atty Fees
$6,666.66   Balance

-$1,666.50 Medicaid
-$555.55 Chiro 1
-$1111.11 Chiro 2
$3,333.50

-$2,000 Medicaid (Med pay)
1,333.50 to Client

Let's compare scenarios now:

Scenario 1:

$2,083.31 (Medicaid prorated share) + $2,000 for med pay = 4,083.31 to Medicaid
$ 416.6 Chiro 1
$ 833.20 Chiro 2

Scenario 2:
$1,666.50 (Medicaid prorated share) + $2,000 for med pay = 3,666.50 to Medicaid
-$555.55  Chiro 1
-$1111.11  Chiro 2

So, technically, Scenario 2 is better for your client in my mind because Medicaid is paid in full with $3,666.50 and there is more money available for the doctors (who are not paid in full but might be more likely to accept the higher % payment as payment in full).

I don't know if there is a right or wrong to his one.  I'm sure Medicaid would prefer to be paid more, and they may have a point since technically, the Medpay should have gone to them in the first place.

--Chris Nichols

www.NicholsTrialLaw.com