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by Thomas D. Begley, Jr., CELA

Assignment to State of Rights against Third Parties

As a condition of Medicaid eligibility, a Medicaid applicant is required to assign to the state any rights to payment of medical care from any third party.[1] This is essentially a statutory right of subrogation. Federal law further requires that each state Medicaid program have procedures for determining the legal liability of third parties to pay for medical assistance provided by the state’s Medicaid plan, and for reimbursement of the cost of medical assistance provided, whenever recovery is feasible.[2] In New Jersey, the Attorney General is responsible for enforcing any rights against third parties or recovery of liens.[3] When an individual brings an action for damages against a third party, written notice must be given to the director of the Division of Medical Assistance and Health Services. In addition, such individual must promptly notify the Division of any recovery from a third party. The recipient of a third-party recovery must immediately reimburse the division from the proceeds of any settlement, judgment, or other recovery.[4]

Extent of Lien

A Medicaid lien applies only to the extent of medical assistance related to the injury and only to payments made from the date of the injury to the date of the settlement.

Reduction of Lien

There are two ways to reduce a Medicaid lien.

  • Procurement Costs. The Medicaid lien is subject to an automatic reduction for a pro rata share counsel fees, costs, or other expenses incurred by the recipient or the recipient’s attorney.[5] It is important not to overlook costs. If the attorney’s fee is 33% and the costs of the case represent 5% of the recovery, the procurement-cost reduction is 38%, not 33%.
  • Ahlborn Reduction. The United States Supreme Court has held that a state Medicaid agency may recover only from that portion of a settlement earmarked as compensation in respect of medical expenses, and where there is no such allocation, the agency may only recover a proportionate share of its claim, determined by the ratio that the settlement amount bears to the reasonable value of the total claim.[6]


[1] 42 U.S.C. § 1396k(a)(1)(A); N.J.S.A. 30:4D-7.1(c).

[2] 42 U.S.C. § 1396a(a)(25)(A), (B), (H).

[3] N.J.S.A. 30:4D-7.1(a).

[4] N.J.S.A. 30:4D-7.1(b).

[5] N.J.S.A. 30:4D-7.1(b).

[6] Arkansas Dept. of Health and Human Servs. v. Ahlborn, 126 S. Ct. 1752 (2006).

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