In a 6-3 vote, the Supreme Court issued a decision in Wos v. E.M.A. holding that the Medicaid Act preempts North Carolina state law.  The Court ruled that taking a portion of a beneficiary’s tort judgment that is not attributable to medical care was not legal, rejecting North Carolina’s fixed one-third rule.  Instead, the state must set up a process that separates medical expenses (which the state can receive a share of) and money for pain and suffering (which the claimant gets to keep).

Wos v. E.M.A. is a case where a baby was injured at birth. The parents settled a medical malpractice claim for $2.8 million that didn’t allocate separate amounts for medical expenses and other damages. North Carolina, which had paid over $1.9 million in medical expenses on the baby's behalf, sought to recover one-third of the settlement. A state statute allowed North Carolina to recover the lesser of actual medical expenses or one-third of a Medicaid recipient’s total tort settlement.

ICMA, all of the Big 7, and GFOA had signed onto an amicus brief filed by the State and Local Legal Center (SLLC) in support of the North Carolina state statute. In approximately half of the states, counties pay for at least part of the Medicaid costs of someone injured by the fault of another person. The SLLC’s brief argued that Medicaid is a huge expense for states and that Medicaid grants states substantial discretion in how they pursue recovery from tortfeasors.

The Medicaid Act requires participating states to seek reimbursement from third-party tortfeasors for medical expenditures they made to Medicaid beneficiaries who are tort victims. But the Act’s anti-lien provision (as construed by the Court in a prior case) preempts a state from attaching a lien on the property of a Medicaid beneficiary to take any portion of a beneficiary’s tort judgment or settlement not attributable to medical expenses. The Court held that the anti-lien provision preempts a North Carolina law, which provides that the state is entitled to recover the lesser of one-third of the beneficiary’s damages recovery or the state’s actual medical expenditures.