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SUPREME COURT OF THE UNITED STATES
ALDONA WOS, SECRETARY, NORTH CAROLINA
DEPARTMENT OF HEALTH AND HUMAN SER- VICES, PETITIONER v.
E. M. A., a minor, by and through her guardian
ad litem, DANIEL H. JOHNSON, et al.
on writ of certiorari to the united states
court of appeals for the fourth circuit
[March 20, 2013]
Justice Kennedy delivered the opinion of the
A federal statute prohibits States from
attaching a lien on the property of a Medicaid beneficiary to
recover ben-efits paid by the State on the beneficiary’s
behalf. 42 U. S. C. §1396p(a)(1). The anti-lien
provision pre-empts a State’s effort to take any portion of a
Medicaid beneficiary’s tort judgment or settlement not
“designated as pay-ments for medical care.” Arkansas
Dept. of Health and Human Servs.
, 547 U.S.
, 284 (2006). North Carolina has enacted a statute requiring
that up to one-third of any damages recovered by a beneficiary for
a tortious injury be paid to the State to reimburse it for
pay-ments it made for medical treatment on account of the in-jury.
See N. C. Gen. Stat. Ann. §108A–57 (Lexis 2011);
, 362 N. C. 599,
604–605, 669 S.E.2d 310, 314 (2008). The question presented
is whether the North Carolina statute is compatible with the
federal anti-lien provision.
When respondent E. M. A. was born in
February 2000, she suffered multiple serious birth injuries which
left her deaf, blind, and unable to sit, walk, crawl, or talk. The
injuries also cause her to suffer from mental retardation and a
seizure disorder. She requires between 12 and 18 hours of skilled
nursing care per day. She will not be able to work, live
independently, or provide for her basic needs. The cost of her
ongoing medical care is paid in part by the State of North
Carolina’s Medicaid program.
In February 2003, E. M. A. and her
parents filed a medical malpractice suit in North Carolina state
court against the physician who delivered E. M. A. at
birth and the hospital where she was born. The expert witnesses for
E. M. A. and her parents in that proceeding estimated
damages in excess of $42 million for medical and life-care
expenses, loss of future earning capacity, and other assorted
expenses such as architectural renovations to their home and
specialized transportation equipment. App. 91–112. By far the
largest part of this estimate was for “Skilled Home
Care,” totaling more than $37 million over
E. M. A.’s lifetime. Id.
, at 112.
E. M. A. and her parents also sought damages for her pain
and suffering and for her parents’ emotional distress.
, at 64–65, 67–68, 72–73, 75–76.
Their experts did not estimate the damages in these last two
Assisted by a mediator, the parties began
settlement negotiations. E. M. A. and her parents
informed the North Carolina Department of Health and Human Services
of the negotiations. The department had a statutory right to
intervene in the malpractice suit and participate in the settlement
negotiations in order to obtain reimbursement for the medical
expenses it paid on E. M. A.’s behalf, up to one-third
of the total recovery. See N. C. Gen. Stat. Ann.
§§108A–57, 108A–59. It elected not to do so,
though its representative informed E. M. A. and her
parents that the State’s Medicaid program had expended $1.9
million for E. M. A.’s medical care, which it would
seek to recover from any tort judgment or settlement.
In November 2006, the court approved a $2.8
million settlement. The amount, apparently, was dictated in large
part by the policy limits on the defendants’ medical
malpractice insurance coverage. See Brief for Respondents 5. The
settlement agreement did not allocate the money among the different
claims E. M. A. and her parents had advanced. In approving the
settlement the court placed one-third of the $2.8 million recovery
into an interest-bearing escrow account “until such time as
the actual amount of the lien owed by [E. M. A.] to [the
State] is con-clusively judicially determined.” App. 87.
E. M. A. and her parents then filed
this action under Rev. Stat. §1979, 42 U. S. C.
§1983, in the United States District Court for the Western
District of North Carolina. They sought declaratory and injunctive
relief, arguing that the State’s reimbursement scheme
violated the Medicaid anti-lien provision, §1396p(a)(1). While
that litigation was pending, the North Carolina Supreme Court
con-fronted the same question in Andrews
held that the irrebuttable statutory presumption that one-third of
a Medicaid beneficiary’s tort recovery is attributable to
medical expenses was “a reasonable method for determining the
State’s medical reimbursements.” Id.,
669 S. E. 2d, at 314. The United States District Court, in the
instant case, agreed. Armstrong
, 722 F.
Supp. 2d 653 (2010).
The Court of Appeals for the Fourth Circuit
vacated and remanded. E. M. A.
674 F.3d 290 (2012). It concluded that North Carolina’s
statutory scheme could not be reconciled with
’s clear holding that the general
anti-lien provision in federal Medicaid law prohibits a state from
recovering any portion of a settlement or judgment not attributable
to medical expenses.” Id.,
at 310. In some cases, the
court reasoned, the actual portion of a beneficiary’s tort
recovery representing payment for medical care would be less than
one-third. North Caro-lina’s statutory presumption that
one-third of a tort recovery is attributable to medical expenses
therefore must be “subject to adversarial testing” in a
judicial or administrative proceeding. Id.,
To resolve the conflict between the opinion of
the Court of Appeals in this case and the decision of the North
Carolina Supreme Court in Andrews
, this Court granted
certiorari. 567 U. S. ___ (2012).
At issue is the interaction between certain
provisions of the federal Medicaid statute and state law. Congress
has directed States, in administering their Medicaid programs, to
seek reimbursement for medical expenses incurred on behalf of
beneficiaries who later recover from third-party tortfeasors.
States must require beneficiaries “to assign the State any
rights . . . to support (specified as support for the purpose of
medical care by a court or administrative order) and to payment for
medical care from any third party.” 42 U. S. C.
§1396k(a)(1)(A). States receiving Medi-caid funds must
“ha[ve] in effect laws under which,
to the extent that payment has been made under the State plan for
medical assistance for health care items or services furnished to
an individual, the State is considered to have acquired the rights
of such individual to payment by any other party for such health
care items or services.” §1396a(a)(25)(H).
A separate provision of the Medicaid statute,
however, exists in some tension with these requirements. It says
that, with exceptions not relevant here, “[n]o lien may be
imposed against the property of any individual prior to his death
on account of medical assistance paid or to be paid on his behalf
under the State plan.” §1396p(a)(1).
, the Court addressed this
tension and held that the Medicaid statute sets both a floor and a
ceiling on a State’s potential share of a beneficiary’s
tort recovery. Federal law requires an assignment to the State of
“the right to recover that portion of a settlement that
represents payments for medical care,” but it also
“precludes attachment or encumbrance of the remainder of the
settlement.” 547 U. S., at 282, 284. This is so because
the beneficiary has a property right in the proceeds of the
settlement, bringing it within the ambit of the anti-lien
at 285. That property right is subject to
the specific statutory “exception” requiring a State to
seek reimbursement for medical expenses paid on the
beneficiary’s behalf, but the anti-lien provision protects
the beneficiary’s interest in the remainder of the
A question the Court had no occasion to resolve
is how to determine what portion of a settlement
represents payment for medical care. The parties in that case
stipulated that about 6 percent of respondent Ahlborn’s tort
recovery (approximately $35,600 of a $550,000 settlement)
represented compensation for medical care. Id.,
at 274. The
Court nonetheless anticipated the concern that some settlements
would not include an itemized allocation. It also recognized the
possibility that Medicaid beneficiaries and tortfeasors might
collaborate to allocate an artificially low portion of a settlement
to medical expenses. The Court noted that these problems could
“be avoided either by obtaining the State’s advance
agreement to an allocation or, if necessary, by submitting the
matter to a court for decision.” Id.,
North Carolina has attempted a different
approach. Its statute provides:
“Notwithstanding any other
provisions of the law, to the extent of payments under this Part,
the State, or the county providing medical assistance benefits,
shall be subrogated to all rights of recovery, contractual or
otherwise, of the beneficiary of this assistance
. . . . The county attorney, or an attorney retained
by the county or the State or both, or an attorney retained by the
beneficiary of the assistance if this attorney has actual notice of
payments made under this Part shall enforce this section. Any
attorney retained by the beneficiary of the assistance shall, out
of the proceeds obtained on behalf of the beneficiary by settlement
with, judgment against, or otherwise from a third party by reason
of injury or death, distribute to the Department the amount of
assistance paid by the Department on behalf of or to the
beneficiary, as prorated with the claims of all others having
medical subrogation rights or medical liens against the amount
received or recovered, but the amount paid to the Department shall
not exceed one-third of the gross amount obtained or
recovered.” N. C. Gen. Stat. Ann.
was decided, North
Carolina and the state courts interpreted this statute to allow the
State to “recover the costs of medical treatment provided . .
. even when the funds received by the [beneficiary] are not re-
imbursement for medical expenses.” Campbell
North Carolina Dept. of Human Resources
, 153 N. C. App.
305, 307–308, 569 S.E.2d 670, 672 (2002). See also
v. Grace Hospital, Inc.
, 360 N. C. 529,
631 S.E.2d 131 (2006) (per curiam
). Under Ahlborn
however, this construction of the statute is at odds with the
Medicaid anti-lien provision, which “precludes attachment or
encum- brance” of any portion of a settlement not
“designated as payments for medical care.” 547
U. S., at 284.
In response to Ahlborn
, the State
advanced—and the North Carolina Supreme Court in
accepted— a new interpretation of its statute.
Under this interpretation the statute “defines ‘the
portion of the settlement that represents payment for medical
expenses’ as the lesser of the State’s past medical
expenditures or one-third of the plaintiff’s total
, 362 N. C., at 604, 669
S. E. 2d, at 314. In other words, when the State’s
Medicaid expenditures on behalf of a beneficiary exceed one-third
of the beneficiary’s tort recovery, the statute establishes a
conclusive presumption that one-third of the recovery represents
compensation for medical expenses. Under this reading of the
statute the presumption operates even if the settlement or a jury
verdict expressly allocates a lower percentage of the judgment to
medical expenses. See Tr. of Oral Arg. 10, 16–17. Cf.
at 602–604, 669 S. E. 2d,
Under the Supremacy Clause, “[w]here
state and federal law ‘directly conflict,’ state law
must give way.” PLIVA, Inc.
U. S. ___, ___ (2011) (slip op., at 11). The Medicaid
anti-lien provision prohibits a State from making a claim to any
part of a Medicaid beneficiary’s tort recovery not
“designated as payments for medical care.”
, at 284. North Carolina’s
statute, therefore, is pre-empted if, and insofar as, it would
operate that way.
And it is pre-empted for that reason. The defect
in §108A–57 is that it sets forth no process for
determining what portion of a beneficiary’s tort recovery is
attributable to medical expenses. Instead, North Carolina has
picked an arbitrary number—one-third—and by statutory
command labeled that portion of a beneficiary’s tort recovery
as representing payment for medical care. Pre-emption is not a
matter of semantics. A State may not evade the pre-emptive force of
federal law by resorting to creative statutory interpretation or
description at odds with the statute’s intended operation and
A similar issue was presented last Term, in
National Meat Assn
. v. Harris
, 565 U. S. ___
(2012). That case involved the pre-emptive scope of the Federal
Meat Inspection Act, 21 U. S. C. §601
The Act prohibited States from imposing
“ ‘[r]equirements . . . with respect to
premises, facilities and operations’ ” at
federally regulated slaughterhouses. National Meat Assn
565 U. S., at ___ (slip op., at 4) (quoting §678). The
State of California had enacted a law that prohibited
slaughterhouses from (among other things) selling meat from
nonambulatory ani- mals for human consumption. Id.,
(slip op., at 5) (citing Cal. Penal Code Ann. §599f(b) (West
2010)). California sought to defend the law on the ground that it
did not regulate the activities of slaughterhouses but instead
restricted what type of meat could be sold in the marketplace after
the animals had been butchered. 565 U. S., at ___–___
(slip op., at 9–10).
The Court rejected that argument. It recognized
that if the argument were to prevail, “then any State could
im-pose any regulation on slaughterhouses just by framing it as a
ban on the sale of meat produced in whatever way the State
disapproved. That would make a mockery of the [Act’s]
preemption provision.” Id.,
at ___ (slip op., at 10).
In a pre-emption case, the Court held, a proper analysis requires
consideration of what the state law in fact does, not how the
litigant might choose to describe it.
That reasoning controls here. North
Carolina’s argument, if accepted, would frustrate the
Medicaid anti-lien provision in the context of tort recoveries. The
argument lacks any limiting principle: If a State arbitrarily may
designate one-third of any recovery as payment for medical
expenses, there is no logical reason why it could not designate
half, three-quarters, or all of a tort recovery in the same way. In
, the State of Arkansas, under this rationale, would
have succeeded in claiming the full amount it sought from the
beneficiary had it been more creative and less candid in describing
the effect of its full-reimbursement law.
Here the State concedes that it would be
“difficult . . . to defend” a law purporting
to allocate most or all of a beneficiary’s tort recovery to
medical expenses. Tr. of Oral Arg. 20. That is true; but, as a
doctrinal matter, it is no eas- ier to defend North
Carolina’s across-the-board allocation of one-third of all
beneficiaries’ tort recoveries to medical ex-penses. The
problem is not that it is an unreasonable ap-proximation in all
cases. In some cases, it may well be a fair estimate. But the State
provides no evidence to substantiate its claim that the one-third
allocation is reasonable in the mine run of cases. Nor does the law
provide a mechanism for determining whether it is a reasonable
approximation in any particular case.
In some instances, no estimate will be necessary
or appropriate. When there has been a judicial finding or approval
of an allocation between medical and nonmedical damages—in
the form of either a jury verdict, court decree, or stipulation
binding on all parties—that is the end of the matter.
was a case of this sort. All parties (including the
State of Arkansas) stipulated that approximately 6 percent of the
plaintiff’s settlement represented payment for medical costs.
547 U. S., at 274. In other cases a settlement may not be
reached and the judge or jury, in its findings, may make an
allocation. With a stipulation or judgment under this procedure,
the anti-lien provision protects from state demand the portion of a
beneficiary’s tort recovery that the stipulation or judgment
does not attribute to medical expenses.
North Carolina’s statute, however,
operates to allow the State to take one-third of the total
recovery, even if a proper stipulation or judgment attributes a
smaller percentage to medical expenses. Consider the facts of
. There, only $35,581.47 of the beneficiary’s
settlement “constituted reimbursement for medical payments
North Carolina’s statute, had it
been applied in Ahlborn
, would have allowed the State to
claim $183,333.33 (one-third of the beneficiary’s $550,000
settlement). A conflict thus exists between North Carolina’s
law and the Medicaid anti-lien provision.
The instant case, to be sure, is not quite so
clear cut; for there was no allocation of the settlement by either
judi- cial decree or binding stipulation of the parties. But the
reasoning of Ahlborn
and the design of the federal statute
contemplate that possibility. When the State and the beneficiary
are unable to agree on an allocation, Ahlborn
parties could “submi[t] the matter to a court for
The facts of the present case demonstrate why
anticipated that a judicial or administrative
proceeding would be necessary in that situation. Of the damages
stemming from the injuries E. M. A. suffered at birth, it is
apparent that a quite substantial share must be allocated to the
skilled home care she will require for the rest of her life. See
App. 112. It also may be necessary to consider how much
E. M. A. and her parents could have expected to receive
as compensation for their other tort claims had the suit proceeded
to trial. An irrebuttable, one-size-fits-all statutory presumption
is incompatible with the Medicaid Act’s clear mandate that a
State may not demand any por- tion of a beneficiary’s tort
recovery except the share that is attributable to medical
North Carolina offers responses to this
reasoning, but none is persuasive.
First, the State asserts that it is doing
nothing more than what Ahlborn
said it could do:
“adop[t] special rules and procedures for allocating tort
settlements.” 547 U. S., at 288, n. 18. This
. There the Court, citing an amicus
brief, referred to judicial proceedings some States had established
for allocating tort settlements where necessary for insurance or
tax purposes. See Brief for Association of Trial Lawyers of
America, O. T. 2005, No. 04–1506, pp. 20–21 (citing
306 N.W.2d 550
(Minn. 1981), and Rimes
v. State Farm
Mut. Auto. Ins. Co.
, 106 Wis. 2d 263,
316 N.W.2d 348
(1982)). Those examples illustrated the kind of
“special rules and procedures for allocating tort
settlements” that Ahlborn
con- sidered. The decision
did not endorse irrebuttable presumptions that designate some
arbitrary fraction of a tort judgment to medical expenses in all
Second, North Carolina contends that its law
falls within the scope of a State’s traditional authority to
regulate tort actions, including the amount of damages that a party
may recover. This argument begins from a correct premise: In our
federal system, there is no question that States possess the
“traditional authority to provide tort remedies to their
citizens” as they see fit. Silkwood
, 464 U.S.
, 248 (1984). But North Carolina’s law is not an
exercise of the State’s general authority to regulate its
tort system. It does not limit tort plaintiffs’ ability to
recover for certain types of nonmedical damages, and it does not
say that medical damages are to be privileged above other damages
in tort suits. All it seeks to do is to allocate the share of
damages attributable to medical expenses in tort suits brought by
Medicaid beneficiaries. A statute that singles out Medicaid
beneficiaries in this manner cannot avoid compliance with the
federal anti-lien provision merely by relying upon a connection to
an area of traditional state regulation.
Third, North Carolina suggests that even though
its allocation of one-third of a tort recovery to medical expenses
may be arbitrary, other methods for allocating a recovery would be
just as arbitrary. In the State’s view there is no
“ascertainable ‘true value’ of [a] case that
should control what portion of any settlement is subject to the
State’s third-party recovery rights.” Brief for
Petitioner 26–27. As explained earlier, allocations, while to
some extent perhaps not precise, need not be arbitrary. See
at 9–10. In some cases a judgment or
stipulation binding on all parties will allocate the
plaintiff’s recovery across different claims. Where no such
judgment or stipulation exists, a fair allocation of such a
settlement may be difficult to determine. Trial judges and trial
lawyers, however, can find objective benchmarks to make projections
of the damages the plaintiff likely could have proved had the case
gone to trial.
In the instant case, for example, the North
Carolina trial court approved the settlement only after finding
that it constituted “fair and just compensation” to E.
M. A. and her parents for her “severe and debilitating
injuries”; for “medical and life care expenses”
her condition will require; and for “severe emotional
distress” from her injuries. App. 82. What portion of this
lump-sum settlement constitutes “fair and just
compensation” for each individual claim will depend both on
how likely E. M. A. and her parents would have been to
prevail on the claims at trial and how much they reasonably could
have expected to receive on each claim if successful, in view of
damages awarded in comparable tort cases.
This relates to North Carolina’s fourth
argument: that it would be “wasteful, time consuming, and
costly” to hold “frequent mini-trials” in order
to divide a settlement between medical and nonmedical expenses.
Brief for Petitioner 28. Even if that were true, it would not
relieve the State of its obligation to comply with the terms of the
Medicaid anti-lien provision. And it is not true as a general
proposition. States have considerable latitude to design
administrative and judicial procedures to ensure a prompt and fair
allocation of damages. Sixteen States and the District of Columbia
provide for hearings of this sort, and there is no indication that
they have proved bur- densome. Brief for United States as Amicus
28– 29, and n. 7. See, e.g.,
Welf. & Inst. Code Ann. §14124.76(a) (West 2011); Mo. Rev.
Stat. §§208.215.9–11 (2012); Tenn. Code Ann.
§§71–5–117(g)–(i) (2012); In re
, 229 W. Va. 435, ___, 729 S.E.2d 270,
297 (2012). Many of these States have established rebuttable
presumptions and adjusted burdens of proof to ensure that
speculative assessments of a plaintiff’s likely recovery do
not defeat the State’s right to recover medical costs, a
concern North Carolina raises. See, e.g.,
Haw. Rev. Stat.
§346–37(h) (2011 Cum. Supp.) (rebuttable presumption of
a one-third allocation); Mass. Gen. Laws, ch. 118E, §22(c)
(West 2010) (rebuttable presumption of full reimbursement); Okla.
Stat., Tit. 63, §5051.1(D)(1)(d) (West 2011) (rebuttable
presumption of full reimbursement, “unless a more limited
allocation of damages to medical expenses is shown by clear and
convincing evidence”). Without holding that these rules are
necessarily compliant with the federal statute, it can be concluded
that they are more accurate than the procedure North Carolina has
The task of dividing a tort settlement is a
familiar one. In a variety of settings, state and federal courts
are called upon to separate lump-sum settlements or jury awards
into categories to satisfy different claims to a portion of the
moneys recovered. See supra,
at 11. See also, e.g.,
, 507 F.3d 857, 867–868 (CA5
2007) (separation of compensatory from noncompensatory damages for
tax purposes); Donnel
v. United States
, 50 Fed. Cl.
375, 386–387 (2001) (separation of employee severance bonus
from other payments for tax purposes); In re Harrison
306 B.R. 172, 182–183 (Bkrtcy. Ct. ED Tex. 2003) (separation
of pain-and-suffering damages from other damages for purposes of
bankruptcy exemption); Colorado Compensation Ins. Auth.
131 P.3d 1074
, 1077–1078 (Colo. App. 2005) (separation of
economic from noneconomic damages for purposes of insurance sub-
v. North Star Drilling Co.
So. 2d 673, 685 (La. App. 1989) (separation of past dam- ages from
future damages for purposes of calculating pre- judgment interest).
Indeed, North Carolina itself uses a judicial allocation procedure
to ascertain the portion of a settlement subject to subrogation in
a workers’ compensation suit. It instructs trial courts
“consider the anticipated amount of
prospective compensation the employer or workers’
compensation carrier is likely to pay to the employee in the
future, the net recovery to plaintiff, the likelihood of the
plaintiff prevailing at trial or on appeal, the need for finality
in the litigation, and any other factors the court deems just and
reasonable.” N. C. Gen. Stat. Ann. §97–
10.2(j) (Lexis 2011).
North Carolina would be on sounder footing had
it adopted a similar procedure for allocating Medicaid
beneficiaries’ tort recoveries. It might also consider a
different one along the lines of what other States have done in
Medicaid reimbursement cases.
The State thus has ample means available to
allocate Medicaid beneficiaries’ tort recoveries in an
efficient manner that complies with federal law. Indeed, if States
are concerned that case-by-case judicial allocations will prove
unwieldy, they may even be able to adopt ex ante
administrative criteria for allocating medical and nonmedical
expenses, provided that these criteria are backed by evidence
suggesting that they are likely to yield reasonable results in the
mine run of cases. What they cannot do is what North Carolina did
here: adopt an arbitrary, one-size-fits-all allocation for all
Fifth, and finally, North Carolina contends that
in two documents—a July 2006 memorandum and a December 2009
letter responding to an inquiry from a member of North
Carolina’s congressional delegation—the federal Centers
for Medicare and Medicaid Services approved of North
Carolina’s statutory scheme for Medicaid reimbursement. In
the State’s view, these agency pronouncements are entitled to
deference. See Brief for Petitioner 33–36 (citing Chevron
U. S. A. Inc.
v. Natural Resources Defense
, 467 U.S.
The 2006 and 2009 documents, however, no longer
re-flect the agency’s position. See Brief for United States
as Amicus Curiae
8–34. And at any rate, the documents
are opinion letters, not regulations with the force of law. We have
held that “[i]nterpretations such as those in opinion
letters—like interpretations contained in policy statements,
agency manuals, and enforcement guidelines, all of which lack the
force of law—do not warrant Chevron-
v. Harris County
, 587 (2000). These documents are
“ ‘entitled to respect’ ” in
proportion to their “ ‘power to
persuade.’ ” Ibid.
v. Swift & Co.
, 323 U.S.
, 140 (1944)). Insofar as the 2006 and 2009 documents
approve of North Carolina’s statute, they lack persuasive
force for the reasons discussed above.
* * *
The law here at issue, N. C. Gen. Stat.
Ann. §108A–57, reflects North Carolina’s effort to
comply with federal law and secure reimbursement from third-party
tortfeasors for medical expenses paid on behalf of the
State’s Medicaid beneficiaries. In some circumstances,
however, the statute would permit the State to take a portion of a
Medicaid beneficiary’s tort judgment or settlement not
“designated as payments for medical care.”
, 547 U. S., at 284. The Medicaid anti-lien
provision, 42 U. S. C. §1396p(a)(1), bars that
The judgment of the Court of Appeals for the
Fourth Circuit is affirmed.
It is so ordered.