16-003590MTR Michael Lee Smathers, Ii vs. Agency For Health Care Administration Status: Closed DOAH Final Order on Wednesday, September 13, 2017.

Summary: The recent judicial invalidation of portions of the Medicaid Third-Party Liability Act has eviscerated the administrative remedy previously available to Petitioner, depriving DOAH of jurisdiction to proceed; case dismissed.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MICHAEL LEE SMATHERS, II ,

Petitioner,

vs.

Case No. 1 6 - 359 0 M TR

AGENCY FOR HEALTH CARE

ADMINISTRATION ,

Respondent.

_______________________________/

FINAL ORDER OF DISMISSAL

This case came before Administrative Law Judge John G.

Van Laningham for final hearing by video teleconference on

March 9, 2017, at sites in Tallahassee and Lauderdale Lakes ,

Florida.

APPEARANCES

For Petitioner: Neal W. Hirschfeld , Esquire

John H. Pelzer, Esquire

Greenspoon Marder , P.A.

200 East Broward Boulevard, Suite 1800

Fort Lauderdale , Florida 33 30 1

For Respondent: Alexander R. Boler , Esquire

2073 Summit Lake Drive, Suite 3 25

Tallahassee , Florida 3 2317

STATEMENT OF THE ISSUES

On the merits, t he issue s for determination are, first,

whether a lesser portion of Petitioner's total recovery from a

third - party tortfeasor should be designated as recovered medical

expenses than the share presumed by statute ; if so, the n the

amount of Petitioner's recovery to which Respondent's Medicaid

lie n may attach must be determined . Before the merits may be

addressed, however, it will be necessary to decide whether, in

light of the recent judicial invalidation of portions of the

Medicaid Third - Party Liability Act, an administrative remedy

remain s avai lable to Petitioner.

PRELIMINARY STATEMENT

On June 24, 2016, pursuant to section 409.910(17)(b),

Florida Statutes, Petitioner Michael Lee Smathers, II, filed a

Petition for Equitable Distribution a nd/ o r Determination of

Reimbursement of Past Medical Expenses Related to Medicaid Liens

with the Division of Administrative Hearings ("DOAH") to contest

the amount designated by section 409.910(11)(f) as recovered

medical expense damages payable to Respondent Agency for Health

Care Administration.

At the f inal hearing, which took place as scheduled on

March 9, 2017, Petitioner presented the testimony of R. Vincent

Barrett . Petitioner's Exhib its 1 through 4 were received in

evidence without objection. Respondent's Exhibit A was admitted

as well . Responden t called no witnesses.

The final hearing transcript was filed on April 4 , 201 7 .

The parties timely filed proposed final orders on or before

April 14 , 201 7 , the established deadline .

Unless otherwise indicated, citations to the official

statute law of the state of Florida refer to Florida Statu tes

2016 .

FINDINGS OF FAC T

1 . On June 1 , 201 2 , Petitioner Michael Lee Smathers, II

("Smathers"), was shot two times while sitting in a vehicle

parked outside of Club Lexx, a nightclub in Miami - Dade County.

The shooter was a security guard who worked for Force Security,

LLC ("Force"), which provided security for Club Lexx as an

independent contractor. The guard also shot Smathers's friend,

the driver of the vehicle , who died as a result of his injuries .

T he record is silent as to the circumstances giving rise to this

violence.

2. One bullet struck Smathers in the arm, the other in the

stomach, which caused life - threatening injuries. Smathers

received aggressive emergency medical care and survived , but he

is permanently and severely disabled . Bullet and bone fragments

damaged his spinal cord, leaving Smathers paralyzed from the

waist down. He is incontinent, has serious gastric

difficulties, experiences constant pain, cannot have sex or

reproduce, and suffers from chronic depression, among other

conditions. Because it is undisputed that Smathers's injuries

are severe, permanent, and indeed catastrophic, there is no need

to catalogue them all here.

3. Smathers requires round - the - clock care and will never

return to the workforce due to his impairments and chronic pain.

He will incur medical expenses stemming from the gunshot wounds

for the rest of his life.

4 . At all relevant time s, Smathers's health insurance was

provided , at least in part, by Medicaid. Medicaid is a program

"which provides for payments for medical items or services, or

both, on behalf of any person who is determined by the

Department of Children and Families . . . to be eligible on the

date of service for Medicaid assistance." § 409.901(16), Fla.

Stat. Medicaid is jointly funded by the federal government and

the states that have elected to participate in the program,

which include Florida. Respondent Agency fo r Health Care

Administration ("AHCA") is the agency responsible for

administering Medicaid in the state of Florida.

5. It i s undisputed that Medicaid provided $206,445.41 in

medical assistance on Smathers's behalf as a result of the

injuries he susta ined in the attack at Club Lexx.

6 . Unfortunately for S mathers , the Club Lexx shooting gave

him many causes of action but no deep - pocket defendants to sue

for damages . H e brought suit , nonetheless , against Force and

others in the state circuit court (the "Smathers Lawsuit") .

Force , it happen ed , was insured against general liability, but

only up to $1 million per occurrence , which obviously would be

woefully inadequate to compensate Smathers.

7 . Force's insurer ("Evanston") sought a judicial

declaration in the U.S. district court that its policy d id not

provide coverage for the allegations made against Force in the

Smathers Lawsuit. The federal court rejected Evanston's

coverage position and held that the insurer had a duty to defend

Force. Evanston appealed the decision.

8 . While this appeal was pending, Evanston, Force, and

Smathers entered into a settlement agreement, pursuant to which

Evanston paid the policy limit of $1 million to Smathers in

exchange for the usual releases. (Smathers did not release the

other defendants in the Smathers Lawsuit.) The settlement is

undifferentiated ÏÏ that is, no attempt was made therein to

apportion the proceeds between the various elements of

compensatory damages potentially available to Smathers . After

deducting attorney ' s fees and costs, Smathers's net recovery

from the settlement was $546,894.15.

9 . Upon learning of the settlement, AHCA asserted its

rights under the Medicaid Third - Party Liability A ct (the "Act") ,

section 409.910, which grants AHCA an automatic lien upon

"collateral" such as settlements an d settlement agreements for

the full amount of medical assistance provided by Medicaid to a

recipient for which a third party might be liable. There is,

however, an important limitation on AHCA's right of repayment

from liable third parties: Because fede ral law prohibits a

state from attaching a Medicaid lien to any part of a

recipient's tort recovery not designated as payments for medical

care, the lien can encumber only the portion of a settlement or

recovery that represents compensation for medical exp enses. As

a means of complying with this anti - lien law, section

409.910(11)(f) prescribes a formula for determining how the

proceeds of a settlement or other recovery from a third - party

tortfeasor should be divided between medical expense damages and

all other (i.e., nonmedical) compensatory damages, and it

directs that the portion attributable to payments for medical

care be paid to AHCA up to the total amount spent by Medicaid.

10 . The parties agree that , under this statutory formula,

AHCA is entitled to be reimbursed in full for Medicaid's outlays

on Smathers's behalf ($206,445.41) because that amount , which

represents approximately 20.6% of Smathers's gross settlement

proceeds ("GSP") , is less than the portion of his GSP that

paragraph (11)(f) otherwise presumptively designat es as

recovered medical expense damages . Exercising his right s under

section 409.910(17)(b), which provides the "exclusive method for

challenging the amount of third - party benefits payable to" AHCA ,

Smathe rs initi ated this proceeding to contest the statutory

designation of $ 206,445.41 as payments for medical care .

Paragraph (17)(b) confers upon DOAH final order authority over

this administrative remedy.

1 1 . Smathers presented evidence regarding his total

provable damages ("TPD") , 1 / which he asserts are between

$16 million and $22 million . Smathers's TPD includes past

medical expenses of $2.7 million and future medical expenses of

$5.7 million, for a total of $8.4 million in medical expense

damages. 2 / Medical expense damages and general damages

comprising injury, pain, disability, disfigurement, and loss of

capacity for enjoyment of life (collectively, "pain and

suffering") constitute, effectively, the entirety of Smathers's

TPD. 3 /

1 2 . Smathers contends that the amount of his settlement

that should be allocated as reimbursement for medical expense

damages , and thus become subject to the Medicaid lien, is

$12,903 . Smathers arrives at this figure as follows. He

reasons that because he re covered just 6.25% of his TPD

( $1 million is 6.25% of $16 million ), AHCA likewise should be

paid just 6.25% of its total expenditures , which works out to

$12,903. (That sum is 1.29% of $1 million. ) For ease of

discussion, this approach will be referred to as the settlement -

to - value ratio method, expressed as ௪௦௚ ௝௩௦ ቗ ݱ ቘ , where ݱ = actual

Medicaid expenditures.

1 3 . The amount payable to AHCA pursuant to the formula set

forth in section 409.910(11)(f) (the "Statutory Distribution")

is either (a) an amount equal to .75 times the gross settlement,

minus taxable costs, divided by 2 (hereafter, the "Presumed

Recovered Medical Expense Damages" or "PRMED"); or (b) the total

dollar amoun t of medical assistance that Medicaid actually has

provided (hereafter, the "Actual Expenditure"), w hichever is

lower. The ratio of PRMED to GSP reflects the portion of the

GSP that the statutory formula allocates by default as

reimbursement to the injure d party for both past and future

medical expenses (hereafter collectively re ferred to as "Medical

Damages").

1 4 . T he statute, it will be seen, presumes that a

uniformly calculable percentage (i.e., ௦௨௣௛௚ ௝௩௦ ) of any r ecipient's

undifferentiated GSP constitutes compensation for Medical

Damages. I n the run of cases, this percentage likely will be

somewhere in the neighborhood of one - third, although in

particular cases, as here, the percentage ÏÏ which cannot exceed

37. 5 % ÏÏ can be smaller . 4 /

1 5 . Section 409.910 (17)(b) , Florida Statutes (2017) ,

provides that "[i]n order to successfully challenge the amount

designated as recovered medical expenses , the recipient must

prove, by clear and convincing evidence, that the portion of the

total recovery whi ch should be allocated as past and future

medical expenses is less than the amount calculated by the

agency pursuant to the formula set forth in paragraph (11)(f) ." 5 /

Thus, the presumption regarding the allocation of the

recipient's recovery to Medical Damages is one which affects the

burden of proof. See §§ 90.302(2) and 90.304, Fla. Stat. To

elaborate, paragraphs (11)(f) and (17)(b) operate in tandem to

create the rebuttable presumption that a certain percentage of

the recipient's GSP is attributable to Medical Damages (the

presumed fact), and paragraph (17)(b) makes plain that the

recipient has the burden of proving, by clear and convincing

evidence, the nonexistence of the presumed fact. The

presumption at iss ue, according to paragraph (17)(b), is not a

"bursting bubble" presumption that vanishes upon the

introduction of credible evidence contrary to the presumed fact,

see section 90.302(1) , Florida Statutes , but rather it imposes

upon the recipient the burden to prove that a smaller portion of

the settlement is attributable to Medical Damages.

16 . On April 18, 2017, the U.S. District Court for the

Northern District of Florida entered a Final Judgment in

Gallardo v. Dudek , No. 4:16 - cv - 116 , 2017 U.S. Dist. LEXIS 59848

(N.D. Fla. Apr. 18, 2017), which declared that section

409.910(17)(b) is preempted by federal law (and thus

unconstitutional under the Supremacy Clause) at least insofar as

the statute authorizes AHCA to "seek[] reimbursement of past

Medicaid payments from portions of a recipient's recovery that

represents [sic] future medical expenses." Id. at *31. The

court enjoined AHCA from "enforcing that statute in its current

form" and specifically forbade AHCA from "requiring a Medicaid

recipient to affirmatively disprove" the statutory allocation of

third - party recoveries as reimbursement for past and future

medical expenses "where . . . that allocation is arbitrary."

Id. Three months later, on AHCA's motion, the court amended its

jud gment , slightly, to read as follows :

[P]ortions of § 409.910(11)(f), Fla. Stat.

(2016) and § 409.901(17)(b), Fla. Stat.

(2016) are preempted by federal law.

It is declared that the federal Medicaid Act

prohibits the State of Florida Agency for

Health Care Administration from seeking

reimbursement of past Medicaid payments from

portions of a recipient's recovery that

represents [sic] future medical expenses.

The State of Florida Agency for Health Care

A dministration is therefore enjoined from

doing just that: seeking reimbursement of

past Medicaid payments from portions of a

recipient's recovery that represents [sic]

future medical expenses.

It is also declared that the federal

Medicaid Act prohibits the State of Florida

from requiring a Medicaid recipient to

affirmatively disprove § 409.910(17)(b)'s

formula - based allocation with clear and

convincing evidence to successfully

challenge it where, as here, that allocation

is arbitrary and there is no evi dence that

it is likely to yield reasonable results in

the mine run of cases.

Gallardo v. Senior , 2017 U.S. Dist. LEXIS 112448 , *24 (N.D. Fla.

July 18, 2017).

CONCLUSIONS OF LAW

17 . On the face of section 409.910(17)(b), DOAH has

personal and subject matter jurisdiction in this proceeding .

The decision in Gallardo , however, substantially undermines the

superficially available administrative remedy, perhaps to the

point of collapse, with the result that DOAH's jurisdiction ,

dependent as it is on the existence of an administrative remedy,

is now under a cloud. The jurisdictional issue will be taken up

first, as it must.

18 . Section 409.910(1) provides that "[i]f benefits of a

liable third party are discovered or become ava ilable after

medical assistance has been provided by Medicaid, . . . Medicaid

[must] be repaid in full and prior to any ot her person, program,

or entity." Further, "[p]rinciples of common law and equity as

to assignment, lien, and subrogation are abrogate d to the extent

necessary to ensure full recovery by Medicaid from third - party

resources." Id. 6 / As previously stated herein, however, the

U.S. Supreme Court has interpreted the anti - lien provision in

federal Medicaid law as imposing a bar which , pursuant to the

Supremacy Clause, precludes " a state from asserting a lien on

the portions of a settlement not allocated to medical expenses ."

See, e.g. , Mobley v. State , 181 So. 3d 1233, 1235 (Fla. 1st DCA

2015) .

19 . Although the states do not have unfettered access to

tortfeasor s' payments when enforcing Medicaid liens, t he Court

has remarked that the states are not necessarily forbidden from

establishing rebuttable presumptions respecting the earmarking

of settlement proceeds for medical expense da mages , leaving that

door open to them. But " a Medicaid beneficiary must be given

the opportunity to show that the amount apportioned for medical

expenses by the parties is less than the amount of the lien

asserted by the state. " Id.

20 . As we have seen, Florida has opted to take a formulaic

approach to the division of settlement proceeds. Section

409.910(11)(f) provides in relevant part as follows:

(f) Notwithstanding any provision in this

section to the contrary, in the event of an

action in to rt against a third party in

which the recipient or his or her legal

representative is a party which results in a

judgment, award, or settlement from a third

party, the amount recovered shall be

distributed as follows:

1. After attorney ' s fees and taxab le

costs as defined by the Florida Rules of

Civil Procedure, one - half of the remaining

recovery shall be paid to the agency up to

the total amount of medical assistance

provided by Medicaid.

2. The remaining amount of the recovery

shall be paid to the recipient.

3. For purposes of calculating the

agency' s recovery of medical assistance

benefits paid, the fee for services of an

attorney retained by the recipient or his or

her legal representative shall be calculated

at 25 percent of the judgment, awa rd, or

settlement.

21 . Section 409.910(17)(b) establishes the exclusive

remedy for contesting the Statutory Distribution, which affords

the recipient an opportunity in an administrative hearing to

rebut the presumptive allocation of settlement proceeds to

Medical Damages by proving :

by clear and convincing evidence, that the

portion of the total recovery which should

be allocated as past and future medical

expenses is less than the amount calculated

by the agency pursuant to the formula set

forth in para graph (11)(f). Alternatively,

the recipient must prove by clear and

convincing evidence that Medicaid provided a

lesser amount of medical assistance than

that asserted by the agency.

22 . The raison d'être of the administrative remedy is to

afford the re cipient an opportunity to disprove (by clear and

convincing evidence) the "accuracy" 7 / of the Statutory

Distribution, which latter ÏÏ to remind the reader ÏÏ is the PRMED

or Actual Expenditure, whichever is less. Clearly, the

legislature intended that the Statutory Distribution be regarded

as a generally reliable, reasonably fair and accurate allocation

of a recipient's GSP to Medical Damages for purposes of

establishing the Medicaid lien amount , and it no doubt expected

th at th e Statutory Distrib ution woul d survive individual

challenge s more often than not .

23 . T he amount of the Actual Expenditure will usually be

un disputed. When the Statutory Distribution is contested,

therefore, it is the PRMED that the recipient inevitably

attack s , of necessity. That being the case, it is significant

that the legislature intended the P RMED to include both past and

future medical expense damages. See Giraldo v. Ag. for Health

Care Admin. , 208 So. 3d 244, 2 48 (Fla. 1st DCA 2016). 8 / That is,

the formula in paragraph (11)(f) , i.e., ቛ ቗ ȁ ୓ୖ ቘ ቗ ௝௩௦ ୓ ቘ ଡ଼ ௳௿ఃఄః ቜ , was designed

to produce a number that will fairly approximate a recipient's

recovery for all medical expense damages , past and future .

24 . This means, obviously, that the PRMED is a bigger

number than the alternative would have been had the legislature

not intended to include future medical expense damages in the

amount designated as recovered medical expenses. Because

paragraph (11)(f) depends upon the presumed power of the State

to attach future medical damages , the judicial declaration in

Gallardo t hat AHCA cannot enforce its Medicaid liens against

future medical expense damages completely discredits the

formula . Logically, therefore, i n the wake of Gallardo , there

is no need for a recipient ever to disprove the accuracy of the

Statutory Distribution ÏÏ it is intrinsically flawed due to the

impermissible inclusion of future medical damages in the PRMED .

( At a minimum, t o comport with Gallardo , the denominator would

have to be replaced with a number greater than 2 , to release

future medical damages from the formula's grasp. )

25 . In an effort to limit the impact of Gallardo , AHCA

argues that "resort to the statutory allocation" is unnecessary

where , as here, the Actual Expenditure is "significa ntly" less

than the PRMED. This overlooks the fact that the Statutory

Distribution is the lesser of two values (Actual Expenditure and

PRMED) , which means that both must be reliable numbers . In this

case, the Actual Expenditure is less than the PRMED as the

latter is calculated pursuant to the invalid formula . Because

the formula has been declared unconstitutional , the PRMED it

produces is worthless ÏÏ and thus it is irrelevant that the Actual

Expenditure is a smaller number . Contrary to AHCA's contention ,

moreover, "resort to the statutory allocation" is unavoidable in

an administrative proceeding whose sole purpose is to contest

the "statutory allocation." What is unnecessary, after

Gallardo , is for the recipient to prove that the amount which

should be allocated as past and future medical expenses is less

than the amount that paragraph (11)(f) unlawfully designates as

recovered Medical Damages because future medical expenses are

off - limits .

26 . That said, it is true that the Gallardo court, in

declaring that AHCA could not require "a Medicaid recipient to

affirmatively disprove § 409.910(17)(b)'s formula - based

allocation with clear and convincing evidence , " appeared to

soften the blow by limit ing its holding to cases "w here, a s

[t] here, th [e] allocation is arbitrary and there is no evidence

that it is likely to yield reasonable results in the mine run of

cases. " This language puzzles the undersigned because it seems

incongruous with the court's opinion taken as a whole.

Ultimately, however, it is unnecessary to explicate this proviso

because the court's unconditional holding that future medical

expense damag es are always beyond the State's reach is the

essential feature of Gallardo , as far as the administrative

remedy und er paragraph (17)(b) is concerned.

27 . To explain, paragraph (17)(b) requires , for a

successful administrative challenge to the Statutory

Distribution, that the recipient "prove, by clear and convincing

evidence, that the portion of the total recovery w hich should be

allocated as past and future medical expenses is less than the

amount calculated by the agency pursuant to the formula set

forth in paragraph (11)(f). " § 409.910(17)(b), Fla. Stat.

(emphasis added). Yet, i n light of Gallardo , it is pointless to

require proof by any standard ÏÏ much less to make a finding of

fact ÏÏ regarding the portion of the recipient's total recovery

which should be allocated as past and future medical expenses

since only a portion of that portion (i.e., the lesser in cluded

amount attributable exclusively to past medical expenses) is

subject to the Medicaid lien. Thus, in the end i t makes no

difference whether the Statutory Distribution is arbitrary or

can be shown to yield reasonable results in the run of cases.

Indeed, one could assume for argument's sake that the Statutory

Distribution, as a presumptive allocation of settlement proceeds

to past and future medical expense damages , is both nonarbitrary

and evidentially defensible , and still proof of what the

allocation for past and future medical expenses "should be"

would be irrelevant. What matters after Gallardo is the amount

o f the settlement which should be allocated as past medical

expense damages ÏÏ and only such damages .

28 . To summarize, then, in light of Gallardo : ( i) t he

Statutory Distribution, i.e., the portion of the total recovery

designated by paragraph (11)(f) as past and future medical

expenses, is over inclusive as a matter of law and cannot be

accepted as a fair reflection of the share of the settlement

which should be allocated as past medical expense damages ;

( ii ) t here is no reason for a recipient to prove that the amount

designated as recovered past and future medical expenses should

be less than the Statutory Distribution because the State cannot

enforce its lien against future medical expens e damages;

(iii) t here is no need for a recipient to prove that t he portion

of his recovery attributable solely to past medical expenses

should be less than the Statutory Distribution because (a) this

is an apples - to - oranges comparison, (b) logically the former

should be less than the latter since past medical expenses are a

subset of all Medical Damages , and (c) the Statutory

Distribution is the product of an unconstitutional formula.

29 . No imagination is necessary to recognize that Gallardo

might have dealt paragraph (17)(b)'s administrative remedy a

mortal blow. Th e reason is obvious. The administrative law

judge's (" ALJ ") primary function ÏÏ to determine whether, based

upon clear and convincing evidence adduced by the recipient, the

portion of the total recovery which should be allocated as past

and future medical expenses is less than the amount calculated

by the agency pursuant to the formula set forth in paragraph

(11)(f) ÏÏ is no longer necessary or even relevant . Following

Gallardo , the Statutory Distribution is simply not viable.

Indeed, because AHCA has been enjoined from seeking

reimbursement of past Medicaid payments from that portion of a

recipient's recovery which represents future medical expenses,

AHCA is arguably precluded from basing its position on the

S tatutory Distribution, for it (the Statutory Dis tribution)

clearly lays claim to the recipient's future medical expenses

recovery . The recipient thus wins the battle over the Statutory

Distribution without firing a shot.

30 . DOAH, however, was supposed to provide the field on

which that particular battle would be fought . If it is over

before it begins , what (if anything) is left for DOAH to do?

The only task remaining after Gallardo is to decide how much of

the recipient's GSP should be distributed to AHCA , up to a

maximum of the Actual E xpenditure or the portion of the total

recovery allocated as recovered past medical expenses (" R PME") ,

whichever is less . The question thus arises as to whether DOAH

has the authority to adjudicate AHCA 's lien recovery without the

constraining influence of the presumptively c orrect Statutory

Distribution (with its inclusion of future medical expense

damages) operating as a check on the ALJ 's discretion ; o r, to

restate the question, whether DOAH is authorized to provide an

administrative remedy materially different from the one

prescribed in paragraph (17 ) (b). Both parties assert that

DOAH's jurisdiction is unaffected by Gallardo , but their

agreement in this regard does not relieve the undersigned of the

obligation to satisfy himself that DOAH's jurisdicti on subsists.

See Peck Plaza Condo. v. Div. of Fla. Land Sales & Condos. , 371

So. 2d 152 , 153 (Fla. 1st D CA 1979) .

31 . AHCA's primary argument on jurisdiction is that the

Gallardo court's decision did not divest DOAH of jurisdiction

because the final judgment is silent on the matter , which was

not at issue there, 9 / and because t he portions of section 409.910

invalidated in Gallardo do not relate to the question of

administrative jurisdiction. It is true that the district court

did not address the question of DOAH's jurisdiction, but then

there was no reason for the court to do so , for DOAH's

jurisdiction was not at issue in the federal case . This fact,

therefore, is not persuasive , much less d ispositive . As for

AHCA's assertion that the preempted portions of section 409.910

are unrelated to DOAH's jurisdiction, well, that is (in effect)

the proposition at issue . Merely t o assume this premise to be

true , as AHCA does, is to beg the question , which is

unpersuasive. Ultimately, AHCA states , correctly, that "[i]n

issuing the final order, the ALJ will need to determine the

applicability of the Gallardo injunction on the relief sought by

[AHCA] in this proceeding."

32 . Smathers makes two argume nts , but these are so

intertwined as perhaps to be one. The gist of it is that the

provisions of section 409.910 invalidated in Gallardo are

severable from the remainder of the Act , whose legislative

purposes can still be accomplished without the portions declared

uncons t itutional because there is really no difference between

DOAH 's (i) adjusting a Medicaid lien (ante - Gallardo ) upon clear

and convincing proof that the Statutory Distribution is

excessive and (ii) adjusting a Medicaid lien ab initio (post -

Gallardo ) .

33 . The severability doctrine is a firmly established

principle of constitutional adjudication, which provides as

follows:

[T] he unconstitutionality of a portion of a

statute will not necessarily condemn the

entire act. When a part of a st atute is

declared unconstitutional the remainder of

the act will be permitted to stand provided:

(1) the unconstitutional provisions can be

separated from the remaining valid

provisions, (2) the legislative purpose

expressed in the valid provisions can be

accomplished independently of those which

are void, (3) the good and the bad features

are not so inseparable in substance that it

can be said that the Legislature would have

passed the one without the other and, (4) an

act complete in itself remains after the

invalid provisions are stricken.

Cramp v. Bd. of Public Instruction , 137 So. 2d 828 , 830 (Fla.

1962) . But "if the valid portion of the law would be rendered

incomplete, or if severance would cause results unanticipated by

the legislature, there can be no severance of the invalid parts;

the entire law must be declared unconstitutional." Eastern Air

Lines, Inc. v. Dep't of Rev. , 455 So. 2d 311 , 317 (Fla. 1984) .

34 . It is understandable that Smathers would invoke this

rule because the question of DOAH's jurisdiction boils down to

whether there exists , in the valid provisions of section 409.910

which remain, an administrative remedy that DOAH can provide .

Th is question, however, although somewhat similar, i s not the

same question as whether the invalidation in Gallardo of some

provisions of section 409.910 means that the entire Act must be

declared unconstit utional. The severability doctrine,

therefore, is not directly applicable, and in any event , its

purpose is to guide a court in determining how muc h of a statute

is unconstitutional, which is a judicial exercise , not a quasi -

judicial, administrative function .

35 . Nevertheless, the severability doctrine supplies some

ideas that are useful in resolving the issue of statutory

interpretation at hand. In particular, the undersigned

considers pertinent the question of whether the legislature

would have g iven DOAH final order authority to adjust Medicaid

liens administratively were it armed with the knowledge that

ALJs , being freed of the need to pay heed to the discretion -

limiting Statutory Distribution, would be required to make ab

initio distributions of funds recovered from third parties .

Unless that question can be answered in the affirmative, then

the unconstitutional provisions of section 409.910 are

inseparable from the administrative remedy provided in

paragraph (17)(b), and the administrative remedy should be

deemed, not unconstitutional, but inoperative ÏÏ effectively

repealed by judicial decree.

36 . A brief history of the Statutory Distribution might

shed light on the legislative purposes at stake. From 1990

u ntil the present , the Act has included a formula that creat es

for the Me dicaid agency (currently AHCA) the right to receive a

readily calculable amount of reimbursement from third - party

recoveries. See § 409.2665 (1 2)(f), Fla. Stat. (1990

Supp.)(original formula)(transferred and renumbered as

§ 409.910(11)(f) by Ch. 91 - 282, § 38, at 2656, Laws of Fla.) .

The latest version of the formula, which produces the Statutory

Distribution, took effect in 1998. See § 409.910(11)(f), Fla.

Stat. (1998 Supp.).

37 . For nearly two decades, AHCA's right to recover the

Statutory Distribution was absolute because the formulaic

allocation was consistently deemed incontestable. In 2009,

however, the Fifth District Court of Appeal broke ranks, ruling

that "a plaintiff s hould be afforded an opportunity to seek the

reduction of a Medicaid lien amount by demonstrating, with

evidence, that the lien amount exceeds the amount recovered for

medical expenses. " Smith v. Ag. for Health Care Admin. , 24 So.

3d 590, 592 (Fla. 5th DCA 2009). In time, two other district

courts followed suit, creating a conflict which in 2014 the

Florida Supreme Court resolved ÏÏ in favor of contestability.

Garcon v. Ag. for Health Care Admin. , 150 So. 3d 1101 (Fla.

2014 ). By then, however, the legislature had stepped in.

38 . In 2013, seeing the handwriting on the wall in the

form of a then recent U.S. Supreme Court decision , 10 / the

legislature amended the Act, creating an administrative remedy

for contesting the Statutory Distribution , which removed lien

contests from the circuit courts . See Ch. 2013 - 150, § 2, at 7,

Laws of Fla. The legislative staff analysis provides some

insight into the reasons behind the decision to give DOAH

jurisdiction over these cases :

From Ma rch 2012 to February 2013, AHCA' s

Third Party Liability (TPL) vendor closed

302 cases based upon calculations deriv ed

from the statutory formula. AHCA recovered

$4.9 million from these cases, approximately

$2 million of which is utilized by the

Leg islature to fund Medica id administrative

activities. However, AHCA ' s ability to

recover Medicaid medical costs from third

parties will likely be reduced as a result

[of] the recovery amount hearings caused by

the decision in Wos v. E.M.S . The amount of

t his reduction is unknown. However, the

amount of any reduction will likely be

mitigated by the bill' s standard of proof

for overcoming the presumption.

In addition to the fiscal impact of reduced

collections, AHCA will incur a negative

fiscal impact for providing recipients

hearings on the recovery amount. The TPL

vendor staffed 62 hearings in circuit court

contesting the AHCA ' s entitlement to

Medicaid recovery during the last 12 months

with a cost of approximately $5,000 per

hearing. Although the exact number is

unknown, due to the loss of the irrebuttable

presumption, AHCA anticipates there will be

a substantial increase in the number of

hearings to determine the Medicaid recovery

allocation. The bill mitigates those costs

by requiring the hearings to be brought in

DOAH, having venue in Leon County, and

setting a burden of proof (clear and

convincing evidence). The amount of that

mitigation is indeterminate.

Fla. H.R. Subcomm. on Health Innovation , CS/CS/HB 939 ( 2013 )

Final Staff Analysis 8 ( June 10, 2013 )(emphasis added; footnotes

omitted).

39 . The administrative remedy was intended to comply with

the federal anti - lien law without losing all the financial

benefits of the formerly incontestable Statutory Distribution.

Clearly, the purpose of the stringent standard of proof was to

protect , against expected challenges, AHCA's now - conditional

right to receive the Statutory Distribution, which would

continue to be enforced unless , in a particular case, the

recipient were ab le to carry a heavy evidentiary burden. Simply

put , after 2013 the Statutory Distribution was AHCA's by

default , as before, except that now the formula could be

defeated ÏÏ but only by a recipient willing to undertake the

daunting task of disproving, in a formal hearing, the validity

of the presumptively correct statutory allocation. Having DOAH

adjudicate these disputes , moreover, would keep a lid on the

State's litigatio n costs because all the hearings would be held

in one place (Tallahassee) rather than in every judicial circuit

around the state.

40 . As Smathers correctly points out, the legislative goal

of litigation - cost control is met as long as DOAH continues to

exercise jurisdiction over lien contests. But any

admini strative reme dy wo uld be cost effective for the State as

compared to facing lawsuits in every circuit . The question is

whether there is enough of the original administrative remedy

left in paragraph (17)(b), post - Gallardo , for DOAH to administer

without additional legislative authorization . On this issue,

Smathers presumes that the le gislature would have created an

administrative lien contest even if it meant letting ALJs

determine reimbursement amounts without a Statutory Distribution

anchoring AHCA's recoveries to a predetermined , quasi - guaranteed

allotment .

41 . Sma thers claims support for this presumption in the

fact that paragraph (17)(b) does not tell the ALJ how to

calculate the proper lien amount in cases where the recipient

carries his burden of disproving the Statutory Distribution ÏÏ

which is true. Indeed, the statute gives no guidance for

determining whether the recipient has proved that the proper

lien amount is less than that calculated by AHCA. But does this

mean, as Smathers implies, that there is no material difference

between a remedy that makes every r ecipient an underdog, forced

to prove that AHCA should not receive the Statutory Distribution

to which it is conditionally entitled; and one which puts

recipients and AHCA on a level playing field where AHCA lacks

even a conditional right to a certain amou nt of reimbursement?

42 . The answer is no . Let's pause to consider what a lien

contest would look like without a statutory formula to determine

the State's presumed share of a third - party recovery. It is not

necessary to speculate because , a s it happens, there is a case

on point, namely Underwood v. Department of Health and

Rehabilitative Services , 551 So. 2d 522 (Fla. 2d DCA 1989).

Factually, Underwood somewhat resembles the instant case. Like

Smathers, the plaintiff there suffered catastr ophic permanent

injuries (in an automobile accident) for which no one

responsible had sufficient assets to cover her total damages,

which exceed ed $1.5 million . Id. at 523 - 24. Eventually, she

accepted a polic y - limits settlement of $105,000 and petitioned

the court for an equitable distribution of the funds to satisfy

the Medicaid lien , which the State claimed secured repayment in

full of the approximately $55,000 in medical assistance the

plaintiff had received. Id. at 524. The trial cour t agreed

that the State was entitled to a full recovery on the grounds

that "Florida's Medical Assistance Law ma[de] no provision for

prorating or allocating any sum less than one hundred percent

for [the State's] reimbursement out of any recovery by a

rec ipient even though the recipient has not been able to recover

from third parties the full measure of her damages." Id.

43 . The appellate court reversed the trial court for

failing "to apply traditional equitable subrogation principles

and prorate or allocate [the State's ] right to reimbursement for

. . . its claim based upon t he proportionate amount of total

damages [the plain tiff] was able to recover. " Id. The court

reasoned that although the Medicaid statutes gave the State a

lien secur ing its right to reimbursement from third - party

recoveries such as the plaintiff's, they did not create a right

to an amount of reimbursement. Id. at 525. It concluded as

follows:

The general rule is that, in the absence of

a waiver to the contrary, one is not

entitled to be subrogated to the rights of

an injured party for damages when that

injured party has been requir ed to settle

his claim for damages for less than its

worth because of the limited financial

responsibility of the responsible tort -

feasor. That broad rule denying any

subrogation until full recovery by the

injured party has been partially waived or

modifi ed by the Florida Medical Assistance

Law. Under that law, [the State] is

entitled to a lien against and to seek

reimbursement from amounts received by a

medical assistance recipient from third

parties. However, that amount to which [the

State] is entitle d should be determined in

each case on a pro rata or proportionate

basis according to what percentage of the

total damages sustained is recovered by the

medical assistance recipient and what

percentage of those damages should equitably

be characterized as a recovery for past

medical services or expenses.

Id. at 526.

44 . As noted above, the legislature enacted the original

reimbursement formula in 1990, in the next session following

Underwood , which was probably not coincidental. The

legislature, it seems, did not want trial courts equitably

distributing third - party recoveries to the Medicaid agency on a

case - by - case basis as though the State were an ordinary

subrogee . So, it created an amount of reimbursement to which

the State w ould be entitled. Many years later, when that

absolute entitlement became untenable due to developments in

federal law, the legislature strategically retreated (but no

more than seemed necessary ) , creating a n administrative remedy

for recipients that exposed AHCA's once indefeasible right to a

genuine, if controlled , risk of loss . After Gallardo , however,

AHCA's right to a protected amount of reimbursement is gone, and

it faces the uncontrolled risk of substantially reduced

recoveries in equitable distribution proceedings (where the

State will often be competing against sympathetic plaintiffs for

limited funds) .

45 . The legal history of the formulaic reimbursement

scheme strongly suggest s , contrary to Smathers's presumption,

that the legislature would not have created an administrative

remedy for (in effect) deciding petitions for equitable

distribution. Had it known that the Statutory Distribution

would be declared invalid, the legislature might still have

opted for an administra tive remedy, but it almost certainly

would have placed limits on DOAH's discretion to divvy up third -

party recoveries, for at least two sufficient reasons.

46 . The first is that the State is not legally required

(at this time, anyway) to put AHCA at the mercy of an unguided

equitable distribution. Even Gallardo does not go so far as to

prohibit the State from prescribing a formula for determining

AHCA's proportionate share of a less - than - complete third - party

recovery; rather, the court merely said that AHCA cannot rely

upon the current formula. P revious enactments compel the

reasonable assumption that, if the Statutory Distribution were

taken off the table, the legislature , at a minimum, would pass a

bill mandating the methodology it wants jud ges to use in

calculating AHCA's share ÏÏ which might be based, for example , on

the actual facts concerning a recipient's particular losses,

total damages, and percentage of recovery. In sum, the

undersigned believes that the legislature would prefer a

disciplined distribution to an equitable distribution .

47 . The second reason that the legislature probably would

not create an administrative equitable distribution - type remedy

is that such an enactment would raise a nontrivial separation -

of - powers con cern . The rule is that "[w]hile an administrative

agency may exercise quasi - judicial power when authorized by

statute, it may not exercise power which is basically and

fundamentally judicial such as the grant of an equitable

remedy. " Biltmore Constr. Co. v. Fla. Dep't of Gen . Servs. , 363

So. 2d 851 , 853 - 54 (Fla. 1st DCA 1978)(only a court exercising

equitable powers may decree specific performance) ; see also

Broward Cnty. v. La Rosa , 505 So. 2d 422, 423 (Fla. 1987) (quasi -

judicial powers may be delegated t o administrative agencies, but

"the legislature cannot authorize these agencies to exercise

powers that are fundamentally judicial in nature"). Although

the undersigned cannot say for sure that equitable distribution

is exclusively a judicial function (fo r "the boundary between

judicial and quasi - judicial functions is often unclear," id. ) , 11 /

it cannot be denied that the passage of an administrative remedy

providing for the equivalent of an equitable distribution might

amount to an unconstitutional delegation of judicial authority.

48 . All of which lead s the undersigned to conclude that

the legislative purposes behind the administrative remedy in

paragraph (17)(b) cannot be accomplished without the provisions

th at were struck down in Gallardo . Absent the se provisions, the

undersigned is left to make a determination that is

indistinguishable from an ordinary equitable distribution. But

the undersigned has not been granted unrestricted authority to

make such an equitable distribution ÏÏ and probably would not be,

for the reasons just discussed. Further, as a n ALJ, whose

powers are limited to those conferred by statute, the

undersigned lacks the authority to fashion a replacement remedy

to compensate for the damage done by Gallardo to the one

prescribed in paragraph (17)(b).

49 . The upshot is that , by deforming the administrative

remedy in paragraph (17)(b), Gallardo has pulled the rug out

from under DOAH , which as a consequence of the district court's

ruling has no remedy to offer recipients, such as Smathers, who

had no choice but to come here seeking relief. Lacking the

power, now, to provide an administrative remedy, the undersigned

must dismiss this case for want of jurisdiction.

50 . It is neither neces sary nor typically appropriate to

examine the merits of a controversy over which the tribunal

lacks jurisdiction. Nevertheless, because both sides have urged

the undersigned to proceed, a brief discussion follows, the

purpose of which is to inform the par ties what the undersigned

would have done if possessed of jurisdiction , for what it's

worth.

51 . To review the parties' positions, Smathers ÏÏ using the

settlement - to - value ratio method discussed infra at 8 ÏÏ contends

that AHCA's share of the GSP should be $ 12,903. AHCA argues

(based on the Statutory Distribution) that it should be repaid

in full, and accordingly seeks an allocation of $206,445.41,

i.e., the Actual Expenditure. In contrast, I would calculate

AHCA's share using the ratio of past medical expe nses ("PME") to

GSP as the basis for determin ing RPME , see infra at 19, as

follows: ௦௣௛ ௪௦௚ · ݆ݒݏ ൩ ݑݏ݌݄ . I would have found PME to be $2 .7

million and TPD $19 million , so that , on a GSP of $1 million,

RPME would equal 142,105 . RPME being less than the Actual

Expenditure , AHCA's proportionate share would have been

$142,105.

52 . Next, I would have determined AHCA's proportionate

share of the attorney's fees and costs, for which it should be

responsible, given that AHCA will benefit from Smathers's

efforts to recover damages (including PME ) from the liable third

parties. Smathers's net recovery from the settlement , after

fees and costs, was $546,894.15 . Thus, litigation expenses

totaled 453,105.85 in the aggregate. Since I would have found

AHCA entitled to a 14.2% slice of GSP, likewise I would have

held AHCA liable for 14.2% of the litigation expenses, or

$ 64,34 1.

53 . Accord ingly, I would have determined that the amount

payable to AHCA in satisfaction of its Medi caid lien for medical

assistance provided to Smathers is $77,764, which reflects the

net amount that Smathers recovered for past medical expense

damages in the settlement of his third - party tort litigation.

DISPOSITION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is ORDERED that this case is dismissed for lack of

jurisdiction.

DONE AND ORDERED this 13th day of September , 20 1 7 , in

Tallahassee, Leon County, Florida.

S

JOHN G. VAN LANINGHAM

Administ rative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 13th day of September , 201 7

ENDNOTES

1 / TPD includes all components of a plaintiff's recoverable

damages, such as medical expenses, lost wages, and noneconomic

damages (e.g., pain and suffering).

2 / These rounded figures are approximations. Greater precision

is unnecessary for present purposes.

3 / There was some evidence regarding Smathers's damages from

loss of future earning capacity, but this component is

negligible in comparison to his medical expenses and pain and

suffering.

4 / This is because .75 x .50 = .375. The independent variable

that changes the percentage from case to case is the amount of

taxable costs. The deduction of any taxable costs from the

settlement recovery (net of attorn ey's fees) reduces the portion

allocated to Medical Damages to less than 37.5%. Thus, the

greater the taxable costs relative to GSP, the smaller the

statutory percentage. For example, if GSP were $10,000 in a

case having $3,500 in taxable costs, then PRM ED would be $2,000,

making the statutory percentage 20%. If costs in the same

hypothetical case were $7,500, then the statutory percentage

would be zero.

5 / The legislature amended this sentence, and some other

provisions of the Act, during the 2017 r egular session. See

Ch. 2017 - 129, § 19, at 99, Laws of Fla. Even if applicable,

however, these amendments do not affect the outcome of this

case, and thus it is not necessary to undertake a retroactivity

analysis.

6 / Similar language is found elsewhere in the Act, as well.

See, e.g. , § 409.910(6)(a), Fla. Stat. ("Equities of a

recipient, his or her legal representative, a recipient's

creditors, or health care providers shall not defeat, reduce, or

prorate recovery by the agency as to its subrogation rights

granted under this paragraph."); § 409.910(6)(b)2. , Fla. Stat.

(same).

7 / The scare quotes reflect th e fact that the Act does not

prescribe a standard for measuring the portion of a recipient's

total recovery that "should be allocated as" Medical Damages,

which means that the "accuracy" of the Statutory Distribution is

something of a moving target.

8 / But see Willoughby v. Ag. for Health Care Admin. , 212 So. 3d

516, 521 - 25 (Fla. 2d DCA 2017)(holding that the Medicaid lien

attaches only to the portion of a settlement attributable to

past medical expenses). The undersigned is of course aware that

courts and ALJs have struggled with (and disagreed over ) the

question of whether the lien can be satisfied out of the

recipient's recovery for future medical expense damages. There

is no need to relitigate that issue here. Unless the Florida

Supreme Court resolves the conflict between Giraldo and

Willoughby in favor of Willoughby (or the First District Court

of Appeal recedes from its opinion), Giraldo will, as a

practical matter, control in administrative proceedings brought

under section 409.410(17)(b) due to AHCA's venue privilege. See

§ 409.910(17)(d), Fla. Stat.

9 / To be precise, AHCA states that the "constitutionality" of

the administrative remedy under paragraph (17)(b) was not at

issue in Gallardo , which is true, but the undersigned is

concerned only with whether enough of that a dministrative remedy

still exists for DOAH to exercise jurisdiction over it, not with

whether such remedy is constitutional.

10 / Wos v. E.M.A. , 568 U.S. 627 , 133 S. Ct. 1391, 185 L. Ed. 2d

471 (2013).

11 / At any rate, moreover, deciding the constitutionality of a

legislative delegation of such authority to DOAH would be a

judicial function.

COPIES FURNISHED :

Neal W. Hirschfeld, Esquire

John H. Pelzer, Esquire

Greenspoon Marder, P.A.

200 East Broward Boulevard, Suite 1800

Fort Lauderdale, F lorida 33301

(eServed)

Alexander R. Boler, Esquire

2073 Summit Lake Drive, Suite 325

Tallahassee, Florida 32317

(eServed)

Richard J. Shoop, Agency Clerk

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308

(eServed)

William Roberts , Acting General Counsel

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308

(eServed)

Justin Senior , Secretary

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 1

Tallahassee, Florida 32308

( eServed)

Shena L. Grantham, Esquire

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308

(eServed)

Thomas M. Hoeler, Esquire

Agency for Health Care Administration

2727 Mahan Drive, M ail Stop 3

Tallahassee, Florida 32308

(eServed)

Kim Annette Kellum, Esquire

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308

(eServed)

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original notice of appeal with the Clerk of the

Division of Administrative Hearings and a copy, accompanied by

filing fees prescribed by law, with the First District Court of

Appeal in Leon County, or with the District Court of Appeal in

the Appellate District where the party resides. The notice of

appeal must be filed within 30 days of rendition of the order to

be reviewed.