19-006423MTR Jonathan Cruz vs. Agency For Health Care Administration Status: Closed DOAH Final Order on Wednesday, April 29, 2020.

Summary: Petitioner established evidentiary grounds for a proportional reduction of the portion of his settlement to which the Medicaid lien may attach, thereby limiting Respondent's recovery to 5% of the medical assistance provided.

then the amount of Petitioner ’ s recovery to which Respondent ’ s Medicaid lien

may attach must be determined .

P RELIMINARY S TATEMENT

Petitioner Jonathan Cruz ( “ Cruz ” ) settled a personal injury action for

$300,000. Respondent Agency for Health Care Administration (the “ Agency ” )

asserted i t s intent to enforce a Medicaid lien in the amount of $1 11, 078.65

against Cruz ’ s recovery . The Agency relies, as is its right, on the formula set

forth in section 409.910(11)(f), Florida Statutes, to determine that portion of

the settlement which should be allocated as past medical expense damages.

Cruz objecte d to this presumptive allocation of the recovery , and, on

December 5, 2019, he timely filed a petition with DOAH to contest the default

amount designated by statute as recovered medical expense damages payable

to the Agency .

On February 24, 2020, the pa rties filed a Joint Pre - h earing Stipulation,

which contains a statement of facts that “ are admitted and will require no

proof at hearing. ” As a result, most, if not all, of the material historical facts

of this case are undisputed.

At the final hearing, which took place as scheduled on March 3 , 20 20 , with

both parties present, Cruz testified on his own behalf, and he called trial

attorneys Paul J. Layne and Guil lermo Tabraue III as additional witness es .

Petitioner ’ s Exhibits 1 throug h 6 were received in evidence without objection .

The Agency rested without offering any evidence.

The final hearing transcript was filed on April 1 , 20 20 . The parties timely

filed proposed final orders , which have been considered .

Unless otherwise ind icated, citations to the official statute law of the state

of Florida refer to Florida Statutes 201 9 .

F INDINGS OF F ACT

1 . O n June 17, 2018, Cruz , then age 28, went boating i n Biscayne Ba y ,

near Elliott Key . The boat belonged to Cruz ’ s cousin, Victor Fonseca

(“Fonseca”) , who operated the vessel at all relevant times . Others were with

them .

2 . At some point during this outing, Fonseca ’ s boat became stuck on a

sandbar . Cruz , who was in the water, got close to the boat ’ s engines,

apparently intending to a ttempt to free the boat . As he did so, Fonseca, who

knew or should have known of Cruz ’ s whereabouts , engaged the engines .

Cruz ’ s clothes became caught in a moving propeller , which dragged him in .

The result , predictably, was catastrophic, as the fast - spinning propeller

chopped into Cruz ’ s lower body , causing severe injuries .

3 . The medical records describe Cruz ’ s injuries as including extensive

trauma to all muscles of the right thigh and left gluteal muscles , multiple

significant fractures of b ones in the right leg, a right thigh degloving injury ,

and a severe rectal injury , which required the surgical removal of his anal

sphinct er . Post injury, Cruz developed RLE compartment syndrome and

underwent a fasciotomy . He suffered an acute pulmonary em bolism for which

an IVC filter was placed . He underwent multiple surgical debridements and

closure procedures . An end - colostomy wa s also laced . He underwent eternal

fixation of his femur fracture . Cruz remained in the hospital for more than

one year.

4 . Th e foregoing clinical description is amplified by emergency room

photographs, which vividly depict the bodily destruction that the propeller

caused . The words “ gruesome ” and “ horrific , ” or others to that effect, come to

mind when vie w ing these pictures . It is undisputed that Cruz ’ s devastating

injuries are disfiguring, permanently disabling, and chronically painful.

5 . As a result of this accident, Cruz will require medical treatment for the

rest of his life . He must use a wheelchair or walke r to move about and has

been fitted with orthotic devices . Cruz is unable to care for himself and

depends upon others to assist him i n all activities of daily living.

6 . Before his injury, Cruz was employed as a heating, ventilation, and air

conditioning ( “HVAC”) technician . He will not be able to resume working in

this field, and, indeed, Cruz is unlikely ever to work again .

7 . As mentioned, Cruz experiences chronic pain from his injuries, and he

is unable to sit normally for extended periods without disc omfort, due to the

absence of gluteal muscles . His right thigh now consists, essentially, of skin -

wrapped bone, because the muscle and connective tissue are gone . Not

surprising ly , Cruz has suffered, and continues to suffer , adverse emotional

effects, including depression.

8 . Cruz ’ s family suffers as well . He and his wife have two children, twins,

who were three years old at the time of the accident . As a husband and father

of young children , Cruz is no longer able to provide the same level of support

a nd companionship to his family as before becoming disabled.

9 . Cruz brought a personal injury lawsuit against Fonseca , the person

whose negligence seems likely to have been the sole proximate cause of the

accident . (There is no evidence of , nor any reason to infer, the involvement of

a defective product or joint tortfeasor . Likewise, there is no persuasive

evidence that Cruz ’ s own negligence contributed to causing the accident. )

10 . Unfortunately for Cruz, Fonseca was practically judgment proof . He

had no a ssets up on which to levy and could discharge any judgment in

bankruptcy . Fonseca ’ s homeowner ’ s policy , having limits of $300,000, was

woefully inadequate to satisfy Cruz ’ s damages, and the insurer initially

denied coverage and refused to pay even this rela tively scanty sum (as

compared to Cruz ’ s enormous loss) because Fonsec a , allegedly, had failed

properly to declare his ownership of the boat .

11 . Eventually, the insurer tendered its policy limits pursuant to a

confidential and complete settlement of Cr uz ’ s claims and the derivative

claims of his wife and children for loss of consortium , which the parties

entered into on October 17, 2019 . Of the $300,000 in insurance proceeds,

which were not differentiated between claims or items of damages, the sum of

$220,210.98 ( “ Gross Recovery ” ) was allocated , by Cruz ’ s attorney, to the

settlement of Cruz ’ s cause(s) of action . The balance was allocated to the

derivative claims of Cruz ’ s wife and children . Cruz ’ s Gross Recovery will be

further reduced by attorney ’ s fees in the amount of $44, 934 .20 and costs

totaling $2,842.70 , leaving him a Net Recovery of $17 2 , 434 .08.

12 . As mentioned, the recovery was an undifferentiated lump sum . It

would be reasonable to infer that the defendant (and his carrier ) had little or

no interest in negotiating the manner of the plaintiffs ’ distribution, between

themselves , of the $300,000 settlement . T here is no evidence of such

bargaining , in any event . Consequently, an allocation of the recovery needed

to be made, on the plaintiffs ’ side, between the four injured parties (Cruz, his

wife, and two children) , each of whom had discrete losses for which Fonseca

was liable .

13 . This is how the Gross Recovery wound up being exactly equal to the

amount of medical assistance expenditures mad e on Cruz ’ s behalf by

Medicaid . Cruz ’ s attorney testified that he had divided the $300,000 this way

to give Cruz ’ s family members some recovery , albeit a small one, on their

consortium claims . Since any allocation of the very limited, and arbitrarily

cappe d, recovery of $300,000 between Cruz, on the one hand, and his family

members, on the other, would necessarily be , at best, only very loosely related

to the intrinsic value of each injured person ’ s individual claims ; and because

the Agency presented no evi dence supporting an allocation that would have

been as or more reasonable , the undersigned finds , based on the uncontested

testimony of Cruz ’ s attorney, that setting aside approximately three - quarters

of the insurance proceeds for the Gross Recovery , to match the Medicaid

payments, was a reasonable and rational decision under the circumstances.

14 . The Agency was properly notified of Cruz ’ s personal injury action, and

it informed the parties that medical assistance expenditures totaling

$220,210.98 h ad been paid by Medicaid on Cruz ’ s behalf . The Agency

asserted a lien for the reduced amount of $111,078. 6 5 against Cruz ’ s

settlement proceeds , pursuant to the formula found in section 409.910(11)(f).

15 . In their Joint Pre - h earing Stipulation, the parties stipulated to certain

facts “ which are admitted and require no proof at hearing, ” including that the

“ application of the formula in [section] 409.910(11)(f) requires Mr. Cruz to

pay back Medicaid $111,078.65 on its $220, 210.98 lien … . ” Given that

Cruz ’ s litigation costs totaled $2,842.70, it is mathematically indisputable ,

based on the section 409.910(11)(f) equation, that the parties used the sum of

$300,000 as Cruz ’ s gross settlement recovery . 1 Therefore, although the

evidence shows that Cruz ’ s Gross Recovery was, in fact, $220,210.98, his

gross “ Stipulated Recovery ” is $300 ,000. 2

16 . The Medicaid payments for Cruz ’ s immediate, post - injury care

comprise the lion ’ s share of his past medical expenses , there being, in

addition, only the negligible sum of approximately $2,000, which was paid to

the University of Miami Medical Group ( “ UMMG ” ) . Thus, it is reasonable to

treat the Medicaid payments of $ 220,210.98 as Cruz ’ s past medical expense

damages , as Cruz has done without the Agency ’ s objection, for simplicity ’ s

sake . 3 There is no dispute that, u nder the anti - lien provision in the federal

1 [( 300,000 č 0.75) Č 2,842.70)] Õ 2 = 111,078.65.

2 Had the Gross Recovery, rather than the Stipulated Recovery, been used as the value of the

settlement for purposes of computing the default allocation under section 409.910(11)(f), the

Agency ’ s statutory lien would have been reduced further, to $81,157.77.

3 Any difference, mathematically, in the lien amount which would result from adding in the

UMMG paym ent is de minimus, in any event.

Medicaid statute, the Agency ’ s lien attaches only to the portion of Cruz ’ s

recovery attributable to past medical expenses .

17 . Th e ultimate question presented is whether the Agency ’ s default

distribution , in the stipulated amount of $111,078.65 , reflects “ the portion of

the total recovery which should be allocated ” 4 to Cruz ’ s recovery of past

medical damages , or whether a lesser sum , from the total settlement , “ should

be allocated ” to the recovery of past medical damages . It is Cruz ’ s burden to

prove that th e statutory allocation is greater than the amount which “ should

be ” distributed to the Agency, and that the Agency ’ s default lien amount

“ should be ” adjusted to better reflect the portion of his total recovery

attributable to past medical expenses . For purposes of determining the

portion of the “ total recovery ” that “ should be allocated ” to past medical

expense damages, the undersigned will use the Stipulated Recovery as the

value of the “ total recovery, ” even though that figure is greater than Cruz ’ s

actual Gross Recovery, because the parties stipulated to a “ total recovery ”

value of $300,000.

1 8 . To meet his burden , Cruz presented evidence at hearing, as is now

typically done in cases such as this, with the goal of establish ing the “ true

value ” of his damages . Usually , and again as here, this evidence comes in the

form of opinion testimony, from a trial attorney who specializes in personal

injury law and repr esents plaintiffs in negligence actions . Cruz called t w o

experienced plaintiff ’ s personal injury lawyers, one of whom is also a medical

doctor, to give opinions on the valuation of his damages . The undersigned

finds their opinions in this regard to be cred ible and persuasive . Moreover,

the Agency did not offer any evidence to challenge Cruz ’ s valuation ; no expert

testimony was given , for example, by an attorney specializing in personal

injury defense , which might have provided a different perspective on the

value of Cruz ’ s case . Having no evidential basis for discount ing or

4 See § 409.910(17)(b), Fla. Stat.

disregard ing the opinions of Cruz ’ s expert w itnesses, the undersigned bases

the findings on valuation that follow upon their unchallenged testimony .

1 9 . Cruz is requesting — and his ex pert witnesses opined that — the

Medicaid lien should be adjusted according to a method that will be referred

to herein as a “ proportional reduction. ” A proportional reduction adjusts the

lien so that the Agency ’ s recovery is discounted in the same measure as the

plaintiff ’ s recovery . In other words, if the plaintiff recovered 25% of the “ true

value ” of his damages, then, under a proportional reduction, the Medicaid

lien is adjusted so that the Agency recover s 25% of the medical assistance

expenditures .

20 . The mathematical operation behind a basic proportional reduction is

simple and requires no expertise . Using “ r ” to signify the plaintiff ’ s recovery ;

“ v ” to represent the “ value ” of his damage s; “ m ” for medical assistance

expenditures; and “ x ” as the variable for the adjusted lien amount, the

equation is : ( r v ) × m = x . In these cases, the only unknown number

(usually) is v , ” i.e., the “ value ” of the plaintiff ’ s total damages.

21 . “ True value, ” sometimes also called “ full value ” or “ total value, ” is an

elusive concept, given that the true value of damages w hich have not been

liquidated by a judgment is not, and cannot be, known in a case that settle s

before the entry of a judgment . For purposes of this discussion, the

undersigned will hereafter use the term “ true value ” to mean liquidated

damages, i.e., damages reduced to judgment.

22 . To be clear, th is is not how Cruz ’ s expert witnesses used the term .

They use d the term to refer to the amount that , had the personal injury case

been tried to conc lusion, Cruz ’ s attorneys would have “ boarded ” for the jury

at trial and argued , in closing, that the jury should award the plaintiff for his

total damages . For purposes of this discussion, the undersigned will use the

term “ plaintiff ’ s best - case value, ” or “ PBC v ” for short, instead of “ true value, ”

to refer to the amount that the plaintiff would have requested at trial in

closing argument .

23 . Naturally, where there is a PBC v , there is also a “ defendant ’ s best -

case value, ” or “ DBC v . ” In a jury trial, DB C v might w ell be $0, if the

defendant is contesting liability, and it will nearly always be , in any event,

less than PBC v . As mentioned above, the Agency chose not to present expert

w itness testimony as to DBC v , or any value .

24 . T he re are other construct s that might be consider ed in regard to value ,

such as, for example, the “ fair market value ” of the plaintiff ’ s case, or “ MKT v ”

for short . As the undersigned will use the term herein , MKT v means the

theoretical amount upon w hich the plaintiff and a solvent defendant ,

negotiating at arm ’ s length and without the constraint of an arbitrary

financial cap on the defendant ’ s ability to pay, such as insurance policy limits

or sovereign immunity, would agree to settle the case . MKT v reflects the

strengths and weakness of the plaintiff ’ s case, both legal and factual, the

strengths and weaknesses of the defendant ’ s case, both legal and factual, and

all of the other considerations and motiv es driving the parties to reach a

settlement agreement , except the defendan t ’ s ability to pay . Generally

speaking, MKT v should be a number greater than DBC v and less than PBC v .

A plaintiff who has settled for MKT v effectively has made a full recovery .

25 . As the undersigned is using the term, MKTv is similar, but not

identical, t o the term “ settlement value ” as described in Mojica v. State,

Ag ency for Health Care Admin istration , 285 So. 3d 393, 395 (Fla. 1st DCA

2019) , which is yet another value construct . “ Settlement value, ” in the Mojica

sense, which is how the undersigned will use the term herein, takes into

account, among other factors, the “ defendant ’ s ability to pay. ” Id . Because a

personal injury plainti ff does not have the option of negotiating with someone

o ther than the potentially liable defendant to get a better deal , however, the

“ defendant ’ s ability to pay ” does not seem like an appropriate factor to

consider in establishing the MKTv of the plaintiff ’ s case . Put differently,

while a settlement for MKTv can fairly be considered a full recovery, a

settlement for “ sett lement value ” would arguably not be a full recovery , if the

plaintiff were required to accept a settlement discount attributable, in part,

to the defendant ’ s ability to pay . This distinction makes no difference in this

case, because Cruz did not recover ev en the “ settlement value ” of his case; he

had no alternative but to accept the defendant ’ s limited insurance coverage

as payment in full . In other words, in Cruz ’ s situation, the defendant ’ s ability

to pay was not merely a factor in determining settlement value, it was the

only factor.

2 6 . Cruz ’ s recovery , thus, was arbitrarily capped at $300,000, the coverage

limit of the defendant ’ s only available insurance policy . For purposes of this

discussion, the undersigned will refer to a settlement such as Cruz ’ s as an

“ arbitrary discount settlement. ” An arbitrary discount settlement is

“ arbitrary ” in the sense that the amount of the settlement bears no

relationship to MKT v ; the plaintiff is simply forced to accept what is, for him,

a random haircut owing to a hard limit on the defendant ’ s ability to pay ,

w hich ha s nothing to do w ith the plaintiff ’ s damages or the defendant ’ s

liability therefor. 5

2 7 . The uncontested and unimpeached expert testimony in this case

establishes , by any standard of proo f, that Cruz ’ s PBC v is no less than $6

million , w hich is the conservative figure presented by Cruz ’ s witnesses . The

undersigned, frankly, would not have hesitated to find that Cruz ’ s

noneconomic damages for past and future pain and suffering, alone , should

be valued at $6 million , at a minimum , given the severity of the bodily

destruction involved here .

2 8 . With respect to the economic damages of lost earning capacity and

future medical expenses, Cruz ’ s evidence persuasively established significant

losses, albeit without e xactitude . Before h is accident, Cruz had been earning

5 The amount of an a rbitrary discount settlement should ordinarily be less than the

settlement value of the plaintiff ’ s case, because the defendant ’ s limited ability to pay is the

only relevant factor in determining the amount of an arbitrary discount settlement , whereas

settlement value takes other factors into account, including but not limited to the defendant’s

ability to pay .

approximately $20 per hour as an HVAC technician . Assuming he were able

to work full time at the same rate, without a raise, for the next 35 years, h is

wages would total $1.4 million, more or less . A so phisticated economic

analysis would take into account wage growth over time , and it would

discount future earning s to present value . As Cruz ’ s lawyers testified at

hearing, however, money wa s simply not available , given Fonseca ’ s extremely

limited insurance for Cruz ’ s substantial losses , to justify the expense of hiring

an economist to perform such an analysis . The undersigned finds that the

evidence is sufficient to prove that the present value of Cruz ’ s lost wages is at

least $1 million , conservat ively calculated, in view of the relatively young age

(28) at which this previously fit working man became permanently disabled .

Specificity in this regard is unnecessary in any event , because Cruz ’ s pain

and suffering damages are easily $6 million.

2 9 . Si milarly, Cruz ’ s evidence proves that he will incur future medical

expenses “ over six figures. ” There is no genuine dispute about this , the

Agency having offered no evidence to the contrary . It is undisputed that Cruz

will require ongoing medical care, for the rest of his life, to treat

complications arising from his severe injuries . To take just one example, the

evidence shows that Cruz has yet to undergo a final surgical repair of his

rectum . To be sure, in an ideal case, Cruz wou ld have presented a l ife c are

p lan developed by a suitable expert , cataloguing his future medical needs and

estimated expenses , aggregated to a specific dollar amount , reduced to

present value , and calculated to a reasonable degree of economic certainty .

U nfortunately, paying such an expert for this kind of analysis would further

have reduce d Cruz ’ s already limited Net Recovery . The undersigned cannot

fault Cruz ’ s attorneys for electing to forego such an expense, especially since,

ag ain, specificity in regard to future medical damages is unnecessary because

Cruz ’ s noneconomic losses , without more, meet or exceed $6 million.

30 . Once Cruz made a prima facie showing of PBCv by adducing

competent substantial evidence thereof, the Agency, if it wanted to prove that

the PBCv in question, $6 million, is an inflated figure, needed to adduce some

evidence that would have given the fact - finder an evidentiary basis for

discounting or rejecting this value. 6 Here, the Agency elected not to present

evidence of va lue, but instead it chose to argue that Cruz has failed to prove

that the particular medical - expense allocation he advocates should be made,

and that, as a result , the default, statutory allocation should be made.

31 . As far as the evidence goes, therefore , the undersigned has no

reasonable basis for rejecting the value of $6 million that Cruz ’ s witnesses

testified was a conservative appraisal of Cruz ’ s total damages . Fonseca ’ s

negligence was likely the sole proximate cause of the accident; there are ,

accor dingly, no obvious weaknesses in Cruz ’ s case from the standpoint of

establishing liability . Cruz testified ably in this proceeding and likely would

have proved an excellent witness in the personal injury action, had it gone to trial . The ghastly nature of Cruz ’ s injuries , and Fonseca ’ s rather obvious

liability for those injuries, likely would have resulted in a substantial

plaintiff ’ s verdict , likely not less than $6 million , as the evidence persuasively

shows .

32 . The undersigned finds, based on the unrebutted and unimpeached

expert testimony adduced, that a proportional reduction methodology

identifies the “ portion of the total recovery which should be allocated ” in this

6 To be clear, the undersigned is not shifting the burde n of proof to the Agency . A petitioner ,

however, does not have the initial burden of putting on the personal injury defense case , in

order to prove DBCv, nor does the petitioner have the initial burden of establishing matters,

such as comparative negligenc e, which the defense might have relied upon in an arms - length

negotiation to settle the case for value . Defense arguments are matters that the Agency may

address in its case, if it wants to show that PBCv is inflated . But the Agency is not required

to put on any such evidence . The Agency is free to present no evidence, rely solely on cross -

examination of the petitioner ’ s witnesses to undermine the testimony elicited by the

petitioner on direct, and then argue that the petitioner has failed to meet his burde n of

proof — as the Agency has done in this case . If the Agency takes this approach, however, it

loses the opportunity affirmatively to prove that PBCv is too high, and it risks a finding that

the unrebutted evidence of PBCv is a fair reflection of value . If , however , the Agency

presents evidence of DBCv, MKTv, settlement value, or some alternative value, then the petitioner must rebut the evidence and try to overcome it, for the petitioner bears the ultimate burden of persuasion with regard to establishing t he value of the petitioner ’ s

damages .

case as past medical expense damages . The under signed considers Cruz ’ s

unchallenged proof of PBCv sufficient to establish the probable “ value ” of his

case, i.e., v in the proportional reduction formula, where, as here, such

evidence, in addition to being unchallenged and unimpeached, is otherwise

persu asive to the fact - finder.

33 . Although the use of a proportional reduction to determine the portion

of the total recovery that “ should be allocated ” to past medical expenses is

justified by the competent substantial evidence presented in this case , it is

found that Cruz has advocat ed using an incorrect value in the proportional

reduction formula . Cruz would apply the following values to the variables in

the equation: r = $300,000; v = $6 million; and m = $ 111,078.65 . Using these

numbers results in a value of $5,55 3.93 for x , which is the amount of his

recovery Cruz would allocate to past medical expense damages and thereby

expose to the Medicaid lien.

34 . It is incorrect , however, to use the sum of $111,078.65 as the value for

m , as Cruz urges . This figure is the amount produced by the statutory

formula, which reduces the Agency ’ s recovery of actual Medicaid

expenditures , by default . To use this figure in the proportional reduction

formula would impose a double reduction on the Agency — an obvious

injustice . The correct number for m is $220,210.98, the amount that Medicaid

actually expended on Cruz ’ s behalf , without reduction .

35 . The undersigned finds , based on the evidence presented, including

the stipulation as to Cruz ’ s total settlement recovery , that the correct values

for the variables in the proportional reduction equation are: r = $ 300,000 ;

v = $6 million; and m = $220,210.98 . Using these numbers, the value of x is

$ 11,010 .55 — or, 5% of $220,210.98 . 7

7 The ratio of 300,000 to 6,000,000 is 0.05.

36 . Because the unchallenged expert testimony persuasively show s that a

proportional reduction is the appropriate method of adjusting the lien in this

case ; and because Cruz ’ s mistake n use of $111,078.65 as the value of m does

not undermine the validity of the methodology , which is merely the

mathematical expression of an analytical framework whose existence and

under lying logic are independent of any specific values for r , v , m , and x , the

undersigned does not believe that he must “ throw out the baby with the

bathwater ” and make no lien adjustment simply because Cruz used the

wrong value for m . This mistake may easily be corrected based on the

evidence of record ; and, ordinarily, evidence - based adjustments of a factual

nature would be within the province of the fact - finder to make . 8

37 . The undersigned determines as a matter of ultimate fact, therefore,

that the portion of the Stipulated Recovery that “ should be allocated ” to past

medical expense damages is $11,010.55.

C ONCLUSIONS OF L AW

38 . The Division of Administrative Hearings has personal and subject

matter jurisdiction in this proceeding, as well as final order authority,

pursuant to section 409.910(17)(b).

39 . Section 409.910(1) provides as follows:

It is the intent of the Legislature that Medicaid be

the payor of last resort for medically necessary

goods and services furnished to Medicaid

recipients. All other sources of payment for medical care are primary to medical assistance provided by Medicaid. If benefits of a liable third party are

discovered or become available after medical

assistance has been provided by Medicaid, it is the

intent of the Legislature that Medicaid be repaid in full and prior to any other person, program, or

entity. Medicaid is to be repaid in full from, and to

8 The undersigned realizes, however, that existing case law leaves some room for uncertainty

here . If the reviewing court reverses on this point, the undersigned hopes that some guidance

would be give n as to whether — as a bright - line rule, or under what circumstances — the ALJ

must either accept the petitioner ’ s case in toto , or reject it in toto .

the extent of, any third - party benefits, regardless of

whether a recipient is made whole or other

creditors paid. Principles of common law and equity

as to assignment, lien, and subrogation are

abrogated to the extent necessary to ensure full recovery by Medicaid from third - party resources. It

i s intended that if the resources of a liable third

party become available at any time, the public treasury should not bear the burden of medical assistance to the extent of such resources.

40 . Section 409.910(6)(c) provides , in relevant part , as follows:

The agency is entitled to, and has, an automatic lien for the full amount of medical assistance provided by Medicaid to or on behalf of the recipient for medical care furnished as a result of

any covered injury or illness for which a third party

is or may be liable, upon the collateral, as defined

in s. 409.901 [, which includes “ [a] ny and all causes

of action, suits, claims, counterclaims, and demands that accrue to the recipient or to the

recipient ’ s legal representative, related to any

covered injury, il lness, or necessary medical care,

goods, or services that necessitated that Medicaid

provide medical assistance. ” ]

41 . Section 409.910(11)(f) provides , in pertinent part , as follows:

Notwithstanding any provision in this section to

the contrary, in the event of an action in tort 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 atto rney ’ s fees and taxable 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 sha ll 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, award, or

settlement.

42 . Section 409.910(17)(b) provides as follows:

If federal law limits the agency to reimbursement from the recovered medical expense damages, a recipient, or his or her legal representative, may contest the amount designa ted as recovered

medical expense damages payable to the agency pursuant to the formula specified in paragraph (11)(f) by filing a petition under chapter 120 within 21 days after the date of payment of funds to the

agency or after the date of placing the fu ll amount

of the third - party benefits in the trust account for

the benefit of the agency pursuant to paragraph (a).

The petition shall be filed with the Division of Administrative Hearings. For purposes of chapter

120, the payment of funds to the agency or the

placement of the full amount of the third - party

benefits in the trust account for the benefit of the

agency constitutes final agency action and notice

thereof. Final order authority for the proceedings

specified in this subsection rests with the Divis ion

of Administrative Hearings. This procedure is the

exclusive method for challenging the amount of third - party benefits payable to the agency. In order

to successfully challenge the amount designated as recovered medical expenses, the recipient must prov e, 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 paragraph (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 .

4 3 . Section 409.910 provides no guidance , instructions, or criteria that the

ALJ is required to co nsider in determining the portion of a recipient ’ s total

recovery which “ should be allocated ” as medical expenses , nor does it prohibit

the ALJ from considering any specific criteria or from using any particular

methodology . This lack of specific, statutor y standards limiting the decision -

maker ’ s discretion extends to the recipient , as well, who must prove that

some amount less than the default allocation “ should be allocated ” to medical

expense damages , without any clear statutory direction as to what must be

prove d to make the required showing.

4 4 . T he 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) .

4 5 . In 2017, the United States District Court for the Northern District of

Florida enjoined the Agency from enforcing secti on 409.910(17)(b) to seek

“ reimbursement of past Medicaid expenses from portions of a recipient ’ s

recovery that represents future medical expenses of past Medicaid expenses , ”

and from advocat ing that “ a Medicaid recipient [must] affirmatively disprove

§ 40 9.910(17)(b) ’ s formula - based allocation with clear and convincing

evidence . ” Gallardo v. Senior , No. 4:16cv116 - MW/CAS, 2017 U.S. Dist.

LEXIS 112448 , at *24 (N.D. Fla. July 18, 2017) . The Agency appealed the

Gallardo decision, which is currently under review in the U.S. Eleventh

Circuit Court of Appeals . As a result of Gallardo , the parties have stipulated

that the standard of proof in this case shall be the greater weight, or

preponderance of the evidence, standard .

4 6 . Independent of Gallardo , t he Florida Supreme Court ruled , in

G iraldo v. Agency for Health Care Administration , 248 So. 3d 53 , 54 (Fla.

2018), that , under preemptive federal law, the state ’ s Medicaid lien may

attach only to that portion of a recipient ’ s settlement recovery attributable to

past medical expense damages . Thus, the c ourt held that section

409.910(17)(b) is invalid and unenforceable to the extent it would allow the

Agency to recover from future medical expense damages .

4 7 . In regard to the methodology for determin ing that portion of the total

recovery w hich should be allocated to past medical expense damages, recent

appellate decisions have moved towards acceptance of the proportional

reduction as a valid , albeit nonexclusive, basis for maki ng the required

distribution . As the First District Court of Appeal explained:

[ W ]hile no t established as the only method, the pro

rata [or proportional reduction] approac h has been

accepted in other Florida cases where the Medicaid

recipient presents comp etent, substantial evidence

to support the allocation of a smaller portion of a

settlement for past medical expenses than the

portion claimed by AHCA. See Giraldo v. Agency for

Health Care Admin. , 248 So. 3d 53 (Fla. 2018);

Mojica v. Agency for Health Care Admin. , 285 So.

3d 393 (Fla. 1st DCA 2019); Eady v. State , 279 So.

3d 1249 (Fla. 1st DCA 2019). But see Willoughby v.

Agency for Health Care Administration , 212 So. 3d

516 (Fla. 2d DCA 2017) (quoting Smith v. Agency

for Health Care Administration , 24 So. 3d 590, 591

(Fla. 5th DCA 2009)) (explaining that the pro rata

formula is not the “ required or sanctioned method

to determine the medical expense portion of an

overall settlement amount ” ).

Ag. for Health Care Admin. v. Rodriguez , No. 1D19 - 1454, 2 020 Fla. App.

LEXIS 5263 , at *5 - 6 ( Fla. 1st DCA Apr. 17, 2020) ( opinion not final).

4 8 . To the cases cited by the court in Rodriguez may be added another

recent decision, Bryan v. Agency for Health Care Administration , 45 Fla. L.

Weekly D569 , 2020 Fla. Ap p. LEXIS 3183 (Fla. 1st DCA Mar . 12, 2020)

(opinion not final) . In Bryan , the recipient settled a medical malpractice

action arising out of a catastrophic brain injury for $3 million , and then

initiated an administrative proceeding to adjust the Medicaid lien , which the

Agency asserted should be payable in the full amount of approximately

$380 ,000 . Bryan , 2020 Fla. App. LEXIS 3183, at *3 . At hearing, the recipient

“ offered the testimony of two trial attorneys who were both admitted as

experts in the valuat ion of damages. ” Id . The se witnesses relied upon a life

care plan and an economist ’ s report, wh ich were filed as exhibits, as well as

jury verdicts in similar cases , to support their opinion that “ the value of [the

recipient ’ s] damages exceeded $30 million . ” Id .

49 . The “ experts both testified that, using the conservative figure $30

million, the $3 million settlement only represented a 10% recovery, ” and that,

“ based on that figure, it would be reasonable to allocate 10% of [the

recipient ’ s approximately $38 0 ,000 ] claim for past medical expenses — [ or,

approximately $38 ,000 ] — from the settlement to settle [the Agency ’ s] lien. ”

Id . a t *3 - 4 . The recipient also “ submitted an affidavit of a former judge, ” who

affirmed that the proportional allocation was a reason able, rational, and

logical “ method of calculating the proposed allocation. ” Id . at *4 .

5 0 . Regarding the Agency ’ s case, t he court wrote:

In turn, AHCA did not: (1) call any witnesses, (2)

present any evidence as to the value of Ms. Bryan ’ s

damages, (3) propose a differing valuation of the

damages, or (4) present evidence contesting the

methodology used to calculate the $38,106.28

allocation to past medical expenses.

Id .

5 1 . The ALJ rejected the recipient ’ s proposed proportional reduction

methodology as a “‘ one size fits all ’ approach which place[s] each element of

[the recipient ’ s] damages at an equal value. ” Id . The ALJ determined that it

was the recipient ’ s burden to “ prove that it was more probable than not ” that

the parties in the personal injury ac tion had intended to allocate only 10% of

the settlement recovery as past medical expenses , and that the recipient had

failed to do that . Id . at *5 . Accordingly, the ALJ ordered the recipient to pay

the Medicaid lien in full . Id .

5 2 . The court reversed the ALJ ’ s order, explaining :

[I]n this case, [the recipient] presented unrebutted

competent substantial evidence to support that the

value of her case was at least $30 million. She also presented unrebutted competent substantial evidence that her pro rata methodology did indeed

support her conclusion that $38,106.28 was a

proper allocation to her past medical expenses.

Such methodology was similar to the methodology employed in Giraldo , Eady , and Mojica . [The

Agency] did not present any evidence to challen ge

[the recipient ’ s] valuation, nor did it present any

alternative theories or methodologies that would support the calculation of a different allocation

amount for past medical expenses. Without any

evidence to contradict the pro rata methodology

proposed by [the recipient] , the ALJ ’ s rejection of

that methodology was not warranted.

Id .

5 3 . The re are a number of similarities between this case and Bryan . Here,

as in Bryan , two trial attorneys gave unrebutted testimony that , using a

conservative ( and uncon tested ) appraisal of the recipient ’ s case ($6 million) ,

the settlement ( $300,000 ) represented only a small fraction (5%) of the

recipient ’ s recovery . They expressed the opinion, as in Bryan , that ,

conceptually, a proportional reduction was the proper method of determining

the portion of the recipient ’ s recovery which should be allocated as past

medical expe n ses . As in Bryan , the Agency did not present testimony or other

evidence as to : (i) the value of the rec ip ient ’ s case ; (ii) an alternative

appraisa l of the recipient ’ s damages ; or (iii) the weaknesses, if any, in the

proportional reduction methodology as applied to the particular facts .

5 4 . The factors which distinguish this case from Bryan are that (i) Cruz

advocated the use of an incorrect value for m in the proportional reduction

formula, and (ii) the recipient in Bryan offered more evidence of value , i.e.,

the economist ’ s report, the life care plan, and the former judge ’ s affidavit . As

discussed above , however, the undersigned finds that the first factor is not a

fatal error because the fact - finder can easily correct the mistake based on the

evidence in the record . The second factor, the undersigned concludes, is not a

material distinction because Cruz ’ s evidence of value was sufficient to

persuade the fact - finder and thus to satisfy his burden of proof. 9

5 5 . The undersigned concludes that Bryan is applicable and controlling .

F ollow ing th at court ’ s lead , the undersigned accept s the premise that the

basic proportional reduction method ology, when established , as here, by

unrebutted, competent substantial evidence , provides a valid formula for

determining the portion of the recipient ’ s recovery which should be allocated

as past medical expense damages .

5 6 . That said, the undersigned notes that there appears to be some

tension between Bryan and Gra y v. Agency for Health Care Administration ,

288 So. 3d 95 (Fla. 1st DCA 2019) , which is yet another relatively recent

decision . In Gray , the recipient sustain ed a spinal cord injury in a car

accident, sued the driver, and was “ awarded a jury verdict of over

$2.8 million. ” Id . at 98. 10 The verdict itemized each element of the recipient ’ s

damages, awarding a specific dollar amount for each item , including

$128,760.56 for past medical treatment . Medicaid had provided the recipient

$65,610.05 in medical assistance payments . Id . The default lien under section

409.910 (11)(f) was $3,750 , which the recipient sought to reduce by requesting

a hearing under section 409.910(17)(b) .

5 7 . At hearing, t he recipient moved the verdict form and final judgment

into evidence, among other documentation . Id . at 99 . He argued that the

presumptive amount under the statute should be adjusted using a basic

9 That a recipient whose several - million - dollar settlement was ten times greater than Cruz ’ s

six - figure recovery had the resources to retain an economist and other experts on valuation,

in addition to the trial attorneys who testified, should not be surprising . More important,

however, is that the court in Bryan did not hold that the r ecipient ’ s evidence, as described in

the opinion, established a threshold quantum of proof, which other recipients, going forward,

must meet or exceed.

10 . The total award was $2,859,120.56

proportional reduction a pproach , whereby the lien would be limited to the

same ratio (0 .003498 ) that his recovery ($10,000) bore to the judgment

($2,859,120.56) , “ which would equate to $229.49. ” Id . at 98 . The recipient

conceded at hearing “ that no case law or other statute authorized the ALJ to

apply a pro rat a formula instead of the formula provided in the statute. ” 11 Id .

The ALJ rejected the pro rata approach, ruling that the Agency w as entitled

to $3,750, because he “ found no evidence in the record to show that ‘ the

$10,0 00 recovery does not include at least $3,750 that could be attributed to

[the recipient ’ s] medical costs. ’ ” Id .

5 8 . The court upheld the ALJ ’ s decision . It wrote:

The record supports the ALJ ’ s conclusion that Gray

failed to show that the $10,000 recovery was

anything other than a lump - sum payment, with no

allocations for any category of Gray ’ s damages.

Because the $10,000 recovery was unallocated,

Gray ’ s argument that the lien was improperly

imposed on future medical expenses must fail.

* * *

The evidence offered by Gray consisted of the

verdict form, the final judgment, and letters

providing the amount of the liens imposed by Florida ’ s Medicaid Program, Georgia ’ s Medicaid

Program, and Florida ’ s Brain and Spinal Cord

Injury Program. None of the se records showed that

the $10,000 recovery was allocated in any way

between different categories of damages, costs, or

attorney ’ s fees. Gray could not show — even by a

preponderance of the evidence — that an amount

other than the total recovery of $10,000 sho uld be

11 It should be mentioned that the ALJ ’ s final order was entered on December 29, 2016 . See

Gray v. Ag. for Health Care Admin ., Case No. 16 - 5582MTR, 2016 Fla. Div. Adm in . Hear.

LEXIS 649 (Fla. DOAH Dec. 29, 2016) . The recipient ’ s concession would not likely not be

made today, because many cases decided since 2016, as discu ssed herein, have authorized

the use of a pro rat a formula . Indeed, it is probably accurate to say that, under the present

state of the law, an ALJ is practically required to accept the use of a proportional reduction,

provided certain conditions are met , e.g., where unrebutted expert testimony is received both

as to the value of the recipient’s damages and as to the use of the pro rata methodology .

considered when applying the statutory formula to

determine the amount of the Medicaid lien .

* * *

[I] n situations such as this case, when the plaintiff fails to produce evidence or present testimony

showing that the lien amount should be reduced,

the plain language of section 409.910(11)(f)

requires the ALJ to apply the statutory formula. The ALJ did exactly that here and did not err in calculating the lien amount.

Id . at 99.

59 . The Gray decision comes close to announ c ing , as a rule , th at the

default lien amount which attaches to the recovery of an undifferentiated,

lump - sum insurance payment is irreducible in a section 409.910(17 ) (b)

proceeding , precisely because the payment was unallocated . This impression

is reinforced by the Rodriguez case , in which the court distinguished Gray as

follows:

Unlike Gray , … , the documentary evidence

admitted in this case pertained to the settlement

itself. In Gray , the recipient ’ s lawsuit resulted in a

jury verdict of over $2.8 million but he recovered

only $10,000 from the defendant ’ s insurer. Id . at

98. There was no evidence in Gray that the

insurance payout was based on anything other

than the total coverage limits. In Gray , we found no

ground to set aside the ALJ ’ s rejection of the

recipien t ’ s (17)(b) petition to reduce [the Agency ’ s]

recovery. In contrast here, Rodriguez ’ s pre - trial

settlement was based on an offer of settlement enumerating the various types of damages, admitted into evidence by the ALJ, and the defense in the civil suit ac cepted the plaintiff ’ s assertions of

the various types of damages. No lump - sum

insurance proceeds were at issue here.

Rodriguez , 2020 Fla. App. LEXIS 5263 , at *7 n.4 .

6 0 . It is possible to derive from Gray , as illumined by Rodriguez , the

proposition that the portion of a lump - sum , coverage - limits insurance payout

which must be allocated to past medical expense damages is the presumptive

lien amount under section 409.910(11)(f) . Under such a rule, a recipient who

has accept ed an arbitrary discount sett lement (as described herein) and later

seeks an administrative allocation of h is or her unallocated recovery would be

doomed to fail in the section 409.910(17)(b) proceeding.

6 1 . The undersigned, however, hesitates to conclude that Gray goes that

far . For one thing, although the Agency relies on Gray , i t has not argued in

favor of a bright - line rule against adjusting the default lien attaching to an

arbitrary discount settlement . Indeed, to its credit, in discussin g Gray , the

Agency calls attention to l anguage in that opinion which cuts against such a

bright - line rule , in which the court explained that “ without an agreement

about the allocation, the parties may resolve the dispute in an administrative

proceeding. ” Gray , 288 So. 3d at 97.

6 2 . Moreover, a s the court stated in Eady , “ a Medicaid recipient is entitled

to put on evidence to prove that he is entitled to a reduction of the Medicaid lien. ” Eady , 279 So. 3d at 1259 . A strict reading of Gray would effectively

deprive some Medicaid recipients of that entitlement . Notably, as well, t he

court in Eady distingu ished Gray , not because “ [n]o lump - sum insurance

proceeds were at issue ” in the case before it, but because the “ evidentiary

infirmities ” w hich had caused the recipient ’ s case to fail in Gray were not

present , as the instant recipient had “ presented expert testimony directed

towards the appropriate share of the settlement funds to be allocated to past

medical expenses [, and the Agency had ] not present [ed] any evidence to

refute the experts ’ opinions . ” Id .

6 3 . It should be emphasized that in Gray , the recipient did not present the

testimony of trial attorneys to support the pro rata allocation he advocated ,

relying instead on the verdict f orm and judgment as his evidentiary grounds .

This would be a bold move i n the wake of the Supreme Court ’ s decision in

Giraldo . R emember , however, that the final hearing in Gray had taken place

in 2016, nearly two years before Giraldo , at a time when the strategy would

not have seemed so risky . At any rate, the recipient in Gray had depended

heavily on the argument that the basic proportional reduction should be

applied to reduce the default lien , probably anticipating that the ALJ would

adopt the approac h as a legal conclusion .

6 4 . Even a s a legal argument , however, methodology urged by the

recipient in Gray was flawed because a basic proportional reduction , on its

face, would have been problematic . This is because the jury had determined

the exact amount of each item of the recipient ’ s damages, effectively

allocating the total award between such items . The appellate court described

the breakdown as follows: “ Specifically, the jury awarded [the recipient]

$1,301,268 for future medical expenses, $202, 670 for loss of past earnings,

$916,422 for loss of future earnings, $50,000 for past loss of enjoyment of life,

$260,000 for future loss of enjoyment of life, and $128,760.56 for past medical

treatment. ” Gray , 288 So. 3d at 98 . Medicaid, recall, had provi ded $65,615.05

in medical assistance.

6 5 . Where a jury has itemized a recipient ’ s damages, as in Gray , a basic

proportional reduction will be logically (if not evidentially) sound , provided

that, as is not uncommon, the Medicaid expenditures comprise the totality of

the recipient ’ s past medical expense damages . This can easily be shown

mathematically , using the numbers from Gray . The ratio of $ 65,615.05

( which, for illustrative purposes, will be assumed as equaling the sum of the

recipient ’ s total past medical expenses) to $2,859,120.56 (the actual total

judgment) is 0.02 295 . When that factor ( 0.02295 ) is multiplied against the

recovery of $10,000, the result is $229.50 — the same amount

produced by a basic proportional reduction. 12 But, in Gray , the reci pient ’ s

past medical expenses were greater than the Medicaid expenditures . In such

a scenario, the basic proportional reduction under - allocates the portion of the

recovery fairly attributable to past medical expense damages , which is also

easily shown.

6 6 . Suppose the recipient in Gray had argued for a variation on the basic

pro rata allocation , based on the ratio of past medical expenses ( p ) to the

total judgment ( j ) . Such a n approach would have account ed for the fact that

the recipient ’ s past medical exp enses exceeded Medicaid expenditures . The

equation would have been: ( p j ) × r = x , where r , recall, is the recipient ’ s

recovery, and x is the adjusted lien amount . In Gray , this formula would have

produced a lien amount of $450.35 , which ( despite the small difference in

dollars versus a basic proportional reduction ) is almost twice the amount the

recipient actually sought . Had the recipient made this argument, he still

might not have prevailed, due to the absence of expert testimony in support

of such a methodology , but his proposed pro rata allocation would not have

suffered from the additional infirmity of under - allocation .

6 7 . In sum, although this case is like Gray in that there is “ no evidence …

that the insurance payout was based on anything other than total coverage

limits, ” Rodriguez , 2020 Fla. App. LEXIS 5263 , at *7 n.4, the undersigned

distinguishes Gray on the grounds that (i) Cruz presented unrebutted expert

testimony both as to the value of his damages and in support of the basic

propor tional reduction methodology , thereby avoi ding the “ evidentiary

infirmities ” which doomed the recipient ’ s case in Gray ; and (ii) the basic

proportional reduction advocated here does not, as in Gray , on its face appear

to under - allocate the portion of the r ecipient ’ s recovery which should be

designated as past medical expenses.

12 A basic proportional reduction applies the ratio of the recovery ($10,000) to the total value

($2,859,120.5 6) against the past medical expenditures (assumed, for this illustration , to be

$65,615.05), which equates to $229.49.

6 8 . Accordingly, a s found above, Cruz carried his burden, as a matter of

fact, by proving that the portion of his total recovery which should be

designated as compensation for past medical expenses is $11,010.55.

D ISPOSITION

Based on the foregoing Findings of Fact and Conclusions of Law, it is

O RDERED that the amount payable to the Agency for Health Care

Administration in satisfaction of its Medicaid lien for medical assistanc e

provided to Cruz is $11,010.55 .

D ONE A ND O RDERED this 29th day of April , 2020, in Tallahassee, Leon

County, Florida.

J OHN G. V AN L ANINGHAM

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 29th day of April , 2020.

C OPIES F URNISHED :

Jason Dean Lazarus , Esquire

Special Needs Law Firm

2420 South Lakemont Avenue , Suite 160

Orlando , Florida 32 814

(eServed)

A lexander R. Boler, Esquire

2073 Summit Lake Drive, Suite 300

Tallahassee, Florida 32317

(eServed)

Mary C. Mayhew, Secretary

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 1

Tallahassee, Florida 32308

(eServed)

Stefan Grow, General Counsel

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308

(eServed)

Richard J. Shoop, Agency Clerk

Agency for Health Care Administ ration

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308

(eServed)

Shena L. Grantham, Esquire

Agency for Health Care Administration

Building 3, Room 3407B

2727 Mahan Drive

Tallahassee, Florida 32308

(eServed)

Thomas M. Hoeler, Esquire

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308

(eServed)

N OTICE OF R IGHT TO J UDICIAL R EVIEW

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.