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North Carolina’s statute requiring that up to one-third of any damages recovered by a Medicaid beneficiary for a tortious injury be paid to the State to reimburse it for payments it made for medical treatment on account of the injury is conflict-preempted by 42 U.S.C §1396p(a)(1) which prohibits States from attaching a lien on the property of a Medicaid beneficiary to recover benefits paid by the State on the beneficiary’s behalf.

Under North Carolina’s third-party liability statute, the state is allowed to place a lien on a Medicaid beneficiary’s tort settlement for the lesser of the Medicaid beneficiary’s incurred medical costs or one-third of the settlement.

Respondent received a lump sum settlement of $1.9 million and Petitioner placed a lien on one-third of the settlement. Respondent sought relief in federal court, claiming that the Supreme Court’s holding in Arkansas Department of Health & Human Services v. Ahlborn, 547 U. S. 268 (2006)—that federal Medicaid law prohibits liens against a tort judgment or settlement except to recover actual medical expenses—preempted North Carolina’s statute.

The District Court followed a North Carolina Supreme Court ruling and found the state law consistent with the federal law. The Court of Appeals for the Fourth Circuit reversed the District Court, holding that the federal law preempts state law and that a lien can only be asserted for recovery of medical expenses and that no recovery can be made until medical expenses have been specified.

The Supreme Court affirmed the Fourth Circuit, holding that the Medicaid anti-lien provision preempts the North Carolina statute. The court explained that the federal and state laws are in conflict because the anti-lien provision only allows a state to claim that part of a “Medicaid beneficiary’s tort recovery ‘designated as payment for medical care,’” and the state statute describes no process for making that distinction. Instead, the statute conclusively presumes “that one-third of the recovery represents compensation for medical expenses.”