Robert B. Sykes, an attorney from Salt Lake City, probably knows the rules on personal injury recoveries about as well as anyone. After all, Mr. Sykes is not only an experienced and accomplished trial lawyer, he is also a former Utah state legislator (having served three two-year terms) and frequently teaches other lawyers about personal injury recoveries—especially in connection with brain injuries, his primary focus.

When Mr. Sykes took on Peggy Sue Streight as a client he undoubtedly realized that her medical care had been paid for by Utah’s version of the federal-state Medicaid program. He probably also knew that Utah law assures trial lawyers that their legal fees will be collectable from personal injury settlements, but only if they secure the Medicaid agency’s approval before instituting or settling a lawsuit.

Ms. Streight had been struck by a vehicle while she was in a crosswalk. The single mother of three suffered extensive injuries, and had received $107,000 in medical care from the Medicaid program.

Mr. Sykes provided the Medicaid agency with information about the driver of the vehicle and his insurance company, as well as Ms. Streight’s own insurance company. The state had taken no action on that information when Mr. Sykes settled his client’s case. Mr. Sykes had neither asked for or received the Medicaid agency’s blessing for the litigation he filed.

After negotiations, Mr. Sykes secured settlement offers totaling $110,000 for Ms. Streight’s injuries. Although her case was almost certainly worth much more money, the insurance coverage was limited and the settlement was the best Mr. Sykes could obtain.

When the Utah Medicaid agency learned of the settlement it demanded payment of its $107,000 lien on the proceeds. Mr. Sykes pointed out that $38,000 of that money had already been paid to him for his fees and costs; the Medicaid agency demanded that he return that money, as well.

The Utah Supreme Court agreed with the agency’s point of view. The penalty for failure to get prior agency approval for litigation, said the Court, is that the Medicaid lien will not be reduced by costs or attorneys fees. Never mind that Ms. Streight would receive nothing for her injuries. Forget that her lawyer essentially would be forced to work for the State for free, and would have no incentive to take on similar cases in the future. The Court’s Chief Justice dissented, noting that the State had done nothing to protect or prosecute its independent claim for reimbursement, and that there would not have been an insurance recovery to claim against but for Mr. Sykes’ work. Utah ex rel. Office of Recovery Services v. Streight, October 29, 2004.

Arizona's rules on this subject are different. State law requires the Medicaid agency, AHCCCS, to consider the cost of securing any settlement or judgment, including attorney's fees, in setting its reimbursement. Still, Ms. Streight's story provides a cautionary tale for lawyers everywhere: know your state's Medicaid rules before initiating suit on behalf of a Medicaid recipient.

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