In re E.B., A Minor. Michael J. Lewis, Secretary, West Virginia Department of Health and Human Resources, Petitioner, 229 W. Va. 435

BENJAMIN, Justice: The instant action is before this Court upon the appeal of Michael Lewis, Secretary, West Virginia Department of Health and Human Resources, (hereinafter “DHHR”), intervenor below, from a final order entered on July 12, 2010, in an infant

summary proceeding under W. Va.Code § 44-10-14 (2002). In its order, the circuit court granted the motion of Respondent, Holly G., for allocation of a $3,600,000 settlement, holding that the United States Supreme Court case, Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006), is the controlling law for the issues raised by the parties herein. The circuit court held that Ahlbom requires a proportional reduction of DHHR’s recovery based on the ratio of the settlement to the “full value” of the ease among the various damages categories.

Using this method of allocation, the circuit court reduced DHHR’s statutory reimbursement from the requested amount of $289,075.44, to $79,040.82, and directed that the net settlement proceeds be placed in a special needs trust for the benefit of the minor. Herein, DHHR seeks a reversal of the circuit court’s order and a remand with directions that DHHR is entitled to reimbursement in the amount of $289,075.44, plus interest. This Court has before it the petition for appeal, all matters of record, and the briefs and arguments of counsel.

For the reasons expressed below, the July 12, 2010, order of the Circuit Court of Hancock County is affirmed in part, reversed in part, and remanded with directions. I. FACTUAL AND PROCEDURAL HISTORY Holly G. gave birth to her son, E.B., at Coshocton County Memorial Hospital on May 12, 2005, in Coshocton, Ohio. E.B. was born with severe brain damage, which has required and will continue to require significant medical care.

Holly G., on behalf of E.B., applied for and received Medicaid benefits from the Ohio Department of Job and Family Services (“ODJFS”) until February, 2007, when she and E.B. moved to Hancock County, West Virginia. On February 5, 2007, Holly G., on behalf of E.B., applied for and received Medicaid benefits from the West Virginia DHHR.

On or about May 16, 2007, Holly G. filed a medical malpractice lawsuit on behalf of the infant, E.B., in the United States District Court for the Southern District of Ohio, Eastern Division, against Coshocton County Memorial Hospital; Janet Burrell, R.N.; Gabriel Yandam, M.D.; and LeFemme Obstetrics and Gynecology, LLC. Holly G. settled the ease against Dr. Yandam and LaFemme Gynecology, LLC in September 2009 for $1,000,000. The settlement constituted the policy limits of the defendants’ insurance coverage and was contingent upon court approval.

The settlement agreement did not allocate the amount recovered among the various elements of damages suffered, i.e., medical expenses, pain and suffering, lost wages, etc. DHHR sought reimbursement for its medical payments from the settlement proceeds Holly G. had obtained on E.B.’s behalf. On October 13, 2009, Holly G. petitioned the Circuit Court of Hancock County, West Virginia, pursuant to W. Va.Code § 44-10-14, for approval of the first settlement with Dr. Yandam and LaFemme Gynecology, LLC.

In her Petition, she requested that the Court pay her attorneys fees and legal expenses from the settlement funds, that Medicaid not be reimbursed due to the enormous costs of future care that she alleged dwarfed the limited funds available for settlement, that Holly G. be paid a fair sum of the net settlement proceeds, and that the remaining net settlement proceeds be placed in a special needs trust for the benefit of E.B. DHHR filed a motion to intervene on October 26, 2009. In its motion, DHHR asserted a statutory priority right to subrogation from the settlement proceeds.

It also asserted that it did not agree to set aside its reimbursement, did not agree to a judicial allocation or apportionment, and further asserted that a Medicaid recipient’s settlement funds first must satisfy the State’s reimbursement for past medical expenses paid on behalf of the Medicaid recipient as a result of the third party’s tortious conduct before the remainder may be transferred to a special needs trust.

On November 12, 2009, the circuit court held a hearing after which it granted DHHR’s motion to intervene; approved the first settlement; approved payment of attorneys fees and litigation costs out of the settlement proceeds; ordered that the net settlement proceeds ($368,000) be paid into an escrow bearing account in the name of E.B. until further order of the Court; and direct ed Holly G., DHHR, and ODJFS to engage in good faith negotiations to attempt to resolve the disputes between them. On December 9, 2009, Holly G. settled with the hospital and Janet Burrell, R.N. for $2,600,000.

As with the settlement with Dr. Yandam and LaFemme Gynecology, this settlement constituted the policy limits of the defendants’ insurance coverage and was contingent upon eoui’t approval. This settlement agreement also did not allocate the amount recovered among the various elements of damages. As of this date, DHHR had paid medical expenses for E.B. in the amount of $557,104.71. In accordance with W.

Va.Code § 9-5-11 (2009), DHHR offered to reduce the amount of medical payments it was owed by forty percent ($222,841.88), to reflect its pro rata share of attorney’s fees incurred by Holly G. in her medical malpractice case. DHHR also offered to deduct an additional amount ($45,187.39) as its proportionate share of Holly G.’s legal costs in obtaining the settlements. This reduced DHHR’s requested reimbursement to $289,075.44. Holly G. did not agree to DHHR’s proposed reimbursement amount.

After a hearing held on December 21, 2009, the circuit court approved this second settlement, approved the payment of attorneys fees and additional litigation costs from the settlement proceeds, allocated $50,000 to Holly G. and $15,000 to A.B., ordered that the contested amount of the Medicaid reimbursements be placed in an escrow account pending further order of the court, directed that the net settlement proceeds be placed in a special needs trust for the benefit of E.B., and set a briefing

schedule on the Medicaid subrogation issues. Pursuant to the circuit court’s order, each of the parties filed their respective briefs. In “Petitioner’s Brief on Allocation of Damages Pursuant to Ahlbom ” filed before the circuit court, Holly G. argued that Ahlbom applies in the instant case. Holly G. argued that the “true value” of the case was $25,373,937.20, which included $1,255,329.95 for past medical expenses, $19,118,608 for future medical expenses, and $5,000,000 for non-economic loss, and that the $3,600,000 settlement thus represented a recovery of 14.19% of the claim’s value.

Therefore, according to Holly G., DHHR was only entitled to 14.19% of its reimbursement, or $79,053.16. To prove past medical expenses, Holly G. offered into evidence the Medicaid lien letters from ODJFS, showing a total of $698,225.24, and DHHR, showing a total of $557,104.71. To prove future medical expenses and E.B.’s pain and suffering, Holly G. offered the discovery deposition of Gary Yarkony, M.D., dated October 2, 2009; a “life care plan” that Dr.

Yarkony had prepared on June 11, 2008, in the underlying tort action; and the testimony of the guardian ad litem and Holly G. at the November 12, 2009, and December 21, 2009, proceedings. Holly G. also argued that because the ease would have been tried in the United States District Court for the Southern District of Ohio, Eastern Division, the law of Ohio, specifically Ohio Revised Code § 2315.18(B)(3)(2005), which does not provide a cap to non-eeonomic damages, would have applied. In DHHR’s Motion for

Summary Judgment, DHHR contested the infant’s claim that settlement could be apportioned by the court pursuant to Ahlbom. DHHR argued that under W. Va.Code § 9-5-11, DHHR has a priority right to full reimbursement for its expenses from any settlement and/or judgment recovered from a liable third party. Additionally, DHHR claimed that Ahlbom does not control because of the doctrine of lex loci contractus. In other words, because Petitioner and E.B. are citizens of West Virginia, and they contracted for Medicaid benefits in West Virginia, West Virginia law should apply to this dispute.

Furthermore, DHHR submitted that W.

Va.Code § 9-5-11 is not in conflict with Ahlbom because West Virginia statutory law limits West Virginia’s recovery language to the “actual expenses paid by the State on behalf of the Medicaid recipient for which a third party is liable to the extent the Medicaid recipient is reimbursed for them.” DHHR also asserted that the Legislature is the most appropriate entity to determine whether and to what extent DHHR is entitled to subrogation against E.B. and that they have determined a reasonable method for determining the State’s medical reimbursements, i.e., that the recipient is ¡free to negotiate a lower settlement with the State, and the State gets to decide on a ease-by-ease basis whether a lower settlement is warranted.

DHHR further argued that Holly G. did not take into account the fact that E.B. will continue to be on Medicaid for the rest of his life and that it will have to expend money on behalf of E.B. in the future. Finally, DHHR argued that pursuant to W. Va.Code § 55-7B-8 (2008), E.B.’s damages are capped.

Following submission of the parties’ briefs, by letter dated February 26, 2010, the Circuit Court of Hancock County informed Holly G., DHHR, and ODJFS that “the Court [would] consider evidence relating to the full value of the minor’s claim” and offered the parties “the opportunity to present additional evidence regarding the full value of the minor’s claim.” In response to the court’s letter, DHHR submitted supplemental evidence in support of its motion for

summary judgment which included various affidavits and exhibits supporting DHHR’s claims for subrogation. Thereafter, on July 12, 2010, the circuit court entered an order that approved the settlement, finding that Ahlbom applied in this case. The circuit court found that after reviewing the evidence regarding the extent of E.B.’s physical impairments, the past medical expenses paid, the projected future medical expenses based upon the life care plan presented by Dr.

Yarkony, and the guardian ad litem testimony regarding E.B.’s compensatory damages for pain and suffering, the full value of the claim was $25,373,937.95. Based upon this finding, the court determined that the settlement represented 14.1878% of the full value of the minor’s claim. Thus, the court found that DHHR was entitled to $79,040.82 and that ODJFS was entitled to $99,062.70.

As to its findings regarding non-eeonomic damages, the circuit court found that Ohio state law applied to the calculation of these damages because the underlying action was filed in the United States District Court for the Southern District of Ohio, Eastern Division. The court found that under Ohio law, given the nature and extent of E.B.’s injuries, Ohio’s damages cap would not apply in this case. On July 26, 2010, DHHR filed a Motion for Stay of Order Regarding DHHR’s Medicaid Subi’ogation Interests in Settlement Funds Pending Application for Appeal.

On December 3, 2010, DHHR filed its Petition for Appeal with this Court. This Court granted DHHR’s petition for appeal on March 10, 2011, and scheduled the matter for oral argument under Rule 20 of the Revised Rules of Appellate Procedure. II. STANDARD OF REVIEW This Court has defined the scope of appellate review of a circuit court order as follows: In reviewing challenges to the findings and conclusions of the circuit court, we apply a two-prong deferential standard of review.

We review the final order and the ultimate disposition under an abuse of discretion standard, and we review the circuit court’s underlying factual findings under a clearly erroneous standard. Questions of law are subject to a de novo review. Syl. Pt. 2, Walker v. W. Va. Ethics Comm’n, 201 W.Va. 108, 492 S.E.2d 167 (1997). The first issue in this ease is a matter of first impression requiring a determination of whether W. Va.Code § 9-5-11 is preempted by federal law. “Preemption is a question of law reviewed de novo.” Syl. Pt. 1, Morgan v. Ford Motor Co., 224 W.Va. 62, 680 S.E.2d 77 (2009).

To the extent that DHHR has also challenged the circuit court’s findings of fact, we recognize that this Court should not disturb those findings on appeal “unless the evidence plainly and decidedly preponderates against such finding.” Stover v. Milam, 210 W.Va. 336, 341, 557 S.E.2d 390, 395 (quoting Syl. Pt. 6, Daugherty v. Ellis, 142 W.Va. 340, 97 S.E.2d 33 (1956)). Guided by these principles, we will evaluate the parties’ contentions in this case. III. DISCUSSION DHHR presents four separate assignments of error in this appeal.

First, it contends that the circuit court committed error in granting Holly G.’s motion for a proportional reduction of the State’s recovery according to the ratio of the settlement amount to the full value of the case. Second, DHHR asserts that the circuit court committed error in ordering distribution of the net settlement proceeds to a special needs trust before satisfying DHHR’s full reimbursement for past medical expenses it paid on behalf of E.B.

Third, DHHR argues that the circuit court was without jurisdiction when it applied Ohio Revised Code § 2315.18(B)(3), Ohio’s law which rendered Ohio’s cap on non-economic damages inapplicable, to DHHR’s reimbursement claim. Fourth, DHHR contends that Dr. Yarkony’s opinion regarding future medical expenses was inadmissible under Rules 702 and 703 of the West Virginia Rules of Evidence, and thus, the circuit court committed clear error in relying on it. We will address each of these assigned errors in turn. A.

Apportionment of Settlement Pursuant to Ahlbom In asserting that the circuit court committed error in apportioning the settlement herein pursuant to the United States Supreme Court decision in Ahlbom, DHHR first contends that Ahlbom does not invalidate West Virginia’s Medicaid subrogation statute, W. Va.Code § 9-5-11. Before we begin our analysis of W. Va.Code § 9-5-11 and the applicability of Ahlbom, we first set forth the applicable statutory framework and this Court’s prior ease law regarding Medicaid subrogation. 1.

The Medicaid Program Medicaid is a medical assistance program established by Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (2000), which provides joint federal and state funding of medical care for individuals who cannot afford to pay their own medical costs. Under this program, state governments cooperate with the federal government to provide medical services to eligible individuals and families. The federal government shares the costs of Medicaid with the states that elect to participate in this program.

The Federal Government pays between 50% and 83% of the costs the State incurs for patient care, and, in return, the State pays its portion of the costs and complies with certain statutory requirements for making eligibility determinations, collecting and maintaining information, and administering the program. See 42 U.S.C. § 1396a (2006 Ed.). One such requirement is that the state Medicaid plan must require the state Medicaid agency to “take all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services available under the plan ...” 42 U.S.C. § 1396a(a)(25)(A).

Additionally, 42 U.S.C. § 1396a(a)(25)(

B) requires that in any ease where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State or local agency will seek reimbursement for such assistance to the extent of such legal liability.

To facilitate its reimbursement from liable third parties, the State must, to the extent that payment has been made under the State plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance, [have] in effect laws under which, to the extent that payment has been made under the State plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services. § 1396a(a)(25)(H).

A state’s Medicaid plan must require an individual to assign the State that individual’s rights to support and to payment for medical care from any third party as a condition of eligibility for Medicaid. 42 U.S.C. § 1396k(a)(l) (2006 Ed.). “[A]ny amount collected by the State under an assignment made ... shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of [the Medicaid recipient].” 42 U.S.C. § 1396k(b). The remainder of such amount collected shall be paid to the recipient. Id. 2.

West Virginia’s Medicaid Subrogation Act Pursuant to West Virginia’s Medicaid Subrogation Act, W. Va.Code § 9-5-11, DHHR has a subrogation right against the recovery a Medicaid recipient receives from third party tortfeasors. This Court has examined W. Va.Code § 9-5-11 on three previous occasions. In Kittle v. Icard, 185 W.Va. 126, 128, 405 S.E.2d 456, 458 (1991), the issue presented was whether DHHR was entitled to full reimbursement for medical expenses it paid on behalf of a minor from a $100,000 settlement which did not fully compensate the accident victim for his injuries.

The trial court applied the “made whole” rule, which required that an insured must be fully compensated for injuries before an insurance carrier’s subrogation rights arise, and denied DHHR full reimbursement for medical expenses it had paid. Id. at 128-29, 405 S.E.2d at 458-59. This Court held that although DHHR was legally subrogated to any right a medical assistance recipient may have to recover against the legally liable third party under 42 U.S.C. § 1396a(a)(25)(1982 Ed.) and W. Va. Code § 9-5-ll(a)(1990), a question remained with regard to how the doctrine of subrogation should be applied under the statute.

Kittle, 185 W.Va. at 130, 405 S.E.2d at 460. In resolving this issue, this Court held that the usual and ordinary definition of subrogation should be applied unless the Legislature clearly expresses an intent within the statute to give subrogation a different meaning. Id. Finding no intent by the Legislature that the usual and ordinary definition of subrogation should not apply, and in light of the equitable principles underlying the doctrine of subrogation, this Court held in Kittle that the right to subrogation may be limited by the made-whole rule. Id. at 134, 405 S.E.2d at 464.

Following this Court’s decision in Kittle, our Legislature amended W. Va.Code § 9-5-11 in 1993 and again in 1995. In 1997, in Grayam v. Dep’t. of Health and Human Res., 201 W.Va. 444, 498 S.E.2d 12 (1997), this Court analyzed whether the made-whole rule still applied to DHHR’s subrogation rights following the 1993 and 1995 amendments to W. Va.Code § 9-5-11. This Court found that the statute nullified the made-whole rule and allowed DHHR to recover all payments expended for medical assistance paid on behalf of its recipient.

In analyzing the effects of the 1993 and 1995 amendments, this Court specifically held in Syllabus Point 2 of Grayam, In both the 1993 and 1995 amendments to West Virginia Code § 9-5-11 (Supp.1993 & Supp.1995), the legislature rendered the made-whole rule inapplicable by clearly and unambiguously modifying the usual and ordinary meaning of subrogation as it is used in that statute.

Pursuant to these amendments, if another person is legally liable to pay for medical assistance provided by the Department of Health and Human Resources, the Department possesses a priority right to recover full reimbursement from any settlement, compromise, judgment, or award obtained from such other person or from the recipient of such assistance if he or she has been reimbursed by the other person. Two years later, in Anderson v. Wood, 204 W.Va. 558, 562, 514 S.E.2d 408, 412 (1999), this Court examined whether W. Va.Code § 9-5-ll(

b) required DHHR to pay a pro rata share of costs and attorney fees when a Medicaid recipient recovers from a tortfeasor. This Court held that DHHR is liable for its pro rata share of the costs and attorneys fees incurred by the recipient in recovering his or her medical expenses, and concluded that “[f]undamental fairness requires that DHHR assume its pro rata share of the litigation costs incurred when obtaining reimbursement for medical payments expended on behalf of a recipient.” Id. at 565, 514 S.E.2d at 415.

Seven years after this Court’s decision in Anderson, the United States Supreme Court rendered the Ahlbom opinion, which is presently the controlling federal precedent on Medicaid reimbursement statutes. The case sub judice presents the first opportunity that this Court has had to examine W. Va.Code § 9-5-11 following the United States Supreme Court’s decision in Ahlbom. 3. Ahlborn Heidi Ahlborn was injured on January 2, 1996, as a result of a motor vehicle accident which occurred in Arkansas. Ahlborn, 547 U.S. at 272-73, 126 S.Ct. at 1757.

She was nineteen years old at the time of the accident in which she suffered severe and permanent injuries that left her brain damaged and unable to complete her college education. Id. Ahlborn’s assets were insufficient to cover her medical costs, whereupon the Arkansas Department of Health & Human Services (“ADHS”) determined that she was eligible for medical assistance. Id. at 273, 126 S.Ct. at 1757. ADHS paid a total of $215,645.30 on behalf of Ahlborn for medical care. Id. On April 11,1997, Ahlborn filed a personal injury suit against two alleged tortfeasors. Id.

As part of her suit, Ahlborn claimed past and future medical expenses, permanent physical injury, past and future pain, suffering, mental anguish, past loss of earnings and working time, and permanent impairment of ability to earn in the future. Id. ADHS intervened in the case in February 1998 to assert a lien on the proceeds of any third-party recovery Ahlborn might obtain. The case was eventually settled out of court for $550,000. Id. at 274, 126 S.Ct. at 1757. The parties did not allocate the settlement between categories of damages.

ADHS asserted a lien against the settlement proceeds in the amount of $215,645.30, or the total amount paid out by ADHS for Ahlborn’s medical care. Id. On September 30, 2002, Ahlborn filed an action in the United States District Court for the Eastern District, of Arkansas seeking declaration that the lien asserted by ADHS violated federal Medicaid laws insofar as full satisfaction of the same would require depletion of compensation for injuries other than past medical expenses. Id.

Importantly, in order to facilitate the district court’s resolution of the legal questions presented, the parties stipulated that Ahlborn’s entire claim was reasonably valued at $3,040,708.12; that the settlement amounted to approximately one-sixth of that sum; and that if Ahlborn’s construction of federal law was correct, ADHS would be entitled to only the portion of the settlement that constituted reimbursement for medical payments made, or $35,581.47. Id. After considering cross-motions for

summary judgment, the United States District Court for the Eastern District of Arkansas held that, under Arkansas law, Ahlborn had assigned to ADHS her right to any recovery from the third-party tortfeasors to the full extent of Medicaid’s payments for her benefit. Id. at 274,126 S.Ct. at 1758. Accordingly, ADHS was entitled to a lien in the amount of $215,645.30. The Eighth Circuit reversed, holding that the ADHS was entitled to only that portion of the settlement that represented payments for medical care. Id. at 275, 126 S.Ct. at 1758. The United States Supreme Court affirmed the ruling of the Eighth Circuit.

Id. In its opinion, the United States Supreme Court reviewed Arkansas’ statute, which required a Medicaid applicant to “automatically assign his or her right to any settlement, judgment, or award which may be obtained against any third party to [ADHS] to the full extent of any amount which may be paid by Medicaid for the benefit of the applicant.” Id. at 277, 126 S.Ct. at 1759 (quoting Ark. Code Ann. § 20-77-307(a)).

As a result, “ ‘[w]hen medical assistance benefits are provided’ to the recipient ‘because of injury, disease, or disability for which another person is liable,’ ADHS ‘shall have a right to recover from the person the cost of benefits so provided.’ ” Id. (quoting Ark.Code Ann. § 20-77-301(a)). In its opinion, the United States Supreme Court noted that “[t]he State, through this statute, claims an entitlement to more than just that portion of a judgment or settlement that represents payment for medical expenses.

It claims a right to recover the entirety of the costs it paid on the Medicaid recipient’s behalf.” Id. at 278, 126 S.Ct. at 1760. The Court went on to explain that the federal third-party liability provisions of the federal Medicaid statute focused on recovery of payments for medical care, rather than the amount paid out by State Medicaid programs. Id. at 280, 126 S.Ct. at 1761.

It specifically noted that “Medicaid recipients must, as a condition of eligibility, ‘assign the State any rights ... to payment for medical care from any third party,’ 42 U.S.C. 1396k(a)(l)(A)(emphasis added), not rights to payment for, for example, lost wages.” Id.

According to the United States Supreme Court in Ahlbom, under the third-party lien provisions of the Medicaid law, the State must be assigned “the rights of [the recipient] to payment by any other party for such health care items or services.” 1396a(a)(25)(H)(emphasis added.) Again, the statute does not sanction an assignment of rights to payment for anything other than medical expenses — not lost wages, not pain and suffering, not an inheritance.

The “amount recovered ... under an assignment” is not, as ADHS assumes, the entire settlement; as explained above, under the federal statute the State’s assigned rights extend only to recovery of payments for medical care. Accordingly, what § 1396k(

b) requires is that the State be paid first out of any damages representing payments for medical care before the recipient can recover any of her own costs for medical care. Id. at 281-82,126 S.Ct. at 1761-62 (emphasis added). Thus, by its language, the United States Supreme Court found that “the federal third-party liability provisions require an assignment of no more than the right to recover that portion of a settlement [or judgment] that represents payments for medical care.” Id. at 282,126 S.Ct. at 1762.

The Ahlbom Court also reasoned that the anti-lien provision of the Medicaid law supported its conclusion that ADHS’s recovery was limited to that portion of the settlement representing medical expenses, to wit: If there were no other relevant provisions in the federal statute, the State might plausibly argue that federal law supplied a recovery “floor” upon which States were free to build. In fact, though, the federal statute places express limits on the State’s powers to pursue recovery of funds it paid on the recipient’s behalf. These limitations are contained in 42 U.S.C. §§ 1396a(a)(18) and 1396p.

Section 1396a(a)(18) requires that a state Medicaid plan comply with § 1396p, which in turn prohibits States (except in circumstances not relevant here) from placing liens against, or seeking recovery of benefits paid from, a Medicaid recipient: “(

a) Imposition of lien against property of an individual on account of medical assistance rendered to him under a State plan “

(1) No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except— “(

A) pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or “(B) [in certain circumstances not relevant here] “(

b) Adjustment or recovery of medical assistance correctly paid under a State plan “

(1) No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except [in circumstances not relevant here].” § 1396p. There is no question that the State can require an assignment of the right, or chose in action, to receive payments for medical care. So much is expressly provided for by §§ 1396a(a)(25) and 1396k(a). And we assume, as do the parties, that the State can also demand as a condition of Medicaid eligibility that the recipient “assign” in advance any payments that may constitute reimbursement for medical costs.

To the extent that the forced assignment is expressly authorized by the terms of §§ 1396a(a)(25) and 1396k(a), it is an exception to the anti-lien provision. See Washington State Dep’t of Social and Health Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371, 383-385, and n. 7, 123 S.Ct. 1017, 154 L.Ed.2d 972 (2003). But that does not mean that the State can foi’ce an assignment of, or place a lien on, any other portion of Ahlborn’s property. As explained above, the exception carved out by §§ 1396a(a)(25) and 1396k(

a) is limited to payments for medical care. Beyond that, the anti-lien provision applies. Id. at 283-85,126 S.Ct. at 1762-63. Harmonizing the federal anti-lien provision, § 1396p, with § 1396a(a)(25) and § 1396k(a), the Court held that the Arkansas statute found “no support in the federal third-party liability provisions, and in fact squarely eonfliet[ed] with the anti-lien provision of the federal Medicaid laws.” Id. at 280, 126 S.Ct. at 1760. Thus, the Court found that ADHS could not lay claim to more than the portion of Ahlborn’s settlement that represented medical expenses. Id. at 284-85, 126 S.Ct. at 1763.

In discussing ADHS’s argument that reimbursement of the full Medicaid lien is needed to avoid risk of settlement manipulation, the Supreme Court suggested that such a risk can be avoided by “the State’s advance agreement to an allocation, or, if necessary, by submitting the matter to a court for decision.” Id. at 288, 126 S.Ct. at 1765. 4. Validity of W.

Va.Code § 9-5-11 following Ahlborn The authority of federal law to preempt state law is found in the Supremacy Clause of the United States Constitution, which provides: This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding. U.S. Const, art. VI, cl. 2.

This Court has held that “[t]he Supremacy Clause of the United States Constitution,

Article VI, Clause 2, invalidates state laws that interfere with or are contrary to federal law.” Syl. Pt. 1, Cutright v. Metro. Life Ins. Co., 201 W.Va. 50, 491 S.E.2d 308 (1997). “Nevertheless, our law has a bias against preemption.” Morgan v. Ford Motor Co., 224 W.Va. 62, 68, 680 S.E.2d 77, 83 (2009). “Given the importance of federalism in our constitutional structure ... we entertain a strong presumption that federal statutes do not preempt state laws; particularly those laws directed at subjects — like health and safety — ‘traditionally governed’ by the states.” Davis v.

Eagle Coal & Dock Co., 220 W.Va. 18, 22, 640 S.E.2d 81, 85 (2006) (quoting Law v. Gen. Motors Corp., 114 F.3d 908, 909-10 (9th Cir.1997)). Therefore, “preemption is disfavored in the absence of convincing evidence warranting its application.” Davis, 220 W.Va. at 22-23, 640 S.E.2d at 85-86 (quoting Hartley Marine Corp. v.

Mierke, 196 W.Va. 669, 673, 474 S.E.2d 599, 603 (1996)). “When it is argued that a state law is preempted by a federal law, the focus of analysis is upon congressional intent.” Preemption “is compelled whether Congress’ command is explicitly stated in the statute’s language or implicitly contained in its structure and purpose.” Morgan v. Ford Motor Co., 224 W.Va. at 69, 680 S.E.2d at 84 (footnote omitted) (quoting Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977)).

Implied preemption may take two forms: [I]n the absence of explicit statutory language signaling an intent to pre-empt, we infer such intent where Congress has legislated comprehensively to occupy an entire field of regulation, leaving no room for the states to supplement federal law, or where the state law at issue conflicts with federal law, either because it is impossible to comply with both or because the state law stands as an obstacle to the accomplishment and execution of congressional objectives[.] Davis, 220 W.Va. at 23, 640 S.E.2d at 86 (quoting Hartley Marine Corp., 196 W.Va. at 674, 474 S.E.2d at 604).

Congress did not expressly provide for preemption in its Medicaid legislation. Rather, Congress specifically permitted state action regarding Medicaid; in fact, it required that a participating state’s Medicaid plan conform to federal requirements. Martin ex rel. Hoff v. City of Rochester, 642 N.W.2d 1, 11 (Minn.2002) (citing Schweiker v. Gray Panthers, 453 U.S. 34, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981)); see also 42 U.S.C. § 1396a(a). Thus, Congress did not legislate comprehensively so as to occupy the entire field of Medicaid regulation. It instead left room for the states to supplement federal law.

Accordingly, preemption will apply only if state law conflicts with Federal Medicaid law or if its application presents an obstacle to federal Medicaid purposes. See also Lankford v. Sherman, 451 F.3d 496, 510 (8th Cir.2006); Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm’n, 461 U.S. 190, 203-04, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983) (noting that where Congress has not expressly preempted or entirely displaced state regulation in a specific field, as with the Medicaid Act, “state law is preempted to the extent that it actually conflicts with federal law.”).

An actual conflict arises where compliance with both state and federal law is a “physical impossibility,” or where the state law “ 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’” Id. (quoting Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963) and Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941)). This Court has held that “it is by now axiomatic that the manner in which a state administers a federal assistance program must be consistent with federal law.” Harrison v.

Ginsberg, 169 W.Va. 162, 167, 286 S.E.2d 276, 280 (1982) (citations omitted). Additionally, West Virginia Code § 9-2-3(1970) provides, The State assents to the purposes of federal-state assistance and federal assistance, accepts federal appropriations and other forms of assistance made under or pursuant thereto, and authorizes the receipt of such appropriations into the State Treasury and the receipt of other forms of assistance by the department for expenditure, disbursement, and distribution by the department in accordance with the provisions of this

chapter and the conditions imposed by applicable federal laws, rules and regulations. Id. (emphasis added). Therefore, we must consider whether W. Va.Code § 9-5-11 conflicts with or is an obstacle to federal Medicaid law. In the present case, the circuit court found that W.

Va.Code § 9-5-11 was in conflict with federal Medicaid law pursuant to the United States Supreme Court decision in Ahlbom, and thus was preempted because the West Virginia Code “seems to give a priority right to WV DHHR for full reimbursement of any monies it expended on behalf of a recipient without regard to whether the monies received by the recipient, either by settlement or judgment, were meant to compensate the recipient for past medical costs, or some other loss, such as lost wages, pain and suffering, ... etc.” On appeal, DHHR contends that the Ahlbom decision did not affect the State’s ability to assert its priority to recovery of damages attributable to medical expenses.

DHHR asserts that the central focus of Ahlbom was not whether a state could assert its priority right against and seek reimbursement from a Medicaid recipient’s entire settlement but, instead, was whether Arkansas’ stipulation concerned the portion of the settlement attributable to medical expenses. DHHR maintains that Ahlbom is controlling precedent only when there has been a prior determination of medical expenses by a jury (or trial judge in a case tried without a jury) or a stipulation as to the medical expenses portion of a plaintiff’s settlement.

DHHR contends that in those cases, the State may not receive reimbursement in excess of the portion so designated. Here, there was no such determination or stipulation. DHHR asserts that W. Va.Code § 9-5-11 provides a method for determining the State’s reimbursement in the absence of judicial allocation that is consistent with federal law. DHHR maintains that under the language of the statute, it is only seeking reimbursement out of the medical expenses portion of the settlement.

DHHR contends that West Virginia has determined that the State may only recover the amount of medical expenses paid by DHHR reduced by DHHR’s pro rata share of attorneys fees and proportionate share of the legal costs incurred by the Medicaid recipient in obtaining the settlement. DHHR avers that this typically reduces the State’s recovery by more than 40%, and thus, it can never receive “full reimbursement.” DHHR also points out that if the settlement amount is less than the amount paid by DHHR, the Secretary authorizes DHHR to limit its recovery to one third of the gross amount obtained.

DHHR argues that these provisions were absent in the Arkansas statute, and thus, the Arkansas statute violated the federal anti-lien provision because Arkansas sought to impose a lien beyond the portion of the settlement allocated to medical care. DHHR contends that in West Virginia, the net amount (after the statutorily mandated deduction and any discretionary deduction) essentially defines the portion of the settlement that represents “payment for medical expenses” in eases, such as the instant one, involving a lump settlement.

DHHR cites to decisions rendered in North Carolina and Florida wherein state Medicaid reimbursement statutes, which provided methods of statutory allocation rather than judicial allocation, were held to be in compliance with Ahlbom. See Armstrong v. Cansler, 722 F.Supp.2d 653 (W.D.N.C.2010), vacated by E.M.A. ex rel. Plyler v. Cansler, 674 F.3d 290 (4th Cir.2012); Andrews ex rel. Andrews v. Haygood, 362 N.C. 599, 669 S.E.2d 310 (N.C.2008); Russell v. Agency for Health Care Admin., 23 So.3d 1266 (Fla.Dist.Ct.App. 2010); Scharba v. Everett L. Braden, Ltd., No. 8:07-cv-1294-T-33EAJ, 2010 WL 1380121 (M.D.Fla.

March 31, 2010). DHHR asserts that the statutory reduction of DHHR’s pro rata share of attorneys fees and costs is a fair balance providing a reasonable method for determining the State’s medical reimbursements, while also protecting the recipient’s interests. Conversely, Holly G. contends that W. Va. Code § 9-5-11 is in conflict with Ahlbom because nothing in the statute limits DHHR’s recovery to the portion of the settlement or judgment attributable to medical expenses.

Holly G. maintains that Ahlbom broadly prohibits a state from claiming reimbursement out of funds not earmarked solely for medical expenses under any circumstances. Accordingly, Holly G. asserts that the Ahlbom decision is not limited to cases where the parties have stipulated to the value of the plaintiffs claim or where there has been an allocation of damages on the merits. Rather, DHHR cannot recover reimbursement from a Medicaid recipient’s entire settlement in circumstances where there has been no stipulation.

Holly G. believes that nothing in Ahlbom limits the application of its central principle — that any reimbursement must comply with the federal anti-lien provision and be limited to the portion of damages attributable to past medical expenses. Holly G. suggests that when a settlement does not contain an allocation delineating damages specifically designated for medical expenses, Ahlbom requires states to fashion a method to make those determinations and protect their right to reimbursement, such as by agreement or by submitting the matter to a court for adjudication.

Holly G. argues that the indispensable step of any analysis is determining what portion of a settlement is attributable to medical expenses. If W. Va. Code § 9-5-11 is applied as DHHR contends, Holly G. argues that it allows the State to receive monies not attributable to medical expenses. To the extent that W. Va.Code § 9-5-11 makes no distinction with respect to the type of damages recovered by a plaintiff, but rather only provides the upper limit of the State’s recovery, it violates the anti-lien provisions of the federal Medicaid statutes.

After a thorough examination of the Ahlbom decision and the language contained in W. Va.Code § 9-5-11, for the reasons expressed more thoroughly below, we find that W. Va.Code § 9-5-11 directly conflicts with Ahlbom, insofar as it permits DHHR to assert a claim to more than the portion of a recipient’s settlement that represents past medical expenses. First, we are not convinced, as DHHR contends, that Ahlbom is limited to cases where the parties have stipulated to the value of the plaintiffs claim. In analyzing the Ahlbom opinion, we find that nothing limits its application in the manner suggested by DHHR.

In Ahlborn, the United States Supreme Court rejected the contention that the entire settlement was subject to the State’s claim for reimbursement, holding that “the State’s assigned rights extend only to recovery of payments for medical care.” 547 U.S. at 282, 126 S.Ct. at 1752.

In addressing the stipulation made by the parties in Ahlborn, the United States Supreme Court found that “the effect of the stipulation is the same as if a trial judge had found that Ahlborn’s damages amounted to $3,040,708.12 (of which $215,645.30 were for medical expenses), but because of her contributory negligence, she could only recover one-sixth of those damages.” Ahlbom, 547 U.S. at 281 n. 10, 126 S.Ct. at 1761-62, n. 10. The Court went on to explain that in eases where a settlement had been reached but no allocation had been made, the same principles applied.

The Court discussed the parties’ alternative policy arguments regarding full reimbursement rules. The ADHS’s and the United States’ briefs argued that a rule of full reimbursement was needed generally to avoid the risk of settlement manipulation.

The United States Supreme Court found this argument unpersuasive and noted that although the issue was not squarely presented in that particular case because ADHS had stipulated that only $35,581.47 of Ahlborn’s settlement proceeds were properly designated as payments for medical costs, [ejven in the absence of such a post-settlement agreement, ... the risk that parties to a tort suit will allocate away the State’s interest can be avoided either by obtaining the State’s advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision.

For just as there are risks in underestimating the value of readily calculable damages in settlement negotiations, so also is there a countervailing concern that a rule of absolute priority might preclude settlement in a large number of eases, and be unfair to the recipient in others. Id. at 288, 126 S.Ct. at 1765 (footnotes omitted). Ahlborn unequivocally held that state liens are invalid if they attach to non-medical damage recoveries. The federal Medicaid anti-lien statutes allow a. narrow exception for liens that are limited to recoveries only for medical expenses.

In order to ensure that states are not forcing an assignment of, or placing a lien on, any other portion of a recipient’s property, Ahlbom effectively requires a determination of what portion of a settlement is attributable to medical expenses. Other courts interpret Ahlbom in the same manner.

For example, following briefing and oral argument in the instant case, the Fourth Circuit Court of Appeals had the opportunity to apply Ahlbom in assessing the propriety of North Carolina’s Medicaid program and found that Ahlbom is properly understood to prohibit recovery by the State of more than the amount of settlement proceeds representing payment for medical care already received. In E.M.A. ex rel. Plyler v. Cansler, 674 F.3d 290 (4th Cir.2012), the minor appellant, E.M.A. (born February 2000) sustained serious injuries at birth due to the negligence of the medical professionals who attended to her delivery.

Id. As a result of her injuries, she was legally deaf and blind, and was unable to sit, walk, crawl, or talk. She also suffered from mental retardation and a seizure disorder. Id. The North Carolina Department of Health and Human Services (“DHHS”), through a state Medicaid program, paid more than $1.9 million in medical and healthcare expenses on her behalf. Id. The medical malpractice action was settled for a lump sum of approximately $2.8 million, which is a sum in excess of the total Medicaid expenditures of approximately $1.9 million but below the full value of all the tort claims. Id.

The settlement agreement did not allocate separate amounts for past medical expenses and other damages. Id. DHHS subsequently asserted a statutory lien on the settlement proceeds pursuant to N.C. Gen.Stat. §§ 108A-57 and -59, which provide that North Carolina has a subrogation right to, and may assert a lien upon, the lesser of its actual medical expenditures or one-third of the Medicaid recipient’s total recovery. Id. at 292.

Thus, under the circumstances described, where DHHS’s actual medical expenditures are greater than one-third of the settlement funds, the North Carolina third-party liability statutes effected an unrebuttable presumption that the State is entitled to one-third of the total settlement proceeds recovered by E.M.A. and her parents. Id. The parties did not dispute the State’s entitlement to some reimbursement from the lump-sum settlement, but they vigorously disputed the proper allocation of the portion of the settlement proceeds held in trust by the state court.

Appellants brought the action in federal district court against Mr. Cansler, in his official capacity as Secretary of DHHS, seeking declaratory and injunctive relief pursuant to 42 U.S.C. § 1983. Id. They sought to forestall payment of the amount claimed by DHHS on the basis of the “anti-lien provision,” 42 U.S.C. § 1396p, which was discussed in Ahlbom. Id. at 293. On cross-motions for

summary judgment, the district court in Armstrong, 722 F.Supp.2d 653 (W.D.N.C.2010), relying in significant part on the reasoning of a majority opinion in a prior case by a divided Supreme Court of North Carolina, Andrews ex rel. Andrews v. Haygood, 362 N.C. 599, 669 S.E.2d 310, cert. denied sub nom. Brown v. N.C. Dep’t of Health & Human Servs., — U.S. -, 129 S.Ct. 2792, 174 L.Ed.2d 291 (2009), which distinguished Ahlbom while sustaining North Carolina’s state statutory regime, granted

summary judgment in favor of appellee, Secretary Cansler. Id. at 295. The Andrews decision adopted a narrow

interpretation of Ahlbom limiting its holding to cases in which the parties have stipulated to or otherwise allocated settlement proceeds between different categories of damages, thereby identifying a sum certain for medical expenses. Andrews, 669 S.E.2d at 313. On appeal, the Fourth Circuit reversed Armstrong disagreeing with the analysis of the Supreme Court of North Carolina in Andrews, as adopted by the district court.

The Fourth Circuit found that the Ahlborn court addressed the specific issue of “whether [ADHS] can lay claim to more than the portion of [the recipient’s] settlement that represents medical expenses.” Cansler, 674 F.3d at 307 (quoting Ahlborn, 547 U.S. at 280, 126 S.Ct. 1752). Thus, the Fourth Circuit concluded that the Ahlbom court in no way rested its analysis of this issue on whether there has been a prior determination or stipulation as to the medical expenses portion of a Medicaid recipient’s settlement. Id.

Based upon these conclusions, it was persuaded that the unrebuttable presumption inherent in the one-third cap on the State’s recovery imposed by the North Carolina third-party liability statutes is in fatal conflict with federal law as interpreted by Ahlbom. Id. at 293. The Fourth Circuit stated the following; [w]e hold that the North Carolina third-party liability statutes, N.C. GemStat. §§ 108A-57 and -59, as applied in this case, fail to comply with federal Medicaid law as interpreted by the Supreme Court in Ahlbom.

As the unanimous Ahlbom Court’s decision makes clear, federal Medicaid law limits a state’s recovery to settlement proceeds that are shown to be properly allocable to past medical expenses.

In the event of an unallocated lump-sum settlement exceeding the amount of the state’s Medicaid expenditures, as in this case, the sum certain allocable to medical expenses must be determined by way of a fair and impartial adversarial procedure that affords the Medicaid beneficiary an opportunity to rebut the statutory presumption in favor of the state that allocation of one-third of a lump sum settlement is consistent with the anti-lien provision in federal law. Id. at 312.

In addition to the Cansler court, the majority of other courts interpreting Ahlbom have also acknowledged that it stands for this same proposition. Accordingly, we are not persuaded by those decisions relied upon by DHHR holding that state Medicaid reimbursement statutes comply with Ahlbom simply because they contain “reasonable statutory caps” on recovery from unallocated lump sum settlements. These decisions fail to require a determination of what portion of a settlement is attributable to medical expenses as required by Ahlborn.

See Armstrong, 722 F.Supp.2d 653; Andrews, 669 S.E.2d 310; Russell, 23 So.3d 1266; Scharba, 2010 WL 1380121. With this understanding of Ahlbom, we now examine the language of W. Va.Code § 9-5-11. In doing so, we find that it, like the Arkansas statute in Ahlbom, directly conflicts with the federal anti-lien provision because the statute creates an assignment and a right of subrogation for Medicaid payments, both of which broadly attach to all damages compensated by any settlement, not just recoveries for medical expenses. For example, the assignment provisions of W. Va.Code § 9-5-ll(

a) provide a right of assignment which attaches to all portions of an applicant’s recovery from a third party tortfeasor. It provides, in pertinent part: (

a) Submission of an application to the Department of Health and Human Resources for medical assistance is, as a matter of law, an assignment of the right of the applicant or legal representative thereof to recovery from personal insurance or other sources, including, but not limited to, liable third parties, to the extent of the cost of medical services paid for by the Medicaid program.

The department shall be legally assigned the rights of the recipient against the person so liable, but only to the extent of the reasonable value of the medical assistance paid and attributable to the sickness, injury, disease or disability for which the recipient has received damages.

When an action or claim is brought by a medical assistance recipient or by someone on his or her behalf against a third party who may be liable for the injury, disease, disability or death of a medical assistance recipient, any settlement, judgment or award obtained is subject to the claim of the Department of Health and Human Resources for reimbursement of an amount sufficient to reimburse the department the full amount of benefits paid on behalf of the recipient under the medical assistance program for the injury, disease, disability or death of the medical assistance recipient. W.

Va.Code § 9 — 5—11(a) (emphasis added). By their plain wording, these assignment provisions permit the State an assignment for more than what the federal law mandates because the federal law only requires that states obtain an assignment of the medical assistance recipient’s right to recover medical expenses from liable third parties. However, under our statute, the State’s recovery of the cost of medical expenses paid is not limited to a recovery only from a recipient’s right to recover for medical expenses.

Next, the statute makes clear that DHHR’s right of subrogation attaches to any and all damages recovered regardless of type or classification, not just to those that might be allocated to medical expenses. The statute makes it clear that any kind of recovery is subject to the claim of DHHR on a priority basis. See Syl. Pt. 2, Grayam, 201 W.Va. 444, 498 S.E.2d 12. Specifically, the statute provides, in part, the following: [t]he right of subrogation created in this

section includes all portions of the cazise of action, by either settlement, compromise, judgment or award, notwithstanding any settlement allocation or apportionment that purports to dispose of portions of the cause of action not subject to the subrogation. W. Va.Code § 9-5-ll(a) (emphasis added). The statute also imposes a duty on the court to order that the full amount of medical assistance be paid to DHHR, less costs of recovery, including attorney fees and costs. The statute provides: (b) ...

The trial judge shall, upon the entry of judgment on the verdict, direct that an amount equal to the amount of medical assistance given be withheld and paid over to the Department of Health and Human Resources.... less the department’s share of attorney’s fees and costs expended in the matter. W. Va.Code § 9-5-ll(b). The trial judge has no discretion under W. Va.Code § 9-5-11 to allocate damages for medical expenses or to direct the payment of damages to DHHR which have been allocated to medical expenses.

Further, the statute allows DHHR to negotiate with the recipient if DHHR cannot be reimbursed in full out of the settlement proceeds. However, it provides no opportunity for a judicial allocation of damages in settlements containing unstipulated damages. It states that [i]n the event of less than full recovery the recipient and the department shall agree as to the amount to be paid to the department for its claim ...

In the event that a controversy arises concerning the subrogation claims by the department, an attorney shall interplead, pursuant to rale twenty-two of the Rules of Civil Procedure, the portion of the recipient’s settlement that will satisfy the department exclusive of attorney’s fees and costs regardless of any contractual arrangement between the client and the attorney. W. Va.Code § 9 — 5—11(b) (emphasis added). Finally, as previously discussed, in Grayam, a decision written by this Court prior to Ahlbom, we interpreted this language in W.

Va.Code § 9-5-11 to provide that if another person is legally liable to pay for medical assistance provided by DHHR, DHHR possesses a priority right to recover full reimbursement from any settlement, compromise, judgment, or award obtained from such other person or from the recipient of such assistance if he or she has been reimbursed by the other person. Id., Syl. Pt. 2, in part. However, based on Ahlbom, we conclude that DHHR’s attempt to recover from an unallocated lump sum amount under W.

Va.Code § 9-5-11 violates the federal anti-lien provision (1) because the assignment giving the State the ability to recover medical expenses paid is not limited to a recovery only from a recipient’s right to recover for past medical expenses, and (2) because it permits the State to become subrogated for past medical expenses from “all portions” of the cause of action or settlement in this ease.

Under Ahlbom, DHHR may obtain reimbursement for medical expenses paid from only that portion of the settlement, compromise, judgment, or award obtained by a recipient of Medicaid assistance that constitutes damages for past medical expenses. In sum, because W.

Va.Code § 9-5-11 permits DHHR to obtain an assignment that attaches to the recipient’s rights of recovery beyond just a recipient’s right to recover for past medical expenses, and because it maintains a right of subrogation which includes “all portions of the cause of action,” in situations such as the case sub judice, where the settlement does not allocate categories of damages and the parties have not stipulated to categories of damages, we find that W. Va.Code § 9-5-11 conflicts with the provisions of the federal anti-lien statutes, as interpreted hy Ahlbom.

In a memorandum issued by the Centers for Medicaid and Medicare Services (“CMS”) to all Associate Regional Administrators for Medicaid and State Operations following the Ahlbom decision, the CMS concluded that statutory language such as that found in W. Va.Code § 9-5-11 necessarily requires revision. The CMS memorandum was issued specifically to aid the states in understanding the effect which the Ahlbom decision would have on state third-party liability recovery.

See Memorandum from Gale Arden, Director of CMS’s Center for Medicaid and State Operations Disabled and Elderly Health Programs Group (DEHPG) to all Associate Regional Administrators for Medicaid and State Operations, “State Options for Recovery Against Liability Settlements in Light of U.S. Supreme Court Decision in Arkansas Department of Human Services v. Ahlborn” (July 3, 2006) (hereinafter “CMS Memorandum ”).

The CMS Memorandum states that “if a State attempted to recover from more than the portion of a settlement that the parties allocated to medical items and services, it was in violation of the federal anti-lien statute.” Id. The CMS Memorandum recognized and warned that, “to the extent State laws permit recovery over and above what the parties have appropriately designated as payment for medical items and services, the State was in violation of federal Medicaid laws.” Id. Finding the CMS Memorandum provisions illuminating in deciding whether North Carolina’s third-party liability statute, N.C. Gen.

Stat. §§ 108A-57 and -59 complied with Ahlbom, the Fourth Circuit noted the following about the Memorandum’s provisions in Cansler: To aid states in ensuring compliance with Ahlbom, the CMS Memorandum listed various actions states may and may not take: (1) states may only require assignment of the right to payment from a third party for healthcare (or medical) items and services; and (2) states may not pass or enforce laws which broaden the recovery rights, vis-a-vis Medicaid beneficiaries, of the state Medicaid agency, allowing such agencies to recover from damages other than medical expenses provided for in the award amount, even if this means that Medicaid must forego full recovery of its claim.

On the other hand, a state may wish to, inter alia: (1) “enact laws which provide for a specific allocation amongst damage[s], i.e., pain and suffering, lost wages, and medical claims”; (2) “require that cases can only be compromised with the consent of the state”; (3) “pass laws which require a mandatory joinder of a State when a Medicaid lien is at issue”; (4) “strengthen their laws regarding the duty of attorneys to notify and cooperate to include provisions which could render voidable any settlement of which the State was not notified and given an opportunity to present its recovery claim for medical assistance paid.” Id.

In addition, the CMS Memorandum emphasized the Ahlbom Court’s admonition that states should become involved in the underlying tort litigation in order to influence the amount that is allocated in a settlement to medical items and services, /¿.(stating that “absent such involvement, the Court found little sympathy in the State’s argument that they should be able to recover the total settlement”). Cansler, 674 F.3d at 309 (quoting CMS Memorandum). As it applies to W.

Va.Code § 9-5-11, the only way for the State to ensure compliance with Ahlbom is to provide for a specific allocation of damages in a settlement, compromise, judgment, or award obtained by a recipient of Medicaid assistance. This is indeed the indispensable step which must be taken to ensure that 42 U.S.C. § 1396p, the federal “anti-lien” provision, is not violated. Having concluded that the state Medicaid assignment and subrogation provisions in W.

Va.Code § 9-5-11 stand as an obstacle to the accomplishment and execution of congressional objectives and are thus in conflict with federal law, we are now presented with two preemption options. One option is to hold that the state law is preempted entirely. However, because complete preemption is disfavored, we conclude that this statutory provision should be preempted only to the extent that it is in conflict with federal law. Therefore, we hold that W. Va.Code § 9-5-11 is preempted to the extent that its assignment and subrogation provisions conflict with federal law.

To the extent that our prior decision in Gray am v. Department of Health and Human Resources, 201 W.Va. 444, 498 S.E.2d 12, provided that DHHR possesses a “priority right to recover full reimbursement from any settlement, compromise, judgment, or award obtained from such other person or from the recipient of such assistance if he or she has been reimbursed by the other person,” that holding is overruled.

In keeping with the United States Supreme Court decision in Ahlbom, we conclude that DHHR does not have an absolute priority to recover full reimbursement from any settlement, compromise, judgment, or award obtained. Rather, it maintains a priority right to be paid first out of any damages representing payments for past medical expenses before the recipient can recover any of his or her own costs for medical care. Ahlbom, 547 U.S. at 281-82,126 S.Ct. at 1761-62.

Having established that an allocation must be made that indicates what portion is for past medical expenses as distinct from other damages, we hold that after a settlement, compromise, judgment, or award has been obtained in a Medicaid assistance recipient’s claim to recover damages for injuries, disease, or disability, all reasonable efforts should be made to obtain the agreement of DHHR regarding the allocation of that portion thereof that represents the recipient’s past medical expenses.

No such settlement, compromise, judgment or award shall be consummated or judicially approved, if necessary, until DHHR has been notified and afforded such opportunity to agree to the parties’ allocation of damages or to challenge said allocation. If DHHR and the parties cannot agree on an allocation of damages in a settlement context once DHHR is notified and provided an opportunity to protect its interest, the parties must seek judicial allocation through the court.

If judicial allocation becomes necessary, the trial court is required to hold an evidentiary damages hearing, whereupon all parties and DHHR are provided ample notice of the same and are given just opportunity to present the necessary evidence, including fact witness and expert witness testimony, to establish what each contends is an appropriate allocation of damages. In challenging an allocation of damages proposed by the parties, DHHR has the burden of proof to establish a proper allocation.

As discussed more fully below, the trial court must necessarily employ certain safeguards to ensure that the allocation of damages is fair and equitable, balancing the interests of the plaintiff recipient, the taxpayers, and the State. 5. Method of Allocating an Unallocated Settlement Having established the proper law under Ahlbom governing DHHR’s recovery of past medical expenses from a recipient’s recovery from a third party, we next address how to allocate medical and non-medical damages in an otherwise unallocated settlement, such as in the present case.

As set forth above, the circuit court used the ratio formula set forth in Ahlbom, comparing the settlement amount to the total value of the claim. DHHR contends that in cases such as the instant one, where a lump sum settlement is involved, Ahlbom does not require a specific method for determining the medical expense portion of the settlement.

DHHR takes issue with the application of the Ahlbom formula in this ease, arguing that it is illogical to assume that simply because a plaintiff settled for a fraction of the supposed “true value” of his claim that this fractional reduction applies uniformly across the various categories of damages. Instead, DHHR contends that W. Va.Code § 9-5-11 provides a reasonable alternative statutory procedure that comports with Ahlbom. Specifically DHHR argues that W.

Va.Code § 9-5-11 defines the portion of the settlement that is attributable to medical expenses as the amount of medical expenses paid by DHHR on behalf of the Medicaid recipient reduced by DHHR’s pro rata share of the Medicaid recipient’s attorney’s fees and legal costs incurred or a lesser amount in the discretion of the Secretary of DHHR.

DHHR points out that in addition to the fact that the Supreme Court discussed that the risk of settlement manipulation can be avoided by the State’s advance agreement to an allocation, or if necessary, by submitting the matter to a court for decision, it also went on to say that “some courts have adopted special rules and procedures for allocating tort settlements” under certain circumstances, but ultimately “express[ed] no view on the matter” and “le[ft] open the possibility that such rules and procedures might be employed to meet concerns about settlement manipulation.” Ahlbom, 547 U.S. at 288 n. 18, 126 S.Ct. at 1765 n. 18.

Thus, DHHR asserts that the Supreme Court left to the States the decision of the measures to employ in the operation of their Medicaid programs. Holly G. agrees with DHHR that the allocation formula applied in Ahlbom is not required to be used in all eases to determine the medical expense portion of a lump sum settlement. However, Holly G. contends that in the instant case, the circuit court properly followed the guidance of the Supreme Court by applying the “ratio” formula used in Ahlbom. There can be no question that the Ahlbom formula is not the only method of allocation to be followed.

There is nothing in the Ahlbom decision that compels the use of the formula applied in that case. Rather, the formula applied in Ahlbom was the result of a stipulation between the parties. The Ahlbom court simply sanctioned the use of the formula by equating the stipulation to a judicial determination allocating the award, stating that the effect of the stipulation is the same as if a trial judge had found that Ahlborn’s ability to recover on the award of damages was limited in proportion to the percent of contributory negligence determined by the court. Id. at 281 n. 10, 126 S.Ct. at 1761 n. 10.

While we find that the formula used in Ahlbom is not required, it is one rational method of allocation that a court may use with respect to settlements that do not allocate portions of the proceeds to categories of damages. Other courts deciding cases in the wake of Ahlbom have also used this method of allocation. Whatever method of allocation is used, what matters is that past medical expenses are distinguished from other damages on the basis of a rational approach. See Bolanos, 87 Cal.Rptr.Sd 174.

As stated above, all reasonable efforts should be made to obtain the agreement of DHHR regarding the allocation of the Medicaid recipient’s past medical expenses after a settlement has been obtained. However, if judicial allocation becomes necessary, the trial court is required to hold an evidentiary damages hearing, whereupon DHHR and all parties are provided ample notice of the same and are given just opportunity to present the necessary evidence, including fact witness and expert witness testimony, to establish what each contends is an appropriate allocation of damages.

In challenging an allocation of damages proposed by the parties, DHHR has the burden of proof to establish a proper allocation. Upon hearing all of the evidence, the trial court should allocate the settlement between the past medical expenses and other damages in a fair and equitable manner and should allow DHHR a first lien against the past medical expenses portion of the settlement. In order to achieve a fair and equitable allocation, the trial court must conduct a balancing of the interests of both the plaintiff and DHHR.

Settlements should not be permitted to be subject to manipulation by the allocation of funds to only one specific damage category. In determining what portion of a settlement represents payment for past medical expenses and what DHHR’s reimbursement should be, the trial court should be guided by the United States Supreme Court decision in Ahlbom, and other relevant statutory and case law. Finally, for purposes of appeal, the circuit court’s decision should be set forth in a detailed order containing the requisite findings of fact and conclusions of law supporting its rulings.

As to which post-allocation funds DHHR may reach, Holly G. asserts that DHHR may be reimbursed from only that portion of damages that represents past medical costs. Holly G. argues that DHHR may not be subrogated from damages representing future medical costs. Alternatively, the DHHR contends that the State may seek reimbursement of medical expenses it paid on behalf of a Medicaid recipient from medical expenses recovered by the Medicaid recipient as past and future medical expenses. There is no question that DHHR may only be reimbursed for its past medical expenses.

Indeed, DHHR is only seeking reimbursement of the medical expenses it paid on Holly G.’s behalf through the date of the settlement with the defendants in the underlying ease herein. However, as stated above, DHHR is limited to funds allocated solely to past, not future, medical expenses in seeking reimbursement. In its decision, the Ahlbom court generally stated that “the federal third-party liability provisions require an assignment of no more than the right to recover that portion of a settlement that represents payments for medical care.” 547 U.S. at 282, 126 S.Ct. at 1762 (emphasis in original).

Following Ahlbom, various courts addressing this specific issue have come to different conclusions regarding whether states are limited to funds allocated solely to past medical expenses in seeking reimbursement. Some courts have interpreted Ahlbom as permitting Medicaid recovery only from settlement proceeds received for past medical expenses, rejecting the argument that the Medicaid lien could be recovered from settlement monies attributable to future medical expenses.

Alternatively, other courts interpreting Ahlbom have found that the United States Supreme Court made no distinction requiring the states to be limited to funds allocated to past medical expenses. Given this split of authority among these other jurisdictions on this issue, we find recent guidance provided by the Fourth Circuit helpful in determining which post-allocation funds the DHHR may reach.

In Cansler, the Fourth Circuit, in determining whether North Carolina’s third party liability statutes were in conflict with federal law, construed the Ahlbom opinion as limiting a state’s recovery to settlement proceeds that are properly allocable to past medical expenses. Specifically, the Cansler Court stated, As the unanimous Ahlbom Court’s decision makes clear, federal Medicaid law limits a state’s recovery to settlement proceeds that are shown to be properly allocable to past medical expenses.

In the event of an unallocated lump-sum settlement exceeding the amount of the state’s Medicaid expenditures, as in this ease, the sum certain allocable to medical expenses must be determined by way of a fair and impartial adversarial procedure that affords the Medicaid beneficiary an opportunity to rebut the statutory presumption in favor of the state that allocation of one-third of a lump sum settlement is consistent with the anti-lien provision in federal law. 674 F.3d at 312 (emphasis added).

In arriving at this conclusion, the Cansler Court stated that “Ahlbom is properly understood to prohibit recovery by the state of more than the amount of settlement proceeds representing payment for medical care already received." Id. at 307 (emphasis added).

To the extent that the Fourth Circuit interprets the Ahlbom opinion to limit a state’s recovery only to settlement proceeds allocable to past medical expenses and not those proceeds allocable to future medical expenses, we are persuaded that in seeking reimbursement for past medical expenses paid, the DHHR should be limited to funds allocated solely to past medical expenses in seeking reimbursement. Having decided those fundamental legal issues, we now turn to the specific facts of this ease to determine whether the circuit court’s allocation using the Ahlbom method was appropriate. B.

Distribution of Net Settlement Proceeds With respect to this case, DHHR contends that pursuant to W. Va.Code § 9-5-11 and syllabus point 2 of Grayam, Holly G. may not receive any settlement proceeds until DHHR has been reimbursed in full. We disagree. As noted above, W. Va.Code § 9-5-11 is preempted to the extent that its assignment and subrogation provisions conflict with Ahlbom.

Additionally, to the extent that our prior decision in Grayam provided that DHHR possesses a “priority right to recover full reimbursement from any settlement, compromise, judgment, or award obtained from such other person or from the recipient of such assistance if he or she has been reimbursed by the other person,” that holding is overruled. In view of the United States Supreme Court decision in Ahlbom, DHHR no longer maintains an absolute priority to recover full reimbursement from any settlement, compromise, judgment, or award obtained.

Rather, it maintains a priority right to be paid first out of any damages representing payments for past medical care before the recipient can recover any of her own costs for such medical care. Ahlbom, 547 U.S. at 282,126 S.Ct. at 1762. Since the recipient is obligated to assign only damages representing payments for past medical care, and since federal law prohibits a lien on any part of the recipient’s property other than the monies allocated to past medical expenses, no authority exists to prevent the disbursement of other such monies to the plaintiff. To do so would violate Ahlbom.

In this particular case, we do not find that the circuit court’s actions were erroneous in this regard. At the hearing on December 21, 2009, the circuit court ordered that from the total settlement proceeds, the $666,127.07 maximum amount of the two liens asserted by the State of West Virginia and the State of Ohio be placed in escrow pending the court’s determination regarding allocation. The circuit court then ordered that the remainder of the settlement funds be used to fund a special needs trust set up for the plaintiff. C.

Application of Ohio’s Statutory Cap on Non-Economic Loss DHHR next contends that the circuit court erroneously applied Ohio Revised Code § 2315.18(B)(3) in assessing the appropriate amount of noneconomic damages in this ease.

In its order, the circuit court ruled that “Ohio state law applies to E.B.’s calculation of damages” and that “the Court is satisfied that, pursuant to Ohio Revised Statute § 2315.18(b)(3), the Court is free to add its own value, without limitation, as the fact finder in this instance, for E.B.’s non-economic loss.” Applying Ohio Revised Code § 2315.18(b)(3), the circuit court found that E.B.’s damages were $5,000,000. Herein, DHHR argues that Ohio Revised Code § 2315.18(B)(3) only applies to trial courts in Ohio which hear the personal injury action.

DHHR maintains that the circuit court in this ease was not the “trier of fact in a tort action to recover damages for injury or loss to person or property.” Moreover, it also alleges that subsection (F)(1) specifically provides that “[a] court of common pleas has no jurisdiction to enter judgment for noneconomic loss in excess of the limits set forth in this section.” In Ohio, the court of common pleas is the court that has jurisdiction over probate matters and infant

summary proceedings. See Ohio Const, art. IV, § 4. DHHR asserts that if E.B. was an Ohio resident and the infant

summary proceeding was held in the Ohio Common Pleas Court, his non-economie damages would be capped at $350,000. We disagree with DHHR’s contentions for several reasons. First, as the circuit court correctly noted, the underlying action was filed in a federal court in the Southern Distriet of Ohio, and Ohio law was the basis for determining what portion of any judgment or settlement was compensation for medical expenses. See Miles v. Raymond Corp., 612 F.Supp.2d 913, 917 (N.D.Ohio 2009) (district court sitting in diversity jurisdiction applies forum state’s choice-of-law rules). The Ohio case, Morgan v.

Biro Mfg. Co., 15 Ohio St.3d 339, 474 N.E.2d 286 (1984), sets forth the factors to be considered in determining which state’s law should be applied. The court in Morgan, 474 N.E.2d at 289, stated: “When confronted with a choice-of-law issue in a tort action under the Restatement of the Law of Conflicts view, analysis must begin with

Section 146. Pursuant to this section, a presumption is created that the law of the place of the injury controls unless another jurisdiction has a more significant relationship to the lawsuit. To determine the state with the most significant relationship, a court must then proceed to consider the general principles set forth in

Section 145. The factors within this

section are: (1) the place of the injury; (2) the place where the conduct causing the injury occurred; (3) the domicile, residence, nationality, place of incorporation, and place of business of the parties; (4) the place where the relationship between the parties, if any, is located; and (5) any factors under

Section 6 which the court may deem relevant to the litigation. All of these factors are to be evaluated according to their relative importance to the case.” (Emphasis added). Applying the analysis set forth by the Ohio Supreme Court in Morgan, the substantive law of the state of Ohio would have applied to the underlying ease since the injury occurred in Ohio. Although the circuit court in this case correctly found that Ohio substantive law should apply to the claims herein, both the parties and the court applied the incorrect statute regarding compensatory damages for non-economic loss.

Section 2315.18, the statute applied by the circuit court, plainly defines the term “tort action” in subsection (A)(7) as follows: “Tort action” means a civil action for damages for injury or loss to person or property. “Tort action” includes a civil action upon a product liability claim or an asbestos claim. “Tort action” does not include a civil action upon a medical claim, dental claim, optometric claim, or chiropractic claim or a civil action for damages for a breach of contract or another agreement between persons. R.C. § 2315.18(A)(7) (2003) (emphasis added).

Rather, compensatory damages caps for noneconomic loss in medical malpractice actions are governed by Ohio Revised Code § 2323.43, which provides, in pertinent part: (

A) In a civil action upon a medical, dental, optometric, or chiropractic claim to recover damages for injury, death or loss

[…]