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Ansley v. Banner Health Network

Court of Appeals of Arizona, First Division

April 3, 2018

WALTER ANSLEY, et al., Plaintiffs/Appellees/Cross-Appellants,
v.
BANNER HEALTH NETWORK, et al., Defendants/Appellants/Cross-Appellees.

          Appeal from the Superior Court in Maricopa County No. CV2012-007665 The Honorable J. Richard Gama, Judge, Retired The Honorable Dawn M. Bergin, Judge

          Levenbaum Trachtenberg, PLC, Phoenix By Geoffrey M. Trachtenberg, Justin Henry Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

          The Entrekin Law Firm, Phoenix By B. Lance Entrekin Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

          Gammage & Burnham, PLC, Phoenix By Richard B. Burnham, Cameron C. Artigue, Christopher L. Hering Counsel for Defendants/Appellants/Cross-Appellees

          Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in which Judge Kent E. Cattani and Judge Jennifer M. Perkins joined.

          OPINION

          JOHNSEN, Judge

         ¶1 Banner Health Network and several other hospitals ("the Hospitals") separately contracted with the Arizona Health Care Cost Containment System ("AHCCCS") to serve AHCCCS members. In those contracts, the Hospitals agreed to accept payment from AHCCCS at rates below their customary charges and not to bill members for the balance. The plaintiffs in this case are a class of AHCCCS members ("the Patients") who received settlements or damage awards from third-party tortfeasors for the injuries that required medical treatment. The Patients sued to enjoin the Hospitals from enforcing liens on their tort recoveries for the balance between what AHCCCS paid and the Hospitals' customary charges. We hold that the Hospitals' contracts with AHCCCS incorporated federal law, which bars the Hospitals from enforcing the liens. Accordingly, we affirm the injunction the superior court entered and direct entry of judgment in favor of the Patients on their third-party claim for breach of contract.

         FACTS AND PROCEDURAL BACKGROUND

         ¶2 The Hospitals recorded their liens pursuant to two statutes, Arizona Revised Statutes ("A.R.S.") sections 33-931 (2018) and 36-2903.01(G)(4) (2018).[1] The former is a general statute allowing a health-care provider to file a lien for its customary charges against a patient's tort recovery. The latter specifically applies when a hospital has served an AHCCCS member and allows that hospital to "collect any unpaid portion of its bill from other third-party payors or in situations" in which the general medical-lien statute applies.

         ¶3 The Patients alleged federal Medicaid law preempts the Arizona lien statutes in cases such as theirs, and sought an injunction barring the Hospitals from recording liens on their tort recoveries. The Patients argued the liens constitute impermissible "balance billing, " a term describing a health-care provider's effort to collect from a patient "the difference in the amount paid by Medicaid, or a state plan like AHCCCS, and the amount" the provider typically charges. Abbott v. Banner Health Network, 239 Ariz. 409, 412, ¶ 9 (2016).

         ¶4 Early in the litigation, the superior court dismissed a group of plaintiffs who had settled their lien claims with the Hospitals and entered partial final judgment as to those plaintiffs pursuant to Arizona Rule of Civil Procedure 54(b). Those plaintiffs appealed, arguing their settlements lacked consideration because the Hospitals' liens were preempted by federal law. We accepted that argument, Abbott v. Banner Health Network, 236 Ariz. 436, 446, ¶ 30 (App. 2014) (" Abbott I "), but the supreme court reversed, Abbott, 239 Ariz. 409 ("Abbott II "). The supreme court ruled the settlements were valid and made "fairly and in good faith" because the validity of the Hospitals' lien rights was not settled under Arizona law. Abbott II, 239 Ariz. at 413, 414, 415, ¶¶ 12, 18, 20.

         ¶5 Meanwhile, the superior court certified the remaining plaintiffs as a class, and both sides moved for summary judgment on the preemption issue. The superior court ruled in favor of the Patients on their claim for a declaratory judgment under the Supremacy Clause that when a hospital has accepted payment from AHCCCS for treating a patient, a federal regulation, 42 C.F.R. § 447.15 (2018), preempts the hospital's state-law right to a lien on the patient's tort recovery for the balance between what AHCCCS paid and the hospital's customary charges. The court then enjoined the Hospitals from "filing or asserting any lien or claim against a patient's personal injury recovery, after having received any payment from AHCCCS for the same patient's care." The court granted summary judgment to the Hospitals, however, on the Patients' third-party-beneficiary claim, which alleged the Hospitals breached their contracts with AHCCCS by imposing the liens. Finally, the superior court awarded attorney's fees to the Patients under the private attorney general doctrine and denied both sides' motions for new trial.

         ¶6 The Hospitals appealed the preemption ruling and injunction, and the Patients cross-appealed the judgment against them on their contract claim. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution and A.R.S. §§ 12-120.21(A)(1) (2018) and -2101(A)(1) (2018).

         DISCUSSION

         A. General Principles.

         ¶7 A superior court "shall grant summary judgment if the moving party shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(a); see also Orme School v. Reeves, 166 Ariz. 301, 309 (1990). We review a superior court's grant of summary judgment de novo, viewing the evidence and reasonable inferences in the light most favorable to the non-moving party. Sanders v. Alger, 242 Ariz. 246, 248, ¶ 2 (2017).

         ¶8 The Hospitals argue the Patients' declaratory-judgment claim under the Supremacy Clause fails because the Supremacy Clause does not afford a private right of action. See Armstrong v. Exceptional Child Ctr., Inc., 135 S.Ct. 1378, 1383-84 (2015). We need not address that issue, because we conclude the superior court erred in denying summary judgment to the Patients on their contract claim. In addressing that claim, we conclude that (1) federal law preempts the Hospitals' rights under Arizona law to impose liens on the Patients' tort recoveries to recover the balance between what AHCCCS paid the Hospitals and the Hospitals' customary rates, (2) the Patients are third-party beneficiaries of the contracts the Hospitals entered with AHCCCS, and (3) those contracts require the Hospitals to comply with the preemptive federal law.

         B. Federal Law Preempts the Hospitals' Lien Rights.

         ¶9 Federal law may preempt state law in one of three ways: Express preemption, field preemption or conflict preemption. Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 698-99 (1984); White Mtn. Health Ctr., Inc. v. Maricopa County, 241 Ariz. 230, 239-40, ¶ 33 (App. 2016).[2] The issue here -conflict preemption - arises when state law stands as an obstacle to the achievement of Congress's full purpose, or when compliance with both federal and state laws is impossible. Crisp, 467 U.S. at 699; White Mtn., 241 Ariz. at 240, ¶ 33. A federal regulation has the same preemptive effect as a federal statute. Crisp, 467 U.S. at 699. Thus, a federal regulation may render unenforceable a state law that is otherwise consistent with federal law. City of New York v. F.C.C., 486 U.S. 57, 63-64 (1988).

         ¶10 Medicaid is a "cooperative federal-state program" that pays for health care for the needy and the disabled. Douglas v. Indep. Living Ctr. of So. Calif, 565 U.S. 606, 610 (2012); 42 U.S.C. § 1396-1 (2018). A state that chooses to participate must "comply with the Medicaid Act and its implementing regulations." Rehabilitation Ass'n of Va., Inc. v. Kozlowski, 42 F.3d 1444, 1447 (4th Cir. 1994). To receive federal funds under the program, a state must create a detailed plan that, inter alia, specifies "the nature and scope" of the medical services it will cover. Douglas, 565 U.S. at 610; see also 42 U.S.C. § 1396a(a) (2018). The plan must be approved by the federal Center for Medicare and Medicaid Services ("CMS"), a division of the Department of Health and Human Services ("HHS"), which determines whether the plan complies with federal Medicaid statutes and regulations. See 42 U.S.C. § 1396a(b) (plan approval by HHS secretary); 42 U.S.C. § 1316(a) (2018) (granting HHS power to withhold funds if changes to state plan do not comply with federal law); 42 C.F.R. § 430.10 (2018) (describing contents of state plan); see also Spectrum Health Continuing Care Group v. Bowling, 410 F.3d 304, 313 (6th Cir. 2005) ("state's plan must comply with federal statutory and regulatory standards").

         ¶11 A fundamental principle of the program is that "Medicaid is essentially a payer of last resort." Kozlowski, 42 F.3d at 1447. Toward that end, patients must assign the state Medicaid agency their rights "to any payment from a third party that has a legal liability to pay for care and services available under the plan." 42 U.S.C. § 1396k(a)(1)(A) (2018); see A.R.S. § 36-2946(A) (2018) (patients must assign "all types of medical benefits"); Olszewski v. Scripps Health, 30 Cal.4th 798, 811 (2003). Accordingly, when a hospital submits a claim, the state Medicaid agency first tries to determine whether a third party (insurer, tortfeasor) may be liable for paying the hospital's fees. Olszewski, 30 Cal.4th at 811. If a third party is implicated, the agency rejects the claim and requires the hospital to determine the amount of the third party's liability. 42 C.F.R. § 433.139(b)(1) (2018). Once the amount of any third-party liability is established, the agency will pay the hospital the difference between the rate it has negotiated with the hospital and what the hospital will receive from the third party. Id. When third-party liability is unavailable or unknown, the state agency pays the hospital its negotiated rate for treating the patient. 42 C.F.R. § 433.139(c). If a third party's liability comes to light afterward, the state agency must seek reimbursement for itself from the third party when it is cost-effective to do so. 42 C.F.R. § 433.139(d).

         ¶12 Consistent with these rules aimed at limiting the costs that ultimately must be borne by a state Medicaid agency, Arizona law grants AHCCCS the right to a lien on a patient's claim against a tortfeasor to recover what AHCCCS pays to treat the patient. A.R.S. § 36-2915(A) (2018). Moreover, Arizona requires that a hospital that serves an AHCCCS member must seek payment from any liable third party (insurer, worker's compensation carrier, tortfeasor) before billing AHCCCS. See AHCCCS, Fee-for-Service Provider Manual at 9-1 (Mar. 2014 rev.) ("AHCCCS has liability for payment of benefits after Medicare and all other first- and third-party payer benefits have been paid. Providers must determine the extent of the first- and third-party coverage . . . prior to billing AHCCCS."); see also Arizona Administrative Code ("A.A.C.") R9-22-1005 (requiring providers to identify and notify AHCCCS of potential sources of first- and third-party liability). If a third party pays the hospital more than AHCCCS's scheduled rate, AHCCCS will pay the hospital nothing. A.A.C. R9-22-1003 (AHCCCS pays no more than the difference between the scheduled rate "and the amount of the third-party liability"); AHCCCS, Fee-for-Service Provider Manual at 9-2 (Mar. 2014 rev.).

         ¶13 There is no dispute that under applicable federal and state law, if a tortfeasor's liability becomes apparent after AHCCCS has paid a hospital, AHCCCS may demand reimbursement from the tortfeasor. See 42 U.S.C. § 1396a(a)(25)(B). The issue here is whether federal law allows a hospital that has accepted payment from AHCCCS to use state lien statutes to recover additional monies from the tortfeasor.

         ¶14 The Patients argue the Hospitals' liens are invalid under 42 C.F.R. § 447.15, a regulation issued in 1980. See 45 Fed. Reg. 24889 (Apr. 11, 1980). Federal regulations dictate the relationship between a state Medicaid agency and the hospitals with which it contracts. As applicable here, ยง 447.15 mandates that a state may contract only with providers that agree to "accept, as payment in full, the amounts paid by the agency plus any deductible, coinsurance or copayment required by the plan to be paid by the individual." The regulation plainly bars a hospital that has contracted with AHCCCS from billing a patient for the balance between what AHCCCS ...


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