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Ansley v. Banner Health Network

Court of Appeals of Arizona, First Division

March 12, 2019

WALTER ANSLEY, et al., Plaintiffs/Appellees/Cross-Appellants,
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.


          JOHNSEN, JUDGE

         ¶1 Banner Health Network and other hospital groups ("the Hospitals") each contracted with the Arizona Health Care Cost Containment System ("AHCCCS") to serve AHCCCS members. The plaintiffs in this case ("the Patients") received settlements or damage awards from third-party tortfeasors for injuries that required treatment at the Hospitals. The Patients sued to enjoin the Hospitals from enforcing liens on their tort recoveries for the balance between the rates the Hospitals agreed to accept from AHCCCS and what the Hospitals would have charged non-AHCCCS patients. We hold that federal law preempts state statutes authorizing the Hospitals to impose and enforce those liens, and affirm the superior court's order enjoining the liens. For reasons set forth below, we also reverse the court's judgment against the Patients on their third-party-beneficiary claim for breach of contract and vacate and remand for further consideration a portion of the attorney's fee award to the Patients.


         ¶2 The Hospitals recorded their liens pursuant to two statutes, Arizona Revised Statutes ("A.R.S.") sections 33-931 (2019) and 36-2903.01(G)(4) (2019).[1] The former allows 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 In their complaint, 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 federal law preempted the Hospitals' liens. This court 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 (2016) ("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, holding that when a hospital has accepted payment from AHCCCS for treating a patient, 42 Code of Federal Regulations ("C.F.R.") § 447.15 (2019) 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) (2019) and -2101(A)(1) (2019).


         A. Introduction.

         ¶7 In our initial opinion in the current appeal, we did not address the superior court's order granting the Patients' claim for a declaratory judgment that federal law preempts the Hospitals' state-law lien rights. We concluded instead that the Patients were entitled to injunctive relief as third-party beneficiaries of the contracts the Hospitals entered with AHCCCS. Those contracts require the Hospitals to comply with applicable federal law. Under that federal law, we held the Hospitals could not enforce liens against the Patients' tort recoveries for the balance between what AHCCCS paid the Hospitals and the Hospitals' customary rates.

         ¶8 The Hospitals moved for reconsideration, arguing for the first time that under Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011), the Patients could not sue as third-party beneficiaries of the contracts because the federal law on which they based their claim affords no private right of action. The Hospitals' argument under Astra requires us to address the issue we deferred in our initial opinion. For that reason, we withdraw that opinion and issue this one in its place.

         B. Federal Law Preempts the Hospitals' Lien Rights.

         ¶9 Federal law may preempt state law by 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 (2019). 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) (2019).[3] The federal Center for Medicare and Medicaid Services ("CMS"), a division of the Department of Health and Human Services ("HHS"), reviews the state's plan to ensure it 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) (2019) (HHS power to withhold funds if changes to state plan do not comply with federal law); 42 C.F.R. § 430.10 (2019) (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 to 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) (2019); see A.R.S. § 36-2946(A) (2019) (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 for treating a plan member, the state Medicaid agency first tries to determine whether a third party (insurer, tortfeasor) may be liable for paying the claim. Olszewski, 30 Cal.4th at 811. When no third party is liable or liability cannot be determined, the state agency pays the hospital its negotiated rate for treating the patient. 42 C.F.R. § 433.139(c). If a third party is implicated, the agency rejects the claim and returns it to the hospital to determine the amount of the third party's liability. 42 C.F.R. § 433.139(b)(1) (2019). In such a case, the agency will pay the hospital only the difference between the rate the agency negotiated with the hospital and what the hospital receives from the third party. Id. If a third party's liability comes to light only after the state agency has paid the hospital's claim, the 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 the state Medicaid agency ultimately bears, Arizona law grants AHCCCS a lien against a patient's recovery from a tortfeasor so that AHCCCS can recover what it has paid to treat the patient. A.R.S. § 36-2915(A) (2019). 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 it bills 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). And if a third party pays the hospital more than AHCCCS's scheduled rate, the hospital is not entitled to additional payment from AHCCCS. 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 Under all these authorities, there is no dispute that 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 enforce a state-law lien against a patient's tort recovery to obtain more for itself than what it agreed to accept from AHCCCS for treating the patient.

         ¶14 The Hospitals' liens are based on two Arizona statutes. As relevant here, A.R.S. § 33-931(A) states that a provider

is entitled to a lien for the care and treatment or transportation of an injured person. The lien shall be for the claimant's customary charges for care and treatment [and] extends to all claims of liability or indemnity, except health insurance and underinsured and uninsured motorist coverage . . ., for damages accruing to the person to whom the services are rendered . . . on account of the injuries that gave rise to the claims and that required the services.

         The other statute specifically applies to hospitals that serve AHCCCS members and states:

Payment received by a hospital from [AHCCCS] . . . is considered payment by [AHCCCS] of [AHCCCS's] liability for the hospital bill. A hospital may collect any unpaid portion of its bill from other third-party payors or in situations covered by [A.R.S. § 33-931].

A.R.S. § 36-2903.01(G)(4).

         ¶15 The Patients argue the Hospitals' liens are invalid under 42 C.F.R. § 447.15, a federal 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, § 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 Hospitals do not dispute that this regulation bars a hospital that has contracted with AHCCCS from billing a patient for the balance between what AHCCCS has paid and the hospital's customary rates. We hold the regulation likewise bars a hospital from imposing a lien on the patient's tort recovery for that balance.

         ¶16 A lien is a means of securing a debt; without a debt, there can be no lien. See Matlow v. Matlow, 89 Ariz. 293, 298 (1961) ("In the absence of an obligation to be secured there can be no lien."). Once a hospital has accepted payment from AHCCCS for treating a patient, the patient owes the hospital nothing beyond a "deductible, coinsurance or copayment." 42 C.F.R. § 447.15. Because the patient does not owe the hospital the balance between what AHCCCS has paid the hospital and the hospital's customary rate, the hospital may not collect that balance by imposing a lien on the patient's property. The patient's property includes his or her recovery from the tortfeasor that caused the injuries requiring treatment. See Samsel v. Allstate Ins. Co., 204 Ariz. 1, 7, ¶ 21 (2002) (noting insured patient's "property interest in his or her tort claim and eventual recovery"); Bowling, 410 F.3d at 317 (once judgment is entered against a tortfeasor or tortfeasor agrees to a settlement, "proceeds are no longer the property of the tortfeasor," but belong to the patient.) Just as the hospital may not seize a patient's car or impose a lien against the patient's home, the hospital likewise may not use state lien laws to seize the patient's tort recovery.

         ¶17 Although this is an issue of first impression in Arizona, each court addressing the issue elsewhere has come to the same conclusion. See Bowling, 410 F.3d at 315 ("By accepting the Medicaid payment, the service provider accepts the terms of the contract - specifically that the Medicaid amount is payment in full."); Taylor v. Louisiana ex rel. Dep't of Health & Hosps., 7 F.Supp.3d 641, 644 (M.D. La. 2013) ("Congress did not intend for providers to receive Medicaid reimbursement for patient care and then intercept funds that the patient would otherwise receive."); Lizer v. Eagle Air Med. Corp., 308 F.Supp.2d 1006, 1009-10 (D. Ariz. 2004) (§ 447.15 preempts right of provider that has accepted payment from AHCCCS to assert lien against patient's tort recovery under A.R.S. § 33-931); Mallo v. Pub. Health Trust of Dade County, Fla., 88 F.Supp.2d 1376, 1387 (S.D. Fla. 2000) (provider may not balance bill by imposing lien on patient's tort settlement; "health care providers are not entitled to prey on an otherwise poor patient's change in economic status"); Olszewski, 30 Cal.4th at 820 (Medicaid statutes and regulations "are unambiguous and limit provider collections from a Medicaid beneficiary to, at most, the cost-sharing charges allowed under the state plan, even when a third party tortfeasor is later found liable for the injuries suffered by that beneficiary"); Pub. Health Trust of Dade County, Fla. v. Dade County Sch. Bd., 693 So.2d 562, 566-67 (Fla. Dist. Ct. App. 1996) (Medicaid preempts Florida regulation allowing provider to balance bill by imposing lien on patient's tort settlement).[4]

         ¶18 The Hospitals argue that "payment in full" under ยง 447.15 only limits a provider's right to payment from the state Medicaid agency or the patient and does not prevent them from intercepting the balance from a third-party tortfeasor. As stated, however, that interpretation is contrary to Arizona law, under which a patient has a ...

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