341 P.3d 478
Ariz. Ct. App.2014Background
- Hospitals treated AHCCCS (Arizona Medicaid) patients and accepted AHCCCS payments as payment in full per provider participation agreements and AHCCCS rules.
- Arizona statutes (A.R.S. §§ 33-931, 36-2903.01) permit hospitals to record liens against third-party recoveries for unpaid portions of billed charges.
- Patients obtained third-party personal-injury recoveries and, to access settlement funds, executed releases/accord-and-satisfaction agreements with hospitals that accepted reduced payments in exchange for lien releases.
- Patients sued in a putative class action, alleging federal Medicaid law preempts Arizona statutes that allow hospitals to balance-bill or enforce liens on third-party recoveries, and that accords based on such liens are unenforceable.
- The superior court dismissed the plaintiffs’ claims on accord-and-satisfaction grounds; the court of appeals reversed, holding federal Medicaid law preempts state lien statutes and accords premised on those liens are void.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal Medicaid law preempts Arizona statutes permitting hospital liens on third-party recoveries | Liens violate 42 U.S.C. § 1396a(a)(25)(C) and 42 C.F.R. § 447.15; Medicaid payment is payment in full so state lien law is preempted | State lien statutes authorize collection from third-party recoveries; state law governs and liens valid | Preempted: federal Medicaid law bars liens on patient recoveries after provider billed and accepted Medicaid payment; state statutes unenforceable to that extent |
| Whether accord and satisfaction agreements releasing those liens are enforceable | Accords are void because they lack lawful subject matter and valid consideration when based on federally prohibited liens | Accords settled disputes in good faith and are enforceable regardless of underlying merits | Void: accords lack proper subject matter and consideration if founded on liens prohibited by federal law; accords cannot be used to enforce an illegal claim |
| Whether a good-faith dispute about enforceability saves the accords | Hospitals waived any good-faith dispute by contractually agreeing to follow federal law and accept Medicaid as payment in full | Hospitals: settlements of bona fide disputes are binding even if underlying claim later found invalid | Rejected: no bona fide dispute when hospitals expressly agreed to abide by federal law; accord cannot resurrect an expressly prohibited claim |
| Whether plaintiffs are entitled to appellate attorneys’ fees | Plaintiffs sought fees under A.R.S. § 12-341.01(A) for successfully attacking contract-based accords | Hospitals argued fee award premature | Awarded: plaintiffs entitled to reasonable attorneys’ fees on appeal under § 12-341.01(A) for challenging enforceability of the accords |
Key Cases Cited
- Spectrum Health Continuing Care Grp. v. Anna Marie Bowling Irrevocable Trust, 410 F.3d 304 (6th Cir.) (Medicaid payment as payment in full precludes balance billing and liens on third-party recoveries)
- Miller v. Gorski Wladyslaw Estate, 547 F.3d 273 (5th Cir.) (limitations on provider recovery when provider accepts Medicaid payments)
- Olszewski v. Scripps Health, 30 Cal.4th 798 (Cal. 2003) (state lien statutes preempted to the extent they permit recovery beyond Medicaid payment)
- Public Health Trust of Dade Cnty. v. Dade Cnty. Sch. Bd., 693 So.2d 562 (Fla. Dist. Ct. App.) (Medicaid preemption defeats provider lien-based claims)
- LaBombard v. Samaritan Health Sys., 195 Ariz. 543 (Ariz. Ct. App.) (Arizona precedent addressing hospital liens though not resolving federal-preemption issue)
- Brecht v. Hammons, 35 Ariz. 383 (Ariz. 1929) (settlement of bona fide disputes is binding; inapplicable where underlying claim is barred by statute)