419 P.3d 552
Ariz. Ct. App.2018Background
- Hospitals contracted with Arizona's Medicaid agency (AHCCCS) agreeing to accept AHCCCS payment rates and not bill members for the balance between those rates and customary charges.
- Plaintiffs are a class of AHCCCS members who recovered settlements/awards from third-party tortfeasors and were subject to hospital liens asserting the unpaid balance.
- Hospitals recorded liens under A.R.S. §§ 33-931 and 36-2903.01(G)(4) to recover the difference between customary charges and AHCCCS payments.
- Plaintiffs sued seeking injunctive/declaratory relief, arguing federal Medicaid regulation 42 C.F.R. § 447.15 preempts Arizona lien law and that they are third-party beneficiaries of the provider agreements.
- Superior court enjoined the hospitals from enforcing/filing such liens; trial court denied plaintiffs summary judgment on the breach-of-contract (third-party beneficiary) claim. Plaintiffs appealed and Hospitals cross-appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal Medicaid regulation (§ 447.15) preempts state lien statutes that let hospitals collect the balance from a patient’s tort recovery | § 447.15 prohibits balance billing and thus preempts state statutes allowing liens on a patient’s tort recovery | § 447.15 limits billing to state/ patient payments but does not bar hospitals from recovering from third-party tortfeasors or using liens on tort recoveries | Held: § 447.15 preempts state lien statutes to the extent they allow hospitals to impose liens on a patient’s tort recovery after accepting AHCCCS payment; balance billing via liens is barred |
| Whether plaintiffs are third-party beneficiaries of the Participating Provider Agreements (PPAs) between hospitals and AHCCCS | Plaintiffs say PPAs (and incorporated federal law) were intended to benefit Medicaid beneficiaries and thus patients can enforce the no-balance-billing terms | Hospitals argued plaintiffs lack enforceable third-party beneficiary rights | Held: Plaintiffs are third-party beneficiaries and may enforce PPAs that incorporate the federal prohibition on balance billing |
| Whether federal law (including § 447.15) is incorporated into PPAs and therefore limits hospitals’ contract rights | Federal regulation preexisted the PPAs and contracts include compliance-with-law clauses, so federal rules are incorporated | Hospitals argued plan approval or plan language implicitly allowed liens or that CMS approval meant state statutes were authorized | Held: PPAs incorporate governing federal law (including § 447.15); CMS plan approval does not authorize state statutes that conflict with federal regulation |
| Scope of relief and fees: whether injunction/discharge of existing liens and fee award were proper and/or overbroad | Plaintiffs sought discharge of recorded liens, injunction against future liens, and attorney’s fees | Hospitals argued injunction was too broad (could bar collection for services AHCCCS did not fund) and challenged fee award components | Held: Injunction and discharge of existing liens affirmed as proper for class; scope may be modified if future concrete conflicts arise. Fee award remanded for reconsideration limited to fees tied to claims later dismissed in Abbott group |
Key Cases Cited
- City of New York v. F.C.C., 486 U.S. 57 (1988) (federal regulations preempt conflicting state law)
- Douglas v. Independent Living Ctr. of Southern California, 565 U.S. 606 (2012) (Medicaid is a cooperative federal-state program; state must comply with federal requirements)
- Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378 (2015) (discusses limits on private causes of action under Supremacy Clause context)
- Bowling v. Spectrum Health Continuing Care Group, 410 F.3d 304 (6th Cir. 2005) (provider accepting Medicaid payment accepts that amount as payment in full; cannot intercept patient tort recovery)
- Olszewski v. Scripps Health, 30 Cal. 4th 798 (2003) (Medicaid statutes/regulations limit provider collections to cost-sharing; providers may not collect additional amounts from beneficiaries even when a third party later pays)
- Evanston Hosp. v. Hauck, 1 F.3d 540 (7th Cir. 1993) (hospital could not return Medicaid payment and then assert lien on patient’s tort recovery)