437 P.3d 899
Ariz. Ct. App.2019Background
- Banner Health Network and other hospitals contracted with AHCCCS (Arizona Medicaid) to treat Medicaid members; hospitals later recorded liens under A.R.S. §§ 33-931 and 36-2903.01(G)(4) against patients' tort recoveries to collect the difference between customary charges and AHCCCS payments (balance billing).
- Plaintiffs (patients) challenged those liens, arguing federal Medicaid law and regulation (42 C.F.R. § 447.15) preempt state statutes and bar providers from collecting balances or liening tort recoveries after accepting AHCCCS payment.
- The superior court granted class certification, held § 447.15 preempted the Arizona lien statutes as applied, and enjoined the hospitals from filing/ enforcing such liens; it denied patient relief on a third-party-beneficiary contract claim but awarded attorney’s fees to plaintiffs.
- Hospitals appealed the preemption injunction and argued plaintiffs could not privately enforce federal Medicaid law under Astra/Murphy/Armstrong principles; plaintiffs cross-appealed dismissal of their third-party-beneficiary claim under the Participating Provider Agreements (PPAs).
- The Court of Appeals held § 447.15 preempts state statutes to the extent they permit hospitals to lien a Medicaid patient’s tort recovery for amounts beyond AHCCCS payments, and that patients are third-party beneficiaries of PPAs incorporating federal law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 42 C.F.R. § 447.15 preempts Arizona lien statutes that allow hospitals to seize Medicaid patients' tort recoveries for balance billing | § 447.15 makes Medicaid payment "payment in full," so hospitals cannot collect or lien the balance from a patient’s tort recovery | § 447.15 limits only relationships with the state/patient and does not bar hospitals from collecting from third-party tortfeasors or from enforcing state lien statutes | Held: Preemption — § 447.15 preempts A.R.S. §§ 33-931 and 36-2903.01(G)(4) insofar as they allow liens on tort recoveries for the balance beyond AHCCCS payment |
| Whether plaintiffs may seek injunctive/declaratory relief enforcing preemption (or must proceed only via administrative/agency remedies) | Plaintiffs may sue to enjoin hospitals as private actors enforcing state-law liens preempted by federal law; Armstrong does not bar such equitable relief here | Hospitals: Armstrong and other doctrines displace private equitable relief; enforcement should be left to HHS/CMS or agency review | Held: Armstrong does not bar private equitable relief against non-state actors enforcing preempted state law; injunction affirmed |
| Whether patients are third-party beneficiaries of the hospitals’ PPAs and can sue for breach (i.e., enforce incorporated federal law) | PPAs incorporate federal law (including § 447.15); patients are intended, direct beneficiaries and may enforce the contract | Hospitals: Astra and related authorities bar private enforcement of federal provisions via third-party-beneficiary claims when federal law lacks a private right of action | Held: Patients are third-party beneficiaries; PPAs required compliance with federal law, so hospitals breached by imposing invalid liens; dismissal on that claim reversed/remanded |
| Scope and remedies (breadth of injunction and attorney fees) | Injunction should bar liens taken after AHCCCS payment; plaintiffs seek fees under private attorney general and § 12-341.01 | Hospitals argue injunction is overbroad re: non-AHCCCS services and fees award should be reduced or remanded for § 12-341.01 analysis | Held: Injunction affirmed as to liens taken after AHCCCS payment; court remanded only to reconsider $60,442 of fees tied to a separately decided Abbott group; award otherwise affirmed and plaintiffs awarded appellate fees under § 12-341.01 contingent on procedure |
Key Cases Cited
- Abbott v. Banner Health Network, 239 Ariz. 409 (Ariz. 2016) (state supreme court decision addressing settlements and earlier appellate ruling)
- Armstrong v. Exceptional Child Center, Inc., 135 S. Ct. 1378 (U.S. 2015) (private equitable relief under Medicaid may be precluded where Congress provided exclusive administrative remedy)
- Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (U.S. 2011) (limitations on private enforcement of federal statutes via third-party-beneficiary contract claims)
- City of New York v. F.C.C., 486 U.S. 57 (U.S. 1988) (federal regulations preempt inconsistent state law)
- Spectrum Health Continuing Care Group v. Bowling, 410 F.3d 304 (6th Cir. 2005) (holding provider acceptance of Medicaid payment precludes collection from patient or intercepting patient’s tort recovery)
- Olszewski v. Scripps Health, 30 Cal. 4th 798 (Cal. 2003) (Medicaid regulations limit provider collections from beneficiaries to permitted cost-sharing, even when third-party recovery occurs)