Jackie Abbott v. Banner Health Network
239 Ariz. 409
| Ariz. | 2016Background
- Several AHCCCS-insured patients were treated by hospitals; AHCCCS paid reduced rates and hospitals recorded statutory liens for the difference between customary charges and AHCCCS payments.
- Patients settled with third-party tortfeasors and paid negotiated amounts to hospitals to obtain lien releases (accord and satisfaction agreements).
- Patients later sued to rescind those settlements, arguing Arizona lien statutes (A.R.S. §§ 33-931, 36-2903.01) are preempted by federal Medicaid law (42 U.S.C. § 1396a(a)(25)(C) and 42 C.F.R. § 447.15) and thus the accords lacked lawful subject matter and consideration.
- Trial court granted hospitals’ Rule 12(b)(6) dismissal on grounds that bona fide disputed settlements (accord and satisfaction) are final regardless of the underlying claim’s merits.
- The court of appeals reversed, holding the accords were unenforceable if the underlying statutory liens were preempted; the Arizona Supreme Court granted review.
- The Arizona Supreme Court assumed (without deciding) the federal preemption argument but held the accords were valid because a bona fide dispute existed when the parties settled.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of accrord and satisfaction given claimed federal preemption of state lien statutes | Arizona lien statutes are preempted by federal Medicaid law, so liens were illegal; accords lack proper subject matter and consideration | Even if preemption plausible, there was a bona fide dispute when parties settled; settlement of a dispute supplies consideration | Accord and satisfaction agreements valid — bona fide dispute rendered settlement supported by consideration and proper subject matter |
| Whether parties’ Provider Participation Agreements barred liens (balance billing) | Provider Participation Agreements required compliance with federal law, thus prohibiting balance billing and liens | Incorporation of federal law in PPAs does not change that the enforceability of liens was unsettled; PPAs don’t negate the bona fide dispute | Rejected as dispositive; PPAs do not negate that parties resolved a bona fide dispute |
| Whether settlement of a disputed claim provides sufficient consideration | Settlement is void if underlying claim is entirely without foundation (no consideration) | Settlement of a honestly disputed claim is valid consideration | Settlement of a bona fide, good-faith dispute supplies adequate consideration even if statute later held preempted |
| Whether Arizona courts should decide preemption to resolve the motion to dismiss | Plaintiffs urged state courts to find statutes preempted now, invalidating accords | Courts should avoid unnecessary constitutional rulings and may assume preemption for analysis | Court assumed preemption for argument’s sake but determined accord validity on grounds of bona fide dispute; avoided definitive preemption ruling |
Key Cases Cited
- Brecht v. Hammons, 35 Ariz. 383 (settlement of bona fide controversy binds parties even if underlying law is later invalidated)
- Vance v. Hammer, 105 Ariz. 317 (elements of accord and satisfaction)
- Best Choice Fund, LLC v. Low & Childers, P.C., 228 Ariz. 502 (definition and treatment of accord and satisfaction)
- Blankenbaker v. Jonovich, 205 Ariz. 383 (recognition of Arizona medical lien statutes)
- LaBombard v. Samaritan Health Sys., 195 Ariz. 543 (enforceability of liens against tort recoveries of AHCCCS patients)
- Spectrum Health Continuing Care Grp. v. Anna Marie Bowling Irrevocable Tr. Dated June 27, 2002, 410 F.3d 304 (6th Cir.) (holding enforcement of lien on Medicaid patient’s settlement proceeds barred by federal law)
- Evanston Hosp. v. Hauck, 1 F.3d 540 (7th Cir.) (Medicaid providers who accept payment cannot thereafter recover balance from patient)