SPECTRUM HEALTH CONTINUING CARE GROUP, Plaintiff-Appellee/Cross-Appellant, v. ANNA MARIE BOWLING IRREVOCABLE TRUST DATED JUNE 27, 2002, Defendant-Appellant/Cross-Appellee.
Nos. 04-1486, 04-1541
United States Court of Appeals, Sixth Circuit.
Argued: April 20, 2005. Decided and Filed: June 14, 2005.
410 F.3d 304
MOORE, Circuit Judge.
Plaintiffs also challenge the district court‘s grant of Rance Aguirre‘s motion for Rule 11 sanctions. The district court indicated that it granted the motion because plaintiffs’ evidence fell “far short” of establishing Rance‘s liability. Notably, the district court limited the award to the amount of the costs, expenses and attorney fees incurred in presenting the motion for sanctions. Later, the court ruled that the sanctions award was to be paid by plaintiffs’ counsel.
“The test for the imposition of Rule 11 sanctions in this circuit is whether the individual‘s conduct was reasonable under the circumstances.” Mihalik v. Pro Arts, Inc., 851 F.2d 790, 792 (6th Cir.1988) (citation omitted). We review the district court‘s imposition of Rule 11 sanctions for abuse of discretion. Id. at 792-93. “Although the reasonableness test presents a mixed question of law and fact, a district court‘s decision regarding Rule 11 sanctions is reviewed under an abuse of discretion standard because of the district court‘s more intimate knowledge of the facts of these cases.” Id. (citations omitted).
We find no abuse of discretion in the district court‘s very limited sanctions award. In our view, the district court properly exercised its discretion in determining that, at least by the close of discovery, it should have been clear to plaintiffs that the evidence failed to support any type of claim against Rance Aguirre, and that plaintiffs’ counsel should bear all costs, expenses and fees incurred by Rance in the preparation of the sanctions motion.
C. Motion to Strike
Finally, plaintiffs challenge the district court‘s grant of Rance Aguirre‘s motion to strike the affidavit of their purported expert witness, a certified public accountant. Generally, “[w]e review the decision to grant or deny a motion to strike for an abuse of discretion, and decisions that are reasonable, that is, not arbitrary, will not be overturned.” Seay v. Tenn. Valley Auth., 339 F.3d 454, 480 (6th Cir.2003). In his affidavit, the witness testified primarily in support of plaintiffs’ contention concerning the company‘s supposed undercapitalization. Even if the affidavit had been admitted, however, it would not alter our conclusion that defendants cannot be held liable under any alter ego or veil piercing theory. Accordingly, even assuming that the district court did abuse its discretion in striking the affidavit, such abuse would constitute harmless error.
III.
For these reasons, the district court‘s rulings are AFFIRMED.
Kristi R. Gauthier, Wayne J. Miller, Miller, Shpiece & Tischler, Southfield, Michigan, for Appellee.
Before: NELSON and MOORE, Circuit Judges; RESTANI, Judge.*
MOORE, J., delivered the opinion of the court, in which RESTANI, J., joined.
NELSON, J. (pp. 321-25), delivered a separate opinion concurring in part and dissenting in part.
OPINION
MOORE, Circuit Judge.
Defendant-Appellant, Anna Marie Bowling Irrevocable Trust Dated June 27, 2002 (the “Trust“), appeals the district court‘s grant of summary judgment in favor of Plaintiff-Appellee, Spectrum Health Continuing Care Group (“Spectrum“). The district court found that Spectrum‘s lien on the proceeds of a malpractice settlement was valid and enforceable, despite the fact that Spectrum already had accepted Medicaid payments for the care provided to Anna Marie Bowling (“Bowling“). In its appeal, the Trust argues that the lien violates Medicaid‘s balance-billing prohibition, and therefore is invalid. In its cross-appeal, Spectrum argues that the issue of the validity of the lien is precluded by two prior state-court judgments approving the malpractice settlement. Upon review, we conclude that the issue is not precluded by either of the state-court judgments, and that the lien on the settlement is prohibit
I. BACKGROUND
The material facts in this case are undisputed. On November 17, 1997, while undergoing surgery in a New York hospital, Bowling suffered a severe anoxic brain injury due to the improper administration of anesthesia. As a result of her injury, Bowling has little or no control of her limbs and is unable to speak. She requires twenty-four hour assistance with all daily activities. Bowling filed a medical-malpractice suit against the anesthesiologist and the hospital in the State of New York through her trial attorney, Joseph Dubinsky (“Dubinsky“), with Linda Ershow-Levenberg (“Ershow-Levenberg“) serving as guardian ad litem in the suit.
Following the injury, Bowling sought long-term care in Grand Rapids, Michigan, where her sister resides. Spectrum is the parent company of a group of providers of sub-acute rehabilitation and nursing services, including Spectrum Health Continuing Care Center, formerly known as Grand Valley Health Center (“GVHC“). Spectrum agreed to admit Bowling to GVHC on the condition that Bowling‘s representatives provide written acknowledgment of a lien on the proceeds of a settlement or verdict in the malpractice suit to cover her medical costs. On November 24, 1998, Dubinksy sent a letter to Spectrum‘s counsel acknowledging “a lien on the proceeds owed Anna Bowling and/or her estate obtained either by settlement or verdict in the [malpractice] lawsuit.” Joint Appendix (“J.A.“) at 18 (Letter from Dubinsky to William Miller I (Nov. 24, 1998)). Ershow-Levenberg, Bowling‘s guardian ad litem in the malpractice suit, also signed the letter acknowledging the lien.
Bowling was admitted to GVHC in December 1998, where she remained until September 23, 2002. In April 1999, she became eligible to receive benefits from Michigan‘s Medicaid program. “Anticipating delay in realizing its lien on the medical malpractice lawsuit,” Spectrum applied for and accepted Medicaid payments for Bowling‘s care. J.A. at 14 (Compl. at 3). Specifically, GVHC received $101,021.86 from Medicaid for services provided to Bowling from May 1999 through September 2002, along with monthly Medicaid co-payments from Bowling‘s representatives of $45,233.87. The total customary cost of Spectrum‘s services provided to Bowling during the time she resided at GVHC was $639,594.67, leaving a shortfall of approximately $538,572.81.1 J.A. at 20-21 (Spectrum Chart of Monthly Charges).
On July 18, 2002, the parties in Bowling‘s medical-malpractice suit reached a settlement agreement. That same day, the Probate Court of Kent County, Michigan, entered a protective order approving the settlement and establishing the Trust for Bowling‘s benefit. On October 9, 2002, the Supreme Court of the State of New York approved the settlement in the malpractice suit which included “[p]ayment of Anna Bowling‘s outstanding healthcare
Co-trustees of the Trust later objected to the payment of funds from the settlement proceeds to Spectrum on the ground that federal and state law prohibit a service provider from receiving additional money for services which have already been paid for by Medicaid. The parties agreed to place the disputed amount in an interest-bearing trust account pending resolution of the issue. On May 5, 2003, Spectrum filed a declaratory judgment action against the Trust in the Circuit Court of Kent County, Michigan, seeking to clarify its right to enforce the lien. Pursuant to
On February 20, 2004, the district court issued its opinion. First, the court held that the issue of the validity of the lien was not precluded by either of the state-court decisions approving the malpractice settlement. Under both Michigan and New York law, the court found that the requirements for issue preclusion had not been met. Second, the court held that under federal and state Medicaid law, the lien was valid and enforceable. The district court held that the additional money was recovered not from the beneficiary, but rather from the third-party tortfeasor, and therefore the recovery was not prohibited by the balance-billing prohibition. Moreover, the lien only attached to the portion of the award specifically allocated for medical expenses, and therefore did not interfere with Bowling‘s personal property. As a result, the district court entered summary judgment in favor of Spectrum. Both parties appeal from the district court‘s ruling.
II. ANALYSIS
A. Standard of Review
“We review the district court‘s summary judgment determinations under
We first consider whether summary judgment in Spectrum‘s favor is proper on the ground that the doctrine of issue preclusion bars the Trust‘s declaratory judgment claim. Because we conclude that Spectrum has failed to meet the requirements for issue preclusion under both Michigan and New York law, we affirm the district court‘s ruling on this ground.
The Full Faith and Credit Act mandates that “judicial proceedings ... shall have the same full faith and credit in every court within the United States ... as they have by law or usage in the courts of such State ... from which they are taken.”
1. Issue Preclusion Under Michigan Law
Under Michigan law, issue preclusion, known as collateral estoppel, “precludes relitigation of an issue in a subsequent, different cause of action between the same parties where the prior proceeding culminated in a valid, final judgment and the issue was ... actually litigated, and ... necessarily determined.” People v. Gates, 434 Mich. 146, 452 N.W.2d 627, 630 (1990). “[T]he party asserting preclusion bears the burden of proof.” United States v. Dominguez, 359 F.3d 839, 842 (6th Cir.), cert. denied, --- U.S. ----, 125 S.Ct. 261, 160 L.Ed.2d 78 (2004). Therefore, to prove preclusion, Spectrum must demonstrate that:
- the parties in both proceedings are the same or in privity,
- there was a valid, final judgment in the first proceeding,
- the same issue was actually litigated in the first proceeding,
- that issue was necessary to the judgment, and
- the party against whom preclusion is asserted (or its privy) had a full and fair opportunity to litigate the issue.
Id. at 630-31. In this case, the district court found that preclusion was inappropriate because Spectrum failed to meet several of the preclusion requirements. Upon review, we conclude that Spectrum has not satisfied any of the last three requirements, and therefore, is not entitled to preclusion under Michigan law on this issue.
First, Michigan courts have held that “[a] question has not been actually litigated until put into issue by the pleadings, submitted to the trier of fact for a determination, and thereafter determined.” VanDeventer v. Mich. Nat‘l Bank, 172 Mich.App. 456, 432 N.W.2d 338, 341 (1988). The courts have held that an issue which was uncontested or indirectly referenced in the prior judgment was not actually litigated for collateral estoppel purposes. See, e.g., Lichon v. Am. Universal Ins. Co., 435 Mich. 408, 459 N.W.2d 288, 295 (1990) (holding that an underlying issue was not actually litigated in a prior criminal trial where the party entered plea of nolo contendere); Cogan v. Cogan, 149 Mich.App. 375, 385 N.W.2d 793, 795 (1986) (holding that issue of paternity was not
Applying those principles to this case, we conclude that Spectrum has failed to demonstrate that the validity of its lien was actually litigated in the Michigan proceeding. Bowling was simply seeking a protective order to certify that the settlement was in her best interest and to establish the Trust. While approval of the whole settlement necessarily encompasses Spectrum‘s lien, there is no evidence in the record that the lien was ever specifically challenged or Medicaid‘s balance-billing prohibition ever raised. Spectrum‘s lien was never mentioned specifically in the order. The court only referenced the lien as part of the collective amount owed, noting that the settlement “provides for payment of all liens associated with [Bowling‘s] medical care;” and that the settlement proceeds should be paid to the Trust “after satisfaction of the existing liens.” J.A. at 99-100 (Mich. Prob. Ct. Order at 1-2). Therefore, because the specific issue was never put forth and determined by the trier of fact, we conclude that it was not actually litigated in the Michigan proceeding.
Furthermore, as the district court noted, the validity of Spectrum‘s lien was unnecessary to the determination that the malpractice settlement was in Bowling‘s best interest or to the establishment of the Trust. The probate court evaluated the settlement pursuant to Michigan Court Rule 2.420, which requires prior court approval for settlements involving legally incapacitated individuals. The comment to the rule lists factors that a court should consider in reaching its decision, but does not include the validity of any liens on the settlement. See Mich. Ct. R. 2.420 Cmt. to 2002 Am. Moreover, in reaching its decision, the Michigan court assumed that the Spectrum lien was enforceable, yet still found the settlement to be in Bowling‘s best interest. If the lien was unenforceable and Spectrum was limited to the Medicaid payments, it stands to reason that the benefits of the settlement agreement to Bowling would not be diminished because the Trust would, at the least, receive the amounts specifically allocated to it. Therefore, we conclude that the enforcement of Spectrum‘s lien was not necessary to the judgment in the Michigan proceeding.
Finally, we conclude that the Trust did not have a full and fair opportunity to litigate the issue in the Michigan court. The issue of the enforcement of the lien was never raised before the probate court and was unrelated to the court‘s determination. Moreover, Spectrum was not a party to the action nor in privity with a party to the action in the Michigan court.2 Therefore, the Trust never had a full and fair opportunity to challenge the enforcement of the lien in the Michigan proceeding.
Because Spectrum has failed to satisfy several of the collateral estoppel requirements under Michigan law, we conclude that the issue of the validity of the lien is not precluded by the Michigan court judgment.
2. Issue Preclusion Under New York Law
Under New York law, “[t]he doctrine of collateral estoppel precludes a par
First, Spectrum cannot demonstrate that the issue of approval of the settlement agreement in the New York proceeding is identical to the enforceability issue to be adjudicated in this case. New York courts have held that “[i]f the issue has not been litigated, there is no identity of issues between the present action and the prior determination.” Kaufman, 492 N.Y.S.2d 584, 482 N.E.2d at 68. Thus, to be given preclusive effect, the issue must have been “actually litigated, squarely addressed and specifically decided.” Ross v. Med. Liab. Mut. Ins., 75 N.Y.2d 825, 552 N.Y.S.2d 559, 551 N.E.2d 1237, 1237 (1990). “An issue is not actually litigated if, for example, there has been a default, a confession of liability, a failure to place a matter in issue by proper pleading or even because of a stipulation.” Kaufman, 492 N.Y.S.2d 584, 482 N.E.2d at 68 (emphasis added). Thus, where an issue is uncontested, such as an underlying point in a settlement agreement, the issue was not actually litigated in the prior proceeding and therefore is not precluded from a subsequent one. Id.; see also Arizona v. California, 530 U.S. 392, 414, 120 S.Ct. 2304, 147 L.Ed.2d 374 (2000) (noting “that consent agreements ordinarily are intended to preclude any further litigation on the claim presented but are not intended to preclude further litigation on any of the issues presented” (internal quotation omitted)).
In this case, the matter before the New York state court was judicial approval of the settlement in the medical-malpractice suit. See N.Y. C.P.L.R. 1207 (requiring prior judicial approval for settlements involving legally incapacitated individuals). The issue to be resolved was the fairness of the overall settlement to Bowling, not the validity of any of the underlying liens. The New York court order approved the settlement agreement including the payment to Spectrum. See J.A. at 91 (N.Y. Sup.Ct. Order at 6). Specifically, the court resolved the issue of whether a payment of $575,000 out of the total settlement proceeds of $4.57 million was in Bowling‘s best interest. Because Spectrum‘s lien was never contested or questioned in that proceeding, the parties effectively stipulated to its validity for purposes of approving the settlement agreement. As a result, the issue was
Furthermore, the Trust lacked a full and fair opportunity to litigate the point. New York courts have held that a party did not have a full and fair opportunity where the point was not the focus of the prior proceeding, but only indirectly related to the material issues. Liddle, Robinson & Shoemaker v. Shoemaker, 309 A.D.2d 688, 768 N.Y.S.2d. 183, 187 (N.Y.App.Div.2003). As we stated above, the focus of the New York proceeding was the fairness of the $4.57 million settlement, not the validity of the individual liens. Moreover, Spectrum was neither a party nor in privity with a party to the proceeding. Therefore, we conclude the Trust did not have a full and fair opportunity to litigate the issue.
Because the issue of the validity of the Spectrum lien was not identical to the approval of the settlement and the Trust did not have a full and fair opportunity to litigate the point, we conclude that under New York law, collateral estoppel is inappropriate in this case.
C. Balance-Billing Prohibition
Having determined that neither of the two state-court judgments preclude this action, we turn to the merits of the Trust‘s claim. In its motion for summary judgment, the Trust argues that Spectrum‘s lien on the settlement proceeds violates Medicaid‘s balance-billing prohibition, and therefore is invalid. Because we conclude that by accepting Medicaid payments Spectrum waived its right to its customary fee for services provided to Bowling, we reverse the district court‘s ruling on this ground.
In 1965, Congress established Medicaid through Title XIX of the Social Security Act,
One of the federal statutory requirements is that a state plan must establish payment rates for the various services provided under the plan.
In this case, Spectrum is seeking enforcement of its lien on the settlement proceeds to recover $538,572.81, which it claims is the shortfall between its customary fee and the amount it already received from Medicaid. The Trust argues that the lien is balance billing and therefore, prohibited under the law. Upon review, we agree.
All the courts which have considered the issue of whether a service provider, who has already accepted a Medicaid payment, may recover additional sums after a patient has received damages in a personal injury lawsuit have denied the provider‘s claim. See Michael K. Beard, The Impact of Changes in Health Care Provider Reimbursement Systems on the Recovery of Damages for Medical Expenses in Personal Injury Suits, 21 Am. J. Trial Advoc. 453, 470 n. 98 (1998). In Evanston Hospital v. Hauck, 1 F.3d 540, 542 (7th Cir.1993), cert. denied, 510 U.S. 1091, 114 S.Ct. 921, 127 L.Ed.2d 215 (1994), a hospital provided a patient medical care in exchange for Medicaid reimbursement at the state‘s prescribed rates. After the patient was awarded a sizable judgment against a third-party tortfeasor, the hospital sought to return the Medicaid amount and sue the patient for its customary fee. Id. at 542. In upholding the dismissal of the hospital‘s suit, the Seventh Circuit stated:
But Evanston Hospital was not “forced” to abandon its right to sue Hauck; no one coerced the hospital into cashing a [Medicaid] check from the taxpayers as partial reimbursement for Hauck‘s medical bills. Rather, the hospital could have simply forsaken Medicaid and taken its chances that Hauck would somehow come up with the money to pay the bills himself. By opting for reimbursement from Medicaid, Evanston Hospital bought certainty. It purchased a guarantee of partial payment in lieu of possibly full payment or possibly no payment at all ... Evanston Hospital wants out of its agreement with Medicaid now only because its gamble, in retrospect, was unwise.
Id. The court explained that to permit recovery would be to transform Medicaid
Similarly, in Palumbo v. Myers, a physician sued a patient to recover the difference between his customary fee and the Medicaid payment after the patient received a sizable settlement from a third-party tortfeasor, which included an allocation for the full payment of the fee. 149 Cal.App.3d at 1022, 197 Cal.Rptr. 214. The California appellate court held that though the third-party liability provisions of the Medicaid statute provide for the government‘s recovery of its Medicaid expenditures, the prohibition against balance billing bars the physician‘s claim. Id. at 1030, 197 Cal.Rptr. 214; see also Lizer v. Eagle Air Med Corp., 308 F.Supp.2d 1006, 1010 (D.Ariz.2004) (holding that a provider, who has already accepted Medicaid, is prohibited from enforcing a lien against a third-party tortfeasor to recover its customary fee); Olszewski v. Scripps Health, 30 Cal.4th 798, 135 Cal.Rptr.2d 1, 69 P.3d 927, 942 (2003) (invalidating a state statute which authorized a provider to recover its customary fee through a lien against a judgment or settlement obtained by a Medicaid beneficiary against a third-party tortfeasor); Pub. Health Trust v. Dade County Sch. Bd., 693 So.2d 562, 566 (Fla.Dist.Ct.App.1997) (holding that a state regulation which permits a provider to recover its customary fee after receiving a Medicaid payment is invalid under Supremacy Clause).
Applying these principles to this case, we conclude that the enforcement of Spectrum‘s lien on the proceeds of the malpractice settlement to recover the balance of its customary fee is prohibited by federal and state law. Spectrum provided Bowling with medical care from May 1999 through September 2002, in exchange for which it received $101,021.86 from Medicaid. Spectrum was not required to seek payment from Medicaid; instead, Spectrum could have provided its services in exchange for enforcing its lien, which was the original agreement between the parties. Having chosen to accept payment from Medicaid however, Spectrum abandoned all rights to further recovery of its customary fee from the lien. As we have stated, Medicaid is a contract between a service provider and the government, in which the Medicaid recipient is a third-party beneficiary. Linton, 65 F.3d at 520. By accepting the Medicaid payment, the service provider accepts the terms of the contract specifically that the Medicaid amount is payment in full.
In its complaint, Spectrum states that it filed for Medicaid reimbursement because it was “[a]nticipating delay in realizing its lien on the medical malpractice lawsuit.” J.A. at 14 (Compl. at 3). Nothing in the statute, however, allows for the program to be used as a financing entity, providing interest-free loans to service providers until the beneficiary‘s payment arrives. Congress certainly never intended such a result. Moreover, Spectrum also used Medicaid as an insurance policy against an
Spectrum attempts to distinguish its case from the other cases cited above by arguing that its lien pre-existed the malpractice settlement and that the lien was voluntarily agreed to by Bowling‘s representatives. Appellee‘s Br. at 26-27. Relying on contract principles, Spectrum concludes that it should be entitled to the benefit of its bargain. The district court agreed with this reasoning, explaining that we have “blessed such pre-existing agreements between providers and patients.”3 J.A. at 137 (Dist. Ct. Op. at 25). The district court‘s reasoning however, omits the critical fact that there was a pre-existing agreement between Spectrum and the State of Michigan as well. If Spectrum had not received Medicaid payments, the lien would be enforceable against the Trust as a voluntary agreement entered into by willing parties, even though the patient was Medicaid-eligible. Barney, 110 F.3d at 1211. Once it accepted the Medicaid payment, however, Spectrum had been paid in full for the services provided to Bowling. The mere fact that a prior voluntary agreement existed is without consequence.4
The district court attempted to distinguish this case by arguing that Spectrum was not seeking to recover from Bowling or the Trust, but rather from the third-party tortfeasor alone. The dissent also relies on this distinction, noting that federal law only prohibits a service provider from seeking “to collect from the individual (or any financially responsible relative or representative of that individual) payment of an amount for that service.”
First, while the dissent is correct that the federal and state statutes only mention attempts to recover from the individual or his or her representative, Spectrum‘s lien on the settlement proceeds is seeking recovery from Bowling for her medical care, and therefore falls within this prohibition. Despite the line item allocation to Spectrum in the settlement agreement, Spectrum was not a party to the medical malpractice suit and the settlement allocation is not its property. Similarly, once the settlement has been approved, the settlement proceeds are no longer the property of the tortfeasor either. Instead, the entirety of the settlement, regardless of how it is allocated, belongs to Bowling; Spectrum‘s lien is merely an encumbrance upon that property. See Black‘s Law Dictionary 933 (7th ed.1999) (defining a lien as “[a] legal right or interest that a creditor has in another‘s property, lasting usu[ally] until a debt or duty that it secures is satisfied“); see also In re Approximately Forty Acres in Tallmadge Township, 223 Mich.App. 454, 432 N.W.2d 652, 657 (1997) (“A lien is a security interest for money owed by one party to another, and is separate from an underlying cause of action.” (internal citation omitted)); Aetna Cas. & Sur. Co. v. Starkey, 116 Mich.App. 640, 323 N.W.2d 325, 328 (1982) (“A lien is not a property right in, or right to, the thing itself, but constitutes a charge or security thereon.“). Therefore, by seeking to enforce its lien, Spectrum is attempting to recover its customary fee from the Medicaid patient herself in clear violation of both federal and state law.
Furthermore, the federal and state statutes outlining Medicaid‘s balance-billing prohibition cannot be read in isolation. The federal regulation accompanying the statute explicitly limits participation in the Medicaid program to “providers who accept, as payment in full, the amounts paid by the agency.”
The dissent concedes the reasonableness of this interpretation, but nevertheless reads into the law ambiguity where there is none in order to justify an alternative interpretation. In support of its argument, the dissent, like the district court below, relies heavily on a 1997 opinion letter from the Acting Director of the Medicaid Bureau of the Health Care Financing Administration (“HCFA“), which the California Supreme Court discussed in Olszewski:
In the letter, the acting director stated that “[f]ederal law would not preclude the practice of providers pursuing payment in tort situations in excess of Medicaid reimbursement” as long as a state satisfies two conditions. First, the state must assure that Medicaid is made whole before the provider recovers any money. Second, the state must protect the assets of Medicaid beneficiaries by limiting provider recovery to the portion of the award specifically allocated for the beneficiary‘s medical expenses.
135 Cal.Rptr.2d 1, 69 P.3d at 943. The dissent argues that there is “no reason to suppose that the Medicaid Bureau‘s clarification does not still represent agency policy, entitled to respectful consideration by the courts.” Dissent at 16. Therefore, the dissent concludes that because the two conditions are met, the lien does not violate federal law. But see Palumbo, 149 Cal.App.3d at 1022, 197 Cal.Rptr. 214 (holding that a service provider was prohibited from collecting from a third-party tortfeasor even after Medicaid had been reimbursed and the settlement allocated funds for the full customary amount of medical expenses). We believe that such heavy reliance on this opinion letter in the face of clear statutory and regulatory language is misplaced.
First, the letter, dated June 9, 1997, is not included in the record. It is neither listed on the website for the Centers for Medicare & Medicaid Services, the successor to HCFA, nor published elsewhere. See http://www.cms.hhs.gov/states/letters/ (listing agency letters written to state officials from 1994-2004). Indeed, the lack of public availability alone raises doubts about whether this eight-year old opinion letter is still the policy of the federal government.
Moreover, the agency‘s letter is not entitled to judicial deference. The letter does not appear to be a product of the agency‘s rule-making authority, and therefore was likely not subject to the rigors of the public notice-and-comment process. See United States v. Mead Corp., 533 U.S. 218, 230, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001) (holding that agency action resulting from notice-and-comment rule-making or formal adjudications is entitled to judicial deference). Likewise, nothing in the Medicaid statutory scheme reveals that Congress intended that courts defer to the agency‘s opinion letters. Id. at 231 (noting that the absence of administrative formality does not necessarily bar judicial deference if Congress intended informal interpretations to have the force of law). Instead, as the Supreme Court has held, “[i]nterpretations such as those in opinion letters — like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law — do not warrant Chevron-style deference.” Christensen v. Harris County, 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000); see also Wis. Dep‘t of Health & Family Servs. v. Blumer, 534 U.S. 473, 497, 122 S.Ct. 962, 151 L.Ed.2d 935 (2002) (holding that the HCFA‘s interpretation of a federal statute outlined in a regional letter to state directors as well as a proposed rule only “warrants respectful consideration“). The sole exception to this rule is where an agency is seeking to interpret its own regulation, and the language of that regulation is ambiguous. Christensen, 529 U.S. at 588 (citing Auer v. Robbins, 519 U.S. 452, 461, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997)); Beck, 390 F.3d at 919. In this case, however, there is nothing ambiguous about the language of the federal regulation, which limits “participation in the Medicaid program to providers who accept, as payment in full, the amounts paid by the [state Medicaid agency].”
Finally, the letter is inconsistent with the statutory scheme Congress enacted. To the extent that a third party is liable for the medical expenses of a Medicaid beneficiary, federal law requires that the beneficiary assign his or her right to payment from the third party for medical expenses to the state Medicaid agency.
In sum, because we hold that the language of the federal regulation and Michigan law clearly limit service providers to the amount paid by the Medicaid agency as “payment in full,” we decline to follow the 1997 letter‘s suggested approach. See Christensen, 529 U.S. at 588 (declining to adopt an agency interpretation of an unambiguous regulation). Moreover, given the extremely detailed nature of the Medicaid scheme and the frequency with which it is amended, reliance on an eight-year-old opinion letter paraphrased by the Supreme Court of California is unwarranted. If service providers should be permitted to recover their customary fees from a beneficiary‘s settlement with a third-party tortfeasor, it is solely within the province of Congress to allow it. For now, we will adhere to the clear language of the statute and the accompanying regulation. Therefore, the Trust is entitled to judgment as a matter of law.
III. CONCLUSION
In summary, we conclude that the issue of the validity of the lien is not precluded by either of the state-court judgments, and the lien on the settlement proceeds is prohibited by federal and state Medicaid law. Therefore, we REVERSE the district court‘s grant of summary judgment in favor of Spectrum and REMAND the case with instructions to the district court to enter judgment in favor of the Trust.
CONCURRING IN PART, DISSENTING IN PART
NELSON, Circuit Judge, concurring in part and dissenting in part.
I agree with my colleagues on the panel, and with the district court, that the doctrine of collateral estoppel does not bar Ms. Bowling‘s trust from challenging Spectrum‘s right to retain the funds earmarked for Spectrum in the judicially-approved settlement of the tort action. I respectfully disagree with the majority‘s conclusion that the tortfeasor‘s promise to compensate Spectrum for its services must be nullified and replaced by a judicially-created obligation to compensate Ms. Bowling‘s trust for Spectrum‘s services.
If the funds received by Spectrum pursuant to the settlement had come out of Ms. Bowling‘s pocket — as would have been the case if Spectrum had enforced its lien against settlement proceeds payable to Mrs. Bowling — it is clear that Spectrum would not have been entitled to keep the money. This is so because the relevant federal statute,
“in the case of an individual who is entitled to medical assistance under the State plan with respect to a service for which a third party is liable for payment, the person furnishing the service may not seek to collect from the individual (or any financially responsible relative or representative of the individual) payment of an amount for that service ....” (Emphasis supplied.)
The required prohibition is commonly termed a ban on “balance billing” — i.e., a ban on “the practice of billing patients for the balance remaining on a medical bill after deducting the amount paid by [the state Medicaid program].” Olszewski v. ScrippsHealth, 107 Cal.Rptr.2d 187, 192 (2001); aff‘d in part and rev‘d in part, 30 Cal.4th 798, 135 Cal.Rptr.2d 1, 69 P.3d 927 (2003) (emphasis supplied).1
The structure of the federal statute suggests that the Olszewski courts’ understanding of the scope of the required ban on balance billing is correct. After explicitly referring to the situation where “a third party is liable for payment,” the statute conspicuously refrains from saying that the entity furnishing the service may not seek to collect from the third party. Instead, the statute simply says that the entity furnishing the service may not seek to collect “from the individual” — i.e., from the patient.
Michigan law appears to be in accord. In compliance with the federal mandate for a balance-billing ban, Michigan has enacted
“Except for copayment authorized by the state department ... a provider shall accept payment from the state as payment in full by the medically indigent individual for services rendered. A provider shall not seek payment from the medically indigent individual, the family, or representative of the individual for ... [a]uthorized services provided and reimbursed under the program.” (Emphasis supplied.)
If the first sentence of
It seems to me that the second sentence of
But what of the regulations? Do the federal Medicaid regulations broaden the requirement for a ban on balance billing to require the state not only to insure that the entity providing the service “not seek to collect from the individual,” but to require that the provider not seek to collect from anyone else either? Even though the service is one for which, in the words of the statute, “a third party is liable for payment“?
The bare language of the pertinent regulation,
“A State plan must provide that the Medicaid agency must limit participation in the Medicaid program to providers who 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.”
It would not be unreasonable for a state Medicaid director to suppose that this language was intended to require that state plans unconditionally prohibit participating service providers from pursuing third-party tortfeasors for payment. See Rehabilitation Services of Virginia v. Kozlowski, 42 F.3d 1444, 1447 (4th Cir.1994).2 But in guidance provided to state Medicaid directors by the Health Care Financing Administration‘s Medicaid Bureau on June 9, 1997, the Medicaid Bureau explained that the agency had no such intent. “As long as States assure preservation of certain principles,” the Medicaid Bureau told the states, “Federal law would not preclude the practice of providers pursuing payment in tort situations in excess of Medicaid‘s reimbursement ....” (Emphasis supplied.) See Olszewski, 135 Cal.Rptr.2d at 194-95, where the text of the Medicaid Bureau‘s policy clarification is quoted in extenso.
The Medicaid Bureau‘s policy clarification goes on to spell out in detail the conditions under which payment in excess of Medicaid‘s reimbursement can be pursued from tortfeasors:
“Specifically, the State must assure that Medicaid is made whole before providers can keep any monies. The State must also prohibit providers from pursuing money that has been awarded to the [patient]. In other words, the provider lien must be against the tortfeasor and not the general assets of the [patient], e.g., the provider would be entitled to reimbursement from a tort judgment or settlement when the settlement specifically designates a set amount of money for medical expenses and then only if this amount is above the amount owed to Medicaid. The provider could be reimbursed only if the money has not been allotted to the beneficiary in a court judgment or settlement. This would mean that if the lien were not perfected, the tortfeasor would stand to retain the money.” Id. (Emphasis supplied.)
I am aware of no reason to suppose that the Medicaid Bureau‘s clarification does not still represent agency policy, entitled to respectful consideration by the courts. Indeed, in the California Supreme Court‘s Olszewski decision — a decision handed down more than a year after the parties to Ms. Bowling‘s malpractice action reached their settlement agreement and nearly four months after Spectrum‘s attorney received the $575,000 allotted to Spectrum in the settlement — the California court relied heavily on the policy clarification in holding that certain sections of California‘s Welfare and Institutions Code were in conflict with federal law. In a passage worth quoting in full, the court declared that the policy clarification is “entitled to considerable deference:”
“[T]he June 9, 1997, policy clarification letter sent by the Acting Director of the Medicaid Bureau of the HCFA to all state Medicaid directors confirms that [Welf. & Inst.Code] sections 14124.791 and 14124.74 conflict with federal law. Where a federal regulation is ambiguous, ‘an agency‘s interpretation of its own regulation is entitled to deference.’ (Christensen v. Harris County (2000) 529 U.S. 576, 588, 120 S.Ct. 1655, 146 L.Ed.2d 621 (Christensen).) As ‘the Secretary‘s attempt to give interpretive guidance to the states in advance of their submission of state Medicaid plans’ (Elizabeth Blackwell Center, supra, 61 F.3d at p. 181, fn. omitted), this letter is a policy directive entitled to considerable deference (see id. at pp. 181-182 [according great deference to a policy directive issued by the Director of the Medicaid Bureau of the HCFA]).” 135 Cal.Rptr.2d at 19-20, 69 P.3d 927 (footnote omitted).3
Under the factual circumstances presented in the case at bar, it does not appear to me that federal policy, as reflected in the pertinent statutory and regulatory law, precludes Spectrum from being fully compensated by the third party whose alleged malpractice gave rise to Ms. Bowling‘s need for the care Spectrum provided. Among the relevant circumstances are these:
- it is undisputed that Michigan‘s Medicaid program was made whole by the tortfeasor‘s payment of $104,719.68 to the State of Michigan in satisfaction of Michigan‘s Medicaid healthcare lien;
- Spectrum received nothing out of the funds awarded to Ms. Bowling; and
- both the settlement and the judgment approving it “specifically designate[d] a set amount of money for medical expenses,” to use the Medicaid Bureau‘s language, and “the money has not been allocated to the beneficiary in a court judgment or settlement.”
I believe it is evident, in short, that Spectrum has not recovered anything from the patient. In this respect there is a crucial difference between the present case and the many cases in which courts (including ours) have either said generally that healthcare providers may not require patients to pay anything beyond what Medicaid has paid or have held specifically that damages recovered by a Medicaid patient in a tort suit may not be reached by a service provider that accepted payment from Medicaid. See, e.g., Barney v. Holzer Clinic, Ltd., 110 F.3d 1207, 1210 (6th Cir.1997); Evanston Hospital v. Hauck, 1 F.3d 540, 542 (7th Cir.1993), cert. denied, 510 U.S. 1091, 114 S.Ct. 921, 127 L.Ed.2d 215 (1994); Mallo v. Public Health Trust, 88 F.Supp.2d 1376, 1387 (S.D.Fla.2000); Lizer v. Eagle Air Med. Corp., 308 F.Supp.2d 1006, 1009-10 (D.Ariz.2004).4
It is true that if the tort case had been settled on terms that called for a payment of money only to Ms. Bowling or her representatives, a lien asserted by Spectrum on the proceeds of such a settlement would have been a lien on Ms. Bowling‘s property. As such, the lien would have been unenforceable. But because the settlement — and the court order approving it — made a “line item” allocation to Spectrum for the value of the services provided, it was not Ms. Bowling‘s money that Spectrum received when the tortfeasor honored his contract (a contract of which I presume Spectrum was a third-party beneficiary) by paying Spectrum‘s bill.
We have no reason to suppose that the allocation of money to Spectrum reduced Ms. Bowling‘s recovery pro tanto, and we have good reason to suppose it did not. Under the law of New York (the state where the injury occurred and where the alleged tortfeasor was sued), it is clear that Ms. Bowling never had a claim against the tortfeasor for the fair value of Spectrum‘s services. New York does not follow the traditional collateral-source rule — and, applying New York statutory law, New York‘s highest court has held that a tort claimant may not recover as special damages the value of medical and nursing care furnished gratuitously. Coyne v. Campbell, 11 N.Y.2d 372, 230 N.Y.S.2d 1, 183 N.E.2d 891 (1962). Thus it was held in a recent New York intermediate appellate court case that where a hospital wrote off a $138,000 balance that remained on a $369,000 hospital bill after the hospital received partial payment from Medicaid and a no-fault insurer, the plaintiff in a wrongful death action could not recover the write-off as an element of her damages. Kastick v. U-Haul Co. of Western Michigan, 292 A.D.2d 797, 740 N.Y.S.2d 167 (2002).
The ramifications for the present case are obvious. The New York trial attorneys who negotiated the settlement of Ms. Bowling‘s tort suit may not have been familiar with the intricacies — and uncertainties — of federal Medicaid law, but they must have been well aware of New York‘s version of the collateral source rule. New York personal injury lawyers and New York defense counsel deal with this rule all the time. I believe that these New York lawyers knew perfectly well, when they negotiated their multi-million dollar settlement, that Spectrum‘s bill for services could not be an element of Ms. Bowling‘s damages under New York law. And they would probably be puzzled, as I am, about the source of this court‘s authority to rewrite their settlement agreement so that instead of compensating Spectrum for the services it provided, the defendant in the malpractice action will be paying the plaintiff several hundred thousand dollars to which New York law gives her absolutely no claim.
It seems clear to me, under the facts presented here, that Spectrum‘s collection of its bill from the tortfeasor cannot properly be viewed as a collection from the patient herself. My colleagues on the panel having seen the matter differently, I respectfully dissent on this issue.