Abbott v. Banner Health Network

• Decision Date: 23 May 2016
• Docket Number: No. CV–15–0013–PR.,CV–15–0013–PR.
• Citation: 372 P.3d 933,239 Ariz. 409
• Parties: Jackie ABBOTT; Robert Bergansky; Raymond Brown; Nicholas Bigler; Richard Campuzano; Dalton Gormey; Tracy James; Stephanie Krueger; Zainab Mohamed; Robert Pierson; Lucas Smith; Robert Van Steenburgh; Amber Winters; Christina Yerkey; and Steven Young, Plaintiffs/Appellants, v. BANNER HEALTH NETWORK fka Banner Health, Inc., an Arizona Corporation; Dignity Health fka Catholic Healthcare West, a California Corporation; Scottsdale Healthcare Corp., an Arizona Corporation; Northwest Hospital LLC, a Delaware Corporation; Northern Arizona Healthcare Corp., an Arizona Corporation; John C. Lincoln Health Network, an Arizona Corporation; University Medical Center Corp., an Arizona Corporation; Carondelet Health Network, an Arizona Corporation; Tucson Medical Center, an Arizona Corporation; Oro Valley Hospital, LLC, a Delaware Corporation, Defendants/Appellees.
• Court: Arizona Supreme Court

239 Ariz. 409

372 P.3d 933

Jackie ABBOTT; Robert Bergansky; Raymond Brown; Nicholas Bigler; Richard Campuzano; Dalton Gormey; Tracy James; Stephanie Krueger; Zainab Mohamed; Robert Pierson; Lucas Smith; Robert Van Steenburgh; Amber Winters; Christina Yerkey; and Steven Young, Plaintiffs/Appellants

v.BANNER HEALTH NETWORK fka Banner Health, Inc., an Arizona Corporation; Dignity Health fka Catholic Healthcare West, a California Corporation; Scottsdale Healthcare Corp., an Arizona Corporation; Northwest Hospital LLC, a Delaware Corporation; Northern Arizona Healthcare Corp., an Arizona Corporation; John C. Lincoln Health Network, an Arizona Corporation; University Medical Center Corp., an Arizona Corporation; Carondelet Health Network, an Arizona Corporation; Tucson Medical Center, an Arizona Corporation; Oro Valley Hospital, LLC, a Delaware Corporation, Defendants/Appellees.

No. CV–15–0013–PR.

Supreme Court of Arizona.

May 23, 2016.

David L. Abney, Knapp & Roberts P.C., Scottsdale; Geoffrey M. Trachtenberg (argued), Levenbaum Trachtenberg PLC, Phoenix; and B. Lance Entrekin, The Entrekin Law Firm, Phoenix, Attorneys for Jackie Abbott, Robert Bergansky, Raymond Brown, Nicholas Bigler, Richard Campuzano, Dalton Gormey, Tracy James, Stephanie Krueger, Zainab Mohamed, Robert Pierson, Lucas Smith, Robert Van Steenburgh, Amber Winters, Christina Yerkey, and Steven Young.

Richard B. Burnham, Cameron C. Artigue (argued), Christopher L. Hering, Gammage & Burnham P.L.C., Phoenix, Attorneys for Banner Health Network, Banner Health Inc., Dignity Health, Catholic Healthcare West, Scottsdale Healthcare Corp., Northwest Hospital LLC, Northern Arizona Healthcare Corp., John C. Lincoln Health Network, University Medical Center Corp., Carondelet Health Network, Tucson Medical Center, and Oro Valley Hospital, LLC.

Stanley G. Feldman, Haralson, Miller, Pitt, Feldman & McAnally, P.L.C., Tucson; Adam Studnicki, Studnicki Law Firm, P.C., Scottsdale, and Lincoln Combs, Gallagher & Kennedy, P.A., Phoenix, Attorneys for Amici Curiae Arizona Association for Justice/Arizona Trial Lawyers Association.

Justice BRUTINEL authored the opinion of the Court, in which Chief Justice BALES, Vice Chief Justice PELANDER, Justice TIMMER, and Justice BERCH (retired) joined.

Justice BRUTINEL

, opinion of the Court.

¶ 1 Petitioners are health care providers (“Hospitals”) who treated patients (“Patients”) injured by third parties. The Hospitals were paid by the Patients' insurer, the Arizona Health Care Cost Containment System (“AHCCCS”), which had negotiated reduced rates with the Hospitals. The Hospitals then recorded liens against the Patients pursuant to A.R.S. § 33–931

and A.R.S. § 36–2903.01(G) for the difference between the amount typically charged for their treatment and the reduced amount paid by AHCCCS. In order to receive their personal injury settlements with the third parties, Patients settled with the Hospitals by paying negotiated amounts to release the liens.

¶ 2 We assume, without deciding, that—as Plaintiffs argue—Arizona's lien statutes are preempted by federal law. But, because there was a bona fide dispute about the enforceability of these liens when the Patients and Hospitals entered into settlement agreements to achieve lien releases (“accord and satisfaction agreements” or “agreements”), the agreements were supported by adequate consideration and addressed a proper subject matter. Consequently, the accord and satisfaction agreements are valid.

I. BACKGROUND

¶ 3 The Patients, along with other patients who did not settle with the Hospitals, sued to set aside the accord and satisfaction agreements and to recover the amounts paid to release the liens. The Hospitals moved to dismiss the complaint against the settling Patients pursuant to Arizona Rule of Civil Procedure 12(b)(6)

for failing to state a claim because the parties had reached an accord and satisfaction. The Patients responded that the accord and satisfaction agreements were unenforceable because they lacked a proper subject matter and consideration. They argued that 42 U.S.C. § 1396a(a)(25)(C) preempted A.R.S. §§ 33–931 and 36–2903.01, which authorized the Hospitals' liens. Because the accord and satisfaction agreements were based on invalid liens, the Patients asserted, the agreements violated public policy, had an improper purpose, and lacked consideration. The Patients also claimed that Provider Participation Agreements between the Hospitals and AHCCCS required the Hospitals to “comply with all federal, State and local laws, regulations, standards, and executive orders governing performance of duties under this Agreement” and thus also prohibited the liens as “balance billing”—the practice of billing a patient for the difference between the providers' customary charges and what AHCCCS pays for services.

¶ 4 The trial court dismissed the Patients' complaint stating, “it is irrelevant whether federal law preempts Arizona law and prohibits hospitals from enforcing statutory liens on AHCCCS accounts ... [because] [a]ccord and satisfaction does not turn on whether Plaintiffs would have prevailed on the merits of the dispute that was settled.” The court concluded that the accord and satisfaction agreements were “final and binding regardless of the validity of the underlying claims.”

¶ 5 The court of appeals reversed. Abbott v. Banner Health Network, 236 Ariz. 436, 448 ¶ 37, 341 P.3d 478, 490 (App.2014)

. Reasoning that the accord and satisfaction agreements were void because federal law preempts the Arizona laws allowing the liens, id. at 438 ¶ 1, 341 P.3d at 480, the court held that there was not a “good faith dispute about the enforceability of the lien[s],” and therefore the accord and satisfaction agreements lacked both proper subject matter and consideration. Id. at 446–47 ¶ ¶ 30–33, 341 P.3d at 478, 489 (stating that an agreement lacks proper subject matter if it is illegal or against public policy). The court concluded that “[i]f the underlying agreement is prohibited and unenforceable, an accord and satisfaction based on that agreement is also unenforceable.” Id. at 443 ¶ 20, 341 P.3d at 485.

¶ 6 We granted review to determine whether the accord and satisfaction agreements between the Patients and the Hospitals are valid, which is an issue of statewide importance and likely to recur. We have jurisdiction under article 6, section 5(3), of the Arizona Constitution

and A.R.S. § 12–120.24.

II. DISCUSSION

¶ 7 We review de novo an order granting a motion to dismiss for failure to state a claim. Coleman v. City of Mesa, 230 Ariz. 352, 355 ¶ 7, 284 P.3d 863, 866 (2012)

.

¶ 8 The Hospitals' liens are authorized by A.R.S. §§ 33–931(A)

and 36–2903.01(G)(4). A.R.S. § 33–931 is the general medical lien statute. It provides hospitals an “entitle[ment] to a lien for the care and treatment or transportation of an injured person” that

extends to all claims of liability or indemnity, except health insurance and underinsured and uninsured motorist coverage as defined in § 20–259.01, for damages accruing to the person to whom the services are rendered, or to that person's legal representative, on account of the injuries that gave rise to the claims and that required the services.

A.R.S. § 33–931(A)

. According to § 36–2903.01(G)(4), “A hospital may collect any unpaid portion of its bill from other third-party payors or in situations covered by title 33, chapter 7, article 3.” These Arizona statutes allow a hospital that accepts payments from AHCCCS to file liens to collect any unpaid portion of its bill from third-party payors for its “customary charges.” A.R.S. § 33–931(C).

¶ 9 On the other hand, federal Medicaid law explicitly prohibits balance billing. Specifically, 42 U.S.C. § 1396a(a)(25)(C)

provides that when a person receives Medicaid assistance for which a third party is liable, the provider

may not seek to collect from the individual (or any financially responsible relative or representative of that individual) payment of an amount for that service (i) if the total of the amount of the liabilities of third parties for that service is at least equal to the amount payable for that service under the plan....

And pursuant to 42 C.F.R. § 447.15

:

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.

Together, these federal laws prohibit a medical care provider from collecting from the individual receiving care the difference in the amount paid by Medicaid, or a state plan like AHCCCS, and the amount typically charged.

¶ 10 The court of appeals concluded that Arizona law conflicts with applicable federal law and is thus preempted under article VI, section 2, of the United States Constitution. But courts should not unnecessarily decide constitutional questions. Petolicchio v. Santa Cruz Cty. Fair and Rodeo Ass'n, Inc., 177 Ariz. 256, 259, 866 P.2d 1342, 1345 (1994)

. Deciding whether the Arizona hospital lien statutes are preempted is unnecessary in determining whether the trial court properly considered and granted Petitioners' motion to dismiss.

¶ 11 Assuming, as noted above, that federal law preempts the Arizona lien statutes, we turn to the validity of the accord and satisfaction agreements. An “accord and satisfaction discharges a contractual obligation or cause of action when the parties agree to exchange something of value in resolution of a claim or demand and then perform on that agreement, the accord being the agreement, and the satisfaction its execution or performance.” Best Choice Fund, LLC v. Low & Childers, P.C., 228 Ariz. 502, 510 ¶ 24, 269 P.3d 678, 686 (App.2011)

(quoting Vance v. Hammer, 105 Ariz. 317, 319, 464 P.2d 340, 342 (1970) ) (internal quotation marks omitted). The four elements of an accord and satisfaction are (1) proper subject matter, (2) competent parties, (3)...