Ansley v. Banner Health Network

• Decision Date: 12 March 2019
• Docket Number: No. 1 CA-CV 17-0075,1 CA-CV 17-0075
• Citation: 246 Ariz. 240,437 P.3d 899
• Parties: Walter ANSLEY, et al., Plaintiffs/Appellees/Cross-Appellants, v. BANNER HEALTH NETWORK, et al., Defendants/Appellants/Cross-Appellees.
• Court: Arizona Court of Appeals

246 Ariz. 240

437 P.3d 899

Walter ANSLEY, et al., Plaintiffs/Appellees/Cross-Appellants,

v.BANNER HEALTH NETWORK, et al., Defendants/Appellants/Cross-Appellees.

No. 1 CA-CV 17-0075

Court of Appeals of Arizona, Division 1.

FILED March 12, 2019

Levenbaum Trachtenberg, PLC, Phoenix, By Geoffrey M. Trachtenberg, Justin Henry, Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

The Entrekin Law Firm, Phoenix, By B. Lance Entrekin, Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

Gammage & Burnham, PLC, Phoenix, By Richard B. Burnham, Cameron C. Artigue, Christopher L. Hering, Counsel for Defendants/Appellants/Cross-Appellees

Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in which Judge Kent E. Cattani and Judge Jennifer M. Perkins joined.

JOHNSEN, Judge:

¶1 Banner Health Network and other hospital groups ("the Hospitals") each contracted with the Arizona Health Care Cost Containment System ("AHCCCS") to serve AHCCCS members. The plaintiffs in this case ("the Patients") received settlements or damage awards from third-party tortfeasors for injuries that required treatment at the Hospitals. The Patients sued to enjoin the Hospitals from enforcing liens on their tort recoveries for the balance between the rates the Hospitals agreed to accept from AHCCCS and what the Hospitals would have charged non-AHCCCS patients. We hold that federal law preempts state statutes authorizing the Hospitals to impose and enforce those liens, and affirm the superior court's order enjoining the liens. For reasons set forth below, we also reverse the court's judgment against the Patients on their third-party-beneficiary claim for breach of contract and vacate and remand for further consideration a portion of the attorney's fee award to the Patients.

FACTS AND PROCEDURAL HISTORY

¶2 The Hospitals recorded their liens pursuant to two statutes, Arizona Revised Statutes ("A.R.S.") sections 33-931 (2019) and 36-2903.01(G)(4) (2019).¹ The former allows a health-care provider to file a lien for its "customary" charges against a patient's tort recovery. The latter specifically applies when a hospital has served an AHCCCS member and allows that hospital to "collect any unpaid portion of its bill from other third-party payors or in situations" in which the general medical-lien statute applies.

¶3 In their complaint, the Patients alleged federal Medicaid law preempts the Arizona lien statutes in cases such as theirs, and sought an injunction barring the Hospitals from recording liens on their tort recoveries. The Patients argued the liens constitute impermissible "balance billing," a term describing a health-care provider's effort to collect from a patient "the difference in the amount paid by Medicaid, or a state plan like AHCCCS, and the amount" the provider typically charges. Abbott v. Banner Health Network , 239 Ariz. 409, 412, ¶ 9, 372 P.3d 933, 936 (2016).

¶4 Early in the litigation, the superior court dismissed a group of plaintiffs who had settled their lien claims with the Hospitals and entered partial final judgment as to those plaintiffs pursuant to Arizona Rule of Civil Procedure 54(b). Those plaintiffs appealed, arguing their settlements lacked consideration because federal law preempted the Hospitals' liens. This court accepted that argument, Abbott v. Banner Health Network , 236 Ariz. 436, 446, ¶ 30, 341 P.3d 478, 488 (App. 2014) (" Abbott I "), but the supreme court reversed, Abbott, 239 Ariz. 409, 372 P.3d 933 (2016) (" Abbott II "). The supreme court ruled the settlements were valid and made "fairly and in good faith" because the validity of the Hospitals' lien rights was not settled under Arizona law. Abbott II , 239 Ariz. at 413, 414, 415, ¶¶ 12, 18, 20, 372 P.3d at 937, 938, 939.

¶5 Meanwhile, the superior court certified the remaining plaintiffs as a class, and both sides moved for summary judgment on the preemption issue. The superior court ruled in favor of the Patients on their claim for a declaratory judgment, holding that when a hospital has accepted payment from AHCCCS for treating a patient, 42 Code of Federal Regulations ("C.F.R.") § 447.15 (2019) preempts the hospital's state-law right to a lien on the patient's tort recovery for the balance between what AHCCCS paid and the hospital's customary charges. The court then enjoined the Hospitals from "filing or asserting any lien or claim against a patient's personal injury recovery, after having received any payment from AHCCCS for the same patient's care." The court granted summary judgment to the Hospitals, however, on the Patients' third-party-beneficiary claim, which alleged the Hospitals breached their contracts with AHCCCS by imposing the liens. Finally, the superior court awarded attorney's fees to the Patients under the private attorney general doctrine and denied both sides' motions for new trial.

¶6 The Hospitals appealed the preemption ruling and injunction, and the Patients cross-appealed the judgment against them on their contract claim. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution and A.R.S. §§ 12-120.21(A)(1) (2019) and -2101(A)(1) (2019).

DISCUSSION

A. Introduction.

¶7 In our initial opinion in the current appeal, we did not address the superior court's order granting the Patients' claim for a declaratory judgment that federal law preempts the Hospitals' state-law lien rights. We concluded instead that the Patients were entitled to injunctive relief as third-party beneficiaries of the contracts the Hospitals entered with AHCCCS. Those contracts require the Hospitals to comply with applicable federal law. Under that federal law, we held the Hospitals could not enforce liens against the Patients' tort recoveries for the balance between what AHCCCS paid the Hospitals and the Hospitals' customary rates.

¶8 The Hospitals moved for reconsideration, arguing for the first time that under Astra USA, Inc. v. Santa Clara County , 563 U.S. 110, 131 S.Ct. 1342, 179 L.Ed.2d 457 (2011), the Patients could not sue as third-party beneficiaries of the contracts because the federal law on which they based their claim affords no private right of action. The Hospitals' argument under Astra requires us to address the issue we deferred in our initial opinion. For that reason, we withdraw that opinion and issue this one in its place.

B. Federal Law Preempts the Hospitals' Lien Rights.

¶9 Federal law may preempt state law by express preemption, field preemption or conflict preemption. Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 698-99, 104 S.Ct. 2694, 81 L.Ed.2d 580 (1984) ; White Mtn. Health Ctr., Inc. v. Maricopa County , 241 Ariz. 230, 239-40, ¶ 33, 386 P.3d 416, 425-26 (App. 2016).² The issue here – conflict preemption – arises when state law stands as an obstacle to the achievement of Congress's full purpose, or when compliance with both federal and state laws is impossible. Crisp , 467 U.S. at 699, 104 S.Ct. 2694 ; White Mtn. , 241 Ariz. at 240, ¶ 33, 386 P.3d at 426. A federal regulation has the same preemptive effect as a federal statute. Crisp , 467 U.S. at 699, 104 S.Ct. 2694. Thus, a federal regulation may render unenforceable a state law that is otherwise consistent with federal law. City of New York v. F.C.C. , 486 U.S. 57, 63-64, 108 S.Ct. 1637, 100 L.Ed.2d 48 (1988).

¶10 Medicaid is a "cooperative federal-state program" that pays for health care for the needy and the disabled. Douglas v. Indep. Living Ctr. of So. Calif., 565 U.S. 606, 610, 132 S.Ct. 1204, 182 L.Ed.2d 101 (2012) ; 42 U.S.C. § 1396-1 (2019). A state that chooses to participate must "comply with the Medicaid Act and its implementing regulations." Rehabilitation Ass'n of Va., Inc. v. Kozlowski , 42 F.3d 1444, 1447 (4th Cir. 1994). To receive federal funds under the program, a state must create a detailed plan that, inter alia , specifies "the nature and scope" of the medical services it will cover. Douglas , 565 U.S. at 610, 132 S.Ct. 1204 ; see also 42 U.S.C. § 1396a(a) (2019).³ The federal Center for Medicare and Medicaid Services ("CMS"), a division of the Department of Health and Human Services ("HHS"), reviews the state's plan to ensure it complies with federal Medicaid statutes and regulations. See 42 U.S.C. § 1396a(b) (plan approval by HHS secretary); 42 U.S.C. § 1316(a) (2019) (HHS power to withhold funds if changes to state plan do not comply with federal law); 42 C.F.R. § 430.10 (2019) (describing contents of state plan); see also Spectrum Health Continuing Care Group v. Bowling , 410 F.3d 304, 313 (6th Cir. 2005) ("state's plan must comply with federal statutory and regulatory standards").

¶11 A fundamental principle of the program is that "Medicaid is essentially a payer of last resort." Kozlowski , 42 F.3d at 1447. Toward that end, patients must assign to the state Medicaid agency their rights "to any payment from a third party that has a legal liability to pay for care and services available under the plan." 42 U.S.C. § 1396k(a)(1)(A) (2019) ; see A.R.S. § 36-2946(A) (2019) (patients must assign "all types of medical benefits"); Olszewski v. Scripps Health , 30 Cal. 4th 798, 811, 135 Cal.Rptr.2d 1, 69 P.3d 927 (2003). Accordingly, when a hospital submits a claim for treating a plan member, the state Medicaid agency first tries to determine whether a third party (insurer, tortfeasor) may be liable for paying the claim. Olszewski , 30 Cal. 4th at 811, 135 Cal.Rptr.2d 1, 69 P.3d 927. When no third party is liable or liability cannot be determined, the state agency pays the hospital its negotiated rate for treating the patient. 42 C.F.R. § 433.139(c). If a third party is implicated, the agency rejects the claim and returns it to the hospital to determine the amount of the third party's liability. 42 C.F.R. § 433.139(b)(1) (2019). In such a case, the agency will pay the hospital only the difference between the rate the agency negotiated with the hospital and what the hospital receives from the third party. Id. If a third party's liability...