Eaton v. AHCCCS

• Decision Date: 26 November 2003
• Docket Number: No. 2 CA-CV 2003-0068.,2 CA-CV 2003-0068.
• Citation: 206 Ariz. 430,79 P.3d 1044
• Parties: Steven EATON, a single person, Plaintiff/Appellant, v. ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM, Defendant/Appellee.
• Court: Arizona Court of Appeals

79 P.3d 1044

206 Ariz. 430

Steven EATON, a single person, Plaintiff/Appellant, v. ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM, Defendant/Appellee.

No. -0068.

Court of Appeals of Arizona. Division Two, Department A.

November 26, 2003.

Ibáñez & Wilkinson, By Rose Marie Ibáñez, Roy G. Spece, Jr., Tucson, for Plaintiff/Appellant.

Johnston Law Offices, P.L.C., By Logan T. Johnston, Phoenix, for Defendant/Appellee.

OPINION

HOWARD, J.

¶ 1 The director of appellee Arizona Health Care Cost Containment System (AHCCCS) denied appellant Steven Eaton's request that AHCCCS waive the entire Medicaid lien against funds paid in settlement of his product liability suit. Eaton appealed to the superior court, which affirmed the director's decision. Eaton now appeals the superior court's ruling, contending that the director improperly found that 1) misrepresentations in a settlement negotiation did not constitute fraud, 2) the state cannot compromise the federal portion of a Medicaid lien, and 3) the misrepresentations could not be regarded as working an estoppel against AHCCCS. Because AHCCCS was prohibited by federal law from compromising the federal portion of the lien and Eaton did not show that fraud or estoppel should apply, we affirm.

¶ 2 We view the facts in the light most favorable to upholding the director's decision. See Empire West Cos., Inc. v. Ariz. Dep't of Econ. Sec., 182 Ariz. 95, 97, 893 P.2d 746, 748 (App.1995)

. Eaton is an Arizona resident and a Medicaid recipient. As a patient with hemophilia, Eaton used medical infusion products manufactured by four pharmaceutical companies to treat his illness. From using these products, he and many other sufferers of hemophilia contracted the human immunodeficiency virus (HIV) and filed a class action lawsuit against the manufacturers. Although a settlement offer was made to the class, Eaton declined that offer and pursued his claim as an individual.

¶ 3 After a six-week trial that resulted in a defense verdict, Eaton entered into settlement negotiations with the defendants. John Shirley, an employee of Public Consulting Group (PCG), a corporation that is a contractual partner used by AHCCCS to perform third-party liability recovery activities, attended the settlement conference. During negotiations, Eaton expressed concern about the Medicaid claim of $17,645.05, which is the expense of the medical care Eaton had received. Shirley suggested that Eaton consider accepting the offer because Eaton "could go before an ALJ and seek to have the lien reduced significantly, and possibly to zero."¹ In reliance on this statement, Eaton accepted the settlement offer of $50,000.

¶ 4 Subsequently, AHCCCS agreed to compromise the lien from $17,645.05 to $11,200. AHCCCS explained that it had compromised Arizona's share of the total Medicaid payment in full and the residual amount represented the federal share, which AHCCCS could not legally compromise. Eaton filed an administrative complaint challenging AHCCCS's refusal to compromise the entire lien to zero. The administrative law judge (ALJ) ruled that the remaining $11,200 was the federal portion of the lien, which the state could not compromise under 42 U.S.C. § 1396k(b) and 42 C.F.R. § 433.154. The ALJ also acknowledged that Shirley had misrepresented AHCCCS's ability to compromise the lien and that these statements had misguided Eaton. But the ALJ also found that the misrepresentations did not estop AHCCCS from ultimately refusing to compromise the federal portion of the lien. The AHCCCS director found that the ALJ's decision was supported by sufficient evidence and accepted the decision in its entirety. On appeal, the superior court affirmed the director's decision, finding that substantial evidence supported the factual findings and that the ALJ did not err as to the conclusions of law. This appeal followed.

FRAUD CLAIM

¶ 5 Eaton first argues that Shirley's statements constituted fraud and that AHCCCS is liable for its "contractual partner's" misrepresentation. In his argument, Eaton merely recites the ALJ's findings and the nine elements of fraud, stating, "[t]hese elements are obviously present." He does not analyze why AHCCCS would be liable for Shirley's alleged fraud or provide any supportive authority for that proposition. See In re 1996 Nissan Sentra, 201 Ariz. 114, ¶ 15, 32 P.3d 39, ¶ 15 (App.2001) (argument not supported by authority waived). And regardless of Shirley's role in the settlement, Eaton did not actually sue Shirley, PCG, or AHCCCS for fraud. Instead, Eaton requested that AHCCCS waive the Medicaid lien in its entirety and then filed an administrative appeal when AHCCCS denied that request. Review of AHCCCS's decision not to reduce the lien is limited to whether the action was arbitrary and capricious. Havasu Heights Ranch & Dev. Corp. v. Desert Valley Wood Prods., Inc., 167 Ariz. 383, 386, 807 P.2d 1119, 1122 (App.1990). Eaton has not even argued that Shirley's alleged fraud rendered AHCCCS's decision arbitrary and capricious or that the statutes required a compromise of the lien because of the fraud.

¶ 6 In further support of his fraud claim, Eaton notes that any attorney who knowingly makes a false statement of material fact or law to a tribunal is subject to disciplinary measures. ER 3.3, Ariz. R. Prof. Conduct, Ariz. R. Sup.Ct. 42, 17A A.R.S. But Shirley was not an attorney; he was an agent of the company that contracts with AHCCCS for third-party collection work. Nor must we decide whether Shirley should receive administrative discipline. Therefore, because Eaton has not brought a proper fraud claim, has failed to support his contention with authority, and has not explained how his fraud claim pertains to these proceedings, we reject his argument.

COMPROMISE OF FEDERAL MEDICAID LIENS

¶ 7 Eaton next argues that the director of AHCCCS erred in deciding that the state is prohibited from compromising the federal component of a Medicaid lien. On appeal from a superior court's review of an administrative decision, we must determine, as did the superior court, whether the administrative action was illegal, arbitrary, capricious or involved an abuse of discretion. Samaritan Health Servs. v. Ariz. Health Care Cost Containment Sys. Admin., 178 Ariz. 534, 537, 875 P.2d 193, 196 (App.1994). The court will allow an administrative decision to stand if there is any credible evidence to support it, but, because we review the same record, we may substitute our opinion for that of the superior court. M & M Auto Storage Pool, Inc. v. Chem. Waste Mgmt., Inc., 164 Ariz. 139, 143, 791 P.2d 665, 669 (App.1990). And when consideration of the administrative decision involves the legal interpretation of a statute, this court reviews de novo the decisions reached by the administrative officer and the superior court. Jones v. County of Coconino, 201 Ariz. 368, ¶ 10, 35 P.3d 422, ¶ 10 (App.2001).

¶ 8 Medicaid is a medical assistance program for eligible low-income individuals, established by subchapter XIX of the federal Social Security Act, 42 U.S.C. § 1396a-1396u. Although a state's participation in the Medicaid program is voluntary, any participating state must comply with certain provisions of the federal Medicaid statute. Westside Mothers v. Haveman, 289 F.3d 852, 856 (6th Cir.2002). One such provision requires the state agency to ascertain whether any third party is legally liable for the medical services and goods furnished to the Medicaid patient and seek reimbursement from the third party if the reimbursement that the state reasonably expects to recover exceeds the cost of recovery. 42 U.S.C. § 1396a(a)(25); 42 C.F.R. §§ 433.138, 433.139(d). Any reimbursement collected shall be retained by the state to reimburse it for medical assistance payments made on behalf of the recipient, with appropriate reimbursement of the federal government to the extent of its participation in the financing of such medical assistance. 42 U.S.C. § 1396k(b). Any remaining funds will then be paid to the recipient. Id.

¶ 9 Several states, including Arizona, have enacted lien compromise statutes that allow state Medicaid agencies to waive some or all of the lien in certain circumstances. Arizona's lien compromise statute mandates that AHCCCS compromise a lien claim if the "compromise provides a settlement of the claim that is fair and equitable." A.R.S. § 36-2915(H). When determining what is fair and equitable, three factors must be considered: 1) the nature and extent of the patient's illness, 2) sufficiency of insurance and other sources of indemnity, and 3) any other factor relevant for a fair and equitable settlement under the circumstances of a particular case. § 36-2915(I).

¶ 10 In response to these lien statutes, the Health Care Financing Administration² (HCFA), the federal agency charged with administering Medicaid, released National Memorandum No. 88-10 in 1988. This memorandum detailed HCFA's interpretation of the lien compromise statutes and stated that a recipient had the right to settlement funds only after the Medicaid payments were fully funded. In 1990, HCFA further articulated its interpretation of the lien statutes by amending the State Medicaid Manual to provide that "the Medicaid program must be fully reimbursed before the recipient can receive any money from the settlement or award." State Medicaid Manual (SMM) § 3907. These memoranda are based, in part, on Congress's intent that Medicaid be the "payor of last resort." See H.R. Conf. Rep. No. 99-453, at 542 (1985); see also Wesley Health Care Ctr., Inc. v. DeBuono, 244 F.3d 280, 281 (2d Cir.2001)

; Ariz. Health Care Cost Containment Sys. v. Bentley, 187 Ariz. 229, 231 n. 1, 928 P.2d 653, 655 n. 1 (App.1996).

¶ 11 HCFA's interpretation was upheld as a reasonable interpretation of the statute in two Department of Health and Human Services administrative decisions: California Department of Social and Health Services, No. A-94-114, 1995 WL 66334 (App.Div., Jan....