Sw. Fiduciary Inc. v. Ariz. Health Care Cost Containment System Admin.

• Citation: 226 Ariz. 404,249 P.3d 1104,603 Ariz. Adv. Rep. 22
• Decision Date: 10 March 2011
• Docket Number: Nos. 1 CA–CV 10–0300,1 CA–CV 10–0301.,s. 1 CA–CV 10–0300
• Parties: SOUTHWEST FIDUCIARY, INC., as Conservator of Rhonda Lundy, a single woman, Plaintiff/Appellee/Cross–Appellant,andJames Flynn, a single man, Plaintiff/Appellee,v.ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION, an Arizona state agency; Anthony D. Rodgers, Director of AHCCCS; Todd J. Jensen, AHCCCS Administrative Hearing Decision Administrator, Defendants/Appellants/Cross–Appellees.
• Court: Court of Appeals of Arizona

226 Ariz. 404

249 P.3d 1104

603 Ariz. Adv. Rep. 22

SOUTHWEST FIDUCIARY, INC., as Conservator of Rhonda Lundy, a single woman, Plaintiff/Appellee/Cross–Appellant,andJames Flynn, a single man, Plaintiff/Appellee,

v.ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION, an Arizona state agency; Anthony D. Rodgers, Director of AHCCCS; Todd J. Jensen, AHCCCS Administrative Hearing Decision Administrator, Defendants/Appellants/Cross–Appellees.

Nos. 1 CA–CV 10–0300

1 CA–CV 10–0301.

Court of Appeals of Arizona, Division 1, Department B.

March 10, 2011.

Goldberg & Osborne By Allen D. Bucknell, Phoenix, Attorneys for Plaintiff/Appellee/Cross–Appellant, Southwest Fiduciary, Inc.Ira W. Schiffman Attorney at Law and Law Offices of David L. Abney By David L. Abney and Levenbaum & Cohen By Geoffrey M. Trachtenberg, Phoenix, Attorneys for Plaintiff/Appellee James Flynn.Deconcini McDonald Yetwin & Lacy, P.C. By Gary F. Urman, Tucson, Attorneys for Defendants/Appellants, Arizona Health Care Cost Containment System Administration, Anthony D. Rodgers and Todd J. Jensen.

OPINION

JOHNSEN, Judge.

¶ 1 In these consolidated cases we address a question the Supreme Court left open in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006), concerning the lien rights of a state Medicaid plan after it has paid medical expenses for a victim who subsequently settles with a tortfeasor for less than the full amount of her overall damages. We conclude that the state plan may recover no more than the portion of the victim's settlement that represents recovery of the plan's payments on behalf of the victim, less a deduction for litigation expenses.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 Southwest Fiduciary, Inc. was appointed conservator of Rhonda Lundy after she was injured severely in an auto accident. Lundy sued third parties in the accident and ultimately settled her case for $842,696. According to a mediator, the “full value” of Lundy's damages was between $3,000,000 and $4,000,000. Included in that total were past medical bills of $920,000. According to the mediator, Lundy agreed to compromise her claims because of “difficult liability issues.” The Arizona Health Care Cost Containment System (“AHCCCS”), which had paid $268,080 toward Lundy's medical expenses, filed a lien for that amount against the settlement.

¶ 3 James Flynn was injured in a separate auto accident. Although the estimated value of his damages was $250,000, including billed medical expenses of $138,710, he settled his third-party tort claim for $100,000. AHCCCS, which had paid $51,760 toward Flynn's medical expenses, sought to enforce a lien for that amount against his recovery.

¶ 4 The settlements that Lundy and Flynn entered into with their respective tortfeasors resolved their claims for all manner of damages, including past medical expenses, future medical expenses, pain and suffering, lost wages and other out-of-pocket costs. As is customary, Lundy and Flynn did not limit their medical-expense claims to the amounts they actually paid or were paid on their behalf, but demanded reimbursement from the tortfeasors of the total amount billed by hospitals and other medical providers that treated them. ¹

¶ 5 During separate administrative proceedings, the issue was whether AHCCCS's lien rights were to be measured by what it actually paid or by the victims' total billed medical expenses. Although the director of AHCCCS decided in favor of AHCCCS, on appeal, the superior court in each case held AHCCCS's lien for payments it had made on behalf of the victim would be reduced by the ratio that the settlement amount bore to the victim's total claimed damages.²

¶ 6 We have jurisdiction over these consolidated appeals pursuant to Article 6, Section 9, of the Arizona Constitution and Arizona Revised Statutes (“A.R.S.”) sections 12–2101(B) (2007) and 12–120.21(A)(1) (2007).

DISCUSSION

A. Standard of Review.

¶ 7 AHCCCS challenges the superior court's interpretation of Arizona's healthcare lien statute, A.R.S. § 36–2915 (2009), and related federal statutes.³ Statutory interpretation is a question of law that we review de novo. Libra Group, Inc. v. State, 167 Ariz. 176, 179, 805 P.2d 409, 412 (1991).

B. Medicaid, AHCCCS and Ahlborn.

¶ 8 Medicaid was established in 1965 to provide medical care to qualified low-income individuals. See 42 U.S.C. § 1396 (2006). Each state administers its own Medicaid plan, which must conform to federal requirements. See, e.g., A.R.S. §§ 36–2901 to –2999.08 (2009). In Arizona, AHCCCS administers Medicaid services. Arizona Ass'n of Providers for Persons with Disabilities v. State, 223 Ariz. 6, 10–11, ¶ 4, 219 P.3d 216, 220–21 (App.2009).

¶ 9 Federal law requires states to establish procedures by which state Medicaid plans may be reimbursed by third-party tortfeasors for payments the plans make on behalf of injured persons to whom tortfeasors are legally liable. 42 U.S.C. § 1396a(a)(25)(B), (H) (2006); see also Ahlborn, 547 U.S. at 275–76, 126 S.Ct. 1752. In compliance with federal law, A.R.S. § 36–2915(A) provides in relevant part:

[AHCCCS] is entitled to a lien for the charges for hospital or medical care and treatment of an injured person for which [AHCCCS] or a contractor is responsible, on any and all claims of liability or indemnity for damages accruing to the person to whom hospital or medical service is rendered, or to the legal representative of such person, on account of injuries giving rise to such claims and which necessitated such hospital care and treatment.

¶ 10 Applying federal law, the Supreme Court held in Ahlborn that when a Medicaid recipient settles with a tortfeasor for an amount less than her full damages, Medicaid's share of the settlement may not exceed the portion of the settlement that represents medical expenses. 547 U.S. at 280, 126 S.Ct. 1752. The Medicaid recipient in Ahlborn incurred damages of about $3,040,000, but settled with the tortfeasor for $550,000. Id. at 269, 274, 126 S.Ct. 1752. The Arkansas Department of Health and Human Services stipulated that the settlement included only $35,581 attributable to past medical expenses, but asserted a lien for $215,645, the amount it had paid for the victim's medical care. Id. at 274, 280–81, 126 S.Ct. 1752. The Supreme Court concluded that the state plan could not recover more than the portion of the settlement representing payments for medical care. Id. at 280–81, 126 S.Ct. 1752. Thus, it limited the state's recovery to the portion of the settlement attributable to past medical expenses, $35,581. Id. ⁴

¶ 11 In Ahlborn the issue was whether the state Medicaid plan could recover the entirety of its lien against the victim's settlement, and the parties stipulated to the amount the state would recover if the Court ruled against the state. Id. at 280–81, 126 S.Ct. 1752. We address in this case an issue not presented in Ahlborn: Whether a Medicaid lien may be enforced against the portion of a tort settlement that represents medical expenses that are billed but not paid because medical providers have accepted discounted payments in full satisfaction of their bills. See generally Bolanos v. Superior Court, 169 Cal.App.4th 744, 87 Cal.Rptr.3d 174, 186 (2008) ( Ahlborn does not require specific formula in calculating amount of Medicaid lien that is enforceable against settlement); Lugo v. Beth Israel Med. Ctr., 13 Misc.3d 681, 819 N.Y.S.2d 892, 897 (N.Y.Sup.Ct.2006) (rejecting application of any specific formula but recognizing the usefulness of the formula applied in Ahlborn ).

¶ 12 This issue arises because of the rule in Arizona that injured persons may sue in tort to recover the full amount of their billed medical expenses caused by the tort, even though they may not have paid that amount or (any amount) of medical expenses. This “collateral source rule” prohibits tortfeasors from avoiding liability for damages in situations in which an injured party has been compensated by a third party. Lopez v. Safeway Stores, Inc., 212 Ariz. 198, 202, ¶ 13, 129 P.3d 487, 491 (App.2006). Accordingly, when a plaintiff in a personal injury case calculates damages due from the tortfeasor, the number she includes for medical expenses is the full billed amount of those expenses, even though her health insurer (or AHCCCS) may have negotiated to pay less than that amount on her behalf. As noted, for example, supra ¶¶ 2–3, Lundy's billed medical expenses were $920,000; AHCCCS satisfied those expenses by paying $268,000; Flynn's billed medical expenses were $139,000, but AHCCCS satisfied those expenses by paying $52,000.

¶ 13 Because the parties in Ahlborn stipulated to the relevant formula, that case did not resolve whether the “medical expenses” component of a tort settlement against which a Medicaid lien may be imposed is measured by the payments Medicaid actually made for medical services or by the billed value of those services. Depending on the facts of a particular case, the difference may be significant. In the Flynn case, for example, the negotiated settlement represented 40 percent of the estimated value of the case.⁵ Under the formula applied by stipulation in Ahlborn and now urged by Flynn, AHCCCS's recovery would be calculated by multiplying the amount AHCCCS paid in past medical expenses, $51,760, by 40 percent. The result ($20,704) then would be reduced to $13,043 to account for litigation expenses. AHCCCS, however, argues its lien should be based on the proportion of Flynn's total damages represented by billed medical expenses. It applies that proportion (56.5 percent) against the net settlement amount (the settlement amount less attorney's fees and costs), and arrives at a lien of $32,640.⁶

C. Federal and State Law Require that AHCCCS's Lien Recovery Be Calculated Based on What AHCCCS Has Paid, Not on Total Billed Medical Expenses.

¶ 14 The statute under which AHCCCS asserted the liens at issue, A.R.S. § 36–2915(A)...