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The Supreme Court of Arizona Holds That Hospitals May Not Use Liens Against Third-Party Tortfeasors to Balance Bill Medicaid Patients

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Former Associate
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On March 9, 2020, the Supreme Court of Arizona issued its ruling in Ansley, et al. v. Banner Health Network, et al., 2020 WL 1126300 (2020), finding that hospitals may not utilize Arizona Revised Statutes § § 33-931(A) and 36-2903.01(G)(4) to secure liens against third-party tortfeasors in order to balance bill patients for medical bills beyond the negotiated reimbursements provided by Medicaid. The Plaintiffs consisted of patients covered by the Arizona Health Care Cost Containment System (“AHCCCS”), Arizona’s Medicaid agency, who were treated at the defendant hospitals. After AHCCCS negotiated payments to the hospitals on behalf of the patients, the hospitals placed a lien on the third-party tortfeasors who caused the patients’ injuries in order to “recover the remainder of their customary fees” beyond AHCCCS’ reimbursement.

Plaintiffs filed the class action lawsuit against the hospitals alleging that 42 U.S.C. § 1396a(a)(25)(C) and 42 C.F.R. § 447.15 (federal Medicaid law and regulations), prohibited hospitals from balance billing patients, or in other words, collecting payments beyond reimbursement from AHCCCS. Hospitals previously operated in accordance with A.R.S. § 33-931(A), which provides that medical providers are “entitled to a lien for the care and treatment . . . of an injured person . . . for customary charges.” In addition A.R.S. § 36-2903(G)(4) provides: “A hospital may collect any unpaid portion of its bill from other third-party payors . . . .”

The Court first considered whether the Plaintiffs had a private right of action under the aforementioned Medicaid law. While federal law and the applicable regulations do not explicitly provide a private right of action under these circumstances, the Court assessed the statute’s intent, noting that money collected from tortfeasors that would otherwise be paid to the patients is exactly what § 1396a(a)(25)(C) sought to prevent. This statute required hospitals to accept “payment in full” from state Medicaid agencies. Thus, the Court held that the patients could seek to enjoin a violation of an enforceable federal right to prevent application of state law.

The hospitals argued that administrative remedies available to the patients foreclosed a private equitable right of action. However, the Court found that these remedies were not relevant and did not provide “meaningful alternative means of relief.” Therefore, a private right of action was available to the Plaintiffs.

Finding that the Arizona state law stood as an obstacle to the purpose and objective of § 1396a(a)(25)(C), the Court held that A.R.S. § § 33-931(A) and 36-2903.01(G)(4) were preempted by federal law as applied in this case. The Court noted that 42 C.F.R. § 447.15 categorically prohibits balance billing by hospitals who accept payments from a Medicaid program such as AHCCCS – which includes collecting money from third-party tortfeasors via a lien.

With the advent of this ruling, hospitals should consider whether to accept Medicaid payments in circumstances they are capable of placing a lien on a third-party tortfeasor to collect the entire amount charged. Hospitals must also be cognizant of their balance billing practices moving forward. Hospitals should evaluate similar prohibitions against balance billing Medicare patients and state laws targeted at limiting a hospital’s ability to balance bill patients. In light of constantly changing laws and the increasing number of lawsuits related to medical billing, hospitals should consider updating their policies and procedures related to balance billing patients to ensure compliance with applicable laws and regulations.