This article has been published in “The Advocate”, a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, May 2011 issue,
@2011 by Steven J. Bruzonsky, Esq.
The Southwest Fiduciary Case and Its Implications forAHCCCS Liens
(Please see my June 2006 “Liens Corner” article for more discussion concerning theAhlborn case)
Prior to discussing and understanding the landmark AHCCCS (AHCCCS is Arizona’s agency which administers Medicaid benefits) lien decision by Division 1 of the Arizona Court of Appeals in Southwest Fiduciary v. AHCCCS, 2011 WL 832235 (App. March 10, 2011), lets briefly review the landmark Medicaid lien decision of the U. S. Supreme Court in Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006).
In Ahlborn, 547 U.S. 268 (2006), ADHS (ADHS is Arkansas’ agency which administers Medicaid benefits) and Ahlborn, the injured party, stipulated: (1) That the settlement funds received of $550,000 were approximately one-sixth of the injury claim’s full value of $3,040,708.18; and (2) That if Ahlborn’s construction of federal law was correct, that ADHS would be entitled to only the (pro-rata) portion of the settlement, which was $35,581.47 (one-sixth) of the total lien amount of $215,645.30. The U.S. Supreme Court affirmed the holding of the Eight Circuit, that ADHS was only entitled to that portion of the judgment that represented payments for medical care; and that the federal anti-lien provision affirmatively prohibits ADHS from asserting a lien against Ahlborn’s settlement in an amount exceeding $35,581.47.
In Ahlborn, the U.S. Supreme Court explains the significance of the federal Medicaid ant-lien provision: The federal Medicaid anti-lien provision prohibits States from imposing liens “against the property of any individual prior to his death on account of medical assistance paid . . . on his behalf under the State plan.” 42 U.S.C. §§ 1396a(a)(18) and 1396p(a)(1). Section 1396a(a)(18) requires that a State Medicaid plan comply with §1396p, which in turn prohibits States (except in circumstances not relevant here) from placing liens against, or seeking recovery of benefits paid from, a Medicaid recipient. This anti-lien provision “precludes attachment or encumbrance of the remainder of the settlement” over and above the proceeds designated as medical payments. There is no question that the State can require an assignment of the right to receive payments for medical care and that the recipient “assign” in advance any payments that may constitute payment for medical costs. 42 U.S.C. §§1396a(a)(25) and 1396k(a). “But that does not mean that the State can force an assignment of, or place a lien on, any other portion of Ahlborn’s property.
In Southwest Fiduciary v. AHCCCS, 2011 WL 832235 (App. March 10, 2011), Division 1 initially states that 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 that the state would recover if the Court ruled against the state; that the main issue in Southwest Fiduciary is whether AHCCCS’ lien rights are measured by the injured party’s full billed medical expenses or by the medical benefits paid by AHCCCS; and that this issue arises due to Arizona’s “collateral source rule”, which provides that injured persons may sue in tort to recover the full amount of their billed medical expenses (regardless of the extent to which the medical bills are paid at reduced rates by health insurance), citing Lopez v. Safeway Stores, Inc., 212 Ariz. 198, 202, ¶ 13, 129 P.3d 487, 491 (App. 2006).
Division 1 holds that post Ahlborn, AHCCCS’ lien rights are measured by the medical benefits paid by AHCCCS, which then mandates that AHCCCS multiply the Ahlborn pro rata ratio (settlement divided by full claim value) times the full AHCCCS lien amount, with that amount being the maximum lien that may be asserted by AHCCCS in compliance with Ahlborn and the federal Medicaid anti-lien provision.
What a difference this made in the AHCCCS lien reductions in the Southwest Fiduciary case. For James Flynn: Injury settlement $100,000. Full value $250,000. $51,760 full AHCCCS lien. Past medical bills of $138,710. AHCCCS argued that 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.” However, Division 1 agreed with Flynn: “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.” For Southwest Fiduciary, Conservator for Rhonda Lundy: Injury settlement $842,696. Full value $3,500,000 (range of $3,000,000 to $4,000,000 per mediator). $268,080 full AHCCCS lien. Past medical bills of $920,000. Division 1 upheld the Superior Court’s lien reduction determination, noting that in applying Ahlborn, AHCCCS was entitled to recover 40% of its lien.
In support of its decision, Division 1 discusses (1) that A.R.S. §36-2915(A) limits the amount of the AHCCCS lien to “the charges - - - for which [AHCCCS) - - - is responsible” ; (2) that 42 U.S.C. 1396a(a)(25)(B), which requires states to enact measures to seek “reimbursement” for Medicaid assistance payments when a third party is found liable for healthcare services, is interpreted as referring to “charges actually paid by AHCCCS”; and (3) that the federal Medicaid “anti-lien” provision discussed in Ahlborn, 42 U.S.C. §1396p, bars states “from placing liens against or seeking recovery of benefits paid from, a Medicaid recipient; that this would appear to bar even a lien on that portion of the settlement proceeds that represents payments for medical care; that 42 U.S.C. § 1396a is an exception to the federal Medicaid “anti-lien” provision which provides for a lien for medical benefits paid by Medicaid, but which does not go so far as to included billed medical expenses that AHCCCS has not paid.
Another issue presented in this case is whether the director of AHCCCS abused his discretion by not eliminating the lien against Lundy’s settlement pursuant to A.R.S. § 36-2915(H) and (I), which require AHCCCS to consider compromising its lien based on “[t]he nature and extent of the patient’s injury or illness,” available “insurance or other sources of indemnity,” and “[a]ny other factor relevant for a fair equitable settlement under the circumstances of a particular case. (Note that AHCCCS liens may also be presented under A.R.S. §12-962 et seq, and that A.R.S. §12-963A(1) and (2) also provide for discretionary lien compromise by stating that the state or political subdivision (which includes AHCCCS) “- - - may - - - Compromise - - - any claim”, and may also “Waive any claim - - - in whole or in part either for its convenience or if it determines that collection would result in undue hardship - - -”.) Division 1 noted that the AHCCCS director’s refusal to compromise the lien may be reversed only if “it is arbitrary, capricious, or an abuse of discretion”, citing Thompson v. Ariz. Dept of Econ Sec, 127 “Ariz. 293, 294, 619 P.2d 1070, 1071 (App. 1980); that although Lundy’s injuries were extensive, it was undisputed that AHCCCS likely would pay her future medical costs for the remainder of her life; and that they could not conclude that the director abused his discretion.
Division 1 notes several times that AHCCCS stipulated that the liens should, after the Ahlborn pro rata reduction, be further reduced for litigation or procurement costs expenses. In the very first paragraph of the opinion, the Court states that “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.” As discussed above, when the Court discusses Flynn’s lien reduction, the Court states that the already Ahlborn reduced lien to $20,704 is then further reduced “to $13,043 to account for litigation expenses”. Then, at the last paragraph of the opinion, the Court states that “we hold that AHCCCS's lien rights pursuant to A.R.S. §36-2915are limited to that portion of a tort settlement that represents recovery of medical expenses actually paid by AHCCCS. AHCCCS does not dispute that in such circumstances, its lien should be reduced by a proportionate amount to account for litigation expenses. Accordingly, on the records presented, we affirm the superior court's orders. We grant Flynn's request for reasonable attorney's fees pursuant to A.R.S. § 12-348(A)(2) (2003)” (this statute provides for awards of attorney’s fees and costs against the state or a city, town or county).
Does this mean that from now on, AHCCCS will automatically reduce liens for procurement costs? Or did AHCCCS stipulate to reduce the liens by procurement costs in these cases strictly exercising its lien reduction discretion under A.R.S. § 36-2915(H) and (I), discussed above? Does this case stand for the proposition that AHCCCS must reduce all liens for procurement costs in addition to any Ahlborn or equitable lien reduction? AHCCCS’ stipulation to give the procurement cost reductions in these cases was no doubt an intentional strategy to leave the door open on this issue, just as in Ahlborn ADHS’ stipulation discussed above left a door open which now five years later the Southwest Fiduciary case has closed.