This article has been published in “The Advocate”, a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, January – February 2013 issue, @2013 by Steven J. Bruzonsky, Esq.
Summary of AHCCCS and Arizona State or Political Subdivision & A.R.S. § 12-962 Lien Cases To Date, Including the Latest, State v. Wang
AHCCCS (Arizona’s implementation of the federal Medicaid program) liens can be filed against “third party” liability and “first party” Uninsured Motorist (UM) and Underinsured Motorist (UIM) claims, provided that a lien satisfying the requirements of A.R.S. § 36-2915 is timely recorded. The statute provides for liens “on any and all claims of liability or indemnity”. Also, AHCCCS has an automatic (no lien filing or recording necessary) lien against “third person” or liability claims per A.R.S. § 12-962.
Arizona state or political subdivisions may assert automatic (no lien filing or recording necessary) liens against “third person” or liability claims per A.R.S. § 12-962. This is because the language of this statute provides for liens by “this state or any of its political subdivisions”, which necessarily includes AHCCCS as well.
Following is a summary of important AHCCCS, Arizona state or political subdivision, and A.R.S. § 12-962 lien cases to date, including the latest, State v. Wang:
AHCCCS v. Bentley, 928 P.2d 653, 187 Ariz. 229 (1996). AHCCCS has an automatic (no perfection or filing required) statutory lien for payment of accident-related medical benefits, pursuant to A.R.S. § 12-962, regardless of whether it files and perfects an A.R.S. § 36-2915 lien with the County Recorder. In this case, AHCCCS failed to file and record a lien with the County Recorder, as required to file a lien under A.R.S. § 36-2915.
Ark. Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752 (2006). The parties stipulated that the injured 19 year old female plaintiff’s injury settlement of $550,000 was approximately one-sixth of the “full value” of $3,040,708.18 of her injury claim. The Arkansas Dept. of Health Services (ADHS) Medicaid lien was for benefits paid of $215,645.30. The U.S. Supreme Court affirmed the Eight Circuit’s award of approximately one-sixth of the Medicaid lien, or $35,581.47. The U.S. Supreme Court essentially required that Medicaid liens be reduced pro-rata based on the ratio of amount collected divided by the injury claim’s “full value”. The statutory basis for this decision was the federal Medicaid anti-lien provision, 42 U.S.C. §§ 1396a(a)(18) and 1396p(a)(1), which 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”.
Arizona Department of Administration v. Cox, 213 P. 3d 707, 222 Ariz. 270 (App. 2009). At issue was a $25,012.11 A.R.S. § 12-962 lien asserted by the Arizona Department of Administration (ADOA). Division 2 assumed that Cox, the injured party, received the full value of his personal injury claim, $30,000 liability $200,000 Underinsured Motorist (UIM) policy limits. Division 2 held that no procurement cost (attorney’s fees and costs) reduction is required, and that Ahlborn pro rata lien reduction isn’t required, for A.R.S. § 12-962 in the context of a non-AHCCCS state or political subdivision lien; that the A.R.S. § 12-962 lien recovery is limited to the liability settlement after attorney’s fees and costs are first deducted; and that the lien applies only to the “third party” liability and not to first party settlements such as the UIM settlement in this case. The case was remanded to the trial court with an order to enter an award of $21,746.45, the amount remaining after deduction of attorney’s fees and costs from the $30,000 liability settlement.
Southwest Fiduciary/Flynn v. AHCCCS, 249 P.3d 1104 (App. 2011). Division 1 clarifies application of the Ahlborn pro rata AHCCCS lien reduction formula. AHCCCS contended that the Ahlborn pro rata lien reduction formula is measured by the injured party’s full billed medical expenses. However, Division 1 held that the Ahlborn pro rata lien reduction formula is measured by the actual medical benefits paid by AHCCCS; and as Lundy and Flynn recovered 24 and 40 percent, respectively, of the “full value” of their injury claims, AHCCCS was entitled to recover that same percentage, 24 and 40 percent, respectively, of its “full” lien amounts. 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.” Accordingly, Flynn’s AHCCCS lien was Ahlborn reduced to $20,704, and then reduced for pro rata litigation expenses to $13,403; and Lundy’s AHCCCS lien was also reduced both for Ahlborn and then for pro rata litigation expenses.
Another issue presented in the Southwest Fiduciary/Flynncase was whether the AHCCCS director abused his discretion by not eliminating the lien against Lundy’s settlement pursuant to A.R.S. § 36-2915(H) and (I). This statutory section requires 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.
State v. Wang, No 1 CA-CV 11-0560 (App. 9-6-2012). State sponsored health insurance for employees [perhaps this lien was for medical benefits paid for a developmentally disabled person, as the court discusses A.R.S. § 36-596.01(I), see below] paid $15,758.26 accident-related medical benefits for Wang, who was hit by a car while riding his bicycle. Wang settled his claim against the adverse driver for $50,000. There is no discussion that Wang’s injury claim settled for less than its “full value”. Wang incurred $16,666 attorney’s fees and $250.85 costs. The state asserted its lien under A.R.S. § 12-962. Wang argued that the “common fund” doctrine applies, so that the lien must be reduced pro rata for attorney’s fees. The Superior Court, relying upon the Cox case, granted the State’s motion for summary judgment for its full lien claim and declined to apportion Wang’s attorney’s fees against the lien claim. Division One notes that equity does not require reduction of the state’s lien claim by a pro rata share of Wang’s attorney’s fees, because after payment of attorney’s fees and costs and the state’s full lien, Wang retains $17,325.03 in net recovery. Division One notes that although A.R.S. § 36-596.01(I) (this statute provides that the Arizona Department of Economic Security may assert a lien to recover medical benefits paid for a developmentally disabled person provided that the lien is timely recorded) requires the state to compromise a claim under A.R.S. § 12-962 if, after considering certain factors, compromise is “fair and equitable”, that Wang waived this argument by raising it for the first time in his reply brief.
A.R.S. § 36-596.01(I) (discussed immediately above) uses identical language to the AHCCCS administration statute at A.R.S. § 36-2915(H), in that both statutes require that a public entity “shall” compromise a lien claim filed/recorded pursuant to those statutes, or a lien claim asserted pursuant to other listed statutes including A.R.S. § 12-962, if the compromise provides a settlement of the claim that is “fair and equitable”. “In determining the extent of the compromise of the claim - - - the public entity shall consider the following factors:
1. The nature and extent of the patient's injury or illness.
2. The sufficiency of insurance or other sources of indemnity available to the patient.
3. Any other factor relevant for a fair and equitable settlement under the circumstances of a particular case.”
After Wang, must AHCCCS liens be reduced for pro rata procurement costs? Southwest Fiduciary/Flynn requires that AHCCCS liens be reduced for pro rata procurement costs, and Wang doesn’t change this, as Wang waived the A.R.S. § 12-962 “fair and equitable” argument. So isn’t Southwest Fiduciary/Flynnstill good law mandating that AHCCCS liens be reduced for pro rata procurement costs? And if the AHCCCS lien isn’t reduced for pro rata procurement costs, then isn’t this a violation of the federal Medicaid anti-lien provision?
After Wang, must A.R.S. § 12-962 state or political subdivision liens be reduced for pro rata procurement costs? Southwest Fiduciary/Flynnas involving AHCCCS liens and the federal Medicaid anti-lien provision is easily distinguished as not applicable to A.R.S. § 12-962 state or political subdivision liens. Wang waived the A.R.S. § 12-962 “fair and equitable” argument by raising it for the first time in his reply brief. However, in Cox, Division Two held that no pro rata procurement cost reduction was required for A.R.S. § 12-962 state or political subdivision liens.
Originally, A.R.S. §§ 12-961 through 12-964 were applied only in regard to AHCCCS liens. The legislative history of the 1999 amendment to A.R.S. § 12-962, which extended these liens to Arizona state or political subdivisions, indicates that this was in response to Lo Piano v. Hunter, 173 Ariz. 172, 175, 840 P.2d 1037, 1040 (App. 1992). Lo Piano v. Hunter held that a local school district health trust fund’s subrogation provision was unenforceable as against public policy, following a long line of Arizona anti-subrogation case law in this regard. The school district trust fund didn’t qualify for federal ERISA preemption of state law or to assert a lien under the then existing language of A.R.S. § 12-962.
Keep in mind that the Arizona appellate cases to date concerning A.R.S. § 12-962 non-AHCCCS state or political subdivision lien claims, Cox and Wang, are both cases where the injured parties received the “full value” of their injury claims, and thus the injured parties in those cases were not denied “any recovery for that portion of his damage not covered” by the A.R.S. § 12-962 lien claims. I am hopeful that when the Arizona appellate courts are presented with an A.R.S. § 12-962 non-AHCCCS state or political subdivision lien claim where the injured party’s settlement is only a fraction of the injury claim’s “full value”, that they will apply A.R.S. § 12-963(B) as an anti-lien provision requiring pro rata lien reduction as in Ahlborn and Southwest Fiduciary/Flynn. A.R.S. § 12-963(B) expressly provides “Actions taken by this state or a political subdivision in connection with the rights afforded under this article shall not operate to deny the injured or diseased person any recovery for that portion of his damage not covered by this article.” The federal Medicaid anti-lien provision, 42 U.S.C. §§ 1396a(a)(18) and 1396p(a)(1), 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”. Isn’t the language of A.R.S. § 12-963(B) more clearly written than the federal Medicaid anti-lien provision, which was the basis of the Ahlborn decision, such that the Ahlborn pro rata lien reduction formula must be applied to all A.R.S. § 12-962 lien claims?