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Steven J. Bruzonsky

Attorney At Law

Law Office of
Steven J. Bruzonsky
917 E. San Angelo Ave.
Gilbert, AZ 85234
480-969-3003

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Please note that Attorney Bruzonsky has been doing this regular “Liens Corner” column since April 2006. His last “Liens Corner” article was for the November/December 2017 issue of The Advocate, having stepped down from this regular column, as he now works part-time (and is part-time retired) exclusively handling large subrogation/lien claims in very large personal injury and medical malpractice cases for other attorneys. However, attorney Bruzonsky may add notes to this website under the subject lien article headers from time to time. (Please keep in mind that this site contains general information for educational purposes only. It is not intended to provide legal advise, which can only come from a qualified attorney who is familiair with all the facts and circumstances of your specific case and relevant law.) 

 

 

2014-01: The Ins and Outs of AHCCCS Liens (AzTLA Annual Liens Seminar Handout)

June 25th, 2016 12:04:52 pm


                                            LAW OFFICE OF STEVEN J BRUZONSKY

                                                               917 E. SAN ANGELO AVE.

                                                                     GILBERT, AZ 85234

                                                  480-969-3003    • Fax: 1-866-295-6635

                                             

 

 

                   ARIZONA ASSOCIATION FOR JUSTICE

              ARIZONA TRIAL LAWYERS ASSOCIATION

 

                                                         Presents

 

             “THE INS AND OUTS OF AHCCCS & ARIZONA

              STATE AND POLITICAL SUBDIVISION LIENS”

 

                                     By Steven j. bruzonsky, esq.

 

                                                 January 24, 2014

 

@2014 by Steven J. Bruzonsky, Esq.

 

 

 

                           “THE INS AND OUTS OF AHCCCS LIENS”

 

1.  Summary of the Statutory and Regulatory Basis of AHCCCS Liens:

Federal:

 

42 USC. §1396a-1396u* Subchapter XIX of the Federal Social Security Act, establishes Medicaid as a medical assistance program for eligible low-income individuals. 42 USC               §1396a(a)(25) and 42 USC 1396k(b) are the lien statutes.The Bipartisan Budget Act of 2013, §§202(b) and 202(c), amends the Medicaid lien statutes effective October 1, 2014.
 

42 CFR Part 433 “State fiscal administration” covers state administration of Medicaid, including 42 CFR 433.135 to 433.139 regarding state collection of Medicaid liens.

 

CMS State Medicaid Guide, §3907 (dated 9-92) regarding state collection of Medicaid liens.

 

Arizona:

 

ARS §36-2903(F)

ARS §§36-2915  through  36-2916  (ARS §36-2915(H) and (I) concerns lien compromise and

     waiver)  

ARS §36-2956 (ARS §36-2956(B) requires the attorney and injured party to give AHCCCS

     notice of the injury claim

ARS §§12-961 through 12-964 (ARS §12-963(A) and B) concern lien compromise and waiver)

ARS §36-2935  Arizona Long-Term Care System (ALTCS) liens

 

36 ARS Chapter 29 Arizona Health Care Cost Containment System (AHCCCS) Administration, ARS §36-2901 through ARS 36-2998 are the AHCCCS administration statutes.

 

Arizona Administrative Code R9-22-1001 to R9-22-1008 regarding AHCCCS administration including coordination of benefits and liens; and Arizona Administrative Code  R9-34-101 through R9-34-114 regarding Grievance and Request for Hearing.

 

2. AHCCCS Medical Assistance is Required by Federal Medicaid and State law:

 

Medicaid is a medical assistance program for eligible low-income individuals, established in 1965 by subchapter XIX of the Federal Social Security Act, 42 USC §1396a-1396u. Arizona joined in 1985. AHCCCS is short for the Arizona Health Care Cost Containment System. 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 (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 amount that the state reasonably expects to recover exceeds the cost of recovery. 42 USC §1396(a)(25); 42 CFR  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 USC §1396k(b). Any remaining funds will then be paid to the recipient. Eaton v. AHCCCS, 206 Ariz. 430, 79 P.3d 1044 (App. 2003). 42 USC §1396k(b) provides that the State shall retain such part of any amount collected to reimburse it for the state’s medical assistance payments, “with appropriate reimbursement of the Federal Government to the extent of its participation in the financing of such medical assistance.

 

The state agencies which administer Medicaid payments collect the Medicaid and state medical assistance payments liens, and then the Medicaid portion collected is reimbursed to Medicaid, per 42 CFR 433.135 to 433.139. The Arizona  AHCCCS Director may delegate collection of the AHCCCS lien to a subcontractor and that the subcontractor may sue on AHCCCS’ behalf. AHCCCS v. Bentley, 187 Ariz. 229, 928 P.2d 653 (App. 1996).

 

3.  The Arizona AHCCCS Lien Statutes:

 

ARS §36-2903(F): AHCCCS Subrogation, Assignment and Coordination of Benefits

 

 

36-2903. Arizona health care cost containment system; administrator; powers and duties of director and administrator; exemption from attorney general representation; definition

 

“F. Except for reinsurance obtained by contractors, the administrator shall coordinate benefits provided under this article to any eligible person who is covered by workers' compensation, disability insurance, a hospital and medical service corporation, a health care services organization, an accountable health plan or any other health or medical or disability insurance plan including coverage made available to persons defined as eligible by section 36-2901, paragraph 6, subdivisions (b), (c), (d) and (e), or who receives payments for accident-related injuries, so that any costs for hospitalization and medical care paid by the system are recovered from any other available third party payors. The administrator may require that contractors and noncontracting providers are responsible for the coordination of benefits for services provided under this article. Requirements for coordination of benefits by noncontracting providers under this section are limited to coordination with standard health insurance and disability insurance policies and similar programs for health coverage. The system shall act as payor of last resort for persons eligible pursuant to section 36-2901, paragraph 6, subdivision (a), section 36-2974 or section 36-2981, paragraph 6 unless specifically prohibited by federal law. By operation of law, eligible persons assign to the system and a county rights to all types of medical benefits to which the person is entitled, including first party medical benefits under automobile insurance policies based on the order of priorities established pursuant to section 36-2915. The state has a right to subrogation against any other person or firm to enforce the assignment of medical benefits. The provisions of this subsection are controlling over the provisions of any insurance policy that provides benefits to an eligible person if the policy is inconsistent with the provisions of this subsection.”

 

ARS §36-2915: AHCCCS Lien; Recording Required; Applies To All Personal Injury Settlements – Third Party, First Party, UM/UIM, Medical Payments When  Timely and Properly Recorded; Fair and Equitable Lien Compromise Required

 

36-2915. Lien of administration on damages recovered by injured person; perfection, recording, assignment and notice of lien

A. The administration is entitled to a lien for the charges for hospital or medical care and treatment of an injured person for which the administration 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 or medical care and treatment. The member or the member's legal representative must provide written notice to the administration within twenty calendar days after the commencement of a civil action or other proceeding to establish the liability of any third party or to collect monies payable from accident insurance, liability insurance, workers' compensation, health insurance, medical payment insurance, underinsured coverage, uninsured coverage or any other first or third party source.

B. In order to perfect a lien granted by this section, the director or the director's authorized representative, before or within sixty days from the date of notification to the administration of the hospital discharge or rendering of medical care and treatment, shall record in the office of the recorder of the county in which the injuries were incurred a verified statement in writing setting forth the name and address of the patient as they appear on the records of the administration, the name and address of the administration, the dates of admission to and discharge of the patient from the hospital or the dates on which medical care and treatment were provided to the patient, the amount estimated to be due for hospital or medical care and treatment, and, to the best of the director's knowledge, the names and addresses of all persons, firms or corporations and their insurance carriers alleged by the injured person or that person's legal representative to be liable for damages arising from the injuries for which he was hospitalized or for which medical care and treatment were provided. However, the director or the director's authorized representative is not required to include the address of the patient in the verified statement if the administration's records indicate that the patient's injuries may have resulted from an offense against the patient as defined in section 13-105. The director or the director's authorized representative, within five days after recording the lien, shall mail a copy of the lien, postage prepaid, to the patient and to each person, firm or corporation, including insurance carriers, alleged to be liable for liability or indemnity damages, at the address given in the statement. The recording of the lien is notice of the lien to all persons, firms or corporations, including insurance carriers, liable for liability or indemnity damages, whether or not they are named in the lien.

C. The recorder shall endorse on a lien recorded as provided by this section the date and hour of receipt and such facts as are necessary to indicate that it has been recorded.

D. The lien may be assigned in whole or in part to a contractor that is responsible for hospital or medical services.

E. The director shall establish by rule procedures for a contractor and a noncontracting provider to notify the administration concerning the delivery of hospital or medical services to a person who may have claims for damages.

F. Notwithstanding any other law, a lien or claim provided for by this article has priority over a lien of the department pursuant to section 36-596.01, a lien of the counties pursuant to section 11-291, a health care provider lien pursuant to title 33, chapter 7, article 3 and a claim against a third party payor. A lien of the department of economic security pursuant to section 36-596.01, a lien of a special health care district pursuant to section 48-5541.01, subsection N and a lien of the counties pursuant to section 11-291 has priority over a health care provider lien pursuant to title 33, chapter 7, article 3 and a claim against a third party payor.

G. A lien authorized pursuant to this chapter may be amended to reflect current charges. However, if the administration is given notice of an impending settlement of the member's claim at least fifteen working days before the final settlement of that claim, the lien may not be amended after the time of final settlement.

H. A public entity shall compromise a claim it has pursuant to this section or section 11-291, 12-962, 36-596, 36-596.01, 36-2903, 36-2935 or 36-2956 if, after considering the factors listed in subsection I of this section, the compromise provides a settlement of the claim that is fair and equitable.

I. In determining the extent of the compromise of the claim required by subsection H of this section, 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.

J. Notwithstanding any other law, for the purpose of recovering monies from third party payors as provided by this section, a lien that includes a cover sheet pursuant to subsection K of this section and that is filed by an entity under contract with the administration, a health plan or a program contractor, or the authorized representatives of these entities, is considered filed by the state for the purposes of payment of county recorder fees pursuant to section 11-475, subsection A, paragraph 2.

K. A health plan, a program contractor, an entity under contract with the administration or an authorized representative of the health plan, program contractor or entity shall include a cover sheet, as prescribed by the administration, when filing a lien on behalf of the administration pursuant to this section. The cover sheet shall be signed by the director on the administration's letterhead with the statutory authority of the health plan, program contractor, entity or authorized representative of the health plan, program contractor or entity to file a lien on behalf of the administration.

 

ARS §39-2916:  AHCCCS Right To File Litigation To Obtain Payment of Lien;

                               Release of Lien

 

36-2916. Release of claim by injured person ineffective as to system; action to enforce lien; release of lien

A. A release of a claim on which a lien is imposed pursuant to section 36-2915 is not valid or effective as against the lien unless the director joins in the release or executes a release of the lien.

B. If any amount has been or is to be collected by the injured person or his legal representative from or on account of the person, firm or corporation, including insurance carriers liable for liability or indemnity damages by reason of a judgment, settlement or compromise, the director may enforce the lien by action against the patient or the person, firm or corporation, including insurance carriers, liable for liability or indemnity damages. Such action shall be commenced and tried in the county in which the lien is filed, unless the court orders that the action be removed to another county for cause. If the director prevails in the action, the court may allow the administration its reasonable attorney fees and disbursements. Such an action shall be commenced within two years after the entry of the judgment or the making of the settlement or compromise.

C. Within thirty days after a lien established pursuant to section 36-2915 is satisfied, the director shall issue a release of the lien to the person, firm or corporation against which the lien was claimed. The release shall be a document which conforms to the requirements of section 11-480.      

 

ARS §36-2956:  Notice of Injury Claim or Litigation Required; AHCCCS Lien

 

 

 

 

 
 

36-2956. Liens on damages for injuries; notification

A. The administration is entitled to a lien for the charges for hospital, medical or long-term care and treatment of an injured person for which the administration or a program contractor is responsible pursuant to this article, on any and all claims 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 or medical care and treatment. Recovery of charges pursuant to this section shall be in a manner as nearly as possible the same as the procedures prescribed in sections 36-2915 and 36-2916.

B. The member or the member's legal representative must provide written notice to the administration within twenty calendar days after the commencement of a civil action or other proceeding to establish the liability of any third party or to collect monies payable from accident insurance, liability insurance, workers' compensation, health insurance, medical payment insurance, underinsured coverage, uninsured coverage or any other first or third party source.

ARS §§12-961 through 12- 964: AHCCCS Lien and Subrogation; No Lien Recording Required (Automatic); Applies Only to Third Party Liability Settlements; Lien Compromise or Waiver;  Lien Release

 

12-961. Definitions

In this article, unless the context otherwise requires:

1. "Medical care and treatment" includes hospital, medical, psychological, surgical and dental care, ambulance services, prostheses, medical appliances and supplies, pharmaceutical supplies, occupational therapy and physical therapy.

2. "Third person" includes any governmental entity, corporation, company, partnership, firm, association, society and a natural person.

 

12-962. Recovery of cost of medical care

A. If this state or any of its political subdivisions provides medical care and treatment to a person who is injured or suffers from a disease under circumstances creating tort liability upon a third person, the state or political subdivision, either jointly or severally, may recover from the third person or the injured or diseased person the reasonable value of the medical care and treatment. To the extent of this right, this state or a political subdivision is subrogated to the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors with reference to any right or claim they might have against the third person. The head of the department or agency furnishing the medical care or treatment may require the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors to assign the claim or cause of action against the third person to the extent of the reasonable value of the medical care or treatment.

B. To enforce this right, the state or political subdivision may do the following:

1. Intervene or join in any action or proceeding brought by the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors against the third person who is liable for the injury or disease.

2. If an action or proceeding is not brought by the injured or diseased person, or the person's guardian, personal representative, estate, dependents or survivors within six months after the first day on which the medical care and treatment were furnished, institute and prosecute legal proceedings against the third person who is liable for the injury or disease for which the medical care and treatment were furnished. The action or proceeding may be brought in state or federal court, either in the name of the state or political subdivision, or in the name of the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors, or in conjunction with the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors.

3. Recover the cost of care from the injured or diseased person or the person's estate to the extent that such person has received money in settlement of the claim or satisfaction of a judgment against the third party.

C. If an action or proceeding is brought in the name of the state or political subdivision pursuant to subsection B, paragraph 2, the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors shall not be required to join the action or proceeding.

 

12-963. Compromise or waiver of claim

A. This state or any of its political subdivisions required by law to furnish medical care and treatment may either:

1. Compromise, or settle and execute a release of, any claim which it has pursuant to section

12-962.

2. Waive any claim it has pursuant to section 12-962 in whole or in part either for its convenience or if it determines that collection would result in undue hardship upon the person who suffered the injury or disease resulting in care and treatment.

B. 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. A release executed by the state or any of its political subdivisions shall not release a third party from any claims of the injured or diseased person except that the third party shall be entitled to offset amounts paid to the state or political subdivision if such expenses are included in the claim of the injured or diseased person.

 

12-964. Limitation

This article does not affect any other provision of law providing for recovery by this state or any of its political subdivisions of the cost of care and treatment described in section 12-962.

 

ARS §36-2935  Arizona Long-Term Care System (ALTCS) Liens

 

36-2935. Estate recovery program; liens

A. The director shall adopt rules in accordance with state and federal law to allow the administration to file a claim against a member's estate to recover paid assistance. The administration is also entitled to a lien on a member's property to recover paid assistance the member receives.

B. A member's personal representative must notify the administration of the member's estate or property within three months after the member's death if the member was at least fifty-five years of age and the administration has not already filed a statement of claim in the estate proceedings.

C. As nearly as is possible, the administration shall recover charges pursuant to the procedures prescribed in sections 36-2915 and 36-2916. If both the administration and a county have valid liens for paid assistance provided to the same member, or if both the administration and a special health care district have valid claims for paid assistance provided to the same member, the value of the property shall be divided between the administration, the special health care district and the county pro rata according to the amounts of their respective liens.

D. The administration shall impose liens in a manner consistent with federal law.

E. This section also applies to persons who are eligible pursuant to section 36-2901, paragraph 6, subdivision (a) and who receive medical assistance under article 1 of this chapter.

 

4.  Analysis of Law, Including Case Law, Concerning AHCCCS Liens:

 

     A.  ARS §12-962 AHCCCS liens are automatic, no lien filing/recording/perfection

           is required, but only apply against “third party” liability settlements.

 

AHCCCS v. Bentley, 928 P.2d 653, 187 Ariz. 229 (1996) is the authority that AHCCCS has an automatic (no perfection or filing required) statutory lien for payment of accident-related medical benefits, pursuant to ARS §12-962, regardless of whether it files and perfects an ARS §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 ARS §36-2915.

 

Arizona Department of Administration v. Cox, 213 P. 3d 707, 222 Ariz. 270 (App. 2009) holds that Arizona state or political subdivision liens under ARS §12-962 (and thus AHCCCS liens which are automatic under ARS §12-962) only apply against “third party” liability settlements and do not apply against first party Uninsured and Underinsured Motorist settlements. ARS §12-962(A) states that “the state or political subdivision, either jointly or severally, may recover from the third person or the injured or diseased person the reasonable value of the medical care and treatment.”  ARS §12-961(2) defines “Third person” to include “any governmental entity, corporation, company, partnership, firm, association, society and a natural person”. 

 

AHCCCS also has subrogation rights for ARS §12-962 liens. ARS §12-962(B)(1) gives AHCCCS the right to bring an action, or to intervene or join in an action, against “the third person who is liable for the injury or disease”. ARS §12-962(B)(2) provides for direct action/litigation by AHCCCS: “If an action or proceeding is not brought by the injured or diseased person, or the person's guardian, personal representative, estate, dependents or survivors within six months after the first day on which the medical care and treatment were furnished, institute and prosecute legal proceedings against the third person who is liable for the injury or disease for which the medical care and treatment were furnished. The action or proceeding may be brought in state or federal court, either in the name of the state or political subdivision, or in the name of the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors, or in conjunction with the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors.”

 

     B.  ARS §36-2915 requires that the AHCCCS lien be timely filed and applies against not

           only “third party” liability settlements, but against all settlements including first

           party Uninsured and Underinsured Motorist settlements.

 

ARS §36-2915(A) clearly states that the lien is “on all claims of liability or indemnity”, and then requires the member of the member’s legal representative to give written notice within twenty calendar days to AHCCCS “after the commencement of a civil action or other proceeding to establish liability of any third party or to collect monies payable from accident insurance, liability insurance, workers' compensation, health insurance, medical payment insurance, underinsured coverage, uninsured coverage or any other first or third party source.” The lien originally was “on any and all claims for damages” and was amended effective 1990 to apply “on any and all claims of liability or indemnity for damages”.

 

The ARS §36-2915 lien must be filed “before or within sixty days from the date of notification to the administration of the hospital discharge or rendering of medical care and treatment”, and the lien must be recorded with the county recorder of the county where the “injuries were incurred”.

ARS §39-2916 states that AHCCCS “may enforce the lien by action against the patient or the person, firm or corporation, including insurance carriers, liable for liability or indemnity damages.” Also, action to enforce the lien “shall be commenced within two years after the entry of the judgment or the making of the settlement or compromise.

 

AHCCCS also has subrogation rights for ARS §36-2915 liens. ARS §36-2903(F) gives AHCCCS a  “right to subrogation against any other person or firm” to obtain reimbursement of the medical benefits paid. ARS §39-2916(B) states that AHCCCS “may enforce the lien by action against the patient or the person, firm or corporation, including insurance carriers, liable for liability or indemnity damages.”  Also, the action must be filed “within two years after the entry of the judgment or the making of the settlement or compromise”. 

 

ARS §36-2956 gives AHCCCS a lien “on any and all claims 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 or medical care and treatment.” Recovery of the lien “shall be in the same manner as nearly as possible the same as the procedures prescribed in sections 36-2915 and 36-2916.”

 

     C.  What If AHCCCS Doesn’t Timely File anARS §36-2915 Lien – Does This Mean

           That the AHCCCS Lien Is Not Applicable Against An Uninsured Motorist or

           Underinsured Motorist Settlement? I Wouldn’t Bet On It!

 

Thanks to Arizona Department of Administration v. Cox, 213 P. 3d 707, 222 Ariz. 270 (App. 2009), it is clear that an “automatic” AHCCCS lien under ARS §12-961 et seq does not apply

against first party Uninsured and Underinsured Motorist settlements.

 

However, ARS §36-2956(B) requires that “The member or the member's legal representative must provide written notice to the administration within twenty calendar days after the commencement of a civil action or other proceeding to establish the liability of any third party or to collect monies payable from accident insurance, liability insurance, workers' compensation, health insurance, medical payment insurance, underinsured coverage, uninsured coverage or any other first or third party source.” 

 

Lets say that a plaintiff’s attorney and his/her injured client fails to give this required

ARS §36-2956(B) notice to AHCCCS, an AHCCCS fails to file any (or an untimely) lien with the county recorder. The attorney fully disburses a $100,000 Uninsured Motorist settlement.

AHCCCS had paid $25,000 accident-related medical benefits. However, AHCCCS later finds out about the settlement, and demands payment of the lien from both the attorney and the client. Certainly AHCCCS will contend that the attorney failed to give the required  ARS §36-2956(B) notice to AHCCCS; that if this notice had been given, AHCCCS would have filed a timely lien which would clearly be legally enforceable against the Uninsured Motorist settlement; that both the attorney and client are liable for payment of the lien, as well as AHCCCS’ attorney’s fees and costs if this has to be litigated; and also AHCCCS could file a complaint against the attorney with the State Bar of Arizona based on the attorney’s neglect of his duty to report the litigation or claim under ARS §36-2956(B) and therefore the attorney violated ER 1.15 as well as other ethical rules.

 

     D.  “Final” Notice of AHCCCS Lien.

 

ARS 36-2915(G) provides that “A lien authorized pursuant to this chapter may be amended to reflect current charges. However, if the administration is given notice of an impending settlement of the member's claim at least fifteen working days before the final settlement of that claim, the lien may not be amended after the time of final settlement.”

 

Once you give the AHCCCS lien collection subcontractor written notice, pursuant to ARS

36-§2915(G), of am impending settlement, the subcontractor will issue a “final” lien notice within fifteen working days. However, if the case doesn’t settle within that time, then you must notify the subcontactor when the case does settle, and they will issue an amended “final” lien notice including any additional benefits paid since the prior “final” lien notice. If you receive a liability settlement and pay the AHCCCS lien based upon a “final” lien notice, and later on you receive an additional settlement (whether another liability carrier, umbrella carrier, underinsured motorist, etc.), then you are required to notify the subcontractor again of the new settlement, and they will issue an amended “final” lien notice including any additional benefits paid since the prior “final” lien notice.

 

     E.  Compromise and Waiver of AHCCCS Liens – Federal and Arizona Statutes,

           Regulations and Case Law.

 

42 USC §1396k(b) requires “appropriate” reimbursement of the Federal Government.

 

The CMS State Medicaid Guide, §3907 (dated 9-92) states that “Legitimate costs of obtaining the settlement or award, such as attorney fees, may be deducted prior to reimbursement to the Medicaid program.”

 

42 CFR 401.613  CMS “General Administrative Requirements”  “Compromise of Claims states that CMS may compromise claims based on “Litigative probabilities”, etc.

 

The Federal Medical Care Recovery Act, 42 USC 2651-2653, and corresponding regulations, 28 CFR 43.1 to 43.3, give CMS the authority to waive/compromise the Medicaid lien.

 

ARS §12-963 provides that:

 

12-963. Compromise or waiver of claim

A. This state or any of its political subdivisions required by law to furnish medical care and treatment may either:

1. Compromise, or settle and execute a release of, any claim which it has pursuant to section

12-962.

2. Waive any claim it has pursuant to section 12-962 in whole or in part either for its convenience or if it determines that collection would result in undue hardship upon the person who suffered the injury or disease resulting in care and treatment.

B. 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. A release executed by the state or any of its political subdivisions shall not release a third party from any claims of the injured or diseased person except that the third party shall be entitled to offset amounts paid to the state or political subdivision if such expenses are included in the claim of the injured or diseased person.

 

ARS §36-2915(H) and (I) provide that:

 

“H. A public entity shall compromise a claim it has pursuant to this section or section 11-291, 12-962, 36-596, 36-596.01, 36-2903, 36-2935 or 36-2956 if, after considering the factors listed in subsection I of this section, the compromise provides a settlement of the claim that is fair and equitable.

 

I. In determining the extent of the compromise of the claim required by subsection H of this section, 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.”

 

The following case law is pertinent to the compromise and waiver of AHCCCS liens:

 

Eaton v. Arizona Health Care Cost Containment System, 206 Ariz. 430, 79 P.3d 1044

(App. 2003).

 

The Court of Appeals upheld the discretionary determination by the AHCCCS Director not to compromise the Federal share portion of the AHCCCS lien, holding that absent an HCFA

(Health Care Finance Administration, more commonly known as CMS, Centers for Medicare and Medicaid Services) compromise, 42 USC §1396k(b) requires that the federal portion of that lien amount be fully reimbursed before the recipient can receive any funds from the award”. The Court also cited HCFA National Memorandum No. 88-10 (1988) and the State Medicaid Manual (SMM) § 3907 (1990) in this regard.

 

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).

 

This is an ARS §12-961 et seq state or political subdivision lien case which is perhaps tangenially pertinent to AHCCCS liens as ARS 12-961 et seq are one set of statutes under which AHCCCS liens may be asserted. Of interest is that Division 2 held that ARS §12-961 et seq do not require that the procurement cost reduction be applied to the lien.

 

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 ARS §12-962 in the context of a non-AHCCCS state or political subdivision lien; that the ARS §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 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 Ahlbornreduced 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 ARS §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 ARS §12-962 et seq, and that ARS §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).

 

This is an ARS §12-962 state or political subdivision lien case which is perhaps tangenially pertinent to AHCCCS liens as ARS §12-961 et seq are one set of statutes under which AHCCCS liens may be asserted. Of interest is that Division 2 held that ARS §12-962  does not require that the procurement cost reduction be applied to the lien.

 

State sponsored health insurance for employees [perhaps this lien was for medical benefits paid for a developmentally disabled person, as the court discusses ARS §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 ARS §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 ARS § 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.

 

Wos v. E.M.A.,548 U.S. ___, 133 S.Ct. 1391 (2013).

 

The U.S. Supreme Court affirmed the 4th Circuit’s ruling that North Carolina’s irrebuttable statutory presumption that one-third of a tort recovery was the due on the state’s Medicaid subrogation claim was invalid under Ahlborn and the federal Medicaid anti-lien provision. The injured party recovered $2.8 million on the medical malpractice multiple birth injuries claim, with the true value of all damages estimated at $42 million. The State of North Carolina sought recovery of one-third of the $2.8 million settlement under the North Carolina statute. The Court fully follows its 2006 Ahlborn decision in which the tort recovery was one-sixth of the full or true damages and the state Medicaid agency was authorized to collect only one-sixth of the medical benefits paid. Note that in Ahlborn, the parties stipulated to the full or true value of the case, and there was no such stipulation in this case.

 

“The task of dividing a tort settlement is a familiar one. In a variety of settings, state and federal courts are called upon to separate lump-sum settlements or jury awards into categories to satisfy different claims to a portion of the moneys recovered… The State thus has ample means available to allocate Medicaid beneficiaries’ tort recoveries in an efficient manner that complies with federal law. Indeed, if States are  concerned that case-by-case judicial allocations will prove  unwieldy, they may even be able to adopt ex ante administrative criteria for allocating medical and nonmedical  expenses, provided that these criteria are backed by evidence suggesting that they are likely to yield reasonable results in the mine run of cases. What they cannot do is what North Carolina did here: adopt an arbitrary, one-size-fits-all allocation for all cases.”                   

 

“The law here at issue, N. C. Gen. Stat. Ann. §108A–57, reflects North Carolina’s effort to comply with federal law  and secure reimbursement from third-party tortfeasors for medical expenses paid on behalf of the State’s Medicaid  beneficiaries. In some circumstances, however, the statute would permit the State to take a portion of a Medicaid beneficiary’s tort judgment or settlement not “designated as payments for medical care.” Ahlborn, 547 U. S., at 284.  The Medicaid anti-lien provision, 42 U. S. C. §1396p(a)(1), bars that result.”

 

Does the Bipartisan Budget Act of 2013 Effectively Reverse the U.S. Supreme Court Decisions in Ahlborn and Wos?

 

42 U.S.C. §1396a(a)(25)(H) and §1396k(a)(1)(A) were amended by §202(b) of the Bipartisan Budget Act of 2013, and take effect on October 1, 2014, I anticipate that Medicaid and AHCCCS will contend that these amendments reverse the U.S. Supreme court decisions in Ahlborn and Wos which require pro rata Medicaid and AHCCCS lien reduction.

 

The Bipartisan Budget Act of 2013 amendments pertinent to Medicaid liens are as follows:

 

§202(b)(1)(B) amends 42 U.S.C. §1396a(a)(25)(H) to permit recovery not just for health care items or services, but for “any payments by such third party.”

 

§202(b)(2) amends 42 U.S.C. §1396k(a)(1)(A) and replaces the provision for reimbursement "for medical care from any third party" with a provision for reimbursement of "any payment from a third party that has a legal liability to pay for care and services available under the plan."

 

§202(b)(3) amends 42 U.S.C. §1396p(a)(1)(A) to permit Medicaid programs to place a lien against "rights acquired by or assigned to the State in accordance with section [1396a(a)(25)(H)] or section [1396k(a)(1)(A)].

 

§202(c) provides that these amendments take effect October 1, 2014.

The report describing the provisions of the Budget Act states that "Section 202 would affirm Medicaid's position as the payer of last resort by strengthening third-party liability to improve states' and providers' abilities to receive payments for beneficiary services, as appropriate."

 

The report does not state that it reverses Ahlborn and Wos and does not mention 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”. This federal Medicaid anti-lien provision was the statutory basis for Ahlborn and Wos.

 

Are Ahlborn and Wos still good law as of October 1, 2014? I anticipate that Medicaid and AHCCCS will not only take the position that Ahlborn and Wos and the federal Medicaid anti-lien provision are no longer legally effective as of October 1, 2014; but also that they will attempt to retroactively apply this to accidents/incidents which have occurred prior to October 1, 2014 as well. I anticipate that there will be litigation in the coming years over this issue.

 

     F.  Compromise and Waiver of AHCCCS Liens – My Opinion.

 

My opinion of how to apply Arizona statutes and case law in regard to the compromise and waiver of AHCCCS liens is as follows:

 

If the case settles for a fair amount less than “full value”:  Then Ahlborn and Wos v. E.M.A. (both U.S. Supreme Court decisions) and Southwest Fiduciary/Flynn (Division 1, Az. Appellate)

mandate that the lien be reduced pro rata using the formula of the amount recovered divided by the case’s full value. As noted by the U.S. Supreme Court in Wos, in Ahlborn parties stipulated to the full or true value of the case, and in Ahlborn the tort recovery was one-sixth of the full or true damages and the state Medicaid agency was authorized to collect only one-sixth of the medical benefits paid. As noted by Division 1, Arizona Court of Appeals, in

Southwest Fiduciary/Flynn,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.

 

The basis for the U.S. Supreme Court’s Ahlborn decision is the federal Medicaid anti-lien provision, 42 USC §§ 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”.

 

ARS §12-963(B) provides that “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.” Although worded somewhat differently than the federal Medicaid anti-lien provision discussed in Ahlborn, isn’t this in effect an Arizona anti-lien provision? Isn’t this statutory provision authority that not only AHCCCS, but also state or political subdivision liens under A.R.S.

§12-961 et seq, must be reduced by this Ahlborn formula?  To date, there has been no Arizona appellate case with the right facts (settlement proceeds/policy limits many times less than the “full value” of the case, with a substantial ARS §12-961 et seq state or political subdivision lien) for Arizona courts to seriously consider this question. There is no need for Arizona courts to address this issue regarding AHCCCS liens, as the U.S. Supreme Court has already mandated the application of  Ahlborn pro rata lien reduction to AHCCCS liens based on the federal Medicaid anti-lien provision.

 

If the case settles for “full value” or for an amount arguably in the “full value” range:Then AHCCCS has administrative discretion to administratively determine the ARS §12-963 “compromise or waiver”/ARS 36-2915(H) “fair and equitable” lien compromise. In  Southwest Fiduciary/Flynn, Division 1 states 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).

 

What about lien reduction for procurement costs (pro rata attorney’s fees and costs)?

 

Lien reduction for procurement costs isn’t discussed in the U.S. Supreme Court decisions in Ahlborn and Wos.

 

In  Southwest Fiduciary/Flynn, Division 1 held that the AHCCCS liens were reduced by the Ahlborn ratio (amount of settlement/policy limits obtained divided by “full value” of case)

AND then further reduction for pro rata litigation expenses (attorney’s fees and costs, or procurement costs). 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 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.” 

 

In the Cox case, an ARS §12-962 state or political subdivision lien case (not an AHCCCS lien case), Division Two assumed that the injured party received the full value of his personal injury claim ($30,000 liability and $200,000 Underinsured Motorist policy limits), and held that no procurement cost (attorney’s fees and costs) reduction was required. The court held that the lien under ARS §12-962  only applied against the $30,000 liability settlement; and that the attorney’s fees and costs would be first deducted from the $30,000, and the remaining funds would go to pay the state agency lien. 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.

 

In the Wang case, an ARS §12-962  state or political subdivision lien case (not an AHCCCS lien case), Wang waived the ARS § 12-962 “fair and equitable” argument by raising it for the first time in his reply brief. Thus Wang lost any serious consideration by the court to  his contention that the  A.R.S. §12-962 “fair and equitable” lien reduction language requires a mandatory procurement cost reduction. Moreover, Wang received “full value” for his injury claim, and the state agency clearly did not abuse its discretion in determining that it was “fair and equitable” to collect its full lien.

 

As both Cox and Wang are  ARS §12-962 state or political subdivision lien cases, and not AHCCCS lien cases, isn’t Southwest Fiduciary/Flynnstill good law mandating that AHCCCS liens be reduced for pro rata procurement costs? Or does this mandate for AHCCCS lien procurement cost reduction, in addition to the Ahlborn pro rata lien reduction, apply only in

Ahlborntype damages situations, because in such situations it is “fair and equitable” to also apply the procurement cost reduction? Or was the court in Southwest Fiduciary/Flynnsimply

affirming the discretionary stipulation/decision of AHCCCS that it was “fair and equitable” to

also apply the procurement cost reduction?

 

As discussed above, thanks to the Bipartisan Budget Act of 2013 amendments to the federal Medicaid statutes, I anticipate that Medicaid and AHCCCS will not only take the position that Ahlborn and Wos and the federal Medicaid anti-lien provision are no longer legally effective as of October 1, 2014; but also that they will attempt to retroactively apply this to accidents/incidents which have occurred prior to October 1, 2014 as well. I anticipate that there will be litigation in the coming years over this issue.

 

     G.   Statute of Limitations:

 

An ARS §§6-2915 or §36-2956 lien must be timely filed and perfected, pursuant to ARS §36-2915, “before or within sixty days from the date of notification to the administration of the hospital discharge or rendering of medical care and treatment”; and pursuant to ARS §36-2916, the Statute of Limitations is “two years after the entry of the judgment or the making of the settlement or compromise.”

 

As ARS §12-962 subrogates the agency to the injured party’s rights, this permits the agency to intervene or join in any action as well as to sue the third party directly, so the applicable Arizona Statute of Limitations which applies to the injured party would apply to the AHCCCS lien as well, e.g., ARS §12-542 two year Statute of Limitations for negligence and medical malpractice.

 

As ARS §12-962(A) subrogates AHCCCS to the injured party’s rights, this permits AHCCCS to intervene or join in any action as well as to sue the third party directly, so the applicable Arizona Statute of Limitations which applies to the injured party would apply to the AHCCCS lien as well, e.g., ARS §12-542 two year Statute of Limitations for negligence and medical malpractice.

 

Also, ARS §12-962(B) provides that the agency may file its own action in state or federal court against the tortfeasor,”(i)f an action or proceeding is not brought by the injured or diseased person, or the person's guardian, personal representative, estate, dependents or survivors within six months after the first day on which the medical care and treatment were furnished”.

 

Note that the Federal Medicaid statutes, 42 USC §1396(a) and §1396(k), more specifically the lien provisions at 42 USC §1396(a)(25) and 42 USC §1396k(b), do not include specific time limits or Statutes of Limitations. It is unclear whether the  Federal Medicaid portion of the AHCCCS lien relies upon the state Statute of Limitations, or whether there is a federal Statute of Limitations or period of limitations which applies.

 

28 USC §2415(b) provides that actions brought by the United States founded upon a tort have a three year limitation “after the right of action first accrues”, while  28 USC §2415(a)  allows six years for claims grounded upon any contract express or implied in law or fact. To further complicate matters, 28 USC §2415(c) states:  “For purposes of computing the limitations periods in section 2415, there shall be excluded all periods during which . . . facts material to the right of action are not known and reasonably could not be known by an official of United States charged with responsibility to act in the circumstances.”  Therefore, if the government does not know all of the material facts as to settlements or verdicts, the statute may not even begin to run.

 

5. ARS §36-2935  Arizona Long-Term Care System (ALTCS) Liens

 

The Arizona Long Term Care System (ALTCS) is an AHCCCS program for individuals who are 65 or older, blind, or disabled that need ongoing services at a nursing facility level of care.

 

ALTCS may assert a lien under the following:

 

(1) ARS §12-962 AHCCCS  lien,  automatic, no lien filing/recording/perfection

is required, but only apply against “third party” liability settlements.

 

(2) ARS §36-2915 AHCCCS lien, lien must be be timely filed and applies against not

only “third party” liability settlements, but against all settlements including first

party, Uninsured and Underinsured Motorist settlements. 

 

(3) ARS §36-2935 Arizona Long-Term Care System (ALTCS) lien “against a member’s estate” and “on a member’s property” to “recover paid assistance the member receives”

(ARS §36-2935(A)), with the charges recovered “pursuant to the procedures prescribed in sections 36-2915 and 36-2916” (the procedures governing AHCCCS liens and the lien recording thereof),

 

A.R.S. §36-2915(H) and (I) lien compromise and waiver provisions expressly apply to ARS

§36-2935 ALTCS liens.

 

6.  AHCCCS Grievance and Appeals:

 

[This section, “AHCCCS Grievance and Appeals”, and this section only, is written by fellow AzTLA member Geoff Trachtenberg, who has experienced the AHCCCS Grievance and Appeals process first hand.]

 

Exhaustion of Administrative Remedies:

 

You are typically required to exhaust administrative remedies in order to develop a factual record before the agency, under the assumption that, “if given a complete chance to pass upon the matter, (the administrative agency) will decide correctly.” Ross v. Industrial Comm’n, 82 Ariz. 9, 11-12, 307 P.2d 612, 514 (1957).

 

Although there are exceptions, it’s foolish to risk it. Phoenix Children's Hosp. v. AHCCCS, 195 Ariz. 277, 987 P.2d 763 (App.1999) (holding that providers were required to exhaust administrative remedies on claims that practices were arbitrary and capricious and exceeded AHCCCS’ statutory authority).

 

The AHCCCS Grievance System Rules/Regulations:

 

The AHCCCS  Grievance System Rules are in Ariz. Admin. Code (“AAC”) R9-34-201, et seq, but those rules are subject to and reference A.R.S. §41-1092, et seq., the Uniform Administrative Hearing Procedures Act (the “Uniform Act).

 

Notice of Action / Notice of Appeal Resolution:

 

AAC R9-34-216 and ARS §41-1092.03(A) most closely approximates what we see in practice, and that is a “Last and Best Offer” by AHCCCS or a contractor regarding a lien decision and delineates the required content of what the AAC calls a “Notice of Appeal Resolution” or what the Uniform Act calls a “Notice of Appealable Agency Action”.

 

Pursuant to AAC  R9-34-216 and ARS §41-1092.03(A)(3), a "Notice of Appeal Resolution" must contain, inter alia, the "right to request a State Fair Hearing" a/k/a "administrative appeal."

 

State Fair Hearing Request:

 

AAC R9-34-216 and ARS § 41-1092.03(B) state that a request for a "State Fair Hearing" must be made within 30 days after receiving a "Notice of Appeal Resolution."

 

To  initiate a State Fair Hearing, you must send a request to AHCCCS or the contractor (i.e., whomever issued the "Last and Best Offer"). The request for a State Fair Hearing must be sent (certified, return-receipt, per ARS §45-1092.04). The request for a State Fair Hearing should include sufficient information for the contractor or AHCCCS to identify the file (e.g., File Reference No.) and something like the following: "In accordance with the Arizona Administrative Code § R9-34-217 and ARS § 41-1092, et seq., we request a hearing before an administrative law judge."

 

Notice of State Fair Hearing:

AHCCCS is then required to send out a "Notice of State Fair Hearing" pursuant to AAC R9-34-217(0. The hearing must be set within 60 days pursuant to ARS §41-1092.05(A)(1) before an administrative law judge at the Office of Administrative Hearings (OAH).

 

The OAH Hearing:

 

The OAH Hearing, including rights to pre-hearing discovery, is governed by AR. §41-1092.07.

 

Practice Tip:  Do not forget the key to your appeal is establishing the “full value” of your case.

 

The Decisions:

 

Recommended Decision: After the OAH hearing, the ALJ must send a decision within 20 days, pursuant to ARS §41-1092.08(A). The decision, however, is merely a "recommended decision."

 

Final Administrative Decision:The AHCCCS Director can agree or disagree with all or part of the ALJ's decision. Within 3o days of the ALJ's decision, the AHCCCS Director must send a final decision on the matter, pursuant to AAC R9-34-218 and ARS §41-1092.08(B).

 

Judicial Review: If you disagree with AHCCCS' final decision, you may file an action in Superior Court, pursuant to ARS §41-1092.08(H) and ARS. §§ 12-901though 12-914, within 35 days of service of the Director's final decision.

 

Standard of Review:  When an administrative decision is appealed, the court decides only whether the final decision was illegal, arbitrary, capricious or involved an abuse of discretion. ARS

§ 12-901(E); Berenter v. Gallinger, 173 Ariz. 75,839 P.2d 1120 (App. 1992).The court is not bound by an agency's conclusions of  law or statutory interpretations. Forest Guardians v. Wills, 201 Ariz. 255, 34 P.3d 364 (2001); Sharpe v. AHCCCS, 220 Ariz. 488, 207 P3d 741 (App. 2009).

 

Attorneys Fees:If you win, you are entitled to fees under ARS §12-348(A)(2) ("[Al court shall award fees and other expenses to any party other than this state . . . that prevails by an adjudication on the merits in . . . [a] court proceeding to review a state agency decision pursuant to chapter 7, article 6 of this title or any other statute authorizing judicial review of agency .. . decisions.").

 

In fact, if you prevail in the Superior Court, you are entitled to fees for both the court action and the "contested case" proceeding in which the decision was originally rendered. Inspiration Consol. Copper Co. v. Dept. of Rev., 147 Ariz. 216, 223, 709 P.2d 573, 590 (App. 1985) (a "contested case" is an administrative proceeding in which the agency is required to hold a hearing).

 

The following letter to HMS will comply with the statutory requirement to notify AHCCCS of the injury claim. HMS will respond and give you info info re the contractor handling the AHCCCS Lien.

 

SAMPLE INITIAL AHCCCS LIEN LTR NOTIFYING HMS OF INJURY CLAIM

 

[Date] 

 

                                                                                        Mailed and Faxed to 602-257-4180

 

TPL Recovery Unit

Health Management Systems

P.O. Box 10530

Phoenix, AZ 85064

(888-378-2836)

www.hms.com

 

 

Re:      Our Client/Your Insured:

            Date of Accident:

            AHCCCS Plan:

            Member No. (If Known):                  

            DOB:

                       

Dear Caseworker;

 

Please be advised that our firm represents the above client concerning his or her personal injury claim.

 

This letter constitutes notice, in compliance with A.R.S. §36-2956(B), which requires that the AHCCCS “member or the member's legal representative must provide written notice to the administration within twenty calendar days after the commencement of a civil action or other proceeding to establish the liability of any third party or to collect monies payable from accident insurance, liability insurance, workers' compensation, health insurance, medical payment insurance, underinsured coverage, uninsured coverage or any other first or third party source.”

 

Please let us know if you or your agency will be handling the AHCCCS lien claim. Or if a subcontractor will be handling the AHCCCS lien claim, please let us know the name, address and phone of the subcontractor as soon as possible. And if a subcontractor will be handling the AHCCCS lien claim, please forward this letter to the subcontractor right away and request that they contact us concerning this matter promptly.

Please ensure that you (or the subcontractor as applicable) provide us with an itemization of the AHCCCS lien to date as soon as possible. The itemization should include the provider’s name, date of service, amount billed, and amount paid, along with the total lien amount. Please provide us with an updated AHCCCS lien itemization periodically as well.

 

We understand that our client has had accident-related medical care and treatment with the following AHCCCS medical care providers: (List medical care providers)

 

Presently, our client has ongoing accident-related medical care with the following AHCCCS medical care providers: (List medical care providers)

 

Our client also has had accident-related medical care and treatment with the following non-AHCCCS providers:  (List medical care providers) These bills will be paid from settlement proceeds and not by AHCCCS.

 

(Include if and as applicable - but you may not want to include this paragraph or put it in writing until after the case is settled if you are claiming any of these medical expenses as accident-related in your case.)  Please be advised that since the above date of accident, our client has had some AHCCCS provided medical care which we do not consider to be accident-related: (List medical care providers). (Explain if and as appropriate why medical care isn’t accident-related.) Please ensure that the AHCCCS lien itemization doesn’t include these medical expenses which aren’t accident-related.

 

Please provide us with your response to this letter as soon as possible.

 

Thank you for your courtesy and assistance.

 

cc: AHCCCS Authorization completed, signed and dated by client(s)

 

 

Once HMS notifies you of the identity of the AHCCCS Contractor handling the lien, then send the following letter to that AHCCCS Contractor:

 

 

 

 

 

 

 

 

 

 

 

SAMPLE FIRST LTR TO AHCCCS CONTRACTOR HANDLIJNG LIEN

 

[Date]             

              Mailed and Faxed to _____________

 

[Name and Address of AHCCCS Contractor]

 

Re:      Our Client/Your Insured:

            Date of Accident:

           AHCCCS Plan:

           Member No. (If Known):

           DOB:

          

Dear ______________;

 

Please be advised that our firm represents the above client concerning his or her personal injury claim. HMS has advised us that you will be handling this AHCCCS lien claim.

 

This letter constitutes notice, in compliance with A.R.S. §36-2956(B), which requires that the AHCCCS “member or the member's legal representative must provide written notice to the administration within twenty calendar days after the commencement of a civil action or other proceeding to establish the liability of any third party or to collect monies payable from accident insurance, liability insurance, workers' compensation, health insurance, medical payment insurance, underinsured coverage, uninsured coverage or any other first or third party source.”

 

Please provide us with an itemization of the AHCCCS lien to date as soon as possible. The itemization should include the provider’s name, date of service, amount billed, and amount paid, along with the total lien amount. Please provide us with an updated AHCCCS lien itemization periodically as well.

 

We understand that our client has had accident-related medical care and treatment with the following AHCCCS medical care providers: (List medical care providers)

 

Presently, our client has ongoing accident-related medical care with the following AHCCCS medical care providers: (List medical care providers)

 

Our client also has had accident-related medical care and treatment with the following non-AHCCCS providers:  (List medical care providers) These bills will be paid from settlement proceeds and not by AHCCCS.

 

(Include if and as applicable - but you may not want to include this paragraph or put it in writing until after the case is settled if you are claiming any of these medical expenses as accident-related in your case.)  Please be advised that since the above date of accident, our client has had some AHCCCS provided medical care which we do not consider to be accident-related: (List medical care providers). (Explain if and as appropriate why medical care isn’t accident-related.)

 

Please ensure that the AHCCCS lien itemization doesn’t include these medical expenses which aren’t accident-related.

 

Please keep in mind that as an AHCCCS contractor providing our client with medical care, that you aren’t permitted  to recover your own capitated and fee payments to your HMO/PPO member healthcare providers. Arizona Courts have long held health insurance subrogation clauses, pertaining to private health insurance carriers (non-Medicare) making reimbursement claims, as unenforceable under Arizona law.  Allstate Ins. Co. v. Druke, 118 Ariz. 301, 576 P.2d 49 (1979) (carrier has no claim for auto medical payments reimbursement as proceeds of personal injury claim not assignable); Brockman v. Metropolitan Life Ins. Co., 125 Ariz. 246, 609 P. 2D 61 (1980) (same rule applied to medical insurance); and State Farm v. Knapp, 107 Ariz. 184, 484 P.2d 180 (1981).

 

(Include the following paragraph if the case has settled or is about to settle.)Please consider this letter as notice of impending settlement of this personal injury claim, pursuant to ARS 36-2915(G), such that the lien may not be amended later than fifteen days from this date or the date of final settlement , whichever occurs later.

 

Please provide us with your response to this letter as soon as possible.

 

Thank you for your courtesy and assistance.

 

cc: AHCCCS Authorization completed, signed and dated by client(s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                         LAW OFFICE OF STEVEN J BRUZONSKY

                                                               917 E. SAN ANGELO AVE.

                                                                     GILBERT, AZ 85234

                                                  480-969-3003    • Fax: 1-866-295-6635

 

 

                 “THE INS AND OUTS OF ARIZONA STATE

                     AND POLITICAL SUBDIVISION LIENS”

 

 

1.  Summary of the Statutory and  Regulatory Basis of State or Political Subdivision Liens:

 

Arizona:

 

Arizona State or Political Subdivision Liens – All Inclusive:

 

ARS §§12-961 through 12-964  (ARS §§12-963(A) and (B) concern lien compromise and waiver)

 

ARS §§36-2915(H) and (I) (concern lien compromise and waiver)

 

AAC R2-6-402 (Arizona Administrative Code, Title 2 – Administration, Chapter 6 -  Dept. of Administration Benefit Services Division, Grievance of a Department Decision) (to my knowledge, this Grievance procedure has to date never been attempted in a state of Arizona or agency thereof  lien case)

 

For non-state of Arizona political subdivision liens, check for any Grievance or appeal rules or regulations, if there are any

 

Other Arizona Agency Lien Statutes:

 

ARS §11-291(E)  County Health Care System Liens*

 

ARS §36-596.01  Arizona Department of Developmental Disabilities Liens*

 

ARS §36-2935 Arizona Long Term Care System (ALTCS) Liens*

(ALTCS is an AHCCCS program for individuals who are 65 or older, blind, or disabled that need ongoing services at a nursing facility level of care. So ALTCS liens have already been discussed in the above handout on AHCCCS liens.)

*ARS §36-2915(H) and (I) lien compromise and waiver provisions expressly apply to ARS

§36-2903, §36-2915 and §12-962 AHCCCS liens, ARS §11-291(E)  County Health Care System liens, ARS §12-962 Arizona State and Political Subdivision liens, ARS §§36-596  and 36-596.01 Arizona Department of Economic Security Liens, and ARS §36-2935 Arizona Long Term Care System (ALTCS) Liens.

 

ARS §48-5541(N) Special Health Care Districts Liens

 

2.  The Arizona State or Political Subdivision Lien Statutes:

 

Arizona State or Political Subdivision Liens – All Inclusive:

 

ARS §§12-961 through 12-964: State or Political Subdivision Lien and Subrogation; No Recording Required (Automatic); Applies Only to Third Party Liability Settlements; Lien Compromise or Waiver;  Lien Release

 

Please see these statutes at pages 8-9 of this handout.

 

 

ARS §36-2915 and ARS §12-962 State or Political Subdivision Lien Compromise

 

36-2915. Lien of administration on damages recovered by injured person; perfection, recording, assignment and notice of lien

 

Please see ARS §36-2915(H) at page 6 of this handout.

 

 

ARS §11-291(E): Arizona County Health Care System Liens    

11-291. Hospitalization and medical care of the sick                                                                                    E. The county is entitled to a lien for the charges for any services provided by the hospital or medical care and treatment of an injured person or the provision of long-term care services for which it is responsible pursuant to subsection A of this section or section 11-293, 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 that necessitated the hospital or medical care and treatment. Recovery of charges pursuant to this subsection shall be in a manner as nearly as possible the same as the procedures prescribed in section 36-2915.                                   F. A person who receives services pursuant to this article to that extent only shall assign to the county by operation of law that person's rights to all types of medical benefits to which the person is entitled, including first party medical benefits under automobile insurance policies. The county has a right to subrogation against any other person or firm to enforce the assignment of medical benefits. The requirements of this subsection control over the provisions of any insurance policy that provides benefits to a person if the policy is inconsistent with this subsection.

ARS §36-596.01  Arizona Department of Developmental Disabilities Liens

 

36-596.01. Liens; perfection; recording; assignment; notice of lien; compromise

A. The department is entitled to a lien for the charges for hospital or medical care and treatment paid by the department on behalf of a developmentally disabled injured person on any and all claims of liability or indemnity for damages accruing to the developmentally disabled person on account of injuries giving rise to the claims and which necessitated the hospital or medical care and treatment.

B. The department shall perfect a lien by filing a verified written statement in the office of the county recorder in the county in which the injury occurred. This statement shall contain the following information:

1. The name and address of the injured person. The department shall not include this information if department records indicate that the injuries may be the result of a public offense as defined in section 13-105.

2. The name and address of the department.

3. The date of admission to the hospital and the date of discharge.

4. All dates on which medical or long-term care was provided.

5. The amount the department knows to be due for hospitalization, medical care and treatment including the amount for which the department is responsible.

6. The names and addresses of all persons, firms and corporations, including insurance carriers, alleged to be liable for the injuries.

C. The department shall record this information within thirty days after the injured person is discharged from a hospital or otherwise treated for injuries.

D. Within five days of its recording, the department shall mail a copy of the lien to each person, firm or corporation, including an insurance carrier listed in the lien and the person, or the parent or guardian of the person, receiving services pursuant to this article.

E. The recording of the lien is notice to all persons, firms and corporations, including insurance carriers, that are liable for damages whether or not specifically named in the lien.

F. The department may assign the lien in whole or in part to a provider that is responsible for hospital, medical or long-term care services.

G. The director shall establish by rule procedures for a provider to notify the department concerning the delivery of hospital, medical or long-term care services to a person who may have claims for damages.

H. The department may amend a lien to reflect current charges, except the department may not amend a lien after the time of final settlement of a claim pursuant to subsection A if the department is given notice of an impending settlement at least five days excluding Saturdays and holidays before the final settlement.

I. A public entity shall compromise a claim it has pursuant to section 11-291, 12-962, 36-596, 36-2903, 36-2935, 36-2956 or this section if, after considering the following factors the public entity determines that the compromise provides a settlement of the claim that is fair and equitable:

1. The nature and extent of the person's injury or illness.

2. The sufficiency of insurance or other sources of indemnity available to the person.

3. Any other factor relevant for a fair and equitable settlement under the circumstances of a particular case.

 

ARS §48-5541.01(N) Special Health Care Districts Liens

 

48-5541.01.Additional powers and duties of certain special health care districts

A. This section applies only to a special health care district in a county with a population of two million or more persons.

- - - - -

N. A district is entitled to a lien for the charges for any services provided by a hospital operated by the district, for medical care and treatment of an injured person or for long-term care services, 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 that person, on account of injuries giving rise to such claims and that necessitated the hospital or medical care and treatment. Recovery of charges pursuant to this subsection shall be in a manner as nearly as possible the same as the procedures prescribed in section 36-2915.

 

3.  Analysis of Law, Including Case Law, Concerning Arizona State and Political  

     Subdivison Liens:

 

     A.  The history of ARS §12-962 state or political subdivision liens.

 

ARS §12-962 was originally enacted as part of the Arizona statutory scheme providing for AHCCCS liens. In 1999, the statute was amended so that it would also provide for  Arizona state or political subdivision liens. This amendment is discussed in Arizona Department of Administration v. Cox, 213 P. 3d 707, 222 Ariz. 270, 287 (App. 2009):

 

“Additionally, according to the Senate Fact Sheet mentioned above, when the legislature amended § 12-962 to remove the phrase “required by law,” it did so in order to bring within the scope of the statute “[a]ll public entities that self insure for medical care.” Senate Fact Sheet, S.B. 1346, 44th Leg., 1st Reg. Sess. (Ariz. 1999). The Fact Sheet specifically referred to Lo Piano v. Hunter, 173 Ariz. 172, 173, 840 P.2d 1037, 1038 (App. 1992), in which Division One of this court held that a public school district’s self-insured trust fund could not be subrogated to a participant’s third-party-tortfeasor claim. The fund in Lo Piano consisted of contributions by the school district, eligible participants, investment earnings, and reserves. Id. at 174, 840 P.2d at 1039. According to the Senate Fact Sheet, the legislative intent in amending § 12-962 was to make the statute applicable to trust funds like the one in Lo Piano. Senate Fact Sheet, S.B. 1346, 44th Leg., 1st Reg. Sess. (Ariz. 1999).”

     B.  ARS §12-962 Arizona State and Political Subdivision liens are automatic, no lien filing/recording/perfection is required, and only apply against “third party” liability settlements. However, the health care policy must expressly provide for subrogation.

 

AHCCCS v. Bentley, 928 P.2d 653, 187 Ariz. 229 (1996) is the authority that AHCCCS, as a state agency, 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 ARS §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 ARS §36-2915.

 

However, ARS §12-962(A) states that the “state or any of its political subdivisions - - - may recover - - - the reasonable value of the medical care and treatment.” The use of the term “may”, instead of “shall”, clearly indicates that the lien and subrogation rights granted by ARS §12-962

are optional, and that the state or political subdivision must include an applicable lien/subrogation provision in the health care policy in order to lawfully assert a lien and subrogation rights.

 

Arizona Department of Administration v. Cox, 213 P. 3d 707, 222 Ariz. 270 (App. 2009) holds that Arizona state or political subdivision liens under ARS 12-962 only apply against “third party” liability settlements and do not apply against first party Uninsured and Underinsured Motorist settlements. ARS §12-962(A) states that “the state or political subdivision, either jointly or severally, may recover from the third person or the injured or diseased person the reasonable value of the medical care and treatment.”  ARS §12-961(2) defines “Third person” to include “any governmental entity, corporation, company, partnership, firm, association, society and a natural person”. 

 

Arizona State or political subdivisions also have subrogation rights. ARS §12-962(B)(1) gives the state or political subdivision the right to bring an action, or to intervene or join in an action, against “the third person who is liable for the injury or disease”.  ARS§12-962(B)(2) provides for direct action/litigation by the state or political subdivision: “If an action or proceeding is not brought by the injured or diseased person, or the person's guardian, personal representative, estate, dependents or survivors within six months after the first day on which the medical care and treatment were furnished, institute and prosecute legal proceedings against the third person who is liable for the injury or disease for which the medical care and treatment were furnished. The action or proceeding may be brought in state or federal court, either in the name of the state or political subdivision, or in the name of the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors, or in conjunction with the injured or diseased person or the person's guardian, personal representative, estate, dependents or survivors.”

 

     C. Compromise and Waiver of Arizona State or Political Subdivision Liens –Arizona  

     Statutes, Regulations and Case Law

 

ARS §12-963 provides that:

 

12-963. Compromise or waiver of claim

A. This state or any of its political subdivisions required by law to furnish medical care and treatment may either:

1. Compromise, or settle and execute a release of, any claim which it has pursuant to section

12-962.

2. Waive any claim it has pursuant to section 12-962 in whole or in part either for its convenience or if it determines that collection would result in undue hardship upon the person who suffered the injury or disease resulting in care and treatment.

B. 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. A release executed by the state or any of its political subdivisions shall not release a third party from any claims of the injured or diseased person except that the third party shall be entitled to offset amounts paid to the state or political subdivision if such expenses are included in the claim of the injured or diseased person.

 

ARS §36-2915(H) and (I) provide that:

 

“H. A public entity shall compromise a claim it has pursuant to this section or section 11-291, 12-962, 36-596, 36-596.01, 36-2903, 36-2935 or 36-2956 if, after considering the factors listed in subsection I of this section, the compromise provides a settlement of the claim that is fair and equitable.

 

I. In determining the extent of the compromise of the claim required by subsection H of this section, 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.”

 

Arizona Department of Administration v. Cox, 213 P. 3d 707, 222 Ariz. 270 (App. 2009).

 

At issue was a $25,012.11 ARS §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 ARS §12-962 in the context of a non-AHCCCS state or political subdivision lien; that the ARS §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.

 

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 ARS §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 ARS §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 ARS §36-596.01(I) (Arizona Department of Developmental Disabilities liens) requires the state to compromise a lien claim under ARS §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.

 

     D.  Compromise and Waiver of Arizona State Political and Subdivision Liens –

           My Opinion.

 

Generally, the state or political subdivision has discretion to compromise the ARS

§12-962 lien in a “fair and equitable” fashion, as required by ARS §36-2915(I), and  to determine the extent to which collection of the full lien amount would result in “undue hardship”, “in whole or in part”, to the injured person, as required by ARS §12-963(A).

The agency may consider attorney’s fees and costs (procurement costs) as it makes its lien compromise determination. The courts will not overturn the agency’s determination regarding lien reduction unless it is “arbitrary and capricious”.

 

The Cox and Wang cases clearly demonstrate this. In both cases, the injured parties recovered the full value of their personal injury claims and received substantial settlement proceeds after payment of attorney’s fees and costs, liens, etc.; and the Arizona appellate courts refused to second guess the state or political subdivision’s exercise of discretion.

 

The state or political subdivision lien does not apply against the procurement costs

(attorney’s fees and costs).

 

In Cox, although the court upheld the agency’s discretion in refusing to reduce the lien, the court also held that as the lien only applied to the liability settlement proceeds remaining after deduction of attorney’s fees and costs. Accordingly, although the full lien was $25,012.11, the agency could only collect $21,746.45, the amount remaining after deduction of attorney’s fees and costs from the $30,000 liability settlement.

Is there an Arizona anti-lien provision, similar to the federal Medicaid anti-lien provision in Ahlborn, which applies to Arizona state or political subdivision lien claims?

 

In 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”. Cases clarifying Ahlborn include WOS v. E.M.A.,548 U.S. ___, 133 S.Ct. 1391 (2013) and Southwest Fiduciary/Flynn v. AHCCCS, 249 P.3d 1104 (App.  2011). 

 

Ahlbornand its progeny only apply to federal Medicaid, including AHCCCS liens. However, doesn’t Arizona have its own “anti-lien provision” with the same effect limiting collection of  ARS §12-962

liens?

 

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”.

 

ARS §12-963(B) states that “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.”

 

I contend that the language of what I refer to as the Arizona anti-lien statute, ARS §12-963(B), is more clearly written than the federal Medicaid anti-lien provision when it comes to requiring Ahlborn style pro rata lien reduction based on the amount collected divided by the case’s “full value”.

 

Let me give you an example. X is seriously injured in a motor vehicle accident. X collects the

$100,000 per person liability limits, and there is no other insurance (liability, umbrella, UIM, or Medical Payments). X has $300,000 accident-related medical bills. X has $50,000 past accident-related lost wages. X has no future claimed accident-related medical expenses or lost wages/income. The State of Arizona has paid $180,000 past medical benefits, prior to X’s liability settlement and receipt of the settlement funds, through its healthplan administered by United Health Care. Optum (formerly Ingenix), as the subrogation collection agent, claims an A.R.S. §12-962 lien for the $180,000 medical benefits paid. There are no other lien claims.

X’s attorney’s fees are $33,333.33, with costs waived. X’s attorney obtains and submits to Optum an Affidavit from an experienced personal injury Mediator that X’s personal injury claim

has an “average full value” at trial of $1 million, based on $300,000 past medical expenses;

$50,000 past lost wages; and $650,000 pain and suffering and other general damages. 

 

Optum reduces the lien from $180,000 to $66,666.67. Essentially, this squarely follows the Cox decision, by taking whatever is less, the full amount of the lien, or the settlement proceeds ($100,000) less the attorney’s fees and costs ($33,333.33) = $66,666.67.

 

X’s attorney contends that A.R.S. §12-963(B) requires Ahlborn pro rata lien reduction – that as X is getting only 10% of his personal injury claim’s full value, that the State of Arizona is only entitled to recover 10% of its full lien amount of $180,000 = $18,000. X’s attorney contends that the State of Arizona’s taking more than $18,000 operates to deny X recovery for his substantial damages other than the ARS §12-962 lien. X’s total damages of $1 million, less the $180,000

A.R.S. §12-962 lien, and less the $100,000 liability limits collected, = $720,000 in uncollectable damages. The State of Arizona, by taking $66,666.67, instead of taking the Ahlborn pro rata amound of $18,000, has denied X recovery of $66,666.67 - $18,000 = $48.666.67.  The State of Arizona has denied X recovery of $48,666.67 of his $720,000 uncollectable damages.

 

Arizona trial attorneys should file litigation asserting that ARS §12-963(B) requires Ahlborn pro rata lien reduction only if their case involves a very seriously injured plaintiff where the

injured person’s personal injury claim is clearly worth many times the amount recovered. Claiming that  ARS §12-963(B) requires Ahlborn pro rata lien reduction in a case where the injured party has or has arguably recovered full damages will result in bad law and strengthen the interpretation that Cox and Wang mandate that an ARS §12-962 state or political subdivision is entitled to collect the full amount of its lien up to the settlement proceeds less attorney’s fees and costs.

 

Is the procurement costs (pro rata attorney’s fees and costs) lien reduction mandatory in Ahlborn situations?

 

In both Cox and Wang, the injured parties received the “full value” of their injury claims, and the Arizona appellate courts held there is no mandatory requirement for the state or political subdivision to apply the procurement cost (pro rata attorney’s fees and costs) lien reduction.

 

Southwest Fiduciary/Flynn v. AHCCCS, 249 P.3d 1104 (App. 2011) concerns AHCCCS liens and 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. 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 Ahlbornreduced 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.

 

Although Southwest Fiduciary/Flynnis an ARS §36-2915 AHCCCS lien case, AHCCCS liens

against liability claims may also be pursued under ARS §12-962, thanks to the 1999 Amendment to ARS §12-962. Prior to the Amendment, ARS §12-962 pertained only to AHCCCS liens. Accordingly, Southwest Fiduciary/Flynnmay be authoritative not only in regard toARS §12-962 AHCCCS liens, but also in regard to ARS §12-962 state or political subdivision liens. If so: Does this mandate for lien procurement cost reduction apply only in Ahlborn type damages situations, because in such situations it is “fair and equitable” to also apply the procurement cost reduction? Or was the court in Southwest Fiduciary/Flynnsimply affirming the discretionary stipulation/decision of the agency that it was “fair and equitable” to also apply the procurement cost reduction in those particular AHCCCS lien cases?

 

     E.  Statute of Limitations:

 

As ARS §12-962(A) subrogates the agency to the injured party’s rights, this permits the agency to intervene or join in any action as well as to sue the third party directly, so the applicable Arizona Statute of Limitations which applies to the injured party would apply to the lien as well, e.g., ARS §12-542 two year Statute of Limitations for negligence and medical malpractice.

 

Also, ARS §12-962(B) provides that the agency may file its own action in state or federal court against the tortfeasor,”(i)f an action or proceeding is not brought by the injured or diseased person, or the person's guardian, personal representative, estate, dependents or survivors within six months after the first day on which the medical care and treatment were furnished”.

 

     E.  Grievance and Appeals:

 

Exhaustion of Administrative Remedies:

 

You are typically required to exhaust administrative remedies in order to develop a factual record before the agency, under the assumption that, “if given a complete chance to pass upon the matter, (the administrative agency) will decide correctly.” Ross v. Industrial Comm’n, 82 Ariz. 9, 11-12, 307 P.2d 612, 514 (1957).

 

Although there are exceptions, it’s foolish to risk it. Phoenix Children's Hosp. v. AHCCCS, 195 Ariz. 277, 987 P.2d 763 (App.1999) (holding that providers were required to exhaust administrative remedies on claims that practices were arbitrary and capricious and exceeded AHCCCS’ statutory authority).

 

Are There Any Agency or Grievance Requirements for the Arizona State or Political Subdivision Asserting the A.R.S. §12-962 Lien?

 

As its foolish to risk failing to exhaust administrative remedies, prior to filing a lawsuit regarding an ARS §12-962 lien, be sure to check applicable agency rules and regulations (for Arizona state agencies, for the specific agency, and also the Arizona Department of Administration if they are handling the lien on behalf of the agency, as in the Cox case)  to determine if there are any agency appeal or grievance procedural requirements. And of course follow any agency appeal or grievance procedural requirements to ensure that you exhaust administrative remedies.

 

Also, I recommend including in your written lien reduction request a statement that “Our understanding is that once your subrogation collection company gives us the agency’s final lien reduction decision and amount, that there are no agency appeal or grievance requirements set forth in applicable agency rules and regulations; and that we may then file an appropriate action against the agency in state court because there is no further requirement to exhaust administrative remedies. If this understanding is incorrect, then please notify us in writing, as soon as possible, regarding the agency appeal or grievance procedure and the agency rules and regulations requiring this procedure. We will hold off on filing an appropriate action against the agency in state court for thirty days after you provide us with the agency’s final lien reduction determination.”

 

It is clear that AHCCCS liens, including those under ARS §12-962, require administrative exhaustion of remedies following the AHCCCS Grievance System Rules in Ariz. Admin. Code (“AAC”) R9-34-201 et seq.

 

What about liens asserted by Arizona state agencies? Neither the Cox or Wang cases mention

that any agency grievance or appeal procedure was utilized. One can assume that the specific Arizona state agencies in those cases did not have applicable agency grievance or appeal procedures.

 

The Arizona Administrative Code now includes a Grievance rule, effective as of March 7, 2009, for the Arizona Department of Administration, the agency party in the Cox decision. However, the Cox decision was filed August 17, 2009, and this Grievance rule wasn’t in effect for Cox.

Would this new rule require an injured party in a state of Arizona agency A.R.S. §12-962 lien case to file a Grievance in accordance with R2-6-402(A)(5) “Dissatisfaction with an insurance plan”? This provision is ambiguous enough that the court may or  may not dismiss the case for failure to exhaust administrative remedies. I wouldn’t want to take the chance. Moreover, exercising a Grievance  under this provision might hopefully force the appropriate agency official to de novo review the subrogation company’s lien reduction decision.

 

 

 

 

Arizona Administrative Code

Title 2.  Administration

Chapter 6.  Department of Administration

Benefit Services Division

 

R2-6-402. Grievance of a Department Decision  (effective March 7, 2009)

A. An individual who participates in one or more of the insurance plans made available by the Department may file a grievance with the Director regarding:

1. Determination of creditable coverage,

2. Determination of whether a medical child support order is qualified,

3. Determination of eligibility,

4. Dissatisfaction with care,

5. Dissatisfaction with an insurance plan,

6. Dissatisfaction with a plan provider,

7. Access to care, and

8. Inconsistent application of statute or rule.

B. To file a grievance, an individual shall submit a letter to the Director that contains the following information:

1. Name and contact information of the individual filing the grievance,

2. Name of the particular insurance plan that is the subject of the grievance,

3. Nature of the grievance, and

4. Nature of the resolution requested.

C. The Director shall provide a written response to a grievance within 60 days.

 

When an administrative decision is appealed, the court decides only whether the final decision was illegal, arbitrary, capricious or involved an abuse of discretion. ARS §12-901(E); Berenter v. Gallinger, 173 Ariz. 75,839 P.2d 1120 (App. 1992).The court is not bound by an agency's conclusions of  law or statutory interpretations. Forest Guardians v. Wills, 201 Ariz. 255, 34 P.3d 364 (2001); Sharpe v. AHCCCS, 220 Ariz. 488, 207 P.3d 741 (App. 2009).

 

If the agency has no rules or regulations concerning lien reduction and grievance and appeals thereof, perhaps you may contend that the subrogation company made the lien reduction decision and/or that the agency had no due process procedure for lien reduction, and therefore the court

should de novo on its own determine the “fair and equitable” lien reduction.

 

     F.  Other Arizona Statutes Providing for Specific Arizona State Agency Liens:

 

ARS §11-291(E): Arizona County Health Care System Liens

 

Arizona County Health Care Systems may assert liens under the following:

 

(1) ARS §12-962 state or political subdivision liens against liability settlements

(2) ARS §33-931 healthcare provider liens for hospital/healthcare providers against liability settlements

 

(3) ARS §11-291(E) County health care liens for hospitalization and medical care of the sick.

 

ARS §11-291(E) County liens apply “on any and all claims of liability or indemnity”, with “Recovery of charges - - - in a manner as nearly as possible the same as the procedures prescribed” at ARS §36-2915. The latter statute prescribes the lien recording and notice requiremnts for AHCCCS liens.  ARS §36-2915(H) and (I) lien compromise and waiver provisions expressly apply to ARS §11-291(E) liens.  ARS §11-291(E) gives the County

“a right of subrogation against any other person or firm to enforce the assignment of medical benefits.”

 

ARS §36-596.01  Arizona Department of Developmental Disabilities Liens

 

The Arizona Department of Developmental Disabilities may assert a lien under the following:

 

(1) ARS §12-962 state or political subdivision liens against liability settlements

(2) ARS §36-596.01 Arizona Department of Developmental Disabilities (DDD) liens.

 

ARS §36-596.01 DDD liens apply “on any and all claims of liability and indemnity”,

the requiremnts of mandatory lien filing are set forth at  ARS §36-596.01(B), and the lien compromise and waiver provisions restate and reference those same lien compromise and waiver provisions at ARS §36-2915(H) and (I).

 

ARS §48-5541.01(N) Special Health Care Districts Liens

 

ARS §48-5541.01(N) Special Health Care Districts may assert liens under the following:

 

(1) ARS §12-962 state or political subdivision liens against liability settlements

(2) ARS §33-931 healthcare provider liens for hospitals/healthcare providers against liability settlements

(3) ARS §48-5541.01(N) Special Health Care Districts liens

 

ARS §48-5541.01(N) Special Health Care District liens apply only to such districts in a county with a population of two million or more persons (ARS. §48-5541.01(A)). District liens apply “on any and all claims of liability or indemnity, with recovery of charges “in a manner as nearly as possible the same as the procedures prescribed in section 36-2915” (the procedures governing AHCCCS liens and the lien recording thereof).

 

 

 

 

SAMPLE FIRST LTR TO SUBROGATION CONTRACTOR HANDLJNG STATE OR POLITICAL SUBDIVISION LIEN

              Mailed and Faxed to _____________

 

[Name and Address of AHCCCS Contractor]

 

(Phone ______________)

 

Re:         Our Client/Your Insured:

              Date of Accident:

             Your File/Case No.:

             Health Plan Administrator/Health Insurer:

             Member No.:

             

Dear Subrogation Adjuster;

 

This is in response to your letter to our above client dated _________ requesting accident information on behalf of your client __________________ . Please be advised that our firm represents our above client concerning his/her personal injury claim with the defendant/insurer for his/her injury accident which occurred on the above date.  Please be sure that any and all further contact concerning this matter is with our firm, and not our client. Also, this will serve to clarify that our firm does not represent you or your client regarding any alleged lien/subrogation/reimbursement interest and that our firm is not promising to protect your interest in any fashion regarding such claim.

 

Our understanding is that you are claiming this lien authority pursuant to A.R.S. 12-962. 

 

Please provide the following documents (to prove that the state or political subdivision has self-paid our client’s health benefits, as opposed to the state or political subdivision paying a premium and purchasing traditional health insurance coverage, in which case Arizona anti-subrogation caselaw clearly applies) which were in effect from the above date of accident to present:

 

1.  An itemization of the lien claimed.

 

2.  The  health care policy, Summary Plan Description (SPD) or Evidence of Coverage and any other health plan documents relating to our client’s health insurance coverage, including but not limited to subrogation or lien provisions.

 

3. The Plan’s Administrative Services Agreement, if there is one, with the Health Plan Administrator/Health Insurance, specifically, all provisions which detail how the health insurer receives payment of any sort (whether fee, commission, reimbursement, etc.) from the Plan and whether medical benefits are paid by the Health Insurance or self-paid by the state or political subdivision employee benefits Plan;  all provisions which detail if the health insurer is assigned the Plan’s lien/subrogation rights against the Plan’s insureds from personal injury settlements;  and all provisions which detail if and how the Plan and/or the health insurer assign collection of the Plan’s lien/subrogation rights against the Plan’s insureds from personal injury settlements to any subrogation company or other company.

 

4.  The Plan’s stop loss insurance policies  declarations or summary sheets showing the individual and aggregate stop loss amounts.

 

5.  Please disclose and explain Plan provisions and procedures concerning lien compromise.

A.R.S. § 12-963(A) provides that Arizona state or political subdivisions asserting such liens may compromise, settle or waive such lien claims; and A.R.S. §36-2915H requires that public entities asserting lien claims under A.R.S. § 12-962 “shall compromise” the lien “if, after considering the factors listed - - -. the compromise provides a settlement that is fair and equitable.” The listed factors, at A.R.S. §36-2915I, are “The nature and extent of the patient's injury or illness. - - -

The sufficiency of insurance or other sources of indemnity available to the patient. - - -

Any other factor relevant for a fair and equitable settlement under the circumstances of a particular case.” Also, A.R.S. §12-963(B) provides that “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.”

 

Thank you for your courtesy and assistance.

 

cc: Authorization completed, signed and dated by client(s)

 

 



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