§ 5.8 Medicaid | Arizona Health Care Cost Containment System (“AHCCCS”) Recovery Rights

• Jurisdiction: Arizona

§ 5.8 – Medicaid / Arizona Health Care Cost Containment System (“AHCCCS”) Recovery Rights

Medicaid, 42 U.S.C. §§ 1396 to 1396w-5, is a federal program for low-income patients that is jointly funded by federal and state governments, but exclusively administered by participating states under the supervision of the Department of Health and Human Services (“HHS”), who in turn exercises authority through the Centers for Medicare and Medicaid Services (“CMS”). See 42 C.F.R. §§ 430.0 to 456.725.

AHCCCS is the name given to Arizona’s Medicaid program, A.R.S. §§ 36-2901 through 36-2930.01. The complete Arizona State Plan for Medicaid, approved by CMS pursuant to 42 U.S.C. §1396a, can be found at www.azahcccs.gov/Resources/StatePlans/ (last visited May 19, 2019).

As a federal-state program, AHCCCS is governed by both federal and Arizona state law, which necessarily includes related federal and state regulations, as well as agreements between the AHCCCS administration and AHCCCS healthcare providers (known as “AHCCCS registered providers”). Federal law, of course, ultimately preempts Arizona state law, regulations, and agreements to the extent they conflict with federal mandates. E.g., Ansley v. Banner Health Network, 246 Ariz. 240, 252 ¶ 32, 437 P.3d 899, 911 (App. 2019); Abbott v. Banner Health Network, 236 Ariz. 436, 341 P.3d 478 (App. 2014), reversed on other grounds, 239 Ariz. 409, 372 P.3d 933 (2016).

It is noteworthy that the AHCCCS administration often outsources its recovery activities to private third-party contractors who are “compensated for their recovery services based upon a percentage of the funds recovered.” AHCCCS v. Cochise Cty., 186 Ariz. 210, 211, 920 P.2d 776, 777 (App. 1996). These authorized contractors are generally treated as having the same rights and responsibilities as the AHCCCS administration itself in connection with pursuing AHCCCS recovery claims. See id. Our reference to AHCCCS, therefore, will include the AHCCCS administration or any authorized AHCCCS contractor.

a. The Scope of AHCCCS Recovery Rights

In circumstances giving rise to “legal liability of third parties,” federal law provides AHCCCS must seek reimbursement for the cost of medical assistance provided to AHCCCS patients. See, e.g., 42 U.S.C. § 1396a(a)(25)(A) and (B). The phrase “third parties” is broadly defined in the statute to include “parties that are, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service.” 42 U.S.C. § 1396a(a)(25)(A).

While AHCCCS reimbursement rights are ultimately limited by the contours of federal law, e.g., Wos v. E.M.A. ex rel. Johnson, 133 S. Ct. 1391 (2013), they are presently derived from four separate Arizona statutes providing recovery rights to AHCCCS. In general, these four recovery statutes provide: (1) direct rights of recovery pursuant to the MCCRA, A.R.S. §§ 12-961 through 12-964, supra § 5.3(a); (2) lien rights pursuant to A.R.S. §§ 36-2915 and 36-2956; and (3) subrogation rights pursuant to A.R.S. § 36-2903.

Our courts have concluded that, because “the nature of AHCCCS’s rights under these statutes differs, . . . the remedies are complementary rather than merely cumulative.” AHCCCS v. Bentley, 187 Ariz. 229, 928 P.2d 653 (App. 1996). As an overview, these statutes mean:

(1) AHCCCS has a “direct claim” against third-party tortfeasors or injured persons receiving third-party recoveries pursuant to the MCCRA, infra § 5.8(a)(i);

(2) AHCCCS may assert a lien against third-party recoveries, but only if their interest is properly perfected pursuant to A.R.S. §§ 36-2915(A) or 36-2956(A), infra § 5.8(a)(ii); and

(3) AHCCCS has subrogation rights against insurance policies for “medical benefits” pursuant to A.R.S. § 36-2903(F), infra § 5.8(a)(iii).

AHCCCS’s recovery rights, if any, in connection with uninsured or underinsured motorist claims are more nuanced and, therefore, are addressed separately below, infra § 5.8(b)(ii).

i. Direct Recovery Rights

As a political subdivision of the State, AHCCCS has recovery rights under the MCCRA. See supra § 5.3(a). Without repeating the earlier discussion of the MCCRA, it suffices to say that it allows AHCCCS to recover the reasonable value of medical care from either (1) the tortfeasor, or (2) the injured party “to the extent that such person has received money in settlement of the claim or satisfaction of a judgment against the [tortfeasor].” A.R.S. § 12-962(B)(3).

The MCCRA creates this interest as a matter of law, and no perfection is required, but it only applies to third-party claims. See Arizona Dept. of Admin. v. Cox, 222 Ariz. 270, 278 ¶ 35, 213 P.3d 707, 715 n.6 (App. 2009) (noting § 12-962 does not extend to underinsured motorist claims). See supra § 5.3(a) for a more detailed discussion of the MCCRA.

ii. Lien Rights

AHCCCS has potential lien rights pursuant A.R.S. §§ 36-2915 and 36-2956. Section 36-2915(A) allows AHCCCS to impose a lien on a patient’s “claims of liability or indemnity for damages” accruing due to care or treatment paid for by AHCCCS. To be enforceable, however, this lien must be properly perfected as provided by § 36-2915(B), which requires that AHCCCS must record a lien in the county recorder’s office in the county where the “injuries were incurred” and “within sixty days from the date of notification . . . of the hospital discharge or rendering of medical care and treatment.” A.R.S. § 36-2915(B).

Section 36-2956(A) also allows AHCCCS to impose a lien upon a patient’s “claims for damages” accruing due to care or treatment paid for by AHCCCS. To be enforceable, it also requires such a lien must be properly perfected by following the recording requirements set forth in § 36-2915(B). The only meaningful difference between the two statutes appears to be that § 36-2915 extends to “claims of liability or indemnity for damages” whereas § 36-2956 extends to “claims for damages.” Cf. Nationwide Mut. Ins. Co. v. AHCCCS, 166 Ariz. 514, 516-17, 803 P.2d 925, 927-28 (App. 1990) (discussing this language in different versions of § 36-2915).

iii. Subrogation Rights

AHCCCS has subrogation rights pursuant to A.R.S. § 36-2903. Section 36-2903(F) assigns to AHCCCS the right to recover “all types of medical benefits to which [an AHCCCS patient] is entitled, including first party medical benefits under automobile insurance policies.” A.R.S. § 36-2903(F).

This assignment arises as a matter of law, AHCCCS is not required to perfect this interest, and AHCCCS has the right of subrogation to enforce the assignment. See id.

b. Limitations on AHCCCS Recovery Rights

i. Perfection

Depending upon the basis of the AHCCCS recovery claim, it may be necessary for AHCCCS to perfect its interest. As previously noted, any recovery claims based upon §§ 36-2915(A) or 36-2956(A) must be perfected.

To perfect such claims, AHCCCS must record a lien in the county recorder’s office in the county where the “injuries were incurred” and “within sixty days from the date of notification . . . of the hospital discharge or rendering of medical care and treatment.” A.R.S. § 36-2915(B) (emphasis added). Note that this differs in substance and timing from recording requirements for healthcare provider liens. See supra § 5.2(b)(i).

ii. Nature of the Recovery

AHCCCS clearly has recovery rights in connection with third-party claims and seems to have recovery rights with respect to medical payments claims pursuant to § 36-2903. With respect to uninsured or underinsured motorist claims, however, Arizona law is unsettled. Since the MCCRA only applies to third-party recoveries, Cox, 222 Ariz. at 278 ¶ 35, 213 P.3d at 715 n.6, the three potentially applicable statutes in connection with uninsured or underinsured motorist claims are §§ 36-2915, 36-2956, and 36-2903.

On the one hand, there are no cases applying either §§ 36-2915 or 36-2956 to uninsured or underinsured motorist claims, most likely because those types of first-party claims are not claims for “damages,” but rather contractual claims for “losses” or “benefits.” See, e.g., A.R.S. §§ 11-291(F)...