Skin in the game.  Horse in the race.  Dog in the hunt.  Whatever “it” is – we don’t have “it” in today’s case.  Ansley v. Banner Health Care is a suit brought by plaintiffs who had received damages awards for injuries that required treatment at various hospitals seeking to enjoin those hospitals from enforcing liens against those tort recoveries. 2019 WL 1121374 (Ariz. Ct. Apps. Mar. 12, 2019).  If any pharmaceutical or medical device companies were involved in the original tort claims, their role is over by the time Ansley gets teed up.  But just because we don’t have a seat at the table, doesn’t mean we aren’t interested in what’s being discussed.  Phantom damages.

We’ve written before about the concept of “phantom damages” – plaintiffs seeking recovery for the face value of health care provider bills when they (or their insurers) in fact got huge discounts.  Courts are actually divided on the issue and cases generally go one of three ways — actual payment only; let it all in; billed amount only.  We are fairly enamored of the actual payment only method of computing recovery of medical expenses.  Anything else provides a windfall to plaintiffs.  And that’s really where we have chum in the water.  There should be no windfall in the first place.  Plaintiffs should only recover what they (or their insurers) actually paid out of pocket.

But, in Ansley, we are in a horses already out of the barn situation.  Only, we can’t get the horses back.  We just have to watch the neighboring ranchers fight over who’s going to get them.  Arizona was identified in our earlier post as one of the states allowing plaintiffs to recover this windfall.  Lopez v. Safeway Stores, Inc., 129 P.3d 487, 495 (Ariz. App. 2006) (“plaintiffs are entitled to claim and recover the full amount of reasonable medical expenses charged, based on the reasonable value of medical services rendered, including amounts written off from the bills pursuant to contractual rate reductions”).  So the hospitals tried to collect this windfall for themselves through liens on plaintiffs’ tort recoveries for the face value of their discounted bills.

Each plaintiff was a member of the Arizona Health Care Cost Containment System (“AHCCCS”), Arizona’s Medicaid insurance provider.  Each hospital contracted with AHCCCS agreeing to accept certain rates for hospital care provided to AHCCCS members that was less than the hospitals would charge non-AHCCCS patients.  The hospitals wanted plaintiffs to reimburse them for the difference – the balance – between what they already received from AHCCCS and the face value of the services they provided.  Talk about a windfall.  Absent the underlying tort recovery, the hospitals would have to live with the contractual deal they struck.  But, since there was a tort recovery, the hospitals want to recover the full cost that they were never entitled to.

The court decided the plaintiffs get to keep the windfall.  In a bizarre twist, plaintiffs won by asserting, of all things, federal preemption.  The hospitals based their liens on two state court statutes that (1) allow a health-care provider to file a lien for its “customary” charges against a patient’s tort recovery and (2) allow a hospital to “collect any unpaid portion of its bill from other third-party payors.”  Id. at *1.  However, federal law governs the relationship between state Medicaid agencies and the hospitals they contract with.   Pursuant to 42 C.F.R. § 447.15, “a state may contract only with providers that agree to ‘accept, as payment in full, the amounts paid by the agency plus any deductible, coinsurance or copayment required by the plan to be paid by the individual.’”  Id. at *3.  This is a case of conflict preemption.  Despite state law providing a means to record a lien for recovery of a patient’s tort damages, federal law states that “[b]ecause the patient does not owe the hospital the balance between what AHCCCS has paid the hospital and the hospital’s customary rate, the hospital may not collect that balance by imposing a lien on the patient’s property.”  Id. at *4.

The court also ruled that the plaintiffs were third-party beneficiaries of the contracts between the hospitals and AHCCCS.  Id. at *10-12.  And there were rulings about the scope of the injunction and attorneys’ fees.  But, those rulings are even more remote to our primary areas of interest.

To quote Alexander Hamilton – actually Lin-Manuel Miranda – “When you got skin in the game, you stay in the game.”  We may not have had any skin on the line in this one, but we’re determined to stay in the game because the game – phantom damages – needs to change.