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Arizona Medical Liens No Longer Apply to MedPay Benefits

Arizona Medical Liens No Longer Apply to MedPay Benefits

The Amendment

Arizona recently amended ARS § 33-931 so that medical payment (“MedPay”) benefits are no longer subject to health care provider liens for treatment rendered to injured persons.

Why It Matters  

  • ARS § 33-931 previously stated healthcare provider liens do not apply to Uninsured Motorist and Underinsured Motorist benefits (only).
  • The amendment to ARS § 33-931 overrules Dignity Health v. Farmers Ins. Co. of Ariz., 1 CA-CV-18-0292, 2019 WL1499855 (Ariz. App. June 11, 2019) (Memorandum Decision), which held MedPay benefits were subject to medical liens because MedPay coverage did not qualify as “health Insurance” exempt from medical liens under ARS § 33-931.

The Takeaways

  • Insurers in Arizona no longer need to protect medical liens when paying MedPay benefits.
  • Arizona claimants and/or their counsel may accuse an insurer of bad faith if the insurer demands protection of a medical lien before payment of MedPay benefits.

The Amended Statute

ARS § 33-931(A) now states, in full, “Every individual, partnership, firm, association, corporation or institution or any governmental unit that maintains and operates a health care institution or provides health care services in this state and that has been duly licensed by this state, or any political subdivision or private entity with ambulances operated, licensed or registered pursuant to title 36, chapter 21.1, is entitled to a lien for the care and treatment or transportation of an injured person as prescribed by subsection E of this section. The lien shall be for the claimant’s customary charges for care and treatment or transportation of an injured person. A lien pursuant to this section extends to all claims of liability or indemnity, except health insurance and medical payments coverage and underinsured motorist and uninsured motorist coverage as defined in § 20-259.01, for damages accruing to the person to whom the services are rendered, or to that person’s legal representative, on account of the injuries that gave rise to the claims and that required the services.” (emphases added).
Arizona Court of Appeals Holds MedPay Benefits Are Subject to Health Care Provider Liens

Arizona Court of Appeals Holds MedPay Benefits Are Subject to Health Care Provider Liens

The Holding

In Dignity Health v. Farmers Ins. Co. of Ariz., 1 CA-CV-18-0292, 2019 WL1499855 (Ariz. App. June 11, 2019), the Arizona Court of Appeals recently held MedPay benefits are subject to health care provider liens because MedPay coverage does not qualify as “health Insurance” exempt from medical provider liens under A.R.S. § 33-931.

The Takeaways

  • An insurer’s payment of MedPay benefits to an insured is subject to health care provider liens under A.R.S. § 33-391.
  • Although this is an issue of first impression in Arizona, the Court’s ruling is consistent with statutory schemes and case law that distinguish health insurance from MedPay coverage.

The Facts

The Defendant Insurer issued an auto policy that included MedPay coverage. The Insured was in an accident and was treated by the Plaintiff Hospital. The Insured incurred medical expenses exceeding $160,000, and the Hospital perfected a $140,000 heath care provider lien. Notwithstanding the lien, the Insurer paid $99,000 in MedPay benefits to the Insured. The Hospital sued the Insurer to enforce its health care provider lien. The Insurer argued its payment of MedPay benefits was exempt from the lien because MedPay coverage is “health Insurance” exempt from health care provider liens, pursuant to A.R.S. § 33-931. The trial court dismissed the Hospital’s complaint, holding MedPay coverage qualifies as exempt “health insurance. The Arizona Court of Appeals vacated the trial court’s ruling and held MedPay coverage is not “health insurance.” Thus, MedPay benefits are subject to health care provider liens.

The Rationale

  • Under A.R.S. § 33-931 “health insurance and underinsured and uninsured motorist coverage as defined in § 20-259.01” are exempt from health care provider liens.
  • The Court of Appeals rejected the argument that MedPay benefits are exempt as “health insurance . . . motorist coverage as defined in § 20-259.01” because:
    • The phrase “motorist coverage as defined in § 20-259.01” only modifies the phrase “underinsured and uninsured,” and does not modify “health insurance.”
    • And, if the Legislature wanted to exempt “health insurance motorist coverage as defined in A.R.S. § 20-591.01” from health care provider liens, then it could have done so by explicitly amending A.R.S. § 33-931 to that effect or by defining “health insurance” in A.R.S § 20-591.01. It did neither.
  • Although A.R.S. § 33-931 does not define “health insurance,” the A.R.S. Insurance Title (Title 20) excludes MedPay coverage from the definition of “health insurance.” The Insurer failed to show the Legislature intended “health insurance” to have an irreconcilably different definition in A.R.S. § 33-931.
  • There is a separate statutory scheme applying to MedPay coverage, demonstrating the Legislature treats “health insurance” and MedPay coverage as legally separate.
  • Arizona courts have distinguished “health insurance” from MedPay coverage in other contexts. See Haisch v. Allstate Insurance Co., 197 Ariz. 606, 607 ¶ 2 (App. 2000).
Arizona Court of Appeals Enforces Workers’ Comp Exclusion to MedPay Coverage

Arizona Court of Appeals Enforces Workers’ Comp Exclusion to MedPay Coverage

The Holding

In Doneson v. Farmers Ins. Exch., 2018 WL 4781382 (Ariz.App. Oct. 3, 2018), an insurance bad faith case, the Arizona Court of Appeals upheld an exclusion precluding MedPay benefits “if workers’ compensation benefits are required,” despite the Insured’s reimbursement of the workers’ compensationinsurer.

The Takeaways

  • Arizona is more likely to enforce a MedPay exclusion regarding workers’ compensation benefits, if the exclusion applies when workers’ compensation benefits are “required” rather than “payable.”
  • A proponent of parole evidence must first persuade a court that a contract is reasonably susceptible to the interpretation asserted by the proponent before a court will consider the proffered parole evidence.

The Facts

The Insured was injured in an accident and incurred $22,000 in medical expenses. A workers’ compensation insurer paid some of those medical expenses. The Insured recovered $15,000 from the tortfeasor’s liability insurer. Pursuant to ARS 23-1023(D), the Insured reimbursed the workers compensation insurer $8,750.

The Insured’s policy included $5,000 of MedPay coverage for injuries sustained in an auto accident. The MedPay coverage, however, included an exclusion for “bodily injury” that “[o]ccurred…if workers’ compensation benefits are required.” The Insured submitted a claim for the $5,000 MedPay limits. The Insurer denied the claim pursuant to the exclusion.

The Insured filed suit against the Insurer and asserted claims for breach of contract, declaratory relief, bad faith, and tortious interference with contract. The Insurer filed a motion to dismiss, and the trial court granted the motion to dismiss.

The Rationale

In upholding the Workers’ Compensation Exclusion, the Court of Appeals reasoned as follows:

  • It rejected the Insured’s argument that workers’ compensation benefits are not “required” when an insured reimburses a workers’ compensation insurer.
  • The cases relied upon by the Insured were not persuasive because they considered workers compensation exclusions that applied if workers’ compensation benefits were “payable”—a term other courts found ambiguous.
  • The Workers’ Compensation Exclusion’s use of the word “required” creates an exclusion susceptible to only one reasonable and logical interpretation.
  • The trial court correctly refused to consider the Insured’s parole evidence.
  • “In determining whether to consider parole evidence to interpret a contract, a judge first considers the offered evidence and, if he or she finds that the contract language is reasonably susceptible to the interpretation asserted by its proponent, the evidence is admissible to determine the meaning intended by the parties.” Taylor v. State Farm Mt. Auto. Ins. Co., 175 Ariz. 148, 154 (1993).
  • In Doneson, “the Insured did not prove the Workers Compensation Exclusion was “reasonably susceptible” to the Insured’s interpretation—that worker’s compensation benefits are not “required” when an insurer recovers from a tortfeasor and reimburses a workers compensation insurer.

Read the entire Doneson opinion here.

Arizona District Court Holds “Reasonable” Medical Expenses Are Amounts Accepted by Providers as Payment in Full Rather Than Billed Amounts

Arizona District Court Holds “Reasonable” Medical Expenses Are Amounts Accepted by Providers as Payment in Full Rather Than Billed Amounts

The Holding

In Jimenez v. Progressive Preferred Ins. Co., 2020 WL 2037113 (D. Ariz. Apr. 28, 2020), a putative breach of contract and insurance bad faith class action arising from a MedPay claim, the Arizona District Court held the phrase “reasonable expenses incurred for necessary medical services’ are those expenses which the healthcare provider accepts as payment in full.”

The Takeaways

  • If an insurer’s policy limits MedPay benefits, or perhaps UM or UIM benefits, to “reasonable medical expenses,” then the insurer should determine whether an insured’s medical providers contracted to accept less than the amount billed as payment in full to determine the benefits owed.
  • Because Arizona’s model personal injury damages instruction, RAJI Personal Injury Damages 1 (Measure of Damages), limits Arizona personal injury plaintiffs’ recovery of medical expenses to “reasonable expenses of necessary medical care,” some Arizona insurers and personal injury defendants may begin to cite Jimenez and argue the recovery of medical expenses by Arizona personal injury plaintiffs and insureds should be limited to the amounts accepted by medical providers as payment in full rather than billed amounts.

The Facts

In Jimenez, the Policy stated the Insurer would pay MedPay benefits for “reasonable expenses incurred for medical services” and the Insurer would “determine whether the expenses for medical services are reasonable.” The Insurer had contracted with an entity that entered “Provider Agreements” with medical providers that agreed to deliver medical services at specific contract rates. The Insurer had also contracted with another entity that made the Insurer part of a Virtual Provider Network in which a network of medical providers similarly agreed to deliver medical services for the entity’s clients, such as the Insurer, at reduced rates.

The Insured was in a car accident, incurred $6,719 of medical expenses, had no health insurance, and made a MedPay claim for his $5,000 MedPay limits. The Insurer determined the Insured’s medical providers had contracted with the above two entities and agreed to accept reduced rates, specifically $3,455, as payment in full, and paid that amount of MedPay benefits.

The Insured filed a putative class action against the Insurer for himself and other insureds whom the Insurer paid less than policy limits because of similar contracts/Voluntary Provider Networks and asserted claims, among others, for breach of contract and bad faith. The Insured and Insurer filed dueling motions for summary judgment, and the Court granted the Insurer’s motion.

The Rationale

First, the Court noted the Insured violated the conditions precedent for suing the Insurer. The Insured had not paid money of his pocket to his medical providers before suit, and the Insured’s medical providers had initiated no collection activity against the Insured.

Second, the Court noted the Arizona District Court had previously “noted the unique payment practices of the health care industry, wherein health care providers routinely accept an amount less than the amount billed as payment in full.” But, it and the Arizona Supreme Court had “considered simply what charges were ‘incurred’” rather than “addressed the proper interpretation of the word ‘reasonable’ when applied to such charges.” Indeed, the Arizona District Court limited its analysis to the phrase “actual charges” in Pierce v. Cent. United Life Ins. Co., 2009 WL 2132690 *5 (D. Ariz. July 15, 2009), and the Arizona Supreme Court limited its analysis to the phrase “actually incurred by the insured” in Samsel v. Allstate Ins. Co., 59 P.3d 281, 286, 291 (Ariz. 2002).

Third, the Court noted a “few courts have addressed the question of whether, in the medical expenses context, ‘reasonable’ expenses are those billed or those accepted as payment in full,” “the Court finds persuasive those that have interpreted reasonable expenses as those expenses accepted as payment in full,” and cited these cases:

  • West v. Shelby Cty. Healthcare Corp., 459 S.W.3d 33, 44-46 (Tenn. 2014) (In Tennessee, “with regard to an insurance company’s customers, ‘reasonable charges’ are the charges agreed to by the insurance company and the hospital”—in other words, the amount accepted as payment in full. Using the amount billed is unreasonable because “virtually no public or private insurer actually pays full charges,” and a “more realistic standard,” which “reflect[s] what is [actually] being paid in the market place,” is “what insurers actually pay and what the hospitals [are] willing to accept”—i.e. the amount accepted as payment in full.)
  • Allstate Ins. Co. v. Holy Cross Hosp., Inc., 961 So. 2d 328, 335 (Fla. 2007) (If a healthcare provider “has agreed in a valid and enforceable contract to accept payment for services at a particular rate, that rate would necessarily be a ‘reasonable amount for the services … rendered.’”) (quoting Nationwide Mut. Ins. Co. v. Jewell, 862 So. 2d 79, 86 (Fla. Dist. Ct. App. 2003)).
  • Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1142 (Cal. 2011) (“We do not suggest hospital bills always exceed the reasonable value of the services provided … If we seek … the exchange value of medical services the injured plaintiff has been required to obtain, looking to the negotiated prices providers accept from insurers makes at least as much sense, and arguably more, than relying on [the amount billed]…. For this reason as well, it is not possible to say generally that providers’ full bills represent the real value of their services …”).
  • Kenney v. Liston, 760 S.E.2d 434, 451 (W. Va. 2014) (Loughry, J., dissenting) (“Given the current complexities of health care pricing structures, it is simply absurd to conclude that the amount billed for a certain procedure reflects the ‘reasonable value’ of that medical service…. ‘[b]ecause so many patients, insured, uninsured, and recipients under government health care programs, pay discounted rates, hospital bills have been called ‘insincere,’ in the sense that they would yield truly enormous profits if those prices were actually paid.”) (quoting Howell, 257 P.3d at 1142).

Accordingly, the Court held:

  • “the ‘reasonable expenses incurred for necessary medical services’ are those expenses which the healthcare provider accepts as payment in full”;
  • the Insurer “did not breach the [Policy] by paying the amount the healthcare providers agreed to accept as payment in full”; and
  • the Insurer did not act in bad faith because “it was reasonable for [the Insurer] to promptly send full payments of the amount the healthcare providers were contractually obligated to accept.”

If you would like additional information regarding Arizona insurance coverage and bad faith cases, please contact Nate Meyer at 602.248.1032 or ndm@jaburgwilk.comMicalann Pepe at mcp@jaburgwilk.com or 602.248.1043, K. Michelle Ronan at mir@jaburgwilk.com or 602.248.1083, or Echo Reynolds at ear@jaburgwilk.com or 602.248.1076.