An Arizona appeals court rules that the federal portion of a Medicaid lien must be fully reimbursed before a beneficiary can receive any funds from a settlement. Eaton v. Arizona Health Care Cost Containment System (Ariz. Ct. App., Div. 2, No. 2 CA-CV 2003-0068, Nov. 26, 2003).
Steven Eaton is a Medicaid recipient afflicted with hemophilia. Mr. Eaton used medical infusion products from which he contracted the human immunodeficiency virus (HIV). The product manufacturers offered Mr. Eaton a settlement of $50,000. Present at the settlement conference was John Shirley, an employee of a corporation that performs third-party liability recovery for the Arizona Health Care Cost Containment System (AHCCCS), the agency that oversees the state's Medicaid program. When Mr. Eaton expressed concern about Medicaid's claim of $17,645.05 for the care he had received, Mr. Shirley suggested that Mr. Eaton consider accepting the offer because Mr. Eaton "could go before an ALJ and seek to have the lien reduced significantly, and possibly to zero." In reliance on this statement, Eaton accepted the settlement offer.
Subsequently, AHCCCS agreed to compromise the lien from $17,645.05 to $11,200, explaining that the residual amount represented the federal share, which it could not legally compromise. An ALJ and the AHCCCS director agreed, and the superior court affirmed. Mr. Eaton appealed, contending that the state is permitted to compromise the federal portion of a Medicaid lien, that Mr. Shirley's misrepresentations in settlement negotiations constituted fraud, and that these misrepresentations should estop AHCCCS from refusing to compromise the remainder of the lien.
The Court of Appeals of Arizona affirms. First, the court rules that federal law prevented the director from waiving the federal portion of the lien. Conceding that "the Social Security Act is at least ambiguous with respect to the specific issue of whether the states may compromise the federal portion of the Medicaid lien," the court gives deference to the position of the authorized federal agency (the Centers for Medicare & Medicaid Services), which is that states must reimburse the federal Medicaid program before the recipient can receive any funds from a settlement or award. The court also finds that Mr. Eaton did not bring a proper fraud claim and that Mr. Shirley's statement lacked the degree of formality necessary to estop the state.
To download the full text of this decision in PDF format, go to: https://www.apltwo.ct.state.az.us/Decisions/CV20030068Opinion.pdf
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