Abbott v. Banner Health Network – 5/23/2016

June 6, 2016

The Arizona Supreme Court holds that settlement agreements resolving hospital liens against AHCCCS patients are valid.

The hospitals in this case treated patients who were injured by third parties.  After accepting payment from the patients’ AHCCCS insurance, the hospitals also recorded liens for the remaining balance of their customary charges.  Arizona law allows hospital liens in these circumstances but some courts have held that federal law prohibits such further collection when Medicaid insurance such as AHCCCS is involved.  Some of the patients settled with the hospitals to release the liens in order to collect personal injury settlements from the third parties.  The patients later sought to set aside the settlement agreements, arguing that the underlying liens are preempted by federal law.  The trial court upheld the agreements but the court of appeals found them to be invalid because there was no good-faith dispute as to the enforceability of the liens.

The Supreme Court held that the settlement agreements are valid even if federal law preempts the underlying liens.  Courts should not unnecessarily address constitutional questions such as preemption and courts reviewing settlement agreements need not resolve the underlying legal dispute to determine the validity of the agreement.  Here, although other courts have found such liens preempted by federal law, no Arizona court of appeal had resolved that issue in a binding decision at the time the agreements were reached.  Accordingly, the agreements were based on a bona fide dispute which met the required subject matter and consideration for an accord and satisfaction agreement. 

Justice Brutinel authored the unanimous opinion.