* The Honorable Jane A. Restani, Chie f Judge, United States Court of Inte rnational Trade, sitting by designation. RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206

File Name: 05a0260p.06



### UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

S PECTRUM H EALTH C ONTINUING C ARE G ROUP

, Plaintiff-Appellee/

Cross-Appellant,

v.

A NNA M ARIE B OWLING I RREVOCABLE T RUST
D ATED J UNE 27, 2002, Defendant-Appellant/ Cross-Appellee. X - - - -

> , - - - - - - N Nos. 04-1486/1541

Appeal from the United States District Court for the Western District of Michigan at Grand Rapids. No. 03-00383—Gordon J. Quist, District Judge.

Argued: April 20, 2005

Decided and Filed: June 14, 2005

Before: NELSON and MOORE, Circuit Judges; RESTANI, Judge. *

_________________
COUNSEL

ARGUED: Thomas M. Slavin, Bloomfield Hills, Michigan, for Appellant. Kristi R. Gauthier, MILLER, SHPIECE & TISCHLER, Southf ield, Michigan, for Appellee. ON BRIEF: Thomas M. Slavin, Bloomfield Hills, Michigan, Mary T. Schmitt-Smith, Michael C. Gibbons, Roxanne J. Chang, BEIER & HOWLETT, Bloomfield Hills, Michig an, for Appellant. Kristi R. Gauthier, Wayne J. Miller, MILLER, SHPIECE & TISCH LER, Southfield, Michigan, for Appellee.

MOORE, J., delivered the opinion of the court, in which RESTANI, J., joined. NELSON, J. (pp. 14-18), delivered a separate opinion concurring in part and dissenting in part.

_________________
OPINION

_________________ KAREN NELSON MOORE, Circuit Judge. De fendant-Appellant, Anna Marie Bowling Irrevocable Trust Dated June 27, 2002 (the “Trust”), appeals the district court’s grant of summary judgment in favor of Plaintiff-Appellee, Spectrum Health Continuing Care Group (“Spectrum”).

1Nos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 2

1 It is unclear from the record how Bowling’s co-payments fact or into the shortfall. Spectrum states that its total customary cost was $639,594.67, of which Medicaid paid $101, 021.86, leaving a shortfall of $538,572.81. That value does not take into account Bowling’s Medicaid co-payments of $45,233.87, which would reduce the shortfall to $493,339.01. In addition, the Trust states, without citation to anywhere in the record, that Bowling’s private insurance paid Spectrum an additional $60,000, which should furthe r reduce the shortfall. Appellant’s Br. at 8 n.2. The district court found that Spectrum’s lien on the proceeds of a malpractice settlement was valid and enforceable, despite the fact that Spectrum already had accepted Medicaid payments for the care provided to Anna Marie Bowling (“Bowling”). In its appeal, the Trust argues that the lien violates Medicaid’s balance-billing prohibition, and therefore is invalid. In its cross-appeal, Spectrum argues that the issue of the validity of the lien is precluded by two prio r state-court judgments approving the malpractice settlement. Upon review, we concl ude that the issue is not precluded by either of the state-court judgments, and that the lien on the settlement is prohibited by federal and state Medicaid law. Therefore, we REVERSE the district court’s grant of summary judgment in favor of Spectrum and REMAND the case with instructions to the di strict court to enter judgment in favor of the Trust.

I. BACKGROUND

The material facts in this case are undisputed. On November 17, 1997, while undergoing surgery in a New York hospital, Bowling suffered a severe anoxic brain injury due to the improper administration of anesthesia. As a result of her injury, Bowling has little or no control of her limbs and is unable to speak. She requi res twenty-four hour assistance withall daily activities. Bowling filed a medical-malpractice suit against the anesthesiologist and the hospital in the State of New York through her trial attorney, Joseph Dubins ky (“Dubinsky”), with Linda Ershow-Levenberg (“Ershow-Levenberg”) serving as guardian ad litem in the suit.

Following the injury, Bowling sought long-term care in Grand Rapids, Michigan, where her sister resides. Spectrum is the parent company of a group of providers of sub-acute rehabilitation and nursing services, including Spectrum Health C ontinuing Care Center, formerly known as Grand Valley Health Center (“GVHC”). Spectrum agreed to admit Bowling to GVHC on the condition that Bowling’s representatives provide written acknow ledgment of a lien on the proceeds of a settlement or verdict in the malpractice suit to cover her medical costs. On November 24, 1998, Dubinksy sent a letter to Spectrum’s counselacknowledging “a lien on th e proceeds owed Anna Bowling and/or her estate obtained either by settlement or verdict in the [malpractice] lawsuit.” Joint Appendix (“J.A.”) at 18 (Letter from D ubinsky to William Miller 1 (Nov. 24, 1998)). ErshowLevenberg, Bowling’s guard ian ad litem in the malpractice suit, also signed the letter acknowledging the lien.

Bowling was admitted to GVHC in December 1998, where she remained until September 23, 2002. In April 1999, she became eligible to receive benefits from Michigan’s Medicaid program. “Anticipating delay in realizing its lien on the medical malpractice lawsuit,” Spectrum applied for and accepted Medicaid payments for Bo wling’s care. J.A. at 14 (Compl. at 3). Specifically, GVHC recei ved $101,021.86 from Me dicaid for services provided to Bowling from May 1999 through September 2002, along with monthl y Medicaid co-payments from Bowling’s representatives of $45,233.87. The total customary cost of Spectrum’s services provided to Bowling during the time she resided at GVHC was $639,594.6 7, leaving a shortfall of approximately $538,572.81. 1 J.A. at 20-21 (Spectrum Chart of Monthly Charges).

On July 18, 2002, the parties in Bowling’s medical-malpractice suit reached a settlement agreement. That same day, the Probate Court of Kent County, Michigan, entered a protective order approving the settlement and establishing the Trust for Bowling’s benefit. On October 9, 2002, theNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 3

Supreme Court of the State of New York approved the settlement in the malpractice suit which included “[p]ayment of Anna Bowling’s outstandi ng healthcare liens.” J.A. at 88 (N.Y. Sup. Ct. Order at 3). Specifically, the court allocated th e lump-sum amount to the various healthcare liens, including $575,000 to GVHC. The amount reflected th e shortfall between Spectrum’s customary cost for its services and the amount paid al ready by Medicaid. On February 23, 2003, pursuant to the settlement agreement, Dubinsky sent Spectrum a check for $575,000. Spectrum refunded $36,427.19 to the Trust to reach the proper shortfall amount of $538,572.81. The settlement proceeds were also used to reimburse Michigan’s Medicaid agency approximately $104,719.68.

Co-trustees of the Trust later objected to the payment of funds from the settlement proceeds to Spectrum on the ground that federal and state law prohibit a service provider from receiving additional money for services which have already been paid for by Medicai d. The parties agreed to place the disputed amount in an interest-beari ng trust account pending resolution of the issue. On May 5, 2003, Spectrum filed a declaratory judgment ac tion against the Trust in the Circuit Court of Kent County, Michigan, seeking to clarify its right to enforce the lien. Pursuant to 28 U.S.C. § 1441, the Trust removed the action to the United States Di strict Court for the Western District of Michigan and filed a counterclaim alleging that federal Medicaid law renders the lien invalid and unenforceable when the lien holder has already accepted Medicaid payments for the services provided. The parties filed cross motions for summary judgment on their respective declaratory judgment claims.

On February 20, 2004, the district court issued its opinion. First, the court held that the issue of the validity of the lien was not precluded by e ither of the state-court decisions approving the malpractice settlement. Under both Michigan and New York law, the court found that the requirements for issue preclusion had not been met. Second, the court held that under federal and state Medicaid law, the lien was valid and enforceable . The district court held that the additional money was recovered not from the beneficiary, but rather from the third-party tortfeasor, and therefore the recovery was not prohibited by the balance-billing prohibition. Moreover, the lien only attached to the portion of the aw ard specifically allocated for medical expenses, and therefore did not interfere with Bowling’s personal property. As a result, the district court entered summary judgment in favor of Spectrum. Both partie s appeal from the district court’s ruling.

II. ANALYSIS

A. Standard of Review

“We review the district court’s summary judgment determinations under Federal Rule of Civil Procedure 56 de novo .” Hoge v. Honda of Am. Mfg., Inc. , 384 F.3d 238, 243 (6th Cir. 2004). Summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). “For cross-motions for summary judgment, we must evaluate each motion on its own merits and view all facts and inferences in th e light most favorable to the non-moving party.” Beck v. City of Cleveland , 390 F.3d 912, 917 (6th Cir. 2004) (interna l quotation omitted). We have noted, however, that “[t]he filing of cross-motions fo r summary judgment does not necessarily mean that an award of summary judgment is appropriate.” Id.Nos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 4

B. Issue Preclusion

We first consider whether summary judgment in Spectrum’s favor is proper on the ground that the doctrine of issue preclusion bars the Trust’s declaratory judgment claim. Because weNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 5

conclude that Spectrum has failed to meet the re quirements for issue preclusion under both Michigan and New York law, we affirm the district court’s ruling on this ground.

The Full Faith and Credit Act mandates that “judi cial proceedings . . . shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken.” 28 U.S.C. § 1738. The United States Supreme Court has interpreted the act as requiring that “a federal court must give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered.” Migra v. Warren City Sch. Dist. Bd. of Educ. , 465 U.S. 75, 81 (1984). In this case, Spectrum argues that the Michigan and New York state-court judgments approving the malpractice settlement preclude the Trust’s declaratory-judgment claim. Accordingly, we must examine the laws of each of the respective states to resolve Spectrum’s argument.

1. Issue Preclusion Under Michigan Law

Under Michigan law, issue preclusion, known as collateral estoppel, “precludes relitigation of an issue in a subsequent, different cause of action between the same parties where the prior proceeding culminated in a valid, final judgment and the issue was . . . actually litigated, and . . . necessarily determined.” People v. Gates , 452 N.W.2d 627, 630 (Mich.), cert. denied , 497 U.S. 1004 (1990). “[T]he party asserting precl usion bears the burden of proof.” United States v. Dominguez , 359 F.3d 839, 842 (6th Cir.), cert. denied , 125 S. Ct. 261 (2004). Therefore, to prove preclusion, Spectrum must demonstrate that:

1) the parties in both proceedings are the same or in privity, 2) there was a valid, final judgment in the first proceeding, 3) the same issue was actually litigated in the first proceeding, 4) that issue was necessary to the judgment, and 5) the party against whom preclusion is a sserted (or its privy) had a full and fair opportunity to litigate the issue.

Id. (citing Gates , 452 N.W.2d at 630-31). In this case, the district court found that preclusion was inappropriate because Spectrum failed to meet seve ral of the preclusion requirements. Upon review, we conclude that Spectrum has not satisfied any of the last three requirements, and therefore, is not entitled to preclusion under Michigan law on this issue.

First, Michigan courts have held that “[a] question has not been actually litigated until put into issue by the pleadings, submitted to the trie r of fact for a determination, and thereafter determined.” VanDeventer v. Mich. Nat’l Bank , 432 N.W.2d 338, 341 (Mich. Ct. App. 1988). The courts have held that an issue which was unconteste d or indirectly referenced in the prior judgment was not actually litigated for collateral estoppel purposes. See, e.g., Lichon v. Am. Universal Ins.
Co. , 459 N.W.2d 288, 295 (Mich. 1990) (holding that anunderlying issue was not actually litigated in a prior criminal trial where the party entered plea of nolo contendere); Cogan v. Cogan , 385 N.W.2d 793, 795 (Mich. Ct. App. 1986) (holding that issue of paternity was not actually litigated in the original divorce proceeding which awarded child support).

Applying those principles to this case, we c onclude that Spectrum has failed to demonstrate that the validity of its lien was actually litigated in the Michigan proceeding. Bowling was simply seeking a protective order to certify that the settlement was in her best interest and to establish the Trust. While approval of the whole settlement necessarily encompasses Spectrum’s lien, there is no evidence in the record that the lien was ever specifically challenged or Medicaid’s balance-billing prohibition ever raised. Spectrum’s lien was never mentioned specifically in the order. The court only referenced the lien as part of the collectiv e amount owed, noting that the settlement “providesNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 6

2 The district court also found that Spectrum could not satisfy the first requirement for collateral estoppel which requires mutuality. Spectrum argues that under more recent Michigan caselaw, mutuality is not required. We need not decide the issue however, because Spectrum has failed to satisfy three of the other four requirements for collateral estoppel under Michigan law. for payment of all liens associated with [Bowling’s] medical care;” and that the settlement proceeds should be paid to the Trust “afte r satisfaction of the existing liens.” J.A. at 99-100 (Mich. Prob. Ct. Order at 1-2). Therefore, becausethe specific issue was never put forth and determined by the trier of fact, we conclude that it was not actually litigated in the Michigan proceeding.

Furthermore, as the district court noted, th e validity of Spectrum’s lien was unnecessary to the determination that the malpractice settlement was in Bowling’s best interest or to the establishment of the Trust. The probate court ev aluated the settlement pursuant to Michigan Court Rule 2.420, which requires prior court approval for settlements involving legally incapacitated individuals. The comment to the rule lists factors that a court should consider in reaching its decision, but does not include the validity of any liens on the settlement. See Mich. Ct. R. 2.420 Cmt. to 2002 Am. Moreover, in reaching its decision, the Michigan court assumed that the Spectrum lien was enforceable, yet still found the settlement to be in Bowling’s best interest. If the lien was unenforceable and Spectrum was limited to the Medicaid payments, it stands to reason that the benefits of the settlement agreement to Bow ling would not be diminished because the Trust would, at the least, receive the amounts specifically allocated to it. Therefore, we conclude that the enforcement of Spectrum’s lien was not necessary to the judgment in the Michigan proceeding.

Finally, we conclude that the Trust did not have a full and fair opportunity to litigate the issue in the Michigan court. The issue of the en forcement of the lien was never raised before the probate court and was unrelated to the court’s de termination. Moreover, Spectrum was not a party to the action nor in privity with a part y to the action in the Michigan court. 2 Therefore, the Trust never had a full and fair opportunity to challengethe enforcement of the lien in the Michigan proceeding.

Because Spectrum has failed to satisfy several of the collateral estoppel requirements under Michigan law, we conclude that the issue of th e validity of the lien is not precluded by the Michigan court judgment.

2. Issue Preclusion Under New York Law

Under New York law, “[t]he doctrine of collateral estoppel precludes a party from relitigating an issue which has previously been deci ded against him in a proceeding in which he had a fair opportunity to fully litigate the point.” Kaufman v. Eli Lilly & Co. , 482 N.E.2d 63, 67 (N.Y. 1985) (internal quotation omitted). Two requirements must be satisfied before the doctrine is invoked: “[f]irst, the identical issue necessarily must have been decided in the prior action and be decisive of the present action, and second, the party to be precluded from relitigating the issue must have had a full and fair opportunity to contest the prior determination.” Id. New York courts have noted, however, that collateral estoppel is “an equ itable doctrine,” “grounded on concepts of fairness and should not be rigidly ormechanically applied.” D’Arata v. N.Y. Cent. Mut. Fire Ins. Co. , 564 N.E.2d 634, 636 (N.Y. 1990). “In the end, the fundamental inquiry is whether relitigation should be permitted in a particular case in light of what are often competing policy considerations, including fairness to the parties, conservation of th e resources of the court and the litigants, and the societal interests in consistent and accurate results.” Staatsburg Water Co. v. Staatsburg Fire Dist.

, 527 N.E.2d 754, 756 (N.Y. 1988). Applying these princi ples, we conclude that under New York law collateral estoppel is inappropriate in this case.Nos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 7

First, Spectrum cannot demonstrate that the i ssue of approval of the settlement agreement in the New York proceeding is identical to the en forceability issue to be adjudicated in this case. New York courts have held that “[i]f the issue has not been litigated, there is no identity of issues between the present action and the prior determination.” Kaufman , 482 N.E.2d at 68. Thus, to be given preclusive effect, the issue must have been “actually litigated, squarely addressed and specifically decided.” Ross v. Med. Liab. Mut. Ins. , 551 N.E.2d 1237, 1237 (N.Y. 1990). “An issue is not actually litigated if, for example, there has been a default, a confession of liability, a failure to place a matter in issue by proper pleading or even because of a stipulation .” Kaufman , 482 N.E.2d at 68 (emphasis added). Thus, where an issue is uncontested, such as an underlying point in a settlement agreement, the issue was not actually litigated in the prior proceeding and therefore is not precluded from a subsequent one. Id. ; see also Arizona v. California , 530 U.S. 392, 414 (2000) (noting “that consent agreements ordinarily are intended to preclude any further litigation on the claim presented but are not intended to preclude further litigation on any of the issues presented” (internal quotation omitted)).

In this case, the matter before the New York state court was judicial approval of the settlement in the medical-malpractice suit. See N.Y. C.P.L.R. 1207 (requiring prior judicial approval for settlements involving legally incapacitated individuals). The issue to be resolved was the fairness of the overall settlement to Bowling, not the validity of any of the underlying liens. The New York court order approved the settlement ag reement including the payment to Spectrum. See J.A. at 91 (N.Y. Sup. Ct. Order at 6). Specifically, the court resolvedthe issue of whether a payment of $575,000 out of the total settlement proceeds of $4.57 million was in Bowling’s best interest. Because Spectrum’s lien was never contested or questioned in that proceeding, the parties effectively stipulated to its validity for purposes of approving the settlement agreement. As a result, the issue was never “actually litigated, squarely addressed and specifically decided” in the New York proceeding. Ross , 551 N.E.2d at 1237.

Furthermore, the Trust lacked a full and fair opportunity to litigate the point. New York courts have held that a party did not have a fu ll and fair opportunity where the point was not the focus of the prior proceeding, but only indirectly related to the material issues. Liddle, Robinson & Shoemaker v. Shoemaker , 768 N.Y.S.2d 183, 187 (N.Y. App. Div. 2003). As we stated above, the focus of the New York proceeding was the fairness of the $4.57 million settlement, not the validity of the individual liens. Moreover, Spectrum was neither a party nor in privity with a party to the proceeding. Therefore, we conclude the Trust did not have a full and fair opportunity to litigate the issue.

Because the issue of the validity of the Spectru m lien was not identical to the approval of the settlement and the Trust did not have a full and fair opportunity to litigate the point, we conclude that under New York law, collateral estoppel is inappropriate in this case.

C. Balance-Billing Prohibition

Having determined that neither of the two state-court judgments preclude this action, we turn to the merits of the Trust’s claim. In its motion for summary judgment, the Trust argues that Spectrum’s lien on the settlement proceeds violat es Medicaid’s balance- billing pr ohibition, and therefore is invalid. Because we conclude that by accepting Medicaid payments Spectrum waived its right to its customary fee for services provided to Bowling, we reverse the district court’s ruling on this ground.

In 1965, Congress established Medicaid through Ti tle XIX of the Social Security Act, 42 U.S.C. §§ 1396-1396v, to provide medical care to low-income families and individuals. Barney v. Holzer Clinic, Ltd. , 110 F.3d 1207, 1210 (6th Cir. 1997). The Medicaid program is “based on aNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 8

scheme of cooperative federalism,” King v. Smith , 392 U.S. 309, 316 (1968), in which a state elects to adopt a plan providing medical care to its lo w-income citizens in return for the federal government subsidizing the bulk of the plan’s financial obligations. Barney , 110 F.3d at 1210. A state is not required to participate in the program , but once it chooses to do so, the state’s plan must comply with federal statutory and regulatory standards. Pa. Med. Soc’y v. Snider , 29 F.3d 886, 888 (3d Cir. 1994); 42 U.S.C. §§ 1396a(b); 1396c. The State of Michigan elected to participate in the Medicaid program and therefore must complywith all aspects of federal law. See Mich. Comp. Laws Ann. § 400.105(1).

One of the federal statutory requirements is that a state plan must establish payment rates for the various services provided under the plan. 42 U.S.C. § 1396a(a)(30). The payment rates must be “consistent with efficiency, economy, and quality of care and . . . sufficient to enlist enough providers so that care and services are available under the plan.” Id. A health-care provider is not required to participate in the Medicaid program, but rather voluntarily contracts with the state to provide services to Medicaid-eligible patients in return for reimbursement from the state at the specified rates. Barney , 110 F.3d at 1211; Linton by Arnold v. Comm’r of Health & Env’t , 65 F.3d 508, 515 (6th Cir. 1995), cert. denied , 517 U.S. 1155 (1996). Though the Medicaid rates are typically lower than a service provider’s customary fees, “medical service providers must accept the state-approved Medicaid payment as payment-in-full, and may not require that patients pay anything beyond that amount.” Barney , 110 F.3d at 1210. Moreover, even when a third party is subsequently found liable for the Medicaid beneficiary’s medical expenses, the service provider “may not seek to collect from the individual (or any financially responsible relative or representative of that individual) payment of an amount for that service.” 42 U.S.C. § 1396a(a)(25)(C). The accompanying federal regulations mandate that a state “must limit participation in the Medicaid program to providers who 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.” 42 C.F.R. § 447.15. Consistent with this federal regulation, service providers in the Michigan Medicaid program must “accept payment from the state as payment in full by the medically indigent individual for services received.” Mich. Comp. Laws A nn. § 400.111b(14). Moreover, “[a] provider shall not seek payment from the medically indigent individua l, the family, or representative of the individual for . . . [a]uthorized services provi ded and reimbursed under the program.” Id. The restriction on a service provider prohibiting it from recovering the balance between its customary fee and the Medicaid payment is commonly referred to as the prohibition against “balance billing.” Palumbo v. Myers , 149 Cal. App. 3d 1020, 1025 (Cal. Ct. App. 1983).

In this case, Spectrum is seeking enforcement of its lien on the settlement proceeds to recover $538,572.81, which it claims is the shortfall between its customary fee and the amount it already received from Medicaid. The Trust argues that the lien is balance billing and therefore, prohibited under the law. Upon review, we agree.

All the courts which have considered the i ssue of whether a service provider, who has already accepted a Medicaid payment, may recover additional sums after a patient has received damages in a personal injury lawsuit have denied the provider’s claim. See Michael K. Beard, The Impact of Changes in Health Care Provider Reim bursement Systems on the Recovery of Damages for Medical Expenses in Personal Injury Suits , 21 Am. J. Trial Advoc. 453, 470 n.98 (1998). In Evanston Hospital v. Hauck , 1 F.3d 540, 542 (7th Cir. 1993), cert. denied , 510 U.S. 1091 (1994), a hospital provided a patient medical care in exchange for Medicaid reimbursement at the state’s prescribed rates. After the patient was awarded a sizable judgment against a third-party tortfeasor, the hospital sought to return the Medicaid amount and sue the patient for its customary fee. Id. at 542. In upholding the dismissal of the hospital’s suit, the Seventh Circuit stated:Nos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 9

But Evanston Hospital was not “forced” to abandon its right to sue Hauck; no one coerced the hospital into cashing a [Medicaid] check from the taxpayers as partial reimbursement for Hauck’s medical bills. Rather, the hospital could have simply forsaken Medicaid and taken its chances that Hauck would somehow come up with the money to pay the bills himself. By opting for reimbursement from Medicaid, Evanston Hospital bought certainty. It purch ased a guarantee of partial payment in lieu of possibly full payment or possibly no payment at all . . . Evanston Hospital wants out of its agreement with Medicaid now only because its gamble, in retrospect, was unwise.

Id. The court explained that to permit recovery w ould be to transform Medicaid into “an insurance program for hospitals rather than for indigent patients,” because the hospital “wants to be reimbursed when the patient is indigent and still retain the right to sue patients who later become solvent — a classic example of wanting to both have and eat cake.” Id. at 544; see also Mallo v. Pub. Health
Trust , 88 F. Supp. 2d 1376, 1387 (S.D. Fla. 2000) (holdi ng that the balance-billing provision forces providers to make a calculated choice because once the provider has chosen Medicaid, it is “barred from billing the patient an amount in excess of the State’s Medicaid disbursement”).

Similarly, in Palumbo v. Myers , a physician sued a patient to recover the difference between his customary fee and the Medicaid payment after the patient received a sizable settlement from a third-party tortfeasor, which included an allocati on for the full payment of the fee. 149 Cal. App. 3d at 1022. The California appellate court held that though the third-party liability provisions of the Medicaid statute provide for the gove rnment’s recovery of its Medi caid expenditures, the prohibition against balance billing bars the physician’s claim. Id. at 1030; see also Lizer v. Eagle Air Med Corp. , 308 F. Supp. 2d 1006, 1010 (D. Ariz. 2004) (holding that a provider, who has already accepted Medicaid, is prohibited from enforcing a lien against a third-party tortfeasor to recover its customary fee); Olszewski v. Scripps Health , 69 P.3d 927, 942 (Cal. 2003) (invalidating a state statute which authorized a provider to recover its customary fee through a lien against a judgment or settlement obtained by a Medicaid benefi ciary against a third-party tortfeasor); Pub. Health Trust v. Dade County Sch. Bd. , 693 So. 2d 562, 566 (Fla. Dist. Ct. App. 1997) (holding that a state regulation which permits a provider to recover its customary fee after receiving a Medicaid payment is invalid under Supremacy Clause).

Applying these principles to this case, we c onclude that the enforcement of Spectrum’s lien on the proceeds of the malpractice settlement to recover the balance of its customary fee is prohibited by federal and state law. Spectrum pr ovided Bowling with medical care from May 1999 through September 2002, in exchange for whic h it received $101,021.86 from Medicaid. Spectrum was not required to seek payment from Medicaid; instead, Spectrum could have provided its services in exchange for enforcing its lien, which was the original agreement between the parties. Having chosen to accept payment from Medicaid however, Spectrum abandoned all rights to further recovery of its customary fee from the lien. As we have stated, Medicaid is a contract between a service provider and the government, in which the Medicaid recipient is a third-party beneficiary.
Linton , 65 F.3d at 520. By accepting the Medicaid paymen t, the service provider accepts the terms of the contract — specifically that the Medicaid amount is payment in full . 42 U.S.C. § 1396a(a)(25)(C); 42 C.F.R. § 447.15; Mich. Comp. Laws Ann. § 400.111b(14). “If this arrangement is not acceptable to [service providers], they should not take Medicaid money in the first instance.” Evanston Hosp. , 1 F.3d at 543.

In its complaint, Spectrum states that it filed for Medicaid reimbursement because it was “[a]nticipating delay in realizing its lien on the me dical malpractice lawsuit.” J.A. at 14 (Compl. at 3). Nothing in the statute, however, allows for the program to be used as a financing entity, providing interest-free loans to service providers until the beneficiary’s payment arrives. CongressNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 10

3 In support of this statement, the district court cited our opinion in Barneyin which we stated that “Medicaid providers may not bill patients for treatment under the program unless they have explicitly agreed prior to treatment that the patient will personally be liable, even if the providers themselves cannot get reimbursement from the state.” 110 F.3d at 1211. Spectrum also relies on the quoted statement from Barneyin support of its argument that the lien should be enforced. Appellee’s Br. at 43. Both the dist rict court and Spectrum read our statement in Barneybeyond its appropriate context however.
In Barney , we were referring to a provision under Ohio law which states that a Medicaid provider is “not required to bill the [state plan] for medicaid-covered servi ces rendered to eligible consumers.” Ohio Admin. Code § 5101:3-1-13.1(C). Instead, the service provider may bill the cons umer directly if “[t]he consumer is notified in writing prior to the service being rendered that the provider will not bill the [state plan] for the covered service; and . . . [t]he consumer agrees to be liable and signs a written statement to that effect prior to the service being rendered.” Id. Thus, the statement in Barneystands for the unremarkable proposition that par ties may elect to contract for services outside of the Medicaid scheme even though the services provided are otherwise covered by Medicaid and the consumer is Medicaid-eligible. The Barneystatement does not apply to a situation as in this case, where the service provider both contracted with the consumer for medical services and billed Medicaid for those same services.

4 At oral argument, Spectrum also claimed that the balance of equities favors enforcing the lien because Dubinsky used Spectrum’s customary fee to obtain a larger settlement in the medical-malpractice suit. Spectrum argues that it would be unfair to allow a party to negotiate a settle ment amount based on the validity of the lien and then later claim the lien is unenforceable. We find this argument to be equally unpersuasive. First, there is no evidence in the record that Spectrum’s customary fee necessarily increased the settlement amount. Indeed, had Dubinsky not used Spectrum’s customary fee in the negotiations, the estimate of the medical expenses incurred could have been substantially larger. Second, it was Spectrum’s choice to apply for and accept Medicaid payments, and thereby implicate Medicaid’s balance-billing prohibition. Spectrum’s claim that the Trust is a bad actor seeking to renege on a promise is without merit. A party is not entitled to the benefit of its bargain when enforcement of that bargain would violate federal and state law. certainly never intended such a result. Moreover, Spectrum also used Medicaid as an insurance policy against an adverse outcome of the malpractice litigation. As Dubinsky noted in his letter acknowledging the lien, “in the world of litigation, no result can be guaranteed.” J.A. at 19 (Letter from Dubinsky to Wayne Miller at 2 (Nov. 24, 1998)). Rather than risk the possibility of no recovery, Spectrum relied on the taxpayers to insureagainst a total loss. Similar to the Seventh Circuit, we reject the invitation to transform th e Medicaid program “into an insurance program for hospitals rather than for indigent patients.” Evanston Hosp. , 1 F.3d at 544.

Spectrum attempts to distinguish its case from the other cases cited above by arguing that its lien pre-existed the malpractice settlement and that the lien was voluntarily agreed to by Bowling’s representatives. Appellee’s Br. at 26-27. Relying on contract principles, Spectrum concludes that it should be entitled to the benef it of its bargain. The district court agreed with this reasoning, explaining that we have “blessed such pre-existing agreements between providers and patients.” 3 J.A. at 137 (Dist. Ct. Op. at 25). The district court’s reasoning however, omits the critical fact that there was a pre-ex isting agreement between Spectrum and the State of Michigan as well. If Spectrum had not receive d Medicaid payments, the lien would be enforceable against the Trust as a voluntary agreement entere d into by willing parties, even though the patient was Medicaid-eligible. Barney , 110 F.3d at 1211. Once it accepted the Medicaid payment, however, Spectrum had been paid in full for the services provided to Bowling. The mere fact that a prior voluntary agreement existed is without consequence. 4

The district court attempted to distinguish this case by arguing that Spectrum was not seeking to recover from Bowling or the Trust, but rather from the third-party tortfeasor alone. The dissent also relies on this distinction, noting that federal law only prohibits a service provider from seeking “to collect from the individual (or any financiallyresponsible relative or representative of that individual) payment of an amount for that serv ice.” 42 U.S.C. § 1395a(a)(25)(C). Similarly, Michigan law states that “[a] provider shall not seek payment from the medically indigent individual, the family, or representative of the individual.” Mich. Comp. Laws Ann.Nos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 11

5 Spectrum’s reliance on the Eighth Circuit’s recent decision in Ahlborn v. Ark. Dep’t of Human Servs. , 397 F.3d 620 (8th Cir. 2005), is also misplaced. Ahlborn involved a claim by the state for reimbursement for Medicaid payments from a personal-injury settlement. Id. at 621. Where a third party is liable fo r the cost of a Medicaid recipient’s health care, federal law specifically assigns the state plan “the ri ghts of such individual to payment by any other party for such health care items or services.” 42 U.S. C. § 1396a(a)(25)(H). Federal law defines the assignment to the state as the right “to payment for medical care from any third party.” 42 U.S.C. § 1396k(a)(1)(A). Recognizing that a settlement agreement often contains compensation for other expenses beyond simply medical care, the Eighth Circuit held that under these statutory provisions, the state’s recovery is lim ited to the portion of the settlement allocated for medical expenses, even if that amount is below the actual cost incurred by the state. Id. at 627-28. The state may not recover from portions of the settlement not allocated for medical care. Id. at 628. Despite Spectrum’s arguments to the contrary, Ahlborn does not stand for the proposition that allocated settleme nt proceeds are the property of the lienor rather than the tort victim. § 400.111b(14). Citing the California Supreme Court’s decision in Olszewski v. Scripps Health , the dissent reasons that because the settlement allocat ed a portion of the proceeds for payment of the lien, enforcement is not prohibited by the balan ce-billing prohibition. In further support of this reasoning, Spectrum cites the Eighth Circuit’s recent decision in Ahlborn v. Ark. Dep’t of Human
Servs. , 397 F.3d 620, 627 (8th Cir. 2005), for the propos ition that a portion of a settlement award may be recoverable if specifically allocated for medical expenses. Upon review, we conclude this argument is unpersuasive as well.

First, while the dissent is correct that the fe deral and state statutes only mention attempts to recover from the individual or his or her repres entative, Spectrum’s lien on the settlement proceeds
is seeking recovery from Bowling for her medical care, and therefore falls within this prohibition. Despite the line item allocation to Spectrum in th e settlement agreement, Spectrum was not a party to the medical malpractice suit and the settlement allocation is not its property. Similarly, once the settlement has been approved, the settlement pro ceeds are no longer the property of the tortfeasor either. Instead, the entirety of the settlement, regardless of how it is allocated, belongs to Bowling; Spectrum’s lien is merely an encumbrance upon that property. 5 See Black’s Law Dictionary 933 (7th ed. 1999) (defining a lien as “[ a] legal right or interest that a creditor has in another’s property, lasting usu[ally] until a debt or duty that it secures is satisfied”); see also In re Approximately Forty Acres in Tallmadge Township , 566 N.W.2d 652, 657 (Mich. Ct. App. 1997) (“A lien is a security interest for money owed by one party to another, and is separate from an underlying cause of action.” (internal citation omitted)); Aetna Cas. & Sur. Co. v. Starkey , 323 N.W.2d 325, 328 (Mich. Ct. App. 1982) (“A lien is not a property right in, or right to, the thing itself, but constitutes a charge or security thereon.”). Therefore, by seeking to enforce its lien, Spectrum is attempting to recover its customary fee from the Medicaid patient herself in clear violation of both federal and state law.

Furthermore, the federal and state statutes outlining Medicaid’s balance-billing prohibition cannot be read in isolation. The federal regulation accompanying the statute explicitly limits participation in the Medicaid progr am to “providers who accept, as payment in full , the amounts paid by the agency.” 42 C.F.R. § 447.15 (emphasis added) . Similarly, the Michigan statute states that “a provider shall accept payment from the state as payment in full by the medically indigent individual for services received.” Mich. Com p. Laws Ann. § 400.111b(14) (emphasis added). The clear import of these words is that the Medicaid payment is the total amount owed to the provider for the services rendered, and thus the provider “m ay not attempt to recover any additional amounts elsewhere.” Rehab. Ass’n of Va., Inc. v. Kozlowski , 42 F.3d 1444, 1447 (4th Cir. 1994), cert. denied

, 516 U.S. 811 (1995); see also Lizer , 308 F. Supp. 2d at 1009 (“This language prevents providers from billing anyentity for the difference between their customary charge and the amount paid by Medicaid.”). There is nothing in the statutes or regulations which suggests that a service provider may recover additional payment for those services.Nos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 12

The dissent concedes the reasonableness of this interpretation, but nevertheless reads into the law ambiguity where there is none in order to justify an alternative in terpretation. In support of its argument, the dissent, like the district court below, relies heavily on a 1997 opinion letter from the Acting Director of the Medicaid Bureau of th e Health Care Financing Administration (“HCFA”), which the California Supreme Court discussed in Olszewski :

In the letter, the acting director stated that “[f]ederal law would not preclude the practice of providers pursuing payment in tort situations in excess of Medicaid reimbursement” as long as a state satisfies two conditions. First, the state must assure that Medicaid is made whole before the provider recovers any money. Second, the state must protect the assets of Medicaid beneficiaries by limiting provider recovery to the portion of the award specifically allocated for the beneficiary’s medical expenses.

69 P.3d at 943. The dissent argues that there is “no reason to suppose that the Medicaid Bureau’s clarification does not still represent agency policy, entitled to respectful consideration by the courts.” Dissent at 16. Therefore, the dissent concludes that because the two conditions are met, the lien does not violate federal law. But see Palumbo , 149 Cal. App. 3d at 1022 (holding that a service provider was prohibited from collec ting from a third-party tortfeasor even after Medicaid had been reimbursed and the settlement allocated funds for the full customary amount of medical expenses). We believe that such heavy reliance on this opi nion letter in the face of clear statutory and regulatory language is misplaced.

First, the letter, dated June 9, 1997, is not include d in the record. It is neither listed on the website for the Centers for Medicare & Medicaid Services, the successor to HCFA, nor published elsewhere. See http://www.cms.hhs.gov/states/letters/ (listing agency letters written to state officials from 1994-2004). Indeed, the lack of public availability alone raises doubts about whether this eight-year old opinion letter is still the policy of the federal government.

Moreover, the agency’s letter is not entitled to judicial deference. The letter does not appear to be a product of the agency’s rule-making authority, and therefore was likely not subject to the rigors of the public notice-and-comment process. See United States v. Mead Corp. , 533 U.S. 218, 230 (2001) (holding that agency action resulting from notice-and-comment rule-making or formal adjudications is entitled to judicial deference). Likewise, nothing in the Me dicaid statutory scheme reveals that Congress intended that courts defer to the agency’s opinion letters. Id. at 231 (noting that the absence of administrative formality does not necessarily bar judicial deference if Congress intended informal interpretations to have the force of law). Instead, as th e Supreme Court has held, “[i]nterpretations such as those in opinion le tters — like interpretations contained in policy statements, agency manuals, and enforcement guide lines, all of which lack the force of law — do

not warrant Chevron -style deference.” Christensen v. Harris County , 529 U.S. 576, 587 (2000); see also Wis. Dep’t of Health & Family Servs. v. Blumer , 534 U.S. 473, 497 (2002) (holding that the HCFA’s interpretation of a federal statute outlined in a regional letter to state directors as well as a proposed rule only “warrants respectful consideration”). The sole exception to this rule is where an agency is seeking to interpret its own re gulation, and the language of that regulation is ambiguous. Christensen , 529 U.S. at 588 (citing Auer v. Robbins , 519 U.S. 452, 461 (1997)); Beck

, 390 F.3d at 919. In this case, however, there is nothing ambiguous about the language of the federal regulation, which limits “participation in the Medicai d program to providers who accept, as payment in full, the amounts paid by the [state Medicaid agency].” 42 C.F.R. § 447.15. Moreover, the opinion letter does not serve to clarify anything about the language of that regulation, but instead authorizes reimbursement of a provider’s customary fee from third-party tortfeasors. Thus, “[t]oNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 13

6 By contrast, the district court below found that the “ policy clarification letter is a policy directive entitled to considerable deference.” J.A. at 133 (Dis t. Ct. Op. at 21 n.8). The court cited Elizabeth Blackwell Health Center For Women v. Knoll , 61 F.3d 170 (3d Cir. 1995), cert. denied , 516 U.S. 1093 (1996), in support of its argument. In Elizabeth Blackwell , the Third Circuit held that a letter to state Medicai d directors from the Director of the HCFA was entitled to “considerable weight.” Id. at 182. The letter in that case both interpreted a federal statute as well as clarified one of HCFA’s own regulations. Id. at 177, 183. To the extent that the Third Circuit’s opinion in Elizabeth Blackwell can be read as deferring to an agency’s policy letter regarding the in terpretation of a federal statute, the Supreme Court has twice since that decision clarified the de gree of judicial deference due to informal agency pronouncements. See Mead Corp.

, 533 U.S. at 235 (holding that tariff classification rulings by th e United States Customs Service are only to be considered persuasive authority); Christensen , 529 U.S. at 587 (holding that an opinion letter written by the Department of Labor interpreting a statute is not entitled to Chevron deference). More specifically, in the context of Medicaid, the Court has stated that the HCFA’s interpretation of a federal statute outlined in both a regional state letter and a proposed rule is entitled to only “respectful consideration.” Blumer , 534 U.S. at 497. Therefore, Elizabeth Blackwell is no longer the last word on this point. As to the portion of the Elizabeth Blackwell letter that simply clarified an ambiguity in a previously promulgated rule, the HCFA letter in Elizabeth Blackwell is entitled to judicial deference under theAuer exception. Because the regulation at issue in this case is unambiguous, this portion of the Elizabeth Blackwell opinion is not applicable to the case at bar either.

7 Spectrum also relies on a letter from the Supervisor of the Casualty Unit in the Michigan Department of Community Health, in which she writes that “there is case law (no-fault) supporting a provider’s right to payment of all charges when they have asserted a lien directly with the insurance company, even when they have also billed and received payment from Medicaid.” J.A. at 102 (Letter from Patricia Morscheck to Wayne J. Miller at 1 (Apr. 16, 2003)). The letter does not provide any citations to a case in whic h a Medicaid provider has recovered its customary fee from a settlement with a tortfeasor. Moreover, to the extent that Ms. Morscheck’s opinion is relying on the reimbursement practice under the state’s no-fault statute, it is inapposite to th is case. Michigan’s no-fault statute specifically authorize s payment to providers of their customary charges. See Mich. Comp. Laws Ann. § 500.3157 (requiring service providers to charge a reasonable amount not to exceed its customary charges); Munson Med. Ctr. v. Auto Club Ins. Ass’n , 554 N.W.2d 49, 53 (Mich. Ct. App. 1996) (holding that under th e state’s no-fault law, a service provider is entitled to customary charges it bills every patient treated rather thanamount it accepts). Finally, because we find the federal and state statutes to be clear, we need not relyon the guidance from the state agency official. defer to the agency’s position would be to permit the agency, under the guise of interpreting a regulation, to create de facto a new regulation.” 6 Christensen , 529 U.S. at 588.

Finally, the letter is inconsistent with the st atutory scheme Congress enacted. To the extent that a third party is liable for the medical expens es of a Medicaid beneficiary, federal law requires that the beneficiary assign his or her right to payment from the third party for medical expenses to the state Medicaid agency. 42 U.S.C. §§ 1396a(a)(25)(H), 1396k(a)(1)(A); see also Ahlborn , 397 F.3d at 625 (noting that the statutory scheme requires the state to be reimbursed for its Medicaid payments from third parties who are liable to th e Medicaid beneficiary). Thus, Congress clearly envisioned a scenario in which a third party woul d be liable to a Medicaid beneficiary for medical services, but specifically authorized recovery only to the state agency. The absence of a statutory provision providing for recovery for service provide rs of their customary fee coupled with the language limiting service providers to Medicaid payments as payment in full, reinforces our conclusion that the approach in the 1997 opinion letter should not be adopted. See Gozlon-Peretz v. United States , 498 U.S. 395, 404 (1991) (“[W]here Congre ss includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disp arate inclusion or exclusion.” (internal citation omitted) (alteration in original)).

In sum, because we hold that the language of the federal regulation and Michigan law clearly limit service providers to the amount paid by the Me dicaid agency as “payment in full,” we decline to follow the 1997 letter’s suggested approach. 7 See Christensen , 529 U.S. at 588 (declining to adopt an agency interpretation of an unambiguous regulation). Moreover, given the extremely detailed nature of the Medicaid scheme and the frequency with which it is amended, reliance on anNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 14

eight-year-old opinion letter paraphrased by the S upreme Court of California is unwarranted. If service providers should be permitted to recover thei r customary fees from a beneficiary’s settlement with a third-party tortfeasor, it is solely within the province of Congress to allow it. For now, we will adhere to the clear language of the statute and the accompanying regulation. Therefore, the Trust is entitled to judgment as a matter of law.

III. CONCLUSION

In summary, we conclude that the issue of the validity of the lien is not precluded by either of the state-court judgments, and the lien on the settlement proceeds is prohibited by federal and state Medicaid law. Therefore, we REVERSE the district court’s grant of summary judgment in favor of Spectrum and REMAND the case with instructions to th e district court to enter judgment in favor of the Trust.Nos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 15

1 This definition of balance billing was endorsed by the California Supreme Court in footnote 2 of its opinion, 69 P.3d at 931. ____________________________________________________ CONCURRING IN PART, DISSENTING IN PART

____________________________________________________ DAVID A. NELSON, Circuit Judge, concurring in part and dissenting in part. I agree with my colleagues on the panel, and with the district court, that the doctrine of collateral estoppel does not bar Ms. Bowling’s trust from challenging Spectrum’s right to retain the funds earmarked for Spectrum in the judicially-approved settlement of the tort action. I respectfully disagree with the majority’s conclusion that the tortfeasor’s promise to compensate Spectrum for its services must be nullified and replaced by a judicially-created obligation to compensate Ms. Bowling’s trust for Spectrum’s services.

If the funds received by Spectru m pursuant to the settlement ha d come out of Ms. Bowling’s pocket — as would have been the case if Spectrum had enforced its lien against settlement proceeds payable to Mrs. Bowling — it is clear that Sp ectrum would not have been entitled to keep the money. This is so because the relevant federal statute, 42 U.S.C. § 1396a(a)(25)(C), requires every state medical plan to provide that

“in the case of an individual who is en titled to medical assistance under the State plan with respect to a service for which a third party is liable for payment, the person furnishing the service may not seek to collect from the individual(or any financially responsible relative or representative of the individual) payment of an amount for that service . . . .” (Emphasis supplied.)

The required prohibition is commonly termed a ban on “balance billing” — i.e. , a ban on “the practice of billing patients for the balance remaining on a medical bill after deducting the amount paid by [the state Medicaid program].” Olszewski v. Scrippshealth , 107 Cal. Rptr.2d 187, 192 (Cal. App. 2001), aff’d in part and rev’d in part , 69 P.3d 927 (Cal. S.Ct. 2003) (emphasis supplied). 1

The structure of the federal statute suggests that the Olszewskicourts’ understanding of the scope of the required ban on balan ce billing is correct. After explicitly referring to the situation where “a third party is liable for payment,” the statute conspicuously refrains from saying that the entity furnishing the service may not seek to collect from the third party. Instead, the statute simply says that the entity furnishing the service may not seek to collect “from the individual” — i.e. , from the patient.

Michigan law appears to be in accord. In co mpliance with the federal mandate for a balancebilling ban, Michigan has enacted Mich. Comp. Laws § 400.111b(14). This statute obligates a provider of medical services to meet the following requirement:

“Except for copayment authorized by the state department . . . a provider shall accept payment from the state as payment in full by the medically indigent individual for services rendered. A provider shall not seek payment from the medically indigent individual, the family, or re presentative of the individual for . . . [a]uthorized services provided and reimbursed under the program.” (Emphasis supplied.)

If the first sentence of § 400.111b(14) stood alone, it could be read in either of two ways. Standing alone, the sentence might mean that the st ate’s settling of an indigent individual’s medicalNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 16

2 In presenting an overview of the Medicare/Medicaid program, the Kozlowskicourt observed that “[s]ervice providers who participate in the Medicaid program are required to accept payment of the state-denoted Medicaid fee as payment in full for their services, i.e. , they are required to take assignment, and may not attempt to recover any additional amounts elsewhere.” Id . at 1447. This statement was pure dictum; it had nothing whatever to do with the issue the court decided. bill for (as here) something like 30 cents on the do llar would not only extinguish any liability on the part of the individual, it would also extinguish any third-party liability. Or the sentence might mean that acceptance of payment from the state would c onstitute payment in full as far as the individual is concerned — an interpretation that would l eave open the possibility of the service provider’s seeking payment of the balance from an unrelated third party.

It seems to me that the second sentence of § 400.111b(14) illuminates the meaning of the first sentence. What the second sentence says, to re peat, is that “[a] provide r shall not seek payment from the medically indigent individual [or his family or representative] for . . . services provided and reimbursed under the program.” (Emphasis supplie d.) Like its counterpart in the federal statute, this sentence is silent as to collection efforts against an unrelated third party. Reading the twosentences together, as I think one must, I conclude that the first sentence in Michigan’s balancebilling ban was intended to provide that payment by the state must be accepted as payment in full as far as the medically indigent individual is concerned.

But what of the regulations? Do the federal Medicaid regulations broaden the requirement for a ban on balance billing to require the state not only to insure that the entity providing the service “not seek to collect from the individual,” but to require that the provider not seek to collect from anyone else either? Even though the service is one for which, in the words of the statute, “a third party is liable for payment”?

The bare language of the pertinent regulation, 42 C.F.R. § 447.15, unquestionably admits of this possibility. Departing from the structure of the statute, the regulation couches the requirement in these terms:

“A State plan must provide that the Medicaid agency must limit participation in the Medicaid program to providers wh o 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.”

It would not be unreasonable for a state Medicai d director to suppose that this language was intended to require that state plans unconditionallyprohibit participating service providers from pursuing third-party tortfeasors for payment. See Rehabilitation Services of Virginia v. Kozlowski

, 42 F.3d 1444, 1447 (4th Cir. 1994). 2 But in guidance provided to state Medicaid directors by the Health Care Financing Administration’s Medi caid Bureau on June 9, 1997, the Medicaid Bureau explained that the agency had no such intent. “As long as States assure preservation of certain principles,” the Medicaid Bureau told the states, “Federal law would not preclude the practice of providers pursuing payment in tort situations in excess of Medicaid’s reimbursement . . . .” (Emphasis supplied.) See Olszewski , 107 Cal. Rptr.2d at 194-95, where the text of the Medicaid Bureau’s policy clarification is quoted in extenso

. The Medicaid Bureau’s policy clarification goes on to spell out in detail the conditions under which payment in excess of Medicaid’s reimbursement can be pursued from tortfeasors:

“Specifically, the State must assure that Medicaid is made whole before providers can keep any monies. The State must al so prohibit providers from pursuing moneyNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 17

3 Prior to the Medicaid Bureau’s issuance of its June 9, 1997, policy clarification, Florida’s Medicaid agency adopted a regulation providing that when the agency has been made whole in respect of a payment of medical assistance, “any excess third-party benefits collected by a provider are permitted to be applied to provider charges that exceed Medicaid payment . . . .” Regulation 59 G-7.055(6), Fla. Admin. Code, as quoted in Pub. Health Trust of Dade County, Fla. v. Dade Co. School Brd. , 693 So.2d 562, 566 (Fla. Dist. Ct. App. 1997). “Clearly,” the Florida court concluded, “this state administrative regulation is in direct conflict with federal Medicaid laws . . . .” Id . Perhaps the perceived conflict with federal Medicaid laws would have been less clear to the court if it could have known of the federal Medicaid Bureau’s interpretation of the federal Medicaid laws.

Or perhaps not. The majority opinion in the case at bar makes a persuasive argument that the 1997 policy clarification letter, which was not the product of a notice-and-comment proceeding, is not, strictly speaking, entitled to “deference.” What the letter is entitled to, I believe, is resp ectful consideration. And the message the letter conveys to me, at least, is that the agency which adopted the regulation codified at 42 C.F.R. § 447.15 did not intend the regulation to be taken as a blanket prohibition against healthcare provide rs seeking to be made whole by third-party tortfeasors in situations where the interests of the Medicaid beneficiary w ould not thereby be prejudiced. If the Supreme Court of the United States, in interpreting the work product of a coordinatebranch of government, can engage in the type of humane statutory construction of which Church of the Holy Trinity v. United States , 143 U.S. 457 (1892), is a classic example, I am not sure that the Court would wish to bar administrative agencies from engaging in precisely the same sort of interpretation of their own regulations. Who is in a better position than the agency itself to know what the agency was or was not thinking of when it adopted a regulation the strict application of which, in occasional situa tions, would be patently unjust? that has been awarded to the [patient]. In other words, the provider lien must be against the tortfeasor and not the general assets of the [patient], e.g., the provider would be entitled to reimbursement from a tort judgment or settlement when the settlement specifically designates a set amount of money for medical expenses and then only if this amount is above the amount owed to Medicaid. The provider could be reimbursed only if the money has not beenallotted to the beneficiary in a court judgment or settlement . This would mean that if the lien were not perfected, the tortfeasor would stand to retain the money.” Id . (Emphasis supplied.)

I am aware of no reason to suppose that the Medicaid Bureau’s clarification does not still represent agency policy, entitled to respectful consid eration by the courts. Indeed, in the California Supreme Court’s Olszewskidecision — a decision handed down more than a year after the parties to Ms. Bowling’s malpractice action reached their se ttlement agreement and nearly four months after Spectrum’s attorney received the $575,000 allotted to Spectrum in the settlement — the California court relied heavily on the policy clarification in hol ding that certain sections of California’s Welfare and Institutions Code were in conflict with federal law. In a passage worth quoting in full, the court declared that the policy clarification is “entitled to considerable deference:”

“[T]he June 9, 1997, policy clarification le tter sent by the Acting Director of the Medicaid Bureau of the HCFA to all state Medicaid directors confirms that [Welf. & Inst. Code] sections 14124.791 and 14124.74 conflict with federal law. Where a federal regulation is ambiguous, ‘an agency’s interpretation of its own regulation is entitled to deference.’ ( Christensen v. Harris County(2000) 529 U.S. 576, 588, 120 S.Ct. 1655, 146 L.Ed.2d 621 ( Christensen ).) As ‘the Secretary’s attempt to give interpretive guidance to the states in advance of their submission of state Medicaid plans’ ( Elizabeth Blackwell Center, supra , 61 F.3d at p. 181, fn. omitted), this letter is a policy directive entitled to considerable deference (see id . at pp. 181-182 [according great deference to a policy directive issued by the Director of the Medicaid Bureau of the HCFA]).” 135 Cal. Rptr.2d at 19-20 (footnote omitted). 3

Under the factual circumstances presented in th e case at bar, it does not appear to me that federal policy, as reflected in the pertinent statutory and regulatory law, precludes Spectrum fromNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 18

4 In Palumbo v. Myers , 149 Cal. App.3d 1020 (1983), a divided intermediate appellate court in California held that even where a Medicaid patient’s tort settlement allocated funds for the full payment of the treating physician’s fee, the physician could not keep the money when paid by the tortfeasor. The Palumbo decision turned, however, on a California statute that barred providers of health care serv ices under the state’s Medi-Cal program from recovering the cost of covered services from the patient “or any other person, ” subject to exceptions that were held not to include thirdparty tortfeasors. See id. at 1023. No such state statute has been called to our attention here — and as far as federal law is concerned, the Supreme Court of California has now recognized that “federal statutes and regulations do not bar a provider from recovering from liable third parties . . . .” Olszewski , 135 Cal. Rptr.2d at 19.

being fully compensated by the third party whose alleged malpractice gave rise to Ms. Bowling’s need for the care Spectrum provided. Among the relevant circumstances are these:

— it is undisputed that Michigan’s Medicaid program was made whole by the tortfeasor’s payment of $104,719.68 to the State of Michigan in satisfaction of Michigan’s Medicaid healthcare lien;

— Spectrum received nothing out of the funds awarded to Ms. Bowling; and

— both the settlement and the judgment approving it “specifically designate[d] a set amount of money for medical expenses,” to use the Medicaid Bureau’s language, and “the money has not beenallocated to the beneficiary in a court judgment or settlement.”

I believe it is evident, in short, that Spectrum has not recovered anything from the patient. In this respect there is a crucial difference be tween the present case and the many cases in which courts (including ours) have either said generally that healthcare providers may not require patients to pay anything beyond what Medicaid has paid or have held specifically that damages recovered by a Medicaid patient in a tort suit may not be r eached by a service provider that accepted payment from Medicaid. See, e.g. , Barney v. Holzer Clinic, Ltd. , 110 F.3d 1207, 1210 (6th Cir. 1997); Evanston Hospital v. Hauck , 1 F.3d 540, 542 (7th Cir. 1993), cert. denied , 510 U.S. 1091 (1994); Mallo v. Public Health Trust , 88 F.Supp.2d 1376, 1387 (S.D. Fla. 2000); Lizer v. Eagle Air Med. Corp. , 308 F.Supp.2d 1006, 1009-10 (D. Ariz. 2004). 4

It is true that if the tort case had been se ttled on terms that called for a payment of money only to Ms. Bowling or her representatives, a lie n asserted by Spectrum on the proceeds of such a settlement would have been a lien on Ms. Bowling’ s property. As such, the lien would have been unenforceable. But because the settlement — and the court order approving it — made a “line item” allocation to Spectrum for the value of the serv ices provided, it was not Ms. Bowling’s money that Spectrum received when the tortfeasor honored his c ontract (a contract of which I presume Spectrum was a third-party beneficiary) by paying Spectrum’s bill.

We have no reason to suppose that the allocation of money to Spectrum reduced Ms. Bowling’s recovery pro tanto , and we have good reason to suppose it did not. Under the law of New York (the state where the injury occurred and where the alleged tortfeasor was sued), it is clear that Ms. Bowling never had a claim agains t the tortfeasor for the fair va lue of Spectrum’s services. New York does not follow the traditional collateral-sour ce rule — and, applying Ne w York statutory law, New York’s highest court has held that a tort claimant may not rec over as special damages the value of medical and nursing care furnished gratuitously. Coyne v. Campbell , 11 N.Y.2d 372, 183 N.E.2d 891 (1962). Thus it was held in a recent New York intermediate appellate court case that where a hospital wrote off a $138,000 balance that remain ed on a $369,000 hospital b ill after the hospital received partial payment from Medicaid and a no-fault insurer, the plaintiff in a wrongful deathNos. 04-1486/1541 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrevocable Trust Page 19

action could not recover the write-off as an element of her damages. Kastick v. U-Haul Co. of Western Michigan , 292 App.Div. 797, 740 N.W.S.2d 167 (2002).

The ramifications for the present case are obvious. The New York trial attorneys who negotiated the settlement of Ms. Bowling’s tort su it may not have been familiar with the intricacies — and uncertainties — of federal Medicaid law, but they must have been well aware of New York’s version of the collateral source rule. New York personal injury lawyers and New York defense counsel deal with this rule all the time. I believe that these New York lawyers knew perfectly well, when they negotiated their multi-million dollar settle ment, that Spectrum’s bill for services could not be an element of Ms. Bowling’s damages unde r New York law. And they would probably be puzzled, as I am, about the source of this court’s authority to rewrite their settlement agreement so that instead of compensating Spectrum for the serv ices it provided, the defendant in the malpractice action will be paying the plaintiff several hundred thousand dollars to which New York law gives her absolutely no claim.

It seems clear to me, under the facts presented here, that Spectrum’s collection of its bill from the tortfeasor cannot properly be viewed as a collection from the patient herself. My colleagues on the panel having seen the matter differently, I respectfully dissent on this issue.