IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

WALTER ANSLEY, et al., 

Plaintiffs/Appellees/Cross-Appellants,

v.

BANNER HEALTH NETWORK, et al.,

Defendants/Appellants/Cross-Appellees.

No. 1 CA-CV 17-0075

Appeal from the Superior Court in Maricopa County

No. CV2012-007665

The Honorable J. Richard Gama, Judge, Retired 

The Honorable Dawn M. Bergin, Judge

AFFIRMED IN PART; REVERSED IN PART; REMANDED

COUNSEL

Levenbaum Trachtenberg, PLC, Phoenix

By Geoffrey M. Trachtenberg, Justin Henry

Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

The Entrekin Law Firm, Phoenix

By B. Lance Entrekin

Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

Gammage & Burnham, PLC, Phoenix

By Richard B. Burnham, Cameron C. Artigue, Christopher L. Hering

Counsel for Defendants/Appellants/Cross-Appellees

FILED 3-12-2019
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

2

OPINION

Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in 

which Judge Kent E. Cattani and Judge Jennifer M. Perkins joined.

J O H N S E N, Judge:

¶1 Banner Health Network and other hospital groups ("the 

Hospitals") each contracted with the Arizona Health Care Cost 

Containment System ("AHCCCS") to serve AHCCCS members. The 

plaintiffs in this case ("the Patients") received settlements or damage 

awards from third-party tortfeasors for injuries that required treatment at 

the Hospitals. The Patients sued to enjoin the Hospitals from enforcing 

liens on their tort recoveries for the balance between the rates the Hospitals

agreed to accept from AHCCCS and what the Hospitals would have 

charged non-AHCCCS patients. We hold that federal law preempts state 

statutes authorizing the Hospitals to impose and enforce those liens, and

affirm the superior court's order enjoining the liens. For reasons set forth 

below, we also reverse the court's judgment against the Patients on their 

third-party-beneficiary claim for breach of contract and vacate and remand 

for further consideration a portion of the attorney's fee award to the 

Patients. 

FACTS AND PROCEDURAL HISTORY

¶2 The Hospitals recorded their liens pursuant to two statutes, 

Arizona Revised Statutes ("A.R.S.") sections 33-931 (2019) and 36-

2903.01(G)(4) (2019).

1 The former allows a health-care provider to file a lien 

for its "customary" charges against a patient's tort recovery. The latter 

specifically applies when a hospital has served an AHCCCS member and 

allows that hospital to "collect any unpaid portion of its bill from other 

third-party payors or in situations" in which the general medical-lien 

statute applies.

¶3 In their complaint, the Patients alleged federal Medicaid law 

preempts the Arizona lien statutes in cases such as theirs, and sought an 

injunction barring the Hospitals from recording liens on their tort 

 

1 Absent material revision after the relevant date, we cite a statute's 

current version.
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

3

recoveries. The Patients argued the liens constitute impermissible "balance 

billing," a term describing a health-care provider's effort to collect from a 

patient "the difference in the amount paid by Medicaid, or a state plan like 

AHCCCS, and the amount" the provider typically charges. Abbott v. Banner 

Health Network, 239 Ariz. 409, 412, ¶ 9 (2016).

¶4 Early in the litigation, the superior court dismissed a group of 

plaintiffs who had settled their lien claims with the Hospitals and entered 

partial final judgment as to those plaintiffs pursuant to Arizona Rule of 

Civil Procedure 54(b). Those plaintiffs appealed, arguing their settlements 

lacked consideration because federal law preempted the Hospitals' liens. 

This court accepted that argument, Abbott v. Banner Health Network, 236 

Ariz. 436, 446, ¶ 30 (App. 2014) ("Abbott I"), but the supreme court reversed, 

Abbott, 239 Ariz. 409 (2016) ("Abbott II"). The supreme court ruled the 

settlements were valid and made "fairly and in good faith" because the 

validity of the Hospitals' lien rights was not settled under Arizona law. 

Abbott II, 239 Ariz. at 413, 414, 415, ¶¶ 12, 18, 20.

¶5 Meanwhile, the superior court certified the remaining 

plaintiffs as a class, and both sides moved for summary judgment on the 

preemption issue. The superior court ruled in favor of the Patients on their 

claim for a declaratory judgment, holding that when a hospital has accepted 

payment from AHCCCS for treating a patient, 42 Code of Federal 

Regulations ("C.F.R.") § 447.15 (2019) preempts the hospital's state-law right 

to a lien on the patient's tort recovery for the balance between what 

AHCCCS paid and the hospital's customary charges. The court then 

enjoined the Hospitals from "filing or asserting any lien or claim against a 

patient's personal injury recovery, after having received any payment from 

AHCCCS for the same patient's care." The court granted summary 

judgment to the Hospitals, however, on the Patients' third-partybeneficiary claim, which alleged the Hospitals breached their contracts with 

AHCCCS by imposing the liens. Finally, the superior court awarded 

attorney's fees to the Patients under the private attorney general doctrine 

and denied both sides' motions for new trial.

¶6 The Hospitals appealed the preemption ruling and injunction,

and the Patients cross-appealed the judgment against them on their contract 

claim. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona 

Constitution and A.R.S. §§ 12-120.21(A)(1) (2019) and -2101(A)(1) (2019).
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

4

DISCUSSION

A. Introduction.

¶7 In our initial opinion in the current appeal, we did not address 

the superior court's order granting the Patients' claim for a declaratory 

judgment that federal law preempts the Hospitals' state-law lien rights. We 

concluded instead that the Patients were entitled to injunctive relief as 

third-party beneficiaries of the contracts the Hospitals entered with 

AHCCCS. Those contracts require the Hospitals to comply with applicable 

federal law. Under that federal law, we held the Hospitals could not 

enforce liens against the Patients' tort recoveries for the balance between 

what AHCCCS paid the Hospitals and the Hospitals' customary rates.

¶8 The Hospitals moved for reconsideration, arguing for the first 

time that under Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011), 

the Patients could not sue as third-party beneficiaries of the contracts 

because the federal law on which they based their claim affords no private 

right of action. The Hospitals' argument under Astra requires us to address 

the issue we deferred in our initial opinion. For that reason, we withdraw 

that opinion and issue this one in its place.

B. Federal Law Preempts the Hospitals' Lien Rights.

¶9 Federal law may preempt state law by express preemption, 

field preemption or conflict preemption. Capital Cities Cable, Inc. v. Crisp, 

467 U.S. 691, 698-99 (1984); White Mtn. Health Ctr., Inc. v. Maricopa County, 

241 Ariz. 230, 239-40, ¶ 33 (App. 2016).

2 The issue here – conflict 

preemption – arises when state law stands as an obstacle to the achievement 

of Congress's full purpose, or when compliance with both federal and state 

laws is impossible. Crisp, 467 U.S. at 699; White Mtn., 241 Ariz. at 240, ¶ 33. 

A federal regulation has the same preemptive effect as a federal statute. 

Crisp, 467 U.S. at 699. Thus, a federal regulation may render unenforceable 

 

2 The Patients argue this court's decision in Abbott I, which concluded 

that federal law preempts the lien statutes, see 236 Ariz. at 442, ¶ 18, is the 

law of the case. In Abbott II, however, our supreme court reversed that 

decision (albeit on other grounds). See 239 Ariz. at 415, ¶ 20. Assuming the 

law-of-the-case doctrine might otherwise apply, we decline to apply it here. 

See Powell-Cerkoney v. TCR-Montana Ranch Joint Venture, II, 176 Ariz. 275, 

278-79 (App. 1993) (court has discretion whether to apply law-of-the-case 

doctrine in favor of its own prior decision).
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

5

a state law that is otherwise consistent with federal law. City of New York v. 

F.C.C., 486 U.S. 57, 63-64 (1988).

¶10 Medicaid is a "cooperative federal-state program" that pays 

for health care for the needy and the disabled. Douglas v. Indep. Living Ctr. 

of So. Calif., 565 U.S. 606, 610 (2012); 42 U.S.C. § 1396-1 (2019). A state that 

chooses to participate must "comply with the Medicaid Act and its 

implementing regulations." Rehabilitation Ass'n of Va., Inc. v. Kozlowski, 42 

F.3d 1444, 1447 (4th Cir. 1994). To receive federal funds under the program, 

a state must create a detailed plan that, inter alia, specifies "the nature and 

scope" of the medical services it will cover. Douglas, 565 U.S. at 610; see also 

42 U.S.C. § 1396a(a) (2019).

3 The federal Center for Medicare and Medicaid 

Services ("CMS"), a division of the Department of Health and Human 

Services ("HHS"), reviews the state's plan to ensure it complies with federal 

Medicaid statutes and regulations. See 42 U.S.C. § 1396a(b) (plan approval 

by HHS secretary); 42 U.S.C. § 1316(a) (2019) (HHS power to withhold 

funds if changes to state plan do not comply with federal law); 42 C.F.R. § 

430.10 (2019) (describing contents of state plan); see also Spectrum Health 

Continuing Care Group v. Bowling, 410 F.3d 304, 313 (6th Cir. 2005) ("state's 

plan must comply with federal statutory and regulatory standards").

¶11 A fundamental principle of the program is that "Medicaid is 

essentially a payer of last resort." Kozlowski, 42 F.3d at 1447. Toward that 

end, patients must assign to the state Medicaid agency their rights "to any 

payment from a third party that has a legal liability to pay for care and 

services available under the plan." 42 U.S.C. § 1396k(a)(1)(A) (2019); see 

A.R.S. § 36-2946(A) (2019) (patients must assign "all types of medical 

benefits"); Olszewski v. Scripps Health, 30 Cal. 4th 798, 811 (2003). 

Accordingly, when a hospital submits a claim for treating a plan member, 

the state Medicaid agency first tries to determine whether a third party 

(insurer, tortfeasor) may be liable for paying the claim. Olszewski, 30 Cal. 

4th at 811. When no third party is liable or liability cannot be determined, 

the state agency pays the hospital its negotiated rate for treating the patient. 

42 C.F.R. § 433.139(c). If a third party is implicated, the agency rejects the 

claim and returns it to the hospital to determine the amount of the third 

party's liability. 42 C.F.R. § 433.139(b)(1) (2019). In such a case, the agency 

will pay the hospital only the difference between the rate the agency

negotiated with the hospital and what the hospital receives from the third 

 

3 A district court has held that portions of the Medicaid Act as 

amended by the Affordable Care Act are unconstitutional. Texas v. United 

States, 340 F. Supp. 3d 579, 619 (N.D. Tex. 2018). Nothing in that decision is 

relevant to this opinion.
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

6

party. Id. If a third party's liability comes to light only after the state agency 

has paid the hospital's claim, the agency must seek reimbursement for itself 

from the third party when it is cost effective to do so. 42 C.F.R. § 433.139(d).

¶12 Consistent with these rules aimed at limiting the costs that the

state Medicaid agency ultimately bears, Arizona law grants AHCCCS a lien 

against a patient's recovery from a tortfeasor so that AHCCCS can recover 

what it has paid to treat the patient. A.R.S. § 36-2915(A) (2019). Moreover, 

Arizona requires that a hospital that serves an AHCCCS member must seek 

payment from any liable third party (insurer, worker's compensation 

carrier, tortfeasor) before it bills AHCCCS. See AHCCCS, Fee-for-Service 

Provider Manual at 9-1 (Mar. 2014 rev.) ("AHCCCS has liability for 

payment of benefits after Medicare and all other first- and third-party payer 

benefits have been paid. Providers must determine the extent of the firstand third-party coverage . . . prior to billing AHCCCS."); see also Arizona 

Administrative Code ("A.A.C.") R9-22-1005 (requiring providers to identify 

and notify AHCCCS of potential sources of first- and third-party liability). 

And if a third party pays the hospital more than AHCCCS's scheduled rate, 

the hospital is not entitled to additional payment from AHCCCS. A.A.C. 

R9-22-1003 (AHCCCS pays no more than the difference between the 

scheduled rate "and the amount of the third-party liability"); AHCCCS, Feefor-Service Provider Manual at 9-2 (Mar. 2014 rev.).

¶13 Under all these authorities, there is no dispute that if a 

tortfeasor's liability becomes apparent after AHCCCS has paid a hospital, 

AHCCCS may demand reimbursement from the tortfeasor. See 42 U.S.C. § 

1396a(a)(25)(B). The issue here is whether federal law allows a hospital that 

has accepted payment from AHCCCS to enforce a state-law lien against a

patient's tort recovery to obtain more for itself than what it agreed to accept 

from AHCCCS for treating the patient.

¶14 The Hospitals' liens are based on two Arizona statutes. As 

relevant here, A.R.S. § 33-931(A) states that a provider

is entitled to a lien for the care and treatment or transportation 

of an injured person. The lien shall be for the claimant's 

customary charges for care and treatment [and] extends to all 

claims of liability or indemnity, except health insurance and 

underinsured and uninsured motorist coverage . . . , for 

damages accruing to the person to whom the services are 

rendered . . . on account of the injuries that gave rise to the 

claims and that required the services.
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

7

The other statute specifically applies to hospitals that serve AHCCCS 

members and states:

Payment received by a hospital from [AHCCCS] . . . is 

considered payment by [AHCCCS] of [AHCCCS's] liability 

for the hospital bill. A hospital may collect any unpaid 

portion of its bill from other third-party payors or in 

situations covered by [A.R.S. § 33-931].

A.R.S. § 36-2903.01(G)(4).

¶15 The Patients argue the Hospitals' liens are invalid under 42 

C.F.R. § 447.15, a federal regulation issued in 1980. See 45 Fed. Reg. 24889 

(Apr. 11, 1980). Federal regulations dictate the relationship between a state 

Medicaid agency and the hospitals with which it contracts. As applicable 

here, § 447.15 mandates that 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." The Hospitals do not dispute that this regulation bars a 

hospital that has contracted with AHCCCS from billing a patient for the 

balance between what AHCCCS has paid and the hospital's customary 

rates. We hold the regulation likewise bars a hospital from imposing a lien 

on the patient's tort recovery for that balance.

¶16 A lien is a means of securing a debt; without a debt, there can 

be no lien. See Matlow v. Matlow, 89 Ariz. 293, 298 (1961) ("In the absence of 

an obligation to be secured there can be no lien."). Once a hospital has 

accepted payment from AHCCCS for treating a patient, the patient owes

the hospital nothing beyond a "deductible, coinsurance or copayment." 42 

C.F.R. § 447.15. Because 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. The patient's property includes his or her recovery from 

the tortfeasor that caused the injuries requiring treatment. See Samsel v. 

Allstate Ins. Co., 204 Ariz. 1, 7, ¶ 21 (2002) (noting insured patient's "property 

interest in his or her tort claim and eventual recovery"); Bowling, 410 F.3d at 

317 (once judgment is entered against a tortfeasor or tortfeasor agrees to a 

settlement, "proceeds are no longer the property of the tortfeasor," but 

belong to the patient.) Just as the hospital may not seize a patient's car or 

impose a lien against the patient's home, the hospital likewise may not use 

state lien laws to seize the patient's tort recovery.
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

8

¶17 Although this is an issue of first impression in Arizona, each 

court addressing the issue elsewhere has come to the same conclusion. See 

Bowling, 410 F.3d at 315 ("By accepting the Medicaid payment, the service 

provider accepts the terms of the contract – specifically that the Medicaid 

amount is payment in full."); Taylor v. Louisiana ex rel. Dep't of Health & Hosps., 

7 F. Supp. 3d 641, 644 (M.D. La. 2013) ("Congress did not intend for 

providers to receive Medicaid reimbursement for patient care and then 

intercept funds that the patient would otherwise receive."); Lizer v. Eagle Air 

Med. Corp., 308 F. Supp. 2d 1006, 1009-10 (D. Ariz. 2004) (§ 447.15 preempts 

right of provider that has accepted payment from AHCCCS to assert lien 

against patient's tort recovery under A.R.S. § 33-931); Mallo v. Pub. Health 

Trust of Dade County, Fla., 88 F. Supp. 2d 1376, 1387 (S.D. Fla. 2000) (provider 

may not balance bill by imposing lien on patient's tort settlement; "health 

care providers are not entitled to prey on an otherwise poor patient's 

change in economic status"); Olszewski, 30 Cal. 4th at 820 (Medicaid statutes 

and regulations "are unambiguous and limit provider collections from a 

Medicaid beneficiary to, at most, the cost-sharing charges allowed under 

the state plan, even when a third party tortfeasor is later found liable for the 

injuries suffered by that beneficiary"); Pub. Health Trust of Dade County, Fla. 

v. Dade County Sch. Bd., 693 So. 2d 562, 566-67 (Fla. Dist. Ct. App. 1996)

(Medicaid preempts Florida regulation allowing provider to balance bill by 

imposing lien on patient's tort settlement).4

¶18 The Hospitals argue that "payment in full" under § 447.15 

only limits a provider's right to payment from the state Medicaid agency or 

the patient and does not prevent them from intercepting the balance from 

a third-party tortfeasor. As stated, however, that interpretation is contrary 

to Arizona law, under which a patient has a property interest in his or her 

tort recovery. See Samsel, 204 Ariz. at 7, ¶ 21. 

¶19 The Hospitals contend that "Congress has never articulated a 

federal interest in protecting the tort recoveries of Medicaid beneficiaries, 

and has acted as if the reverse were true." In support, they point to the 

 

4 See also Evanston Hosp. v. Hauck, 1 F.3d 540, 543-44 (7th Cir. 1993)

(hospital could not return payment to state Medicaid agency and then 

assert lien against patient who won a tort judgment; hospital's claim would 

turn Medicaid "upside down by converting the system into an insurance 

program for hospitals rather than for indigent patients"); Smallwood v. Cent. 

Peninsula Gen. Hosp., 151 P.3d 319, 326 (Alaska 2006) ("Medicaid recipients 

are the intended beneficiaries of the prohibition on balance billing. That 

intent is evident from the state and federal Medicaid statutes and 

regulations and from the terms of the provider agreement.").
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

9

authorities discussed above that allow state Medicaid agencies to collect 

from tortfeasors that have injured plan members. E.g., 42 U.S.C. § 

1396a(a)(25)(H), -(45). But a Medicaid agency may use a lien only to collect 

the amount it paid (and the hospital agreed to accept) for treating the 

patient. By contrast, at issue here is whether a hospital may impose a lien 

to collect sums beyond what it agreed to accept for treating the Medicaid 

patient. The Hospitals cite no federal authority to support their contention 

that Congress intended that a provider that chooses to treat a Medicaid 

member may balance bill by intercepting that member's tort recovery. 

Indeed, the Patients cite a 1967 Senate Report that stated, "As a matter of 

public policy, it would be best for all concerned . . . if the reimbursement 

made by the State" constituted a provider's entire compensation. S. Rep. 

No. 744, at 187-88 (1967); see also Lizer, 308 F. Supp. 2d at 1009 (§ 447.15

prevents "providers from intercepting funds on the way to a patient."); 

Briarcliff Haven, Inc. v. Dep't of Human Resources of State of Ga., 403 F. Supp. 

1355, 1363 (N.D. Ga. 1975) ("The [M]edicaid program is not designed to 

protect providers from the consequences of their business decisions or from 

business risks.").

¶20 The Hospitals also point to two HHS documents they claim 

are inconsistent with our analysis. The first document is a response by the 

Health Care Financing Administration to a comment submitted on a draft 

of a related regulation issued in 1990. See 55 Fed. Reg. 1423-02, at 1428 (Jan. 

16, 1990) (codified at 42 C.F.R. § 447.20). The new regulation required state 

plans to limit what a provider could collect from a patient "or any 

financially responsible relative or representative" of the patient when a 

third party is liable for payment. The comment expressed concern that by 

limiting what a provider could collect "from a representative" of a patient, 

the regulation would bar a provider from collecting from a patient's insurer 

or other "resources available to the" patient. Id.; see also 42 C.F.R. § 447.20(a) 

(2019). In response, the agency explained that "[t]he intent of this provision 

is to protect the Medicaid recipient from being charged for a service in 

excess of the amounts allowed under the State plan after considering the 

third party's liability." Id. The Hospitals point to the agency's further 

comment that "[t]he provider is not restricted from receiving amounts from 

third party resources available to the recipient (or his or her legal 

representative."). Id. But that statement was referring to a provider's right 

to seek payment from a third party before accepting payment from the state 

agency, not after. The agency referenced 42 C.F.R. § 433.139(b)(1), under 

which a state Medicaid agency may pay a provider only "to the extent that 

payment allowed under the agency's payment schedule exceeds the 

amount of the third party's payment." 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

10

¶21 The second HHS document the Hospitals cite is a 1997 letter 

from the Acting Director of the Health Care Financing Administration. 

According to the Hospitals, the letter construed § 447.15 to permit a 

provider that has treated a Medicaid patient to return the state agency's 

payment and seek its customary rates from the patient's tort recovery. But 

the letter does not constitute formal agency policy or even guidance. See 

Bowling, 410 F.3d at 318 (referenced letter "is neither listed on the [agency] 

website . . . nor published elsewhere"). 

¶22 As applied to the Patients and the Hospitals in this case, 

A.R.S. §§ 33-931(A) and 36-2903.01(G)(4) purport to allow a hospital that 

has accepted payment from AHCCCS to impose a lien on the patient's claim 

against a tortfeasor for the injuries that required the treatment for which

AHCCCS paid the hospital. But under 42 C.F.R. § 447.15, the Supremacy 

Clause of the United States Constitution and the authorities cited above, 

these statutes are invalid to the extent they allow a hospital to impose a lien 

on a patient's tort recovery for the balance between what the hospital

accepted from AHCCCS for treating the patient and what it might have 

charged another patient.

¶23 The Hospitals argue that when CMS, the division of HHS that 

oversees Medicaid, approved Arizona's AHCCCS plan, it impliedly 

approved the two Arizona lien statutes and the rights they grant providers 

to intercept patients' tort recoveries. But the Hospitals cite nothing in the 

record, the AHCCCS plan or the law to support the premise that in 

approving Arizona's plan, CMS had the authority to review – or actually 

did review – any state statutes that might bear in some way on AHCCCS. 

Contrary to the Hospitals' contention, CMS determines only whether the 

plan a state submits conforms with the Medicaid Act and related federal 

regulations; Congress has not granted CMS authority to determine the 

validity of state law. See 42 C.F.R. § 430.14 (2019); see also 42 C.F.R. §§ 430.10, 

430.15. Further, nothing in our record supports the proposition that 

Arizona's state plan includes or incorporates the two lien statutes at issue. 

The cases the Hospitals cite do not hold otherwise. See Cmty. Health Care 

Ass'n of N.Y. v. Shah, 770 F.3d 129, 144 (2d Cir. 2014) (CMS reviewed

provider payment schedules "as amendments to the state plan"); S.D. ex rel. 

Dickson v. Hood, 391 F.3d 581, 596 (5th Cir. 2004) (CMS's "review and 

determination definitively indicate whether it interprets a state plan or 

amendment to be in conformity with the [federal] statute.") (emphasis 

added); Pharm. Research & Mfrs. of Am. v. Thompson, 362 F.3d 817, 821-22 

(D.C. Cir. 2004) (review of state plan).
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

11

¶24 In their motion for reconsideration, the Hospitals assert that 

Douglas, 565 U.S. at 614, teaches that CMS reviews state statutes when it 

approves a state's Medicaid plan, and that CMS will not approve a plan 

without approving the statutes. At issue in Douglas, however, were three 

statutes California enacted to change payment provisions in its state 

Medicaid plan – the Supreme Court even described the measures as 

"statutory amendments to its plan." Id. at 613. In the absence of any other 

authority, we do not read Douglas to stand for the proposition that CMS 

reviews any and all state statutes that might bear on patients' and providers' 

rights when it approves a state's Medicaid plan. See Olszewski, 30 Cal. 4th 

at 825.

¶25 The Hospitals similarly argue the AHCCCS plan allows 

providers to use liens to balance bill. But the Arizona plan does not address

balance billing, let alone endorse it. For their contention to the contrary, the 

Hospitals rely on a brief portion of "Attachment 4.19-A," a 66-page section 

of the AHCCCS plan titled "Methods and Standards for Establishing 

Payment Rates [for] Inpatient Hospital Care." In the definitions section, 

Attachment 4.19-A provides as follows:

Prospective rates are inpatient hospital rates defined in 

advance of a payment period and represent payment in full 

for covered services excluding any quick-pay discounts, slow 

pay penalties, and third party payments regardless of billed 

charges or individual hospital costs.

The Hospitals contend this language means that after a hospital has 

accepted "payment in full" from AHCCCS for treating a patient, it may 

impose a lien on the patient's tort recovery as a permissible "third party 

payment."

¶26 But the brief reference in Attachment 4.19 to "third party 

payments" in a section of the plan specifying the rates AHCCCS will pay 

hospitals does not constitute an endorsement of a hospital's right to accept 

payment from AHCCCS, then impose a lien on the patient's tort recovery

for more. The word "lien" is not even used. As set out in ¶ 11,supra, because

AHCCCS is the "payer of last resort," a hospital must determine whether a 

third party may be liable for the cost of treatment before the hospital bills 

AHCCCS. If the hospital ascertains that a third party is liable, it may bill 

AHCCCS only for the difference between what it has recovered from the 

third party and the AHCCCS scheduled rate. Against that backdrop, the 

reference to "third party payment" in Attachment 4.19-A refers to a 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

12

payment made before the hospital accepts payment from AHCCCS, not 

after.

¶27 The Hospitals also point to A.A.C. R9-22-1007 as support for 

their contention that Arizona's AHCCCS plan allows balance billing. The 

cited regulation is titled "Notification for Perfection, Recording, and 

Assignment of AHCCCS Liens." It requires that when a hospital has treated 

an AHCCCS member for an injury "reflecting the probable liability of a 

first- or third-party," the hospital must, within 30 days of discharging the 

patient, notify AHCCCS "under R9-22-1008" or mail the agency "a copy of 

the lien the hospital proposes to record or has recorded under A.R.S. § 33-

932." A.A.C. R9-22-1007. The Hospitals argue the regulation effectively 

acknowledges a hospital's right to record a lien against a patient's tort 

recovery after accepting payment from AHCCCS. But read in context with 

A.A.C. R9-22-1008, which requires providers to notify AHCCCS of the 

"[a]mount estimated to be due for care of member," it is clear that R9-22-

1007 concerns a lien the hospital would record before AHCCCS determines 

what to pay the hospital, not after. See ¶¶ 11-12, supra.

¶28 The Hospitals' argument that the AHCCCS plan permits them 

to use liens to balance bill patients also disregards the mandate in A.A.C. 

R9-22-702(B), under which a provider "must accept payment from 

[AHCCCS] or a contractor as payment in full." Beyond repeating the 

requirement prescribed by 42 C.F.R. § 447.15, the Arizona regulation goes 

on to specifically limit the circumstances under which a provider may 

demand payment from a patient. See A.A.C. R9-22-702(C), (D). As relevant 

here, the regulation allows a provider to pursue a patient only (1) to collect 

a copayment and (2) to collect "that portion of a payment made [to the 

patient] by a third party" that is subject to the patient's "statutory 

assignment of rights to AHCCCS." A.A.C. R9-22-702(D); see also A.R.S. §§ 

36-2946(A) (patient's assignment of medical benefits), -2915(A) (AHCCCS 

lien on patient's tort claim). In other words, the only specified circumstance 

in which a hospital may demand that a patient turn over a tort recovery is 

when the proceeds are subject to an assignment or lien in favor of AHCCCS. 

There is no corresponding provision in the regulation allowing a hospital 

to compel a patient to relinquish a tort recovery to satisfy the hospital's lien 

rights.

¶29 In short, the provisions the Hospitals cite in the Arizona plan 

are part and parcel of a provider's duty under the plan to "cost avoid" before 

it bills AHCCCS, not a license to accept payment from AHCCCS, then 

enforce a lien against the patient's tort recovery for the balance between that 

payment and what the provider would have charged another patient. 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

13

Accordingly, we hold that when CMS approved the AHCCCS plan, it did 

not authorize providers to accept payment from AHCCCS, then enforce 

liens against patients' recoveries from tortfeasors.

¶30 In their motion for reconsideration, the Hospitals cite Murphy 

v. Nat'l Collegiate Athletic Ass'n, 138 S. Ct. 1461, 1479 (2018), in arguing 42 

C.F.R. § 447.15 cannot preempt Arizona's lien statutes because it does not 

"regulate[] private actors." At issue in Murphy was a 1992 federal statute 

making it unlawful for a state to promote or authorize sports gambling. See 

28 U.S.C. § 3702(2)(1). The Court ruled the statute could not be upheld as 

"a valid preemption provision" because it purported to regulate activity by 

the states, not by individuals. 138 S. Ct. at 1481 (statute did not "impose any 

federal restrictions on private actors").

¶31 The Hospitals contend that, like the gambling statute in 

Murphy, the Medicaid Act and 42 C.F.R. § 447.15 regulate states, not private 

actors. But the Murphy court cited with approval Morales v. Trans World 

Airlines, Inc., 504 U.S. 374 (1992), under which the "private actor" 

requirement would not exempt the Hospitals' lien rights from preemption. 

In Morales, the Court addressed the Airline Deregulation Act of 1978, which 

simultaneously lifted existing federal regulation of airlines and forbade 

states from "enact[ing] or enforc[ing] any law, rule, regulation, standard, or 

other provision having the force and effect of law relating to rates, routes, 

or services" of any airline carrier covered by the act. See Morales, 504 U.S. at 

383; 49 U.S.C. App. § 1305(a)(1) (1988 ed). The Murphy court acknowledged 

that the airline statute's "language might appear to operate directly on the 

States," but warned that "it is a mistake to be confused by the way in which 

a preemption provision is phrased." 138 S. Ct. at 1480. "[I]f we look beyond 

the phrasing" of the statute, the Court reasoned, "it is clear that . . . [i]t 

confers on private entities (i.e., covered carriers) a federal right to engage in 

certain conduct subject only to certain (federal constraints)." Id. As in 

Morales, any contention here that the preemptive federal law technically 

regulates the states, not private actors, ignores the reality that when the 

private actors choose to participate in the Medicaid market, their rights are 

regulated by federal law, not conflicting state law.

¶32 In sum, we conclude that federal law, specifically 42 C.F.R. § 

447.15, preempts Arizona's lien statutes to the extent they allow a provider 

to accept payment from AHCCCS, then impose a lien on the patient's tort 

recovery for the balance of what the provider would charge another patient.
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

14

C. The Patients' Claim for Injunctive and Declaratory Relief Based on 

Preemption.

¶33 Given our conclusion that Medicaid law preempts the 

Arizona lien statutes, if the Hospitals had sued the Patients or their lawyers 

to enforce liens against the Patients' tort recoveries, the Hospitals' claim 

would be barred by preemption under the Supremacy Clause of the United 

States Constitution. See, e.g., PLIVA, Inc. v. Mensing, 564 U.S. 604, 617

("Where state and federal law 'directly conflict,' state law must give way.") 

(citation omitted). In such a situation, the federal law "effectively repeal[s]

contrary state law." Id. at 621; see Armstrong v. Exceptional Child Center, Inc., 

135 S. Ct. 1378, 1384 (2015) ("[O]nce a case or controversy properly comes 

before a court, judges are bound by federal law."). But the Patients are the 

plaintiffs here, and they sued seeking to use preemption as a sword (to 

enjoin the Hospitals from enforcing the liens) rather than as a shield (to 

defeat a mirror-image suit by the Hospitals).

¶34 Citing Armstrong, the Hospitals argue the Patients' claims for 

declaratory and injunctive relief based on preemption are not cognizable.

The plaintiffs in Armstrong were health-care providers who sued the 

director of the Idaho Department of Health and Welfare, alleging that 

state's Medicaid plan paid them less than federal law required. 135 S. Ct. at 

1382. At issue was § 30(A) of the Medicaid Act, which requires states to set 

payment rates for medical providers that "are consistent with efficiency, 

economy, and quality of care and are sufficient to enlist enough providers 

so that care and services are available under the plan" at levels comparable 

to those available to the general public. 135 S. Ct. at 1382 (quoting 42 U.S.C. 

§ 1396a(a)(30)(A)). The providers alleged the rates in the Idaho plan

conflicted with § 30(A)'s mandate. They argued § 30(A) therefore 

preempted the Idaho plan, and "asked the court to enjoin [Idaho] to increase 

these rates." 135 S. Ct. at 1382. 

¶35 In ruling against the providers, the Supreme Court held the 

Supremacy Clause "is not the source of any federal rights, and certainly 

does not create a cause of action." Id. at 1383 (quotations and citations 

omitted). "It instructs courts what to do when state and federal law clash,

but is silent regarding who may enforce federal laws in court, and in what 

circumstances they may do so." Id. The Court acknowledged a long line of 

cases allowing "injunctive relief against state officers who are violating, or 

planning to violate, federal law." Id. at 1384, citing Ex parte Young, 209 U.S. 

123, 150-51 (1908); Osborn v. Bank of United States, 9 Wheat. 738, 838-39, 844 

(1824). But notwithstanding those cases, a court's power to grant equitable 

relief based on federal preemption "is subject to express and implied
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

15

statutory limitations." Armstrong, 135 S. Ct. at 1385. Thus, a preemption 

claim is not cognizable if Congress has precluded private enforcement of 

the applicable federal law or otherwise has "displace[d] the equitable relief 

that is traditionally available to enforce federal law." Id. at 1385-86. 

¶36 Applying that rule, the Armstrong Court examined § 30(A) of 

the Medicaid Act to discern whether Congress intended "to foreclose 

equitable relief" based on that provision. 135 S. Ct. at 1385 (quotation

omitted). The Court identified "[t]wo aspects" of § 30(A) that it held 

"establish Congress's 'intent to foreclose' equitable relief." Id. First, 

Congress created just one remedy "for a State's failure to comply with 

Medicaid's requirements." Id. (citing 42 U.S.C. § 1396c (2019) (power of 

Secretary of HHS to withhold Medicaid funds when state's Medicaid plan 

"no longer complies" with federal law)). "[T]he express provision of one 

method of enforcing a substantive rule suggests that Congress intended to 

preclude others." Id. at 1385 (quotation omitted). Second, the Court cited 

"the judicially unadministrable nature of § 30(A)'s text." Id. "Explicitly 

conferring enforcement of this judgment-laden standard upon the Secretary 

alone establishes, we think, that Congress 'wanted to make the agency 

remedy that it provided exclusive.'" Id. (citation omitted). In sum, the 

Court held that "[t]he sheer complexity associated with enforcing § 30(A), 

coupled with the express provision of an administrative remedy, § 1396c, 

shows that the Medicaid Act precludes private enforcement of § 30(A) in 

the courts." Id.

¶37 The Hospitals argue that when it comes to enforcing the 

federal ban on balance billing under 42 C.F.R. § 447.15, the Medicaid Act 

likewise "displace[s]" a private party's right to enjoin a violation of federal 

law. They argue that, after Armstrong, the only means by which anyone 

may bring "a Medicaid-preemption claim" is by challenging CMS or HHS 

under the federal Administrative Procedure Act for the federal agency's

approval of the state plan or its failure to withhold funding for a state's 

purported violation of the Medicaid Act. See 5 U.S.C. § 702 (judicial review 

of agency action).

¶38 But the Hospitals' argument sweeps too broadly. Contrary to 

their assertion, Armstrong does not support the proposition that Congress 

intended to foreclose any claim to enjoin a non-state actor from exercising 

a state-law right preempted by any provision of Medicaid law. Although 

the Armstrong Court held there is no private right of action against a state 

official to enforce § 30(A) of the Medicaid Act, five of the nine justices

declined to hold that no provision of the Medicaid Act may be privately 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

16

enforced. See 135 S. Ct. at 1388 (Justice Breyer declining to join Part IV of 

Justice Scalia's five-member majority opinion). 

¶39 As for the narrow legal issue actually decided in Armstrong –

that providers may not sue to enjoin a state's violation of § 30(A) of the 

Medicaid Act – neither of the two grounds the Court cited for that decision 

applies here. In the first place, § 1396c of the Medicaid Act, which the Court 

held is the exclusive remedy for a violation of § 30(A), does not provide the 

exclusive remedy – or any remedy – for the preemption violation at issue 

here. The providers in Armstrong argued the rates in the Idaho Medicaid 

plan violated § 30(A) because they were too low. In rejecting their claim, 

the Court held that when a state Medicaid plan fails to comply with the 

federal act, the only remedy "is the withholding of Medicaid funds by the 

Secretary of Health and Human Services." 135 S. Ct. at 1385, citing 42 U.S.C. 

§ 1396c. That provision empowers HHS to withhold funding when it finds 

that a state Medicaid plan "no longer complies" with federal law or that "in 

the administration of the plan there is a failure to comply substantially" 

with federal law. 42 U.S.C. § 1396c. 

¶40 But here, and in contrast to the plaintiffs in Armstrong, the 

Patients do not contend anything in Arizona's AHCCCS plan is preempted 

by federal law. They have no complaint with the Arizona plan or how 

AHCCCS implements the Arizona plan. Instead, they claim federal law

preempts the Hospitals' rights to enforce liens that state law otherwise 

allows. As we have held, supra ¶¶ 22-28, Arizona's AHCCCS plan neither 

incorporates nor countenances application of the Arizona lien statutes

under the circumstances presented here. When hospitals seek to intercept 

AHCCCS members' tort recoveries, they are exercising their rights under 

state statute, not under the AHCCCS plan or the administration of that plan

subject to review by HHS. For that reason, § 1396c of the Medicaid Act is 

irrelevant to the Patients' claim against the Hospitals, and the Hospitals cite 

no authority to the contrary. See Tohono O'odham Nation v. Ducey, 130 F. 

Supp. 3d 1301 (D. Ariz. 2015) (equitable relief barred by Armstrong when

"Congress had created a remedy" and "entrusted that remedy to the 

executive branch, not the courts").

¶41 Nor does the second ground on which the Court ruled in

Armstrong apply here. The statute at issue there, § 30(A) of the Medicaid 

Act, requires states to adopt provider rate schedules that are "consistent 

with efficiency, economy, and quality of care," while at the same time 

"safeguard[ing] against unnecessary utilization of . . . care and services." See

135 S. Ct. at 1385. The Court observed that the "judgment-laden standard"

set forth in § 30(A) was "judicially unadministrable," further supporting its 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

17

conclusion that Congress intended to foreclose a private right of action to 

enforce it. 135 S. Ct. at 1385.

¶42 By contrast, the Patients' claim is not based on § 30(A) but 

instead on 42 C.F.R. § 447.15. As we have held, the regulation preempts a 

hospital's right under state law to impose a lien on a patient's tort recovery 

to collect the balance between the hospital's customary rates and what it 

accepted from AHCCCS for treating the patient. The regulation raises none 

of the "administrability" issues that § 30(A) posed in Armstrong. Nor does 

enforcement of § 447.15 require any exercise of agency expertise or 

discretion. Whether the regulation preempts a state lien statute that 

otherwise would allow a hospital to balance bill is a legal issue of the sort 

that courts typically resolve. Indeed, as noted above, the injunction the 

superior court entered here gave the Patients the same relief that would 

have been available to them in defending a hypothetical action by the 

Hospitals to enforce liens against the Patients' tort recoveries. See 

Armstrong, 135 S. Ct. at 1384 ("a court may not hold a civil defendant liable 

under state law for conduct federal law requires"); Public Health, 693 So. 2d 

at 566 (affirming judgment based on preemption in favor of Medicaid 

patient when hospital sued to enforce lien).

¶43 In sum, the Patients' preemption claim presents neither of the 

concerns that caused the Armstrong Court to conclude that Congress 

intended to preclude equitable relief to the providers in that case. The 

Patients' claim is not grounded in the AHCCCS plan that CMS approved 

and therefore does not implicate the single remedy of administrative 

review that the Court cited in Armstrong. 135 U.S. at 1385. And the Patients' 

contention that 42 C.F.R. § 447.15 preempts Arizona's lien statutes presents 

none of the judicial administrability issues posed by the injunction the 

providers sought under § 30(A) of the Medicaid Act. Accordingly, we 

affirm the order of the superior court granting declaratory and injunctive 

relief to the Patients on their claim that federal law preempts the Hospitals' 

rights under A.R.S. §§ 33-931 and 36-2903.01(G)(4) to enforce liens on the 

Patients' recoveries for amounts beyond what AHCCCS paid the Hospitals 

for treating the Patients.

D. The Hospitals Breached a Contract Duty to Patients by Imposing

the Liens.

¶44 Federal law spells out the provisions that must be contained 

in the Participating Provider Agreements ("PPAs") that a state enters with 

providers to serve patients under Medicaid. See 42 C.F.R. §§ 434.1(b) (2019), 

434.6(a) (2019). In their cross-appeal, the Patients argue the superior court 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

18

erred by dismissing their claim for relief as third-party beneficiaries of 

PPAs signed by the Hospitals and AHCCCS between 1994 and 2010 that

incorporate federal law preempting Arizona's lien laws.

1. Rights as third-party beneficiaries of the PPAs.

¶45 Under Arizona law, a contract may allow a claim by a 

purported third-party beneficiary only if (1) "an intention to benefit [the 

claimant is] indicated in the contract itself"; (2) "[t]he contemplated benefit 

[is] both intentional and direct"; and (3) "it . . . definitely appear[s] that the 

parties intend to recognize the third party as the primary party in interest." 

Nahom v. Blue Cross & Blue Shield of Ariz., Inc., 180 Ariz. 548, 552 (App. 1994)

(quoting Norton v. First Fed. Sav., 128 Ariz. 176, 178 (1981)). In Nahom we 

held that a patient was a third-party beneficiary entitled to enforce a 

hospital's agreement with the patient's insurer to accept the insurer's 

payment as payment in full. Id. at 550-51, 552.

¶46 Under Nahom, if the Hospitals' contracts with AHCCCS bar 

them from imposing liens on the Patients' tort recoveries, the Patients are 

third-party beneficiaries of those contracts. See id. at 553 (question is 

whether claimant is the beneficiary of the particular contract provision on 

which claim is brought). As in Nahom, the Patients are members of a class 

who would be the intended direct beneficiaries of a contract provision 

barring a hospital from imposing a lien on a patient's tort recovery. See id. 

at 552. Thus, Nahom controls here: If the PPAs prohibit the Hospitals from 

balance billing by imposing the liens, the Patients are third-party 

beneficiaries who may sue to enforce that prohibition. Accord Linton v. 

Comm'r, 65 F.3d 508, 520 (6th Cir. 1995) (patients are third-party 

beneficiaries of providers' contracts with state Medicaid agency).

2. Incorporation of federal law.

¶47 Interpretation of the PPAs is a matter of law that we review 

de novo. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9 (App. 

2009). A contract incorporates the law in force at the time of its 

execution. State ex rel. Romley v. Gaines, 205 Ariz. 138, 142, ¶ 13 (App. 2003)

("Regardless of the language of a contract, it is always to be construed in the 

light of the law then in force.") (quotation and alteration omitted); Ward v. 

Chevron U.S.A. Inc., 123 Ariz. 208, 209 (App. 1979) ("The law in force at [the 

date of execution] form[s] a part of each contract."). Therefore, "a valid 

statute is automatically part of any contract affected by it, even if the statute 

is not specifically mentioned in the contract." Banner Health v. Med. Sav. Ins. 

Co., 216 Ariz. 146, 150, ¶ 15 (App. 2007) (quoting Higginbottom v. State, 203 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

19

Ariz. 139, 142, ¶ 11 (App. 2002)). The same is true with other legal 

provisions affecting the rights of the parties in effect at the time of 

execution. See, e.g., Colman v. Button, 42 Ariz. 141, 144 (1933) (constitution); 

Rehart v. Clark, 448 F.2d 170, 173 (9th Cir. 1971) (regulation); cf. Qwest Corp. 

v. City of Chandler, 222 Ariz. 474, 484-85, ¶ 34 (App. 2009) (common law).

¶48 At the time the Hospitals entered the PPAs, the Arizona lien 

statutes at issue here, A.R.S. §§ 33-931 and 36-2903.01(G)(4), were in place; 

so was the federal regulation prohibiting balance billing, 42 C.F.R. § 

447.15. As we have held, the federal regulation preempts §§ 33-931 and 36-

2903.01(G)(4) insofar as those statutes allow a hospital that has accepted 

payment from AHCCCS to impose a lien on a patient's tort recovery for the 

balance between the AHCCCS payment and the hospital's customary rate. 

As incorporated by law into the PPAs, § 447.15 invalidated any state-law 

rights the contracts otherwise might have allowed the Hospitals to impose 

the liens at issue here. See Maryland v. Louisiana, 451 U.S. 725, 747 (1981) ("A 

state statute is void to the extent it conflicts with a federal statute."); AES 

Sparrows Point LNG, LLC v. Smith, 527 F.3d 120, 125-26 (4th Cir. 2008)

(preempted state law "unenforceable under the Supremacy Clause").

¶49 Two versions of express "compliance-with-law" clauses in the 

PPAs bolster our conclusion that the contracts required the Hospitals to 

comply with 42 C.F.R. § 447.15. In the first version, the General Terms and 

Conditions included this term:

6. The Provider shall comply with all federal, State and local 

laws, rules, regulations, standards and executive orders 

governing performance of duties under this Agreement, 

without limitation to those designated within this Agreement.

The like provision in the second version simply stated that the provider 

agrees "[t]o comply with all applicable Federal and State laws and 

regulations."

¶50 The Hospitals argue the PPAs do not encompass subsequent 

changes in the law. See, e.g., Fla. E. Coast Ry. Co. v. CSX Transp., Inc., 42 F.3d 

1125, 1130 (7th Cir. 1994) ("[S]ubsequent changes in the law that are not 

anticipated in the contract generally have no bearing on the terms of their 

agreement."); Dairyland Greyhound Park, Inc. v. Doyle, 719 N.W.2d 408, 429-

33 (Wis. 2006) (post-contract amendment to statute not incorporated in 

parties' agreement). But the relevant law here has not changed: HHS issued 

42 C.F.R. § 447.15 in 1980 – before the PPAs at issue were executed – and 

the regulation has not materially changed since then. See 45 Fed. Reg. 24889
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

20

(Apr. 11, 1980). Nor does our decision that federal law preempts the lien 

statutes depart from prior Arizona common law. Excepting our earlier 

decision in Abbott I (later vacated, and which held the lien statutes were 

preempted), no Arizona appellate court has decided the issue. See Abbott 

II, 239 Ariz. at 414, ¶ 17, vacating Abbott I, 236 Ariz. at 436.

¶51 The Hospitals argue otherwise, citing Arizona cases that refer 

to the medical-lien statutes and the rights they purport to grant AHCCCS 

providers. But none of the cases the Hospitals cite addresses (or even 

mentions) whether 42 C.F.R. § 447.15 or any other federal authority 

preempts a provider's right to balance bill under Arizona law. See, e.g.,

Andrews v. Samaritan Health Sys., 201 Ariz. 379, 384, ¶ 17 (App. 2001);

LaBombard v. Samaritan Health Sys., 195 Ariz. 543, 549, ¶ 23 (App. 1998). Nor 

does our supreme court's decision in Abbott II, 239 Ariz. at 414, ¶¶ 17-19, 

reach the issue of preemption. Although the court in that case stated that 

the preemptive effect of federal law on providers' lien rights "was not 

settled in Arizona," it made that comment in explaining that the parties' 

accord and satisfaction was valid because no Arizona appellate court had 

ruled on the issue before the settlements there were executed. Id.

¶52 The Hospitals also assert that the parties to the PPAs – the 

Hospitals themselves and AHCCCS – intended that the Hospitals would be 

able to enforce liens on patients' recoveries from tortfeasors. In support of 

this argument, the Hospitals cite A.A.C. R9-22-1007. As discussed, ¶ 27

supra, however, we do not accept the Hospitals' interpretation of that 

regulation. In any event, by agreeing in the PPAs to comply with federal 

law, the Hospitals agreed that a federal regulation preempting their statelaw lien rights would trump any lien right allowed by AHCCCS regulation.

¶53 In their motion for reconsideration of our initial opinion in 

this appeal, the Hospitals argue that one may not sue as a third-party 

beneficiary of a contract that incorporates federal law when that federal law 

does not itself permit equitable relief. See Astra, 563 U.S. at 118. It was 

undisputed in Astra that the applicable federal law afforded the plaintiffs 

no private right of action. Id. at 113. Given our conclusion that the Patients 

may sue to enforce a breach of 42 C.F.R. § 447.15, Astra does not bar their 

third-party-beneficiary claim.

¶54 Accordingly, the Hospitals breached a duty owed to the 

Patients under the PPAs when they imposed the liens at issue here because 

those liens were invalid under federal law. We hold the superior court 

erred when it denied the Patients' motion for summary judgment on their 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

21

claim for breach of the PPAs and direct entry of judgment in the Patients' 

favor on that claim.

E. The Breadth of the Injunction.

¶55 The Hospitals argue the superior court lacked the power to 

grant the Patients injunctive relief on the Patients' claim for breach of the 

PPAs. The injunction the court issued, however, was based not on the 

Patients' contract claim but on their claim for equitable relief under general 

preemption principles. See generally Ariz. R. Civ. P. 23(b)(2) (class-action 

treatment when defendant "has acted or refused to act on grounds that 

apply generally to the class, so that final injunctive relief or corresponding 

declaratory relief is appropriate for the class as a whole").

¶56 We review the superior court's grant of an injunction for 

abuse of discretion but review its application of law de novo. See Cheatham 

v. DiCiccio, 240 Ariz. 314, 317-18, ¶ 8 (2016). The superior court abuses its 

discretion if it applies the incorrect substantive law or injunction standard 

or bases "its decision on an erroneous material finding of fact." TP Racing, 

L.L.L.P. v. Simms, 232 Ariz. 489, 492, ¶ 8 (App. 2013).

¶57 The Hospitals contend the injunction is too broad in that it 

purports to extend to medical services not funded by AHCCCS. In relevant 

part, the injunction permanently enjoins the Hospitals "from filing or 

asserting any lien or claim against a patient's personal injury recovery, after 

having received any payment from AHCCCS for the same patient's care." 

(Emphasis in original.) The Hospitals argue the reference to "any payment" 

may prevent a hospital from filing a lien to collect fees it is owed for services 

not covered by AHCCCS. The Hospitals contend there are situations in 

which AHCCCS covers only some of the services they have provided a 

patient, and they argue the injunction erroneously will bar them from 

seeking payment for services for which AHCCCS has not paid.

¶58 The Hospitals, however, do not point to anything in the 

record showing that such a situation has occurred, and we normally will 

not issue advisory opinions on issues not squarely before us. Sw. Barricades, 

L.L.C. v. Traffic Mgmt., Inc., 240 Ariz. 139, 142, ¶ 17, n.3 (App. 2016). Should 

the situation the Hospitals posit arise, they "will be able, at that time, to 

apply to the superior court for appropriate modification" to the injunction. 

TP Racing, 232 Ariz. at 496, ¶ 25; see also State v. Portland Cement Ass'n, 142 

Ariz. 421, 425 (App. 1984) (court of original jurisdiction has power to 

modify its injunction when circumstances change).
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

22

F. Attorney's Fees.

¶59 After prevailing on their claim based on the Supremacy 

Clause, the Patients sought attorney's fees under the private attorney

general doctrine, and the court entered an award of $1,221,902. See generally 

Arnold v. Ariz. Dep't of Health Servs., 160 Ariz. 593, 609 (1989) (private 

attorney general doctrine allows fees to party that has vindicated an 

important public right).

¶60 The Hospitals argue the private attorney general doctrine 

does not allow an award of fees on a preemption claim brought under the 

Supremacy Clause. See Alyeska Pipeline Serv. v. Wilderness Soc'y, 421 U.S. 

240, 245-71 (1975) (doctrine does not allow fees award in challenge to 

federal agency action); Challenge, Inc. v. State ex rel. Corbin, 138 Ariz. 200, 206 

(App. 1983) (federal law governs availability of fees in claim brought under 

42 U.S.C. § 1983). We need not decide whether the private attorney general 

doctrine applies in a preemption claim brought under the Supremacy 

Clause because we conclude the superior court had discretion to award fees 

under A.R.S. § 12-341.01(A) (2019) to the Patients on their third-party claim 

for breach of contract.

¶61 In their motion for reconsideration, the Hospitals do not 

contend the hourly rates represented in the fees award are unreasonably 

high, but urge us to remand the fees award so that the superior court may 

exercise its discretion to decide whether to award fees under § 12-341.01(A). 

See Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570 (1985) (citing factors 

court should consider in deciding whether to award fees under § 12-341.01). 

In awarding fees to the Patients under the private attorney general doctrine, 

however, the superior court expressly stated it also had considered "the 

factors set forth" in Warner.

¶62 In support of a fees award under § 12-341.01, the Patients have 

filed an "exemplar" retainer agreement signed by plaintiff Walter Ansley. 

In relevant part, it states:

On behalf of the class and of themselves, Plaintiff 

acknowledges that Attorneys may apply to the Court for fees 

of up to 30% of all recoveries and relief obtained, plus 

advanced costs, all of which shall be fully subject to court 

approval. . . . In the event the Court awards an hourly fee to 

be paid by Defendants, Plaintiffs will support an application 

to the Court for a fee of $410 per hour for the two senior 

attorneys and $125 per hour for any billable paralegal time.
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

23

The Hospitals argue § 12-341.01(A) does not allow fees because this retainer 

agreement did not obligate the Patients to pay the lawyers for their work 

on the case. See § 12-341.01(B) ("award may not exceed the amount paid or 

agreed to be paid").

¶63 The law is clear that a contingent fee agreement by which a

client promises to pay a lawyer a percentage of the client's recovery will 

satisfy § 12-341.01(B). See Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 

545 (1982) (applying § 12-341.01(B)); Moedt v. General Motors Corp., 204 Ariz. 

100, 103, ¶ 11 (App. 2002) (contingent fee agreement created "genuine 

financial obligation" on the part of the client to pay fees). The Hospitals do 

not take issue with that principle. They contend, however, that even though 

the retainer agreement here would require the Patients to pay their lawyers 

30% of any monetary recovery, since the Patients recovered no damages, 

their lawyers are entitled to nothing.

¶64 But the contingent-fee provision in the retainer agreement is 

broader than "damages" and applies to "all recoveries and relief obtained." 

The "relief obtained" in this case is the injunction the Patients' lawyers won

against past, present and future liens by the Hospitals on tort recoveries by 

the plaintiff class. The Hospitals do not argue that the fees the superior 

court awarded exceed the ratio of 30% of the funds the injunction preserved 

for members of the class.

¶65 Otherwise, as for the amount of the award, the Hospitals 

contend the superior court abused its discretion by failing to discount the 

fees the Patients sought for work performed (1) in a similar federal-court 

case they voluntarily dismissed before commencing this one; and (2) on 

issues pertaining to the group of Abbott plaintiffs who had settled their lien 

claims with the Hospitals. "We review the amount of the superior court's 

attorney fees and costs awards for an abuse of discretion." Lee v. ING Inv. 

Mgmt., LLC, 240 Ariz. 158, 161, ¶ 11 (App. 2016).

¶66 The Hospitals argue that more than $485,000 of the fees 

awarded were incurred not in this case but in a federal-court lawsuit the 

Patients filed, then voluntarily dismissed, before refiling their claims in 

superior court. The Patients contend that those fees included the time spent 

in "vet[ting] hundreds of potential class representatives" for the claims, 

researching Medicaid plans across the country and interviewing expert 

witnesses.

¶67 The Hospitals cite Vicari v. Lake Havasu City, 222 Ariz. 218, 

223-24, ¶¶ 18-21 (App. 2009), for the proposition that the defendant is the 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

24

prevailing party when a plaintiff voluntarily dismisses the complaint. The 

issue here, however, is whether a court abuses its discretion in awarding 

fees for legal work performed in connection with a prior case before 

dismissing it, when that work is integral to the plaintiff's successful 

prosecution of a subsequent claim. When the Hospitals objected in the 

superior court to the Patients' request for the fees they incurred in the 

federal case, the Patients responded that the legal and factual research

performed in that case was "clearly calculated to – and in fact did – bring 

about" their success in this case. Under the circumstances, the superior 

court did not abuse its discretion in declining to reduce the Patients' fees to 

take into account work performed in the federal matter. See First Nat. Bank 

of Ariz. v. Cont'l Bank, 138 Ariz. 194, 200 (App. 1983) ("pre-complaint 

investigation and evaluation of the potential claim is part of the process and 

expense of litigation").

¶68 The Hospitals finally argue that the superior court abused its 

discretion in awarding fees for work performed for the group of patients 

whose claims were dismissed in Abbott II. The Hospitals contend that 

$60,442 of the fees the Patients were awarded was incurred in connection 

with superior court proceedings involving those plaintiffs.

¶69 In determining the reasonableness of the number of hours 

expended by an attorney, the superior court must consider whether the 

claimed work "would have been undertaken by a reasonable and prudent 

lawyer to advance or protect [the] client's interest." Schweiger v. China Doll 

Rest., Inc., 138 Ariz. 183, 188 (1983). "Furthermore, time spent on 

unsuccessful issues or claims may not be compensable." Id. On the other 

hand, when a party has "accomplished the result sought in the litigation, 

fees should be awarded for time spent even on unsuccessful legal theories. 

Where a party has achieved only partial or limited success, however, it 

would be unreasonable to award compensation for all hours expended, 

including time spent on . . . unsuccessful issues or claims." Id. at 189; Orfaly 

v. Tucson Symphony Soc'y, 209 Ariz. 260, 266-67, ¶ 24 (App. 2004).

¶70 When the superior court in this case ruled on the Patients' fee 

request in 2014, that court could not know that the supreme court ultimately 

would reject the Abbott plaintiffs' claims. Although the Hospitals addressed 

this issue in a motion for new trial filed after the case was reassigned to 

another division of the Maricopa County Superior Court, the judge newly 

assigned to the case declined to reconsider the fees award in light of the 

supreme court's decision in Abbott II.
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

25

¶71 Under the circumstances, we remand the fees award to the 

superior court so that it may exercise its discretion to review the Patients' 

claim for the $60,442 in fees incurred in connection with the claims brought 

by the Abbott plaintiffs.

CONCLUSION

¶72 We hold that applicable federal law, 42 C.F.R. § 447.15, 

preempts A.R.S. §§ 33-931 and 36-2903.01(G)(4) to the extent those statutes 

allow a health-care provider that has accepted payment from AHCCCS for 

treating a patient to impose a lien on the patient's tort recovery for the 

difference between what the provider accepted from AHCCCS and the 

amount the provider would have charged a non-AHCCCS patient. For the 

reasons set out above, we affirm the superior court's entry of summary 

judgment in favor of the Patients on their claim for declaratory relief and 

the court's order enjoining the Hospitals from enforcing any lien rights they 

may have under state law to recover those funds.

¶73 We also hold the Patients are third-party beneficiaries of the 

contracts the Hospitals entered with AHCCCS to serve AHCCCS members. 

Those contracts required the Hospitals to comply with federal law, 

including 42 C.F.R. § 447.15. Accordingly, we reverse and remand the 

dismissal of the Patients' claim for breach of contract and direct entry of 

judgment in favor of the Patients on that claim.

¶74 Finally, we affirm the superior court's award of fees to the 

Patients, excepting only the amount of $60,442, which the Patients sought 

for work performed in connection with the Abbott case, and we direct the 

superior court on remand to reconsider that fees claim. We award the 

Patients their costs on appeal and their attorney's fees pursuant to A.R.S. § 

12-341.01(A), contingent upon compliance with Arizona Rule of Civil 

Appellate Procedure 21.