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 4-3-2018
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 several other hospitals ("the 

Hospitals") separately contracted with the Arizona Health Care Cost 

Containment System ("AHCCCS") to serve AHCCCS members. In those 

contracts, the Hospitals agreed to accept payment from AHCCCS at rates 

below their customary charges and not to bill members for the balance. The 

plaintiffs in this case are a class of AHCCCS members ("the Patients") who 

received settlements or damage awards from third-party tortfeasors for the 

injuries that required medical treatment. The Patients sued to enjoin the 

Hospitals from enforcing liens on their tort recoveries for the balance 

between what AHCCCS paid and the Hospitals' customary charges. We 

hold that the Hospitals' contracts with AHCCCS incorporated federal law, 

which bars the Hospitals from enforcing the liens. Accordingly, we affirm 

the injunction the superior court entered and direct entry of judgment in 

favor of the Patients on their third-party claim for breach of contract.

FACTS AND PROCEDURAL BACKGROUND

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

Arizona Revised Statutes ("A.R.S.") sections 33-931 (2018) and 36-

2903.01(G)(4) (2018).

1 The former is a general statute allowing 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 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 recoveries. The 

Patients argued the liens constitute impermissible "balance billing," a term 

 

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

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 the Hospitals' liens were preempted by 

federal law. We 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 ("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 under the Supremacy Clause that when a 

hospital has accepted payment from AHCCCS for treating a patient, a 

federal regulation, 42 C.F.R. § 447.15 (2018), preempts the hospital's statelaw 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) (2018) and -2101(A)(1) (2018).
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

4

DISCUSSION

A. General Principles.

¶7 A superior court "shall grant summary judgment if the 

moving party shows that there is no genuine dispute as to any material fact 

and the moving party is entitled to judgment as a matter of law." Ariz. R. 

Civ. P. 56(a); see also Orme School v. Reeves, 166 Ariz. 301, 309 (1990). We 

review a superior court's grant of summary judgment de novo, viewing the 

evidence and reasonable inferences in the light most favorable to the nonmoving party. Sanders v. Alger, 242 Ariz. 246, 248, ¶ 2 (2017).

¶8 The Hospitals argue the Patients' declaratory-judgment claim 

under the Supremacy Clause fails because the Supremacy Clause does not 

afford a private right of action. See Armstrong v. Exceptional Child Ctr., Inc., 

135 S. Ct. 1378, 1383-84 (2015). We need not address that issue, because we 

conclude the superior court erred in denying summary judgment to the 

Patients on their contract claim. In addressing that claim, we conclude that 

(1) federal law preempts the Hospitals' rights under Arizona law to impose 

liens on the Patients' tort recoveries to recover the balance between what 

AHCCCS paid the Hospitals and the Hospitals' customary rates, (2) the 

Patients are third-party beneficiaries of the contracts the Hospitals entered 

with AHCCCS, and (3) those contracts require the Hospitals to comply with 

the preemptive federal law.

B. Federal Law Preempts the Hospitals' Lien Rights.

¶9 Federal law may preempt state law in one of three ways: 

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 

 

2 The Patients argue our 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-ofthe-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

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 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 (2018). 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) (2018). The plan must be approved by the federal 

Center for Medicare and Medicaid Services ("CMS"), a division of the 

Department of Health and Human Services ("HHS"), which determines 

whether the plan 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) (2018) (granting HHS power to withhold funds if changes to state 

plan do not comply with federal law); 42 C.F.R. § 430.10 (2018) (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 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) (2018); see

A.R.S. § 36-2946(A) (2018) (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, the state Medicaid agency 

first tries to determine whether a third party (insurer, tortfeasor) may be 

liable for paying the hospital's fees. Olszewski, 30 Cal. 4th at 811. If a third

party is implicated, the agency rejects the claim and requires the hospital to 

determine the amount of the third party's liability. 42 C.F.R. § 433.139(b)(1)

(2018). Once the amount of any third-party liability is established, the 

agency will pay the hospital the difference between the rate it has 

negotiated with the hospital and what the hospital will receive from the 

third party. Id. When third-party liability is unavailable or unknown, the 

state agency pays the hospital its negotiated rate for treating the patient. 42 

C.F.R. § 433.139(c). If a third party's liability comes to light afterward, the 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

6

state 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 

ultimately must be borne by a state Medicaid agency, Arizona law grants 

AHCCCS the right to a lien on a patient's claim against a tortfeasor to 

recover what AHCCCS pays to treat the patient. A.R.S. § 36-2915(A) (2018). 

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 billing 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 thirdparty payer benefits have been paid. Providers must determine the extent 

of the first- and 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). If a third party pays the hospital more than AHCCCS's scheduled 

rate, AHCCCS will pay the hospital nothing. 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, Fee-for-Service Provider 

Manual at 9-2 (Mar. 2014 rev.).

¶13 There is no dispute that under applicable federal and state 

law, 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 use state lien statutes 

to recover additional monies from the tortfeasor.

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

C.F.R. § 447.15, a 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 regulation plainly 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 this

regulation likewise bars a hospital from imposing a lien on the patient's tort 

recovery for the balance.
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

7

¶15 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 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 a judgment is entered against a tortfeasor or tortfeasor agrees to 

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

belong to the patient.) Just as the hospital may not balance bill by seizing a 

patient's car or imposing a lien against his or her home, the hospital likewise 

may not use state lien laws to seize the patient's recovery from the 

tortfeasor.

¶16 Each court that has addressed the issue likewise has 

concluded § 447.15 bars a hospital from imposing a lien on funds due a 

patient from a tortfeasor. 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 costsharing 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 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

8

allowing provider to balance bill by imposing lien on patient's tort 

settlement).3

¶17 The Hospitals argue that the reference in § 447.15 to "payment 

in full" limits a provider's right to payment from the state Medicaid agency 

or from the patient but does not apply to payments the provider might be 

able to intercept from a third-party tortfeasor. That interpretation,

however, is contrary to the purpose of the regulation and the purpose of 

the Medicaid Act itself, which is not to "provide financial assistance to 

providers of care," but to aid the patients who receive care from the 

providers. Green v. Cashman, 605 F.2d 945, 946 (6th Cir. 1979); see also Lizer, 

308 F. Supp. 2d at 1009 ("The . . . regulation was passed in order to ensure 

that this purpose was carried out by preventing 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.").

¶18 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, the Hospitals point 

to the 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). The Hospitals cite no federal authority, however, 

supporting their contention that Congress intended that a provider that 

chooses to treat a Medicaid member may balance bill by intercepting a 

member's tort recovery. On the other hand, 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).

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

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

 

3 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

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) 

(to be codified at 42 C.F.R. § 447.20). The new regulation required state 

plans to bar a provider from collecting from a patient "or any financially 

responsible relative or representative" of the patient when a third party's 

liability is equal to or greater than the plan's scheduled rate; the provider 

would not be able to collect anything more than a copay when the third 

party's liability is less than the scheduled rate. The comment expressed 

concern that by limiting what a provider could "collect . . . from a 

representative" of a patient, the proposed regulation would bar a provider 

from collecting from a patient's insurer or from other "resources available 

to the" patient. Id.; see also 42 C.F.R. § 447.20(a) (2018). 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 in making that statement, 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." Contrary to the 

Hospitals' assertion, the agency's comment was not directed to § 447.15; it

was referencing a provider's right to seek payment from a third party before 

accepting payment from the state agency, not after. 

¶20 The Hospitals also cite a 1997 letter from the Acting Director 

of the Health Care Financing Administration that they say 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"). Moreover, the

mechanism outlined in the letter is inconsistent with the reimbursement 

scheme of the Medicaid Act, which requires patients to assign the state 

agency their rights to payment from third parties for medical expenses. Id. 

at 320 (citing 42 U.S.C. § 1396k(a)(1)(A)). 

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

two Arizona lien statutes under which the Hospitals imposed their liens 

violate the federal regulation's ban on balance billing by an AHCCCS 

provider. As relevant here, A.R.S. § 33-931(A) states that a provider
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

10

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.

The statute specifically applying to hospitals that serve AHCCCS members 

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). These two statutes 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 services 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 that they allow a hospital 

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

hospital's customary rates and what it accepted from AHCCCS for treating 

the patient.

¶22 The Hospitals raise two final arguments in support of their 

contention that federal Medicaid law does not preempt their rights under 

the two Arizona lien statutes. They argue first 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 statute that might bear in some way on the 

state's Medicaid program. 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 the 

agency the authority to determine the validity of state law. See 42 C.F.R. § 

430.14 (2018); see also 42 C.F.R. § 430.10. And nothing in our record supports 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

11

the proposition that Arizona's state plan includes or incorporates the two 

lien statutes at issue.

¶23 The cases the Hospitals cite offer no support for their

contention that CMS approval of a state Medicaid plan signifies the 

agency's approval of all relevant state statutes. See Cmty. Health Care Ass'n 

of N.Y. v. Shah, 770 F.3d 129, 144 (2d Cir. 2014) (CMS review of 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 

validity of state plan). In sum, contrary to the Hospitals' contention, CMS 

approval of a state Medicaid plan does not mean that the agency necessarily 

approved corresponding state statutes. See Olszewski, 30 Cal. 4th at 825.

¶24 Second, the Hospitals argue that federal law must not 

preempt their rights under applicable state lien law because the AHCCCS 

plan allows providers to use liens to balance bill, and CMS approved the 

AHCCCS plan. But nothing in the Arizona plan addresses, let alone 

endorses, the right of a hospital to accept payment from AHCCCS, then

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

AHCCCS payment and the hospital's customary rates.

¶25 For their contention that the Arizona plan authorizes such

liens, 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 even after a hospital has 

accepted "payment in full" from AHCCCS for treating a patient, the Arizona 

plan allows it to impose a lien on the patient's tort recovery as a permissible 

"third party payment."

¶26 The brief reference in Attachment 4.19 to "third party 

payments," which does not mention the word "lien" and which is found in 

a section of the plan setting out rates AHCCCS will pay hospitals, does not 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

12

constitute an endorsement of the right of a hospital to accept payment from 

AHCCCS, then balance bill by imposing a lien on the patient's tort recovery. 

As set out in ¶ 12, supra, because AHCCCS is the "payor 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 it ascertains that a third 

party is liable, the hospital may bill AHCCCS only for the difference 

between what it has recovered from the third party and the AHCCCS 

scheduled rate. Given that, we understand the reference to "third party 

payment" in Attachment 4.19-A to refer to a 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 CMS approved balance billing when it approved 

Arizona's AHCCCS plan. 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 the former regulation concerns a lien that would be recorded 

before AHCCCS determines what to pay the hospital, not after. See ¶¶ 11-

12, supra.

¶28 The Hospitals' argument also disregards the mandate in 

A.A.C. R9-22-702(B) that 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 specify

limited 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), 36-2915(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 the proceeds of a tort recovery is when 

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

There is no corresponding provision in the regulation allowing a hospital
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

13

to demand that a patient relinquish a tort recovery to satisfy the hospital's

lien rights.

¶29 In the context of these provisions and those discussed ¶¶ 12-

13 supra, the provisions in the AHCCCS plan that the Hospitals cite 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 impose a 

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

and the provider's customary rates. Accordingly, when CMS approved the 

AHCCCS plan, it did not authorize the Hospitals to accept payment from 

AHCCCS, then enforce liens against patients' recoveries from tortfeasors.

¶30 In sum, and in accord with every other judicial decision we 

have located on the issue, 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 between what AHCCCS paid it and 

the provider's customary rates.

C. The Patients' Claim for Breach of the Provider Agreements.

¶31 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) (2018), 

434.6(a) (2018). The Patients argue they are third-party beneficiaries of 

PPAs, signed by the Hospitals and AHCCCS between 1994 and 2010, which 

incorporate federal law preempting Arizona's lien laws.

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

¶32 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.

¶33 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 
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Opinion of the Court

14

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 

of individuals who would be the main 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.

¶34 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 

Ariz. 139, 142, ¶ 11 (App. 2002)). Similarly, contracts impliedly incorporate 

valid constitutional provisions and regulations affecting the rights of the 

parties 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).

¶35 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 therefore invalidated any 

state-law rights the contracts otherwise might have afforded 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 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

15

Cir. 2008) (preempted state law "unenforceable under the Supremacy 

Clause").

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

PPAs only 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."

¶37 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 has not changed: HHS issued 42 

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

the regulation has not materially changed since then. See 45 Fed. Reg. 24889

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

statutes depart from 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. Abbott II, 239 Ariz. at 414, 

¶ 17, vacating Abbott I, 236 Ariz. 436.

¶38 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 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 
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Opinion of the Court

16

satisfaction was valid because no Arizona appellate court had ruled on the 

issue. Id.

¶39 Finally, the Hospitals 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, we do not accept the Hospitals' interpretation of that regulation. In 

any event, however, by agreeing in the PPAs to comply with federal law, 

the Hospitals agreed that a federal regulation preempting their state-law 

lien rights would trump any lien right allowed by AHCCCS regulation.

¶40 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 

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

favor on that claim.

D. The Breadth of the Injunction.

¶41 As noted, ¶ 5 supra, the superior court ruled on the Patients' 

claim under the Supremacy Clause that 42 C.F.R. § 447.15 preempts the 

Hospitals' state-law lien rights and ordered the Hospitals to discharge all 

liens they had recorded against the Plaintiffs' tort recoveries. At the same 

time, the court permanently enjoined the Hospitals from filing a lien against 

any patient's tort recovery after having accepted payment from AHCCCS 

for treating the patient. Having concluded that the Patients were entitled 

to entry of judgment on their claim for breach of contract, we hold the 

superior court did not err by ordering the existing liens discharged and 

enjoining the Hospitals from filing future liens in the same circumstances.

¶42 The Hospitals do not contend that general equitable 

principles bar the injunction the superior court entered. See 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"); 

Restatement (Second) of Contracts § 357(2) (1981) (court has discretion in 

contract action to enjoin breach of duty "of forbearance"). The Hospitals 

argue, however, that the injunction is overly broad in that it purports to 

extend to medical services not funded by AHCCCS. 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, ¶ 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

17

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).

¶43 In relevant part, the injunction the superior court entered 

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 for which 

AHCCCS has not paid the hospital. The Hospitals contend there are 

situations in which only some of the services they have provided a patient 

are covered by AHCCCS, and they argue the injunction erroneously will 

bar them from seeking payment for services for which AHCCCS has not 

paid.

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

record showing that such a situation actually 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." 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 

own injunction when circumstances change).

E. Attorney's Fees.

¶45 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 award to party that has vindicated an 

important public right).

¶46 On appeal, the Hospitals argue the private attorney general 

doctrine does not allow a fees award 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 not applicable 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 doctrine applies in a preemption 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

18

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)

(2018) to the Patients on their third-party claim for breach of contract.

¶47 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).

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

awarded were incurred not in this case but in a federal 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.

¶49 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 

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 claimant's successful

prosecution of a subsequent claim. The superior court here did not abuse 

its discretion in declining to reduce its fees award to take into account work 

performed in the federal action. 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").

¶50 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 were incurred in connection 

with superior court proceedings involving those plaintiffs. 

¶51 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 
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

19

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).

¶52 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. We remand the fees award to the 

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

claim for fees incurred in connection with the claims brought by the Abbott 

plaintiffs.

CONCLUSION

¶53 We hold the Patients are third-party beneficiaries of the 

contracts the Hospitals entered with AHCCCS to provide medical services 

to AHCCCS members. We further hold those contracts required the 

Hospitals to comply with federal law, including 42 C.F.R. § 447.15, which

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 to 

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

AHCCCS payment and the provider's customary rates. Accordingly, we 

reverse the superior court's entry of summary judgment in favor of the 

Hospitals on the Patients' claim for breach of contract and direct entry of 

judgment in the Patients' favor on that claim. On this basis, and without 

addressing the judgment the superior court entered on the Patients' claim 

for declaratory relief under the Supremacy Clause, we affirm the injunction 

the superior court entered. We remand the attorney's fees award and direct
ANSLEY, et al. v. BANNER HEALTH, et al.

Opinion of the Court

20

the superior court to reconsider whether the Patients are entitled to receive 

the full amount of the fees incurred in the superior court in connection with 

the Abbott case. Finally, 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.