Opinion ID: 2638118
Heading Depth: 4
Heading Rank: 1

Heading: Smallwood has a right of action as a third-party beneficiary of the hospital's provider agreement.

Text: We will recognize a third-party right to enforce a contract upon a showing that the parties to the contract intended that at least one purpose of the contract was to benefit the third party. [21] In some of our cases, we have focused on whether the promisee intended to benefit the third party. [22] But in other cases we have not differentiated between the intent of the promisor and promisee. [23] We now conclude that in third-party beneficiary cases we should follow the approach of the Restatement (Second) of Contracts to the extent it focuses on the intent of the promisee. [24] We have also never addressed whether we only need to find an intent to benefit the third party, or whether we must also find an intent to allow the third party to enforce the contract. Our cases focus only on the intent to benefit the third party. [25] But the Restatement (Second) of Contracts highlights both aspects of the contracting parties' intentions. Section 302 of the Restatement provides: (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.[ [26] ] The parties do not address this subtlety in their briefing. We therefore assume here, without deciding, that if the state, as promisee, manifested an intention to benefit Medicaid recipients like Smallwood, it also manifested an intention that Medicaid recipients, as third-party beneficiaries, be able to enforce the provider agreement. Finally, government contracts may present particularly difficult third-party beneficiary problems. [27] For example, government contracts create the risk of imposing liability that is disproportionately burdensome in relation to the benefit received. [28] The Restatement addresses this potential problem by providing an exception for private actors who contract with the government; those contractors are not subject to liability for consequential damages resulting from their performance or failure to perform. [29] But because Smallwood does not claim consequential damages, that exception is inapplicable here. By entering into a provider agreement with the state, the hospital promised not to balance bill Medicaid recipients. The state is the promisee of that agreement. The language of the provider agreement and the applicable state and federal Medicaid laws indicate that the state intended that Medicaid recipients like Smallwood benefit from providers' promises not to balance bill. The standard provider agreement states that providers must comply with federal and state Medicaid regulations and must accept as payment in full the amounts paid in accordance with Alaska statutes . . . and make no additional charge to the recipient. . . . For other services requiring recipient cost sharing, the provider shall collect from the recipient the amount of cost sharing in compliance with the [Alaska regulations]. [30] DHSS regulations require that recipients not be charged for any additional difference between the amount billed and the amount received in payment from the division for those covered services provided. [31] The applicable federal regulations require that all state plans must provide that the Medicaid agency must limit participation in the Medicaid program to providers who accept, as payment in full, the amounts paid by the agency plus any deductible, coinsurance or copayment required by the plan to be paid by the individual. [32] Even when a third party is liable for the recipient's medical costs, the federal statute prohibits providers from collecting any balance remaining from the recipient or the third party. [33] Moreover, Medicaid legislation has been enacted to provide medical care to needy persons. As we explained in State v. Planned Parenthood of Alaska, Inc., the Medicaid program's purpose is granting uniform and high quality medical care to all needy persons of this state. [34] At least one federal court has held that Medicaid recipients are the intended beneficiaries of the prohibition on balance billing. In Mallo v. Public Health Trust of Dade County , the court concluded that the structure of 42 U.S.C. § 1396a(a)(25)(C) creates a third-party beneficiary contractual obligation on the part of the health care provider to collect from the Medicaid patient no more than the amount of the Medicaid payment. [35] The court explained: Capping the amount of money providers can collect, the balance billing provision's mandatory language creates the terms of a third-party beneficiary contract to protect the financial interests of indigent Medicaid patients. The Court finds Plaintiff, as a Medicaid recipient, is the intended, third-party beneficiary to the contract established by § 1396a(a)(25)(C), in which (a) the federal government promises Medicaid money to the State in exchange for which the State will provide medical care for the poor; (b) private and public health care providers have promised the State to provide medical care for indigent patients, in exchange for which the State will reimburse the provider with Medicaid funds; and (c) the State will disburse Medicaid funds at an amount it sets, in exchange for which the health care provider will not charge the patient more than the amount of Medicaid funds that the provider receives from the State. Medicaid patients benefit from this contract by receiving immediate, quality medical attention, and paying a relatively affordable medical bill. Thus . . . guaranteeing payment to the hospital is the quid for which the hospital's no additional payment promise was in part the quo.[ [36] ] We agree with the Mallo court that 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. The hospital asserts that Smallwood has no rights as a third-party beneficiary because he had an alternative administrative remedy through the state's fair hearing process and because the state has the regulatory authority to enforce the balance billing prohibition against providers. But potential enforcement of the contract by the contracting parties or through other enforcement mechanisms does not necessarily foreclose a third-party beneficiary's right to enforce a contractual promise. [37] Moreover, we are not convinced that there is an administrative hearing process available to complainants like Smallwood. Neither the superior court nor the hospital identified the specific regulatory provision that provides Smallwood with an administrative remedy. The Alaska Administrative Code provides Medicaid recipients an opportunity for an administrative hearing when a request for an application is denied, when a claim for assistance is denied, when the state intends to modify or terminate the recipient's benefits, or when a request for a covered Medicaid service is denied. [38] As Smallwood points out, it is not clear that a claim that a provider balance billed a recipient fits within this hearing process. We recognize that the state may impose sanctions on providers that balance bill. [39] And we recognize that the superior court stated that it would give a copy of its order to the Alaska Attorney General and the Commissioner of Health and Social Services so the state could resolve these issues. But the hospital does not point to anything in the record bearing on whether the state would initiate an inquiry into balance billing or would respond to a Medicaid recipient's inquiry or even whether the state will respond to the superior court's notification in this case. Smallwood's right of action is therefore not foreclosed by these other potential sources of enforcement. Intended third-party beneficiaries may enforce the contract terms intended to benefit them. [40] We therefore hold that Smallwood may enforce the balance billing prohibition as a third-party beneficiary of the provider agreement and that prohibition.