Miller v. Gorski Wladyslaw Estate

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
October 23, 2008
No. 07-30378
Charles R. Fulbruge III
Clerk

SHAWN MILLER, ETC

Plaintiff

BATON ROUGE GENERAL MEDICAL CENTER

Intervenor Plaintiff – Appellee
v.

GORSKI WLADYSLAW ESTATE; ET AL

Defendants

JOSE ANGEL ALFARO, JR; GRACIELA MARROQUIN

Intervenor Defendants – Appellants
---------------------------------------------------------------------------------------------------
JOSE ANGEL ALFARO, JR; GRACIELA MARROQUIN

Plaintiffs – Intervenor Defendants – Appellants
v.

BATON ROUGE GENERAL MEDICAL CENTER

Intervenor Plaintiff – Appellee
v.

ALLIED VAN LINES INC; ET AL

Defendants
 No. 07-30378

Appeal from the United States District Court
for the Western District of Louisiana

Before JONES, Chief Judge, and BARKSDALE and STEWART, Circuit Judges.
EDITH H. JONES, Chief Judge:
Jose Alfaro (“Alfaro”) received emergency medical care at Baton Rouge
General Medical Center (“Baton Rouge General”) after he was injured in a car
accident. This appeal concerns Baton Rouge General’s efforts to get paid for the
medical care it provided Alfaro. The question presented is whether a hospital
that is required by law to provide emergency medical care to an uninsured
patient, who later becomes eligible for Medicaid, may seek to collect payment for
the patient’s medical bills by enforcing a lien against a settlement the patient
recovered from a third-party tortfeasor rather than billing Medicaid. The
district court ruled that Baton Rouge General could enforce its lien against
Alfaro’s tort settlement. Alfaro appeals that decision. We affirm.
BACKGROUND
On July 20, 2003, Alfaro was severely burned in an automobile collision
in St. Martin Parish, Louisiana, with an Allied Van Lines, Inc., (“Allied”) truck.
Following the accident, he was flown by helicopter to Baton Rouge General for
emergency medical treatment. At the time of his admission to the hospital,
Alfaro was uninsured and ineligible for Louisiana Medicaid benefits. Baton
Rouge General was required by the Emergency Medical Treatment and Active
Labor Act, 42 U.S.C. § 1395dd, to treat him. Alfaro remained in the hospital
from July 20 until October 31, 2003; the cost for two and a half months’
hospitalization exceeded $1.2 million.
In August 2003, Alfaro and other accident victims filed a federal lawsuit
against Allied and the truck owner seeking damages for their injuries. Baton

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Rouge General obtained a copy of Alfaro’s accident report about a month later.
On October 21, before Alfaro was discharged, the hospital filed a statutory
privilege, i.e., a lien, for recovery of Alfaro’s medical expenses against any
settlement or judgment he recovered from Allied and its insurers (collectively
“Allied”). See LA. REV. STAT. ANN. § 9:4751 et seq. Two months later, Allied’s
attorney indicated to Baton Rouge General his belief that it could recover the full
amount of Alfaro’s medical expenses from Allied. He confirmed that Allied had
more than enough insurance coverage to pay the hospital’s lien.
While Alfaro was hospitalized, Baton Rouge General referred him to a
third-party vendor to assist him in seeking supplemental security income (“SSI”)
benefits from the Society Security Administration. When the hospital learned
that he had been approved for SSI benefits, which made him eligible to receive
Medicaid benefits in Louisiana, the hospital informed Alfaro’s attorney that it
would not bill Medicaid for Alfaro’s medical expenses. Nevertheless, out of an
abundance of caution, the hospital sought retroactive Medicaid approval from
the Louisiana Department of Health and Hospitals (“LDHH”), the state
Medicaid agency, for Alfaro’s stay. LDHH approved, but it warned that “an
approval is not a guarantee of the recipients[’s] eligibility [and] [p]ayment on a
claim will only be made when the claim is billed correctly and all conditions for
payment are met.” In the end, Baton Rouge General neither sought from nor
was reimbursed by Medicaid for Alfaro’s expenses.
Baton Rouge General chose instead to pursue its statutory lien against
Alfaro’s settlement or judgment by intervening in Alfaro’s lawsuit against Allied.
In January 2006, Alfaro, his co-plaintiffs, and Allied finalized a $21 million
settlement, with $7 million earmarked for Alfaro. The settlement agreement
does not allocate funds between past medical expenses and other damages, but
it expressly requires Alfaro “to reserve and hold in trust” funds necessary to
satisfy “all known liens, interventions and other claims” until such claims are

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validly released and the judicial proceedings asserting such claims are dismissed
with prejudice. It also requires him to defend, indemnify, and hold Allied
harmless from “any claims asserted by anyone against [Allied] to recover for
services rendered or payments made to or on behalf of plaintiffs . . . .” In
accordance with this agreement, Alfaro deposited the full amount claimed by
Baton Rouge General in the registry of the district court.
The hospital moved for partial summary judgment to recover the deposited
settlement funds. Baton Rouge General contended that even though Alfaro
became eligible for Medicaid benefits after he was discharged from the hospital
it was not required to bill Medicaid and indeed was legally compelled to seek
payment from any responsible third party before billing Medicaid. In a cross-
motion, Alfaro countered that once he became eligible for Medicaid, the hospital
had to bill Medicaid. He also argued that enforcement of the hospital’s lien
would constitute recovery not from Allied but from Alfaro, a result prohibited by
state and federal mandates. By consent of the parties, a magistrate judge
considered both motions. In a well-written opinion, the judge denied Alfaro’s
motion and granted Baton Rouge General’s motion, awarding it $1,217,368.99
plus interest. Alfaro filed this appeal.1
STANDARD OF REVIEW
This court reviews a grant of summary judgment de novo, applying the
same legal standard as the district court. Chacko v. Sabre, Inc., 473 F.3d 604,
609 (5th Cir. 2006). Summary judgment is appropriate when the evidence

1
Alfaro’s notice of appeal of the partial summary judgment in favor of Baton Rouge
General was premature because the district court’s order was not a final judgment. The
judgment neither disposed of the claims against all the defendants nor was it certified as a
final judgment pursuant to Federal Rule of Civil Procedure 54(b). Young v. Equifax Credit
Info. Servs., Inc., 294 F.3d 631, 634 n.2 (5th Cir. 2002). Nonetheless, we have jurisdiction over
this appeal because the magistrate judge’s “order would have been appealable if the district
court had certified it pursuant to Rule 54(b) and because the district court did subsequently
(and prior to oral argument herein) dispose of all remaining parties and claims . . . .” Id.

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 No. 07-30378

demonstrates that “there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c).
DISCUSSION
Congress established Medicaid in 1965 through Title XIX to the Social
Security Act, 42 U.S.C. § 1396 et seq., “for the purpose of providing federal
financial assistance to States that choose to reimburse certain costs of medical
treatment for needy persons.” Harris v. McRae, 448 U.S. 297, 301, 100 S. Ct.
2671, 2680 (1980). Under this system of “cooperative federalism,” if a state
agrees to establish a Medicaid plan, the federal government agrees to pay a
specified percentage of the total amount the state plan spends on medical
assistance. Id. at 308, 100 S. Ct. at 2683-84. The federal Medicaid statute
defines “medical assistance” as “payment of part or all of the cost of [covered]
care and services . . . .” 42 U.S.C. § 1396d(a). Although participation in the
Medicaid program is entirely voluntary, once a state elects to participate, it must
comply with federal statutory and regulatory requirements. See S.D. ex rel.
Dickson v. Hood, 391 F.3d 581, 585-86 (5th Cir. 2004). Despite these
requirements, “the Medicaid statute gives each state flexibility in designing and
administering its own Medicaid program.” La. Dept. of Health and Hosps. v. Ctr.
for Medicare and Medicaid Servs., 346 F.3d 571, 572 (5th Cir. 2003).
This case concerns federal and state statutes and regulations governing
third-party liability and provider reimbursement under Medicaid. Alfaro
contends that, when he became “eligible” for Medicaid, the hospital was no
longer permitted to pursue a third-party recovery action against Allied, the
tortfeasor—only the State Medicaid agency could do so. Further, he asserts that,
when he became “eligible” for Medicaid, the hospital had no right as a Medicaid
provider to assert its statutory lien against Alfaro’s share of the settlement.
1. Can Baton Rouge General seek third party reimbursement?
For purposes of this section, we assume arguendo that when Alfaro

5
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became “eligible” for Louisiana Medicaid, whether or not the hospital availed
itself of Medicaid coverage, the Medicaid regime applied to the hospital’s
reimbursement rights.
We first consider whether a state agency alone can pursue third-party
liability claims. “Congress, in crafting the Medicaid legislation, intended that
Medicaid be a ‘payer of last resort.’” Ark. Dept. of Health and Human Servs. v.
Ahlborn, 547 U.S. 268, 291, 126 S. Ct. 1752, 1767 (2006). “This means that all
other available resources must be used before Medicaid pays for the medical care
of an individual enrolled in a Medicaid program.” Caremark, Inc. v. Goetz,
480 F.3d 779, 783 (6th Cir. 2007). Because Medicaid is essentially a “payer of
last resort,” federal law requires “states to implement ‘third party liability (TPL)
programs’ which ensure that Federal and State funds are not misspent for
covered services to eligible Medicaid recipients when third parties exist that are
legally liable to pay for those services.’” Wesley Health Care Ctr., Inc., v.
DeBuono, 244 F.3d 280, 281 (2d Cir. 2001) (quoting Medicaid Programs; State
Plan Requirements and Other Provisions Relating to State Third Party Liability
Programs, 55 Fed. Reg. 1423, 1423-24 (1990)).
A third party is “any individual, entity or program that is or may be liable
to pay all or part of the expenditures for medical assistance furnished under a
State [Medicaid] plan.” 42 C.F.R. § 433.136. The federal Medicaid statute
requires that each state’s Medicaid agency take measures to find out when third
parties, such as private insurers and Medicare, are legally obliged to pay for
services covered by Medicaid. Wesley Health Care Ctr., 244 F.3d at 281 (citing
42 U.S.C. § 1396a(25)(A)). Each state Medicaid plan must include “a plan . . . for
pursuing claims against such third parties.” Id. If third party liability is found
to exist after the agency has provided medical assistance, the state agency must
seek reimbursement for such assistance. Id. (citing 42 U.S.C. § 1396a(25)(B)).

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The Centers for Medicare and Medicaid Services (“CMS”)2 has issued
implementing regulations that outline two methods for handling third party
liability: “cost avoidance” and “pay and chase.” When the probable liability of a
third party is established at the time a claim is filed, the state Medicaid agency
must reject the claim and return it to the provider for a determination of the
amount of third-party liability. 42 C.F.R. § 433.139(b)(1). The state agency
must pay the difference if the third party’s liability does not at least equal the
amount the provider is entitled to under Medicaid. Id. “This method of payment
is called ‘cost avoiding;’ it entails shifting to the provider the burden of securing
payment from third parties.” Wesley Health Care Ctr., 244 F.3d at 282.
The other method of handling third-party liability is called “pay and
chase.” Under this method, the state Medicaid agency “pays the total amount
allowed under the agency’s payment schedule and then seeks reimbursement
from the liable third party.” Id. (quoting Medicaid Programs; State Plan
Requirements and Other Provisions Relating to State Third Party Liability
Programs, 55 Fed. Reg. 1423, 1425 (1990)). The “pay and chase” method is used
if the probable existence of third party liability cannot be established or third
party benefits are not available to pay the patient’s medical expenses at the time
a Medicaid claim is filed. See 42 C.F.R. § 433.139(c); 42 U.S.C. § 1396a(a)(25)(B).
The federal regulations permit, or even require, the state Medicaid agency to use
the “pay and chase” method in certain specific circumstances, for example, where
labor, delivery, or postpartum care is involved. See 42 C.F.R. § 433.139(b)(2), (3).
A state Medicaid agency may also use the “pay and chase” method when it is cost
effective to do so and it receives a waiver from CMS. See 42 C.F.R. § 433.139(e).

2
CMS is an agency within the U.S. Department of Health and Human Services. Before
July 2001, CMS was known as the Health Care and Financing Administration (“HCFA”). S.D.
ex rel. Dickson v. Hood, 391 F.3d 581, 586 n.2 (5th Cir. 2004).

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Louisiana law complies with these federal mandates. See LA. REV. STAT.
ANN. § 46:446.2. In addition, Louisiana law requires providers to bill other
insurers and third parties that are liable for a patient’s medical expenses before
they bill Medicaid. See LA. REV. STAT. ANN. § 46:437.12 (requiring Medicaid
providers to enter into a provider agreement with the state Medicaid agency that
requires the provider to “[b]ill other insurers and third parties . . . before billing
the [state Medicaid program], if after reasonable inquiry it is known that the
[Medicaid eligible patient] is eligible for payment for health care or related
services from another insurer or person . . . .”).
Alfaro argues that Louisiana’s requirement conflicts with federal Medicaid
law concerning third-party liability. He contends that the federal Medicaid
scheme “entrusts the right and duty of recovering funds from third parties to the
[state] Medicaid agency—not the health care provider—upon a determination
of eligibility.” We find this argument unconvincing and, therefore, hold that
Louisiana’s law requiring health care providers to bill third-parties before billing
Medicaid does not conflict with federal law.
Alfaro first asserts that the responsibility of seeking reimbursement from
a liable third party is entrusted to the state Medicaid agency, not the health care
provider. To support his assertion, he cites the federal Medicaid statute’s
mandate that a state Medicaid plan require the state Medicaid agency to “take
all reasonable measures to ascertain the legal liability of third parties . . . to pay
for care and services available under the plan . . . .” 42 U.S.C. § 1396a(a)(25)(A).3

3
(a) . . .
A state plan for medical assistance must–
...
(25) provide–
(A) that the State or local agency administering such plan will take all
reasonable measures to ascertain the legal liability of third parties
(including health insurers, self-insured plans, group health plans (as
defined in section 1167(1) of Title 29), service benefit plans, managed
care organizations, pharmacy benefit managers, or other parties that are

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Louisiana law complies with this provision. LA. REV. STAT. ANN.
§ 46:446.2(C)(1).4 Federal law does not explicitly entrust a state Medicaid
agency with the sole responsibility of seeking reimbursement from third parties.
Instead, it requires the agency to (a) collect information about third party
liability so that the agency can pursue a claim against a third party if it needs
to do so and (b) prepare “a plan” for pursuing such claims. 42 U.S.C.
§ 1396a(a)(25)(A)(i), (ii). Nothing in the statute prohibits a state from requiring
a health care provider to bill a third party before it bills Medicaid.
As further support for his argument, Alfaro cites the federal Medicaid
provision stating that if a third party’s liability for a patient’s medical expenses
is found to exist after a state agency has paid a provider’s claim, the agency must
“seek reimbursement for such [medical] assistance to the extent of such legal
liability.” 42 U.S.C. § 1396a(a)(25)(B); see also 42 C.F.R. § 433.139(d)(2).
Critically, the agency’s responsibility to pursue the third party does not come
into effect until after the Medicaid agency has paid a provider’s claim. Congress

by statute, contract, or agreement, legally responsible for payment of a
claim for a health care item or service) to pay for care and services
available under the plan, including–
(i) the collection of sufficient information (as specified by the
Secretary in regulations) to enable the State to pursue claims against
such third parties, with such information being collected at the time
of any determination or redetermination of eligibility for medical
assistance, and
(ii) the submission to the Secretary of a plan (subject to approval by
the Secretary) for pursuing claims against such third parties, which
plan shall be integrated with, and be monitored as a part of the
Secretary’s review of, the State’s mechanized claims processing and
information retrieval systems required under section 1396(r) of this
title.
42 U.S.C. § 1396a(a)(25)(A).
4
Under LA. REV. STAT. ANN. § 46:446.2(C)(1), the LDHH is required to “[u]ndertake all
reasonable measures to ascertain the legal liability of third parties, including the collection of
sufficient information to enable the department to pursue claims against such third parties.”
Further, the law provides that “[t]his information shall be collected at the time of any
determination or redetermination of eligibility for Medicaid.” Id.

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chose not to mandate that a state agency seek reimbursement from a liable third
party before it pays a Medicaid claim. Louisiana, therefore, is entirely free to
delegate to a health care provider, rather than the state Medicaid agency, the
obligation to seek reimbursement from a liable third party before it bills
Medicaid.
Next, Alfaro asserts that 42 C.F.R. § 433.139 requires a health care
provider to bill a state Medicaid agency (and submit to whatever reimbursement
limit Medicaid prescribes) as soon as a patient becomes “eligible” for Medicaid.
But § 433.139 does not contain such a requirement. It merely describes the
procedures that a state Medicaid agency must follow if a provider submits a
Medicaid claim to it for reimbursement and a third party is liable for the
patient’s medical expenses. Moreover, this regulation does not prohibit a state
from allocating to the provider the burden of collecting third-party payments
before it bills Medicaid. As mentioned, § 433.139 states that if a provider
submits a Medicaid claim and the probable liability of a third party is
established at the time the claim is filed, the state Medicaid agency must, with
limited exceptions, reject the claim and require the provider to “chase” the third
party. See 42 C.F.R. § 433.139(b).5 Louisiana’s law is entirely consistent with
this regulation: It simply authorizes a provider to collect from a third-party
earlier in the payment process.6

5
“If the agency has established probable existence of third party liability at the time
the claim is filed, the agency must reject the claim and return it to the provider for a
determination of the amount of liability. The establishment of third party liability takes place
when the agency receives confirmation from the provider or a third party resource indicating
the extent of third party liability. When the amount of liability is determined, the agency must
then pay the claim to the extent that payment allowed under the agency’s payment schedule
exceeds the amount of the third party’s payment.” 42 C.F.R. § 433.139(b)(1).
6
Louisiana’s law requiring health care providers to bill third parties before billing
Medicaid mirrors other state laws. See, e.g., Wesley Health Care Ctr., 244 F.3d at 282 (New
York regulations disallow Medicaid reimbursement to Medicaid providers unless the provider
has first “sought reimbursement from liable third parties”); Caremark, 480 F.3d at 784 (under

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We conclude that even if Alfaro is deemed a Medicaid patient simply
because of his “eligibility” for coverage, the hospital was within its rights under
Louisiana and federal law to pursue the third-party tortfeasor before it sought
Medicaid reimbursement.
2. Could Baton Rouge General opt out of Medicaid in order to pursue
recovery from the tortfeasor?
We turn now to the issue of provider reimbursement. Alfaro argues that
federal and state statutes and regulations limiting the ability of providers to
obtain reimbursement for their services under Medicaid prohibit Baton Rouge
General from enforcing its hospital lien.
Federal law does not require health care providers to participate in a
state’s Medicaid program. See 42 U.S.C. § 1396a(a)(23) (a state Medicaid plan
must provide that “any individual eligible for medical assistance . . . may obtain
such assistance from any institution, agency, community pharmacy, or person
qualified to perform the service or services required . . . who undertakes to
provide him such services . . . .” (emphasis added)). See Barney v. Holzer Clinic,
Ltd., 110 F.3d 1207, 1211-12 (6th Cir. 1997) (“The extremely detailed federal
Medicaid statute does not require a particular hospital to participate in the
Medicaid program.”). Instead, a health care provider “voluntarily contracts with
[a] state to provide services to Medicaid-eligible patients in return for
reimbursement from the state at . . . specified rates.” Spectrum Health
Continuing Care Group v. Bowling, 410 F.3d 304, 313 (6th Cir. 2005). Even
those health care providers that “do choose to serve patients under Medicaid

Tennessee’s regulations, providers should not bill Medicaid until “other probable third party
resources to the [Medicaid patient] have been collected”); Petition of Maxi Drug, Inc., 915 A.2d
480, 481-82 (N.H. 2006) (statute states that “NH Medicaid is the payor of last resort, therefore,
you are asked to bill any other third party resource(s) prior to submitting to NH Medicaid”);
Atlanticare Med. Ctr. v. Comm’r of Div. of Med. Assistance, 785 N.E.2d 346, 347-48 (Mass.
2003) (citing Massachusetts regulations, which require that “all [Medicaid] providers must
make diligent efforts to obtain payment first from other resources, including personal injury
protection (PIP) payments, so that the [Medicaid state agency] will be the payer of last resort”).

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need not accept all such patients.” Barney, 110 F.3d at 1211-12 (citing 42 U.S.C.
§ 1396a(a)(23) and 42 C.F.R. § 431.51(b)(1)).7 Barney adds:
Because the remuneration provided under Medicaid is often
significantly less than that provided by private insurers or
Medicare, health care providers, either in the interest of higher
profits or merely to remain solvent, sometimes limit the number of
Medicaid patients they will accept. So long as these strategies do
not otherwise violate the Medicaid statute or other federal
antidiscrimination laws they are not in themselves prohibited.
Id. (citation omitted).
What Medicaid does not allow is for a provider who accepts Medicaid
coverage for a patient to recover more than the program’s reimbursement rates
for care. See 42 C.F.R. § 447.15. Moreover, a “state plan must provide that in
the case of an individual who is entitled to medical assistance under [a] State
plan with respect to a service for which a third party is liable for payment, the
person furnishing the service may not seek to collect from the individual (or any
financially responsible relative or representative of that individual) payment of
an amount for that service” if third party liability equals or exceeds the amount
Medicaid will pay. 42 U.S.C. § 1396a(a)(25)(C); see also 42 C.F.R. § 447.20(a).
Louisiana accordingly requires health care providers that want to participate in
the state’s Medicaid program to agree to “[a]ccept payment from [Medicaid] as
payment in full,” and not to bill or collect “any additional amount from the
recipient or the recipient’s responsible party . . . .” LA. REV. STAT. ANN.
§ 46:437.12(10)(a);8 see also LA. REV. STAT. ANN. § 46:446.5(B) (further

7
The implementing regulations, 42 C.F.R. § 431.51(b)(1), elaborate that a state
Medicaid plan must provide that “a recipient may obtain Medicaid services from any
institution, agency, pharmacy, person, or organization that is . . . [q]ualified to furnish the
services; and . . . [w]illing to furnish them to that particular recipient.” Id. (emphasis added).
8
Specifically, the provider agreement states: “I agree to accept Medicaid payment for
covered services as payment in full and not seek additional payment from any recipient for any
unpaid portion of a bill, with the exception of state-funded spend-down Medically Needy
recipients as indicated by the agency’s form 110-MNP or any recipient co-payments as

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implementing limitation of recovery from individual third parties above
Medicaid limits).
Alfaro asserts that these limitations prohibit Baton Rouge General from
enforcing its lien against the tort settlement he recovered from Allied.
Specifically, he contends that the hospital’s enforcement of its lien is an
impermissible effort to collect payment from a Medicaid-eligible patient when
a third party, Allied, is liable for the patient’s medical expenses. Baton Rouge
General counters that enforcement of the lien is permissible because it is trying
to recover from Allied, not Alfaro. We assume, without deciding, that under
Louisiana’s hospital lien statute Baton Rouge General by enforcing its lien is
seeking to collect payment from Alfaro rather than Allied.
Alfaro’s central argument is that once a patient becomes “eligible” for
Medicaid a health care provider cannot seek to collect payment from that patient
if a third party is liable for the patient’s medical expenses. This argument,
however, is inconsistent with the voluntary nature of the hospital’s participation
in the program. Case law uniformly indicates that the limitations on provider
reimbursement are triggered not when a patient becomes “eligible” for Medicaid,
but when a provider elects to bill and accepts payment from Medicaid for the
services it provides to the patient. See, e.g., Spectrum Health Continuing Care
Group v. Bowling, 410 F.3d 304 (6th Cir. 2005); Evanston Hosp. v. Hauck, 1 F.3d
540 (7th Cir. 1993); Mallo v. Pub. Health Trust of Dade County, 88 F. Supp. 2d
1376 (S.D. Fla. 2000).9

established by the DHH . . . .”
9
See also Lizer v. Eagle Air Med. Corp., 308 F. Supp. 2d 1006, 1009 (D. Ariz. 2004)
(holding that provider, who has already accepted Medicaid, is prohibited from enforcing a lien
against a third-party tortfeasor to recover its customary fee); Olszewski v. Scripps Health,
69 P.3d 927, 941-42 (Cal. 2003) (invalidating a state statute which authorized a provider to
recover its customary fee through a lien against a judgment or settlement obtained by a
Medicaid beneficiary against a third-party tortfeasor); Pub. Health Trust v. Dade County Sch.
Bd., 693 So. 2d 562, 566 (Fla. Dist. Ct. App.1997) (holding that a state regulation which

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In particular, the courts have interpreted 42 U.S.C. § 1396a(a)(25)(C),
which provides that a state Medicaid plan must prohibit health care providers
from collecting payment from a patient entitled to Medicaid if a third-party is
liable for the patient’s medical expenses, as a prohibition on “balance billing” and
“substitute billing.” See, e.g., Spectrum, 410 F.3d at 314; Evanston, 1 F.3d at
542. Balance billing occurs when a provider accepts payment from Medicaid and
then seeks to recover from the patient the balance between that payment and its
customary fee. See Spectrum, 410 F.3d at 314. Substitute billing occurs when
a provider accepts payment from Medicaid and then tries to return the payment
in order to recover its entire customary fee from the patient. See, e.g., Evanston,
1 F.3d at 542. Logically, a provider cannot attempt to engage in “balancing
billing” or “substitute billing” unless it has initially billed Medicaid. Therefore,
the prohibition against these practices is not triggered until a provider bills and
accepts payment from Medicaid for services provided to a Medicaid-eligible
patient.
In Evanston, the Seventh Circuit held that billing and accepting payment
from Medicaid prevented a hospital from later seeking to enforce its hospital lien
against the damages award a patient recovered from a third-party tortfeasor
liable for his medical expenses. 1 F.3d at 542. There, a hospital treated an
uninsured, Medicaid-eligible patient who suffered injuries in an accident. The
hospital billed and accepted payment from Medicaid for the services it furnished
to him. After receiving the Medicaid payment, which was less than its
customary fee, the hospital served a hospital lien on a personal injury lawsuit
brought on the patient’s behalf against the third party tortfeasor. Evanston
Hospital v. Hauck, No. 92 C 732, 1992 WL 205900, at *1 (N.D. Ill. Aug. 19, 1992)

permits a provider to recover its customary fee after receiving a Medicaid payment is invalid
under Supremacy Clause); Palumbo v. Myers, 197 Cal. Rptr. 214, 222-23 (Cal. Ct. App. 1983)
(holding that doctor, who had already accepted Medicaid payment, was prohibited from suing
patient to recover his customary fee from settlement recovered from third-party tortfeasor).

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(unpublished). Several years later, when the patient won a multimillion dollar
judgment in his personal injury lawsuit, the hospital sought to enforce its lien
against the judgment to recover its full customary fee.
The Seventh Circuit concluded that the hospital could not return the
Medicaid payment and enforce its lien because it had already accepted money
from Medicaid for the services it furnished to the patient. The court, however,
explicitly stated that the hospital could have enforced its lien against the
patient’s damages award if it had not accepted the Medicaid payment:
Evanston Hospital was not “forced” to abandon its right to sue
Hauck; no one coerced the hospital into cashing a $113,424 check
from the taxpayers as partial reimbursement for Hauck’s medical
bills. Rather, the hospital could have simply forsaken Medicaid and
taken its chances that Hauck would somehow come up with the
money to pay the bills himself. By opting for reimbursement from
Medicaid, Evanston Hospital bought certainty. It purchased a
guarantee of partial payment in lieu of possibly full payment or
possibly no payment at all. Risk-averse companies that are owed
money (or which do not want the hassle) make this same deal all the
time with collection agencies-something secure is traded for a crack
at a higher sum. Evanston Hospital wants out of its agreement with
Medicaid now only because its gamble, in retrospect, was unwise.
Evanston Hospital, 1 F.3d at 542.
The Sixth Circuit reached the same conclusion in Spectrum. In that case,
a health care center treated a patient who had been injured during a botched
surgery. At the time she was admitted to the center, the patient was uninsured
and ineligible for Medicaid. The center agreed to admit her on the condition that
she execute a lien on the proceeds of any settlement or verdict she recovered in
a medical malpractice lawsuit. Five months after the patient was admitted to
the center, she became eligible for Medicaid. Because the center did not know
when, or if, it would recover on its lien, it decided to bill and accept payments
from Medicaid for her medical care. These payments were less than the center’s
customary fees. Three years later, when the patient recovered a settlement from

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a third-party tortfeasor, the center tried to enforce its lien against the settlement
to recover the balance between the Medicaid payments it had accepted and its
customary fees.
As in Evanston Hospital, the Sixth Circuit denied recovery because the
center had already accepted Medicaid payments as payment in full and enforcing
the lien would be an attempt to recover from the patient when a third party was
liable for her medical expenses. The court noted, however, that the hospital
could have avoided this result:
Spectrum [the health care center] was not required to seek payment
from Medicaid; instead, Spectrum could have provided its services
in exchange for enforcing its lien, which was the original agreement
between the parties. Having chosen to accept payment from
Medicaid however, Spectrum abandoned all rights to further
recovery of its customary fee from the lien. As we have stated,
Medicaid is a contract between a service provider and the
government, in which the Medicaid recipient is a third-party
beneficiary. By accepting the Medicaid payment, the service
provider accepts the terms of the contract—specifically that the
Medicaid amount is payment in full. If this arrangement is not
acceptable to [service providers], they should not take Medicaid
money in the first instance.
Spectrum, 410 F.3d at 315 (internal quotation marks and citations omitted).
Moreover, the court remarked that “[if the health care center] had not received
Medicaid payments, the lien would be enforceable against [the tort settlement]
as a voluntary agreement entered into by willing parties, even though the
patient was Medicaid-eligible.” Spectrum, 410 F.3d at 316 (citation omitted).
Once the health care center “accepted the Medicaid payment, however, [it] had
been paid in full for the services provided to [the patient]. The mere fact that a
prior voluntary agreement existed is without consequence.” Spectrum, 410 F.3d
at 316 (footnote omitted).
In Mallo v. Public Health Trust of Dade County, 88 F. Supp. 2d 1376 (S.D.
Fla. 2000), the court held that after a hospital accepted payment from Medicaid

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it could not enforce a pre-existing lien against a tort settlement recovered by the
patient. But the court noted that the hospital could have enforced its lien if it
had not accepted payment from Medicaid. Specifically, the court stated that the
federal mandate prohibiting “balance billing,” 42 U.S.C. § 1396a(25)(C),
[f]orc[es] providers to make a calculated choice whether to apply for
Medicaid assistance. Once a health care provider commits to
Medicaid assistance for a patient, the provider is barred from billing
the patient for an amount in excess of the State’s Medicaid
disbursement. By contrast, should the health care provider elect not
to apply for Medicaid assistance, then the provider can charge the
market value of the treatment.
Mallo, 88 F. Supp. 2d at 1386-87 (footnote omitted).
From these cases, it is clear that the limitations on a health care provider’s
ability to obtain reimbursement for the services it provides a Medicaid-eligible
patient are not triggered until a provider bills and accepts payment from
Medicaid for those services. If a provider chooses not to bill and accept payment
from Medicaid, then it remains free to seek its entire customary fee from the
patient. Of course, the provider runs the risk of not recovering anything from
the patient because the patient may never have the ability to pay his medical
expenses, or the third party payment may not come to fruition. The federal
Medicaid scheme, however, gives providers the opportunity to make a
“calculated choice” whether to seek reimbursement from Medicaid or from the
patient.
Like Spectrum and Mallo, this case involves a provider that asserted a
hospital lien on any tort settlement or judgment recovered by an indigent patient
before the patient became eligible for Medicaid. Those cases clearly recognized
that a provider could assert its pre-existing hospital lien, even after a patient
became eligible for Medicaid, so long as the provider did not bill and accept
payment from Medicaid. The providers in Spectrum and Mallo were both
precluded from enforcing their pre-existing hospital liens because they chose to

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bill and accept payment from Medicaid. But, in this case, Baton Rouge General
did not bill and accept Medicaid. Instead, it made the “calculated choice” to
enforce its lien rather than bill Medicaid. The fact that Alfaro became eligible
for Medicaid after Baton Rouge General established its lien and after he was
discharged from the hospital does not strip the hospital of its pre-existing lien
against his tort settlement, which is enforceable because Alfaro is in debt to the
hospital for his medical bills. See LA. REV. STAT. ANN. § 9:4751 et seq.
CONCLUSION
If Baton Rouge General had been required to cover Alfaro as a Medicaid
patient, as discussed in Part 1 above, Louisiana validly required the hospital to
engage in "cost avoidance" by pursuing the tortfeasor before billing Medicaid
(and submitting to its reimbursement limits). We hold, consistent with the
caselaw, that Baton Rouge General validly exercised its alternative option to
pursue recovery of its costs exclusively from the tortfeasor rather than from
Medicaid. For the reasons stated, the judgment of the district court is
AFFIRMED.

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