Alaska Supreme Court Holds Medicaid Recipient May Sue Hospital to Stop Improper Billing
The Alaska Supreme Court held that a Medicaid recipient has the right to sue a hospital to prevent it from improperly billing him in violation of federal Medicaid law. Yet, the court based the right to sue on state contract law, not federal Medicaid law. The court held that the Medicaid recipient could sue a hospital to enforce federal Medicaid law as a third-party beneficiary of the contract between the state and the hospital. The court did not reach the issue of whether there was a private right of action under federal law, because the court held that the Medicaid recipient could obtain injunctive and declaratory relief to enforce the Medicaid statute utilizing a right of action under state law as a third-party beneficiary of the hospital’s provider agreement with the state. The Alaska Supreme Court also held that the recipient could pursue a claim under the Alaska Unfair Trade Practices Act. Smallwood v. Central Peninsula General Hospital, 2006 WL 3334113 (Ala. Nov. 17, 2006).The Alaska Supreme Court held that a Medicaid recipient has the right to sue a hospital to prevent it from improperly billing him in violation of federal Medicaid law. Yet, the court based the right to sue on state contract law, not federal Medicaid law. The court held that the Medicaid recipient could sue a hospital to enforce federal Medicaid law as a third-party beneficiary of the contract between the state and the hospital. The court did not reach the issue of whether there was a private right of action under federal law, because the court held that the Medicaid recipient could obtain injunctive and declaratory relief to enforce the Medicaid statute utilizing a right of action under state law as a third-party beneficiary of the hospital’s provider agreement with the state. The Alaska Supreme Court also held that the recipient could pursue a claim under the Alaska Unfair Trade Practices Act. Smallwood v. Central Peninsula General Hospital, 2006 WL 3334113 (Ala. Nov. 17, 2006).
John Smallwood, a Medicaid recipient, received medical care at Central Peninsula General Hospital. The hospital filed a small claims action against him, ostensibly for co-payments, but in fact he was overcharged by approximately $260. The overbilling was caused by the failure of the hospital to ask for reimbursement from Medicaid within applicable time limits and a computerized billing system that treated Medicaid recipients like patients with private insurance. The hospital admitted that it automatically bills Medicaid recipients for charges rejected by the state, a practice known as “balance billing.” Mr. Smallwood sued the hospital alleging violations of federal and state Medicaid law as well as the Unfair Trade Practices Act. His suit sought an order enjoining the hospital from overcharging Medicaid recipients and using a billing method that creates confusion and misunderstanding. In response to this suit, the hospital dropped its small claims action but counterclaimed for the correct amount of his co-payments.
The Superior Court Judge denied summary judgment to both sides and held a bench trial. Following the trial, the judge issued a decision entering judgment for the hospital and against Mr. Smallwood for the correct amount of his co-payments. The court order required the hospital to “ensure that its invoices to Mr. Smallwood do not exceed the Medicaid authorized copays.” However, the trial court refused to issue injunctive or declaratory relief that the hospital change its billing methods, “because the court thought it ‘doubtful’ that Smallwood has a private right of action” to enforce federal and state Medicaid law. The superior court also denied relief under the Unfair Trade Practices Act, reasoning that the hospital’s billing practices were prohibited under state and federal Medicaid law.
The Alaska Supreme Court reversed and held that Mr. Smallwood had a private right of action to enforce the federal and state statutory and regulatory prohibitions on balance billing of Medicaid recipients. The court found that Mr. Smallwood was a third party beneficiary of the hospital’s provider agreement with the state. The court explained that the government intended for Medicaid recipients to benefit from the provider agreement with the hospital, and therefore, recipients may enforce the provider agreement as third-party beneficiaries under state law. The court stated: “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 court concluded that “Medicaid recipients are the intended beneficiaries of the prohibition on balance billing. That intent is evidence from the state and federal Medicaid statutes and regulations and from the terms of the provider agreement.”
The court rejected the hospital’s contention that Mr. Smallwood had no rights as a third-party beneficiary, because he had an alternative administrative remedy through the state’s fair hearing process. The court first stated that an alternative enforcement scheme does not necessarily foreclose a third-party beneficiary’s right to enforce a contractual promise. The court then noted that it was unclear that a recipient could obtain a fair hearing regarding a provider violation of the prohibition on balance billing.
The court similarly rejected the hospital’s argument that it was up to the state to decide whether to impose sanctions on providers that balance bill. The court noted that there was no evidence whether the state would respond to an inquiry by a recipient regarding a provider’s balance billing. The court held that the recipient’s right of action was “not foreclosed by these other potential sources of enforcement.”
The court remanded the case to the Superior Court to reconsider Mr. Smallwood’s claims for declaratory and injunctive relief, in light of the appellate court’s holding that he had a private right of action. The court clarified for the lower court that “the fact [that] Smallwood did not bring his lawsuit as a class action does not prevent him from obtaining appropriate individualized declaratory or injunctive relief.” However, the trial court was charged with ascertaining whether an overhaul of the hospital’s billing system was necessary to protect Mr. Smallwood from balance billing or whether “narrowly tailored individualized relief” would suffice.
The Alaska Supreme Court further held that Mr. Smallwood could pursue a claim for injunctive relief under the Alaska Unfair Trade Practices Act. The hospital argued that the claim was exempt, based on provisions of the Act that exempted acts or transactions regulated and prohibited by other state laws. The court held that the claim was not exempted because federal and state Medicaid laws and regulations do not govern the form of the provider billing statement or prohibit billing practices that create a likelihood of confusion or misunderstanding.
The appellate court affirmed the lower court’s judgment against Mr. Smallwood for the co-payments plus interest as well as the Superior Court’s order that the hospital ensure that its invoices to Mr. Smallwood do not exceed the Medicaid authorized co-payments. The appellate court remanded the case to the Superior Court for consideration of Mr. Smallwood’s claims for injunctive and declaratory relief.