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In Southwest Fiduciary v. Arizona Health, an Arizona Court of Appeals court had to address applicability of Ahlborn and the method of reduction of a lien involving a third party tort recovery claim.  The tort victim was severely injured in an automobile accident.  She ultimately settled her case for $842,696 but according to the mediator in the case the full value of her claim was between $3,000,000 and $4,000,000.  Her past medical bills totaled $920,000 but Arizona Medicaid paid $268,080 and that is the lien amount they claimed.  The Arizona court found Ahlborn was applicable to this situation and addressed the question of how to arrive at the reduction.  Arizona Medicaid argued that the reduction should be based upon the total past medical expenses claimed, not the amount Arizona Medicaid actually paid.  The Arizona appeals court disagreed.  The court stated in it’s conclusion that “AHCCCS's lien rights pursuant to . . . are limited to that portion of a tort settlement that represents recovery of medical expenses actually paid by AHCCCS.”

The Medicaid lien was held to be enforceable only to the extent of 24% since the tort injury victim recovered only 24% of her total damages.  According to the Arizona court, Medicaid was only able to collect $64,320 representing 24% of the total lien of $268,000.  The formula for reduction expressed in the opinion was as follows:  $842,696/$3,500,000 = 24% times $268,000 = $64,320 reduced by a proportionate amount to account for litigation expenses.