Grunwald v. Scottsdale Healthcare ( 2021 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
BRANDON GRUNWALD, et al.,
Plaintiffs/Appellants,
v.
SCOTTSDALE HEALTHCARE HOSPITALS, et al.,
Defendants/Appellees.
No. 1 CA-CV 20-0188
FILED 8-26-2021
Appeal from the Superior Court in Maricopa County
No. CV2018-012029, CV2019-002270
(Consolidated)
The Honorable Daniel J. Kiley, Judge
AFFIRMED
COUNSEL
Levenbaum Trachtenberg, Phoenix
By Geoffrey Trachtenberg, Justin Henry
Co-Counsel for Plaintiffs/Appellants
The Entrekin Law Firm, Phoenix
By B. Lance Entrekin
Co-Counsel for Plaintiffs/Appellants
Gammage & Burnham, P.L.C., Phoenix
By Cameron C. Artigue, Christopher L. Hering
Counsel for Defendants/Appellees
GRUNWALD, et al. v. SCOTTSDALE HEALTHCARE, et al.
Opinion of the Court
OPINION
Judge Samuel A. Thumma delivered the opinion of the Court, in which
Chief Judge Kent E. Cattani and Judge Peter B. Swann joined.
T H U M M A, Judge:
¶1 This appeal turns on whether plaintiffs are enrollees of a
“health care services organization” under Arizona Revised Statutes (A.R.S.)
§ 20-1072(F) (2021).1 Because they are not, plaintiffs’ claims that health care
provider liens recorded by defendants are void fails. Thus, the entry of
partial final judgment for defendants is affirmed.
FACTS AND PROCEDURAL HISTORY
¶2 Plaintiffs were treated at defendant hospitals for injuries they
suffered in car accidents. At the time of treatment, plaintiffs were enrolled
in health insurance plans administered and underwritten by Aetna Life
Insurance Company, UnitedHealthcare Insurance Company or United
Healthcare Services, Inc. After the insurers paid defendants, defendants
recorded health care provider liens for the difference between their
customary charges and what they had received from the insurers and
plaintiffs (in copays or the like). See A.R.S. § 33-931. Plaintiffs call this
difference “balance billing.” While not directly enforceable against
plaintiffs, a health care provider lien may be enforced against third parties
liable for plaintiffs’ injuries. See Blankenbaker v. Jonovich, 205 Ariz. 383, 387 ¶
17 (2003); Maricopa Cnty. v. Barfield, 206 Ariz. 109, 110 ¶ 1 (App. 2003). As a
result, when a hospital enforces a health care provider lien, a plaintiff’s
recovery is reduced by the amount paid by the third party to the hospital.
¶3 Plaintiffs sued, claiming the liens are void. The hospitals,
plaintiffs claim, are trying to use the liens to recover more than the amounts
they agreed to accept from plaintiffs and their insurers. Plaintiffs argue this
violates A.R.S. § 20-1072(F), which provides that a hospital may not charge
“an enrollee of a health care services organization” more than what the
1Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.
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Opinion of the Court
hospital agreed to charge the enrollee in the “hospital’s contract with the
health care services organization.” Id.
¶4 The parties cross-moved for summary judgment. Finding
“health care services organization” was ambiguous, the court concluded
the phrase is synonymous with “health maintenance organization” (HMO).
Because plaintiffs admittedly are not enrollees in an HMO, the court found
Section 20-1072(F) does not apply to them, defeating plaintiffs’ challenge to
the liens. After entry of partial final judgment, see Ariz. R. Civ. P. 54(b),
plaintiffs timely appealed. This court has appellate jurisdiction under
Article 6, Section 9, of the Arizona Constitution and A.R.S. §§ 12-
120.21(A)(1) and -2101(A)(1).
DISCUSSION
¶5 The grant of summary judgment is reviewed de novo.
Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12 (2003). Interpretation of statutes
also is reviewed de novo. Haag v. Steinle, 227 Ariz. 212, 214 ¶ 9 (App. 2011).
Summary judgment will be affirmed if it is correct for any reason. Hawkins
v. State, 183 Ariz. 100, 103 (App. 1995).
I. The Statutory Basis for Defendants’ Health Care Provider Liens.
¶6 An individual or entity
that maintains and operates a health care
institution or provides health care services in
this state and that has been duly licensed by this
state, . . . is entitled to a lien for the care and
treatment . . . of an injured person. The lien shall
be for the claimant’s customary charges for care
and treatment . . . of an injured person. A lien
pursuant to this section extends to all claims of
liability or indemnity, except health insurance
and underinsured and uninsured motorist
coverage as defined in § 20-259.01, for damages
accruing to the person to whom the services are
rendered, or to that person’s legal
representative, on account of the injuries that
gave rise to the claims and that required the
services.
A.R.S. § 33-931(A); see also Dignity Health v. Farmers Ins. Co. of Az., 247 Ariz.
39 (App. 2019) (discussing history of A.R.S. § 33-931(A)). Health care
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Opinion of the Court
provider liens “are applicable to all customary charges by hospitals.” A.R.S.
§ 33-931(C).
¶7 In this case, each of the plaintiffs’ insurers agreed to pay, and
each of the defendant hospitals agreed to accept, specified rates for the care
that plaintiffs later received. Each of these contracts also authorized the
hospitals to enforce health care provider liens for the unpaid portion of their
customary charges for care after being paid the contract rate. The liens here
are for the difference between the hospitals’ customary charges and the
amounts plaintiffs and their insurers paid the hospitals for the care the
patients received.
II. Plaintiffs’ Argument that the Liens Are Void Turns on the
Definition of “Health Care Service Organization,” an Ambiguous
Phrase.
¶8 Health care provider liens are authorized by Section 33-
931(A), a part of A.R.S. Title 33 governing “Property.” Plaintiffs, however,
argue that defendants’ liens are void under a statute in A.R.S. Title 20
governing “Insurance.” Title 20 specifies various “types of insurers,” see
A.R.S. §§ 20-701 to -1099.02, one of which is a “Health Care Service
Organization” (HCSO), see A.R.S. §§ 20-1051 to -1079. By statute, a hospital
that treats a patient enrolled in an HCSO may not charge the patient “more
than the amount the . . . hospital contracted to charge the enrollee pursuant
to the . . . hospital’s contract with the” HCSO. A.R.S. § 20-1072(F). Plaintiffs
argue their insurers are HCSOs and that Section 20-1072(F) invalidates the
liens. Plaintiffs assert that, when a hospital accepts a contracted payment
for treating a patient enrolled in an HCSO, but then enforces a lien against
third parties liable for plaintiffs’ injuries, the hospital effectively charges the
patient “more than the amount” it contracted to charge. See Ansley v. Banner
Health Network, 248 Ariz. 143, 152 ¶ 34 (2020) (holding federal statute
“prohibiting direct balance billing . . . prohibits indirect balance billing in
the form of a lien that diminishes the patient’s recovery from the liable third
party”). Because the premise of the plaintiffs’ argument is that the
prohibition in Section 20-1072(F) applies, the dispositive issue is whether
the plaintiffs’ insurers are HCSOs.
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Opinion of the Court
¶9 The meaning of HCSO involves three statutory definitions:
• HCSO “means any person that undertakes to
conduct one or more health care plans.” A.R.S.
§ 20-1051(6).
• “‘Health care plan’ means any contractual
arrangement whereby any [HCSO] undertakes
to provide directly or to arrange for all or a
portion of contractually covered health care
services and to pay or make reimbursement for
any remaining portion of the health care
services on a prepaid basis through insurance or
otherwise.” A.R.S. § 20-1051(4).2
• “‘Person’ means any natural or artificial person
including individuals, partnerships,
associations, providers of health care, trusts,
insurers, hospitals or medical services
corporations or other corporations, prepaid
group practice plans, foundations for medical
care and health maintenance organizations.”
A.R.S. § 20-1051(9).
Although perhaps useful in other contexts, here, these definitions are rather
circular. They provide that an HCSO is a “person” that “undertakes to
conduct” a health care plan, while also providing that a health care plan is
a contract “undertake[n]” by an HCSO. A.R.S. § 20-1051(4), (6).
Unfortunately, in this case, they do not define HCSO in a meaningful way.
¶10 As noted by the superior court, the definitions also are
ambiguous. See State v. Sweet, 143 Ariz. 266, 269 (1985) (“An ambiguity may
also be found to exist where there is uncertainty as to the meaning of the
terms of a statute.”). Here, for example, plaintiffs argue that the phrase
“arrange for health care services” means to make a network of providers
available, even if in an indirect manner. The superior court, however, noted
that “arrange for” could signify the exercise of control of a process or the
acceptance of responsibility for an outcome. Another uncertainty noted by
the superior court was how a health care plan could reimburse for health
2 This definition includes a second sentence that is not relevant here: “A
health care plan shall include those health care services required in this
article or in any rule adopted pursuant to this article.” A.R.S. § 20-1051(4).
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Opinion of the Court
care services (a backward-looking function) on a “prepaid basis” (a
forward-looking endeavor). But that is precisely what the statute requires.
See A.R.S. § 20-1051(4). Because “health care plan” is ambiguous, the
definition of HCSO (which relies on the definition of health care plan)
similarly is ambiguous. Thus, resort to secondary rules of statutory
construction is appropriate. See State ex rel. Montgomery v. Harris, 237 Ariz.
98, 101 ¶ 12 (2014).
III. Under Arizona Law, HCSOs Are HMOs.
¶11 Defendants argue that, under Arizona law, HSCOs are
HMOs. Because it is undisputed that plaintiffs’ insurers are not HMOs,
defendants argue Section 20-1072(F) does not apply. When statutory text is
ambiguous, secondary rules of construction direct a court to consider the
statutory “context; its language, subject matter, and historical background;
its effects and consequences; and its spirit and purpose.” Hayes v. Cont’l Ins.
Co., 178 Ariz. 264, 268 (1994). Applying these directives, nearly 50 years of
history shows that Arizona has consistently treated HSCOs as HMOs.
A. Arizona’s Recognition of HSCOs.
¶12 Until the early 1970s, “service corporations” and “disability
insurers” were the only entities Arizona licensed to issue health insurance.
See A.R.S. § 20-822 (defining various “service corporations”); § 20-253
(“disability insurance”).3 These two entities still exist. Indeed, plaintiffs had
health insurance from UnitedHealthcare Insurance Company, a licensed
disability insurer; insurance self-funded by United Services Automobile
Association and administered by Aetna Life Insurance Company, a licensed
disability and life insurer; and insurance self-funded by the State of
Arizona, at times also involving other insurance administrators. See also
A.R.S. § 20-485 to -485.12 (providing “insurance administrators” are
licensed and authorized to administer insurance underwritten by others).
¶13 “Beginning in the late 1960’s, insurers and others developed
new models for health-care delivery, including HMOs. The defining feature
of an HMO is receipt of a fixed fee for each patient enrolled under the terms
of a contract to provide specified health care if needed.” Pegram v. Herdrich,
530 U.S. 211, 218 (2000). The HMO assumes financial risk in providing
promised benefits. If a participant stays healthy, the HMO keeps the fee; if
3 Under Arizona law, “[d]isability insurance” includes “insurance against
bodily injury,” A.R.S. § 20-253, which in substance is “health or accident
insurance,” Cont’l Life & Acc. v. Songer, 124 Ariz. 294, 299 (App. 1979).
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a participant gets “’expensively ill, the HMO is responsible for the
treatment . . . .’ The HMO design goes beyond the simple truism that all
contracts are, in some sense, insurance against future fluctuations in price,
because HMOs actually underwrite and spread risk among their
participants, a feature distinctive to insurance.” Rush Prudential HMO, Inc.
v. Moran, 536 U.S. 355, 367 (2002) (quoting Pegram; citations omitted).
¶14 In 1973, the Federal Government enacted a federal HMO Act.
See The Federal HMO Act of 1973 (Pub. L. 93-222, codified as 42 U.S.C. §
300e, et seq.). Also in 1973, the Arizona Legislature recognized a new, third
type of entity licensed to issue health insurance called the HCSO. See A.R.S.
§§ 20-1051 to -1079. In doing so, the Legislature drew substantially from an
HMO Model Act promulgated by the National Association of Insurance
Commissioners (NAIC). Compare A.R.S. §§ 20-1051 to -1079 with NAIC
Model Laws, Regulations and Guidelines, 430-1 (2020); accord Samsel v.
Allstate Ins. Co., 204 Ariz. 1, 8-9 ¶¶ 25–26 (2002) (noting other portions of
A.R.S. § 20-1072 “are substantially similar to” NAIC’s HMO Model Act
updated as a result of an “NAIC advisory report on HMO regulation and
insolvency issues”). For reasons lost to time, however, the Legislature
enacted NAIC’s HMO Model Act with a twist: in all but one section, the
Legislature replaced “HMO” as used in NAIC’s HMO Model Act with
“HCSO.”4 In the nearly 50 years following this 1973 enactment, all three
branches of Arizona’s government have consistently treated HCSOs as
HMOs.
B. The Legislative Branch Consistently Treats HCSOs as
HMOs.
¶15 In considering what became Arizona’s 1973 adoption of
NAIC’s HMO Model Act, the Legislature explicitly explained that the bill
would authorize HMOs. Minutes of Comm. on Agric., Com. & Lab., S. 1st.
Sess., at 1 (Ariz. Apr. 12, 1973) (“H.B. 2043 Insurance – Health Maintenance
Organizations . . . this measure . . . would authorize hospital and medical
services corporations to operate as health maintenance organizations
(HMO’s).”). In the decades following, the Legislature has consistently used
this same approach. See, e.g., S.B. 1134, 45th Leg., 2d Reg. Sess. (Ariz. 2002)
4 The exception, A.R.S. § 20-1066, has a heading stating “Rehabilitation,
liquidation or conservation of health maintenance organization,” but the
text states “rehabilitation, liquidation, or conservation of a health care
services organization.” A.R.S. § 20-1066(A); cf. A.R.S. § 1-212 (noting, in
general, “headings to sections . . . are supplied for the purpose of convenient
reference and do not constitute part of the law”).
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(addressing uniform accounting system for insurers, with Summary
referring to HCSOs and HMOs interchangeably); H.B. 2117, 45th Leg., 1st
Reg. Sess. (Ariz. 2002) (Senate Fact Sheet stating “HCSOs, commonly
referred to as HMOs”); Ariz. State Senate, Final Rev. Fact Sheet for S.B. 1330
(May 2, 2000) (HCSO, “commonly known as a[n HMO])”); H.B. 2213, 39th
Leg., 2d Reg. Sess. (Ariz. 1990) (Arizona Department of Insurance (ADOI)
representative testifying that HCSO bill provides protection “for enrollees
in an HMO”); Minutes of Comm. on Banking & Ins., H.R. 2d Sess., at 1 (Ariz.
Jan. 20, 1988) (hearing on H.B. 2052 (“HMO Reform”), where ADOI
representative discussed how bill would “strengthen the [HCSOs] and
improve coverage for the enrollees”); Senate Staff, Revised Fact Sheet for H.B.
2082 (Ariz. Apr. 2, 1986) (Senate Fact Sheet stating HCSOs “are more
commonly known as” HCMOs); Ariz. Legis. Council, Rsch. Div. Summary
Analysis of Chapter 187 (S.B. 1165), S. 1st. Sess., at 1 (Ariz. May 23, 1974)
(referring to HCSOs as HMOs). Plaintiffs cite no exception to this
unwavering Legislative approach treating HCSOs as HMOs.
B. Executive Branch Treatment.
¶16 Apart from the Legislature, Arizona’s Executive branch,
through the ADOI, also has consistently treated HCSOs as HMOs. Along
with the ADOI testimony referenced above, in 1973, the ADOI noted its
understanding that the legislation was to regulate “HMO type prepaid
plan[s].” See ADOI, Activity Report Ending Mar. 30, 1973 (noting meeting
to discuss “a separate article in Title 20 for the regulation of [HMOs] to be
known as” HCSOs). ADOI regulations define HMO to “mean a[n HCSO]
as defined in A.R.S. § 20-1051([6]).”5 Ariz. Admin. Code R20-6-1101(B)(1)(c).
In discussing the HSCO regulatory scheme, ADOI has repeatedly stated
that HCSOs are HMOs. See, e.g., ADOI Regulatory Bulletin 2018-02, July 12,
2018, 4 (“Includes health care service organizations (HCSO’s, a.k.a. HMO’s)
as member insurers”); ADOI Regulatory Bulletin 2006-2, Jan. 20, 2006, at 9
(describing types of insurers, stating “[h]ealth care services organizations
(HMOs) governed by ARS § 20-1051 et seq.”); ADOI Regulatory Bulletin
2003-8, July 1, 2003, at 8 ( “health care services organizations (HMOs)”);
ADOI Regulatory Bulletin 2001-6, June 15, 2001, at 1 (“The regulatory
scheme governing health care service organizations (HCSOs or HMOs) in
Arizona was enacted in the 1970s.”); ADOI Circular Letter No. 2000-6, 2000
WL 35356812, * 19 (May 17, 2000) (referencing “[r]egulatory oversight of
health care services organizations (HMOs)”); ADOI Circular Letter 2000-14,
2000 WL 35356815 (Nov. 9, 2000) (same). ADOI’s most recent Annual
5 The numbering of A.R.S. § 20-1051 was modified effective August 25, 2020.
The statutory text, however, remains the same.
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Report confirms that HCSOs and HMOs are the same, adding that the
insurers involved here are not HSCOs but are “Life and Disability
Insurers.”
C. Judicial Branch Treatment.
¶17 Like the Legislature and the Executive branches, courts
applying Arizona law have stated, although in passing, that HMOs and
HCSOs are the same. See, e.g., Samsel v. Allstate Ins. Co., 204 Ariz. 1, 9 ¶ 27
(2002) (“In light of all of the foregoing and the text of A.R.S. § 20-1072(A) to
(C) [referencing HCSO], we believe the proper interpretation of the statute
is that the enrollee is immunized from actions by the provider for recovery
of charges for services provided and covered by the enrollee’s agreement
with the HMO.”) vacating 199 Ariz. 480, 481 ¶ 1 (App. 2001) (noting medical
“expenses were covered by [plaintiff’s] health care services organization
(HMO)”); Haisch v. Allstate Ins. Co., 197 Ariz. 606, 607 ¶ 2 (App. 2000)
(stating plaintiff was a member of “a Health Care Service Organization, or
‘HMO’”); accord In re Family Health Servs., Inc., 101 B.R. 628, 630 n.1 & 633
(C.D. Cal. Bankr. 1989) (“Arizona statutes designate [HMOs] as . . . HCSOs.
In order to achieve consistency between this and other opinions, the
organizations will be referred to throughout as HMOs;” also noting
Arizona Attorney General opining HCSOs are “the Arizona equivalent of
HMOs”) (citing Ariz. Att’y Gen. Op. 179-20 (1979)).
D. Avoiding Superfluous and Duplicative Construction.
¶18 The court is also persuaded that accepting plaintiffs’ view of
Section 20-1072(F) would render portions of Title 20 superfluous and
duplicative. Although plaintiffs argue, in essence, that a health insurance
plan offered by a licensed disability insurer or a service corporation could
be an HCSO, the statutes recognize that the three types of entities are
distinct. Various examples prove the point.
¶19 Coverage of prescription eyedrops is addressed by A.R.S. §
20-841.11 (service corporations), § 20-1057.16 (HCSOs) and § 20-1376.08
(disability insurers). As another example, coverage of telemedicine is
governed by A.R.S. § 20-841.09 (service corporations), § 20-1057.13 (HCSOs)
and § 20-1376.05 (disability insurers). Accepting plaintiffs’ argument that
HCSOs include disability insurers (like the insurers involved here) and
service organizations would mean these parallel statutes are superfluous
and duplicative, something this court will not do. See In re Estate of Zaritsky,
198 Ariz. 599, 603 (App. 2000) (noting courts interpret statutes to avoid
rendering language “surplusage, . . . void, inert, redundant, or trivial,” or
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causing “an absurd result”) (citations omitted); see also Wyatt v. Wehmueller,
145 Ariz. 374, 377 (1991) (directing courts to read the statute “as a whole,
looking to its subject matter, effects and consequences, reason, and spirit”)
(citation omitted).
¶20 These siloed statutory approaches make it even more
significant that the Legislature did not enact a statute parallel to A.R.S. § 20-
1072(F) to bar a hospital that has agreed to accept payment from a disability
insurer or a service corporation from pursuing balance billing in the form
of health care provider liens. This statutory silence shows the Legislature
limited § 20-1072(F) to HCSOs, or, put differently, to HMOs. That
distinction also recognizes that only an HMO (not a disability insurer or
service corporation) agrees to bear the risk that the contracted amounts for
services might not cover the costs of providing care. Had the Legislature
wanted § 20-1072(F) to also apply to insurance issued by disability insurers
or service corporations, it would have enacted such provisions. The
Legislature, however, has not done so.
¶21 Decades-long, consistent approaches by all three branches of
Arizona’s government treat HCSOs as HMOs under Arizona law. Plaintiffs
have offered no basis, under Section 20-1072(F), to treat HMOs and HCSOs
differently as applicable here. Similarly, the contracts between hospitals
and the insurers (authorizing the hospitals to enforce health care provider
liens that would be barred by Section 20-1072(F) if the insurers were
HCSOs) further suggests that those parties did not treat the insurers as
HCSOs. Thus, the court adopts this long-standing, consistent view that
HSCOs are HMOs under Arizona law.6
6 Given this conclusion, the court need not address defendants’ argument
that a conclusion to the contrary would constitute a finding that Arizona’s
entire health insurance industry is out of compliance with Arizona law.
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CONCLUSION
¶22 Because HSCOs are HMOs under Arizona law, and because
plaintiffs are not enrolled in HMOs, they are not enrolled in HCSOs. As a
result, Section 20-1072(F) does not apply, meaning plaintiffs’ claim that the
statute bars defendants from filing health care provider liens for unpaid
charges fails. Accordingly, the partial final judgment is affirmed. Plaintiffs’
requests for attorneys’ fees under A.R.S. § 33-934, and taxable costs on
appeal, are denied. Defendants are awarded their taxable costs incurred on
appeal contingent upon their compliance with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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