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Grunwald v. Scottsdale Healthcare Hosps. - 8/31/2021

Arizona Court of Appeals Division One holds that health care services organizations are the equivalent of HMOs.


Several individuals were treated at several hospitals for injuries sustained in a car accident.  The plaintiffs were all enrolled in a variety of health insurance plans, but none were health maintenance organizations (“HMOs”).  The insurance plans paid the hospitals, and the hospitals recorded health care provider liens to cover the difference between what the insurance companies had covered and the hospitals’ customary charges (a practice the individuals referred to as balance billing).  Although these liens were not directly enforceable against the individuals, they were enforceable against third parties liable for the individuals’ injuries.  Thus, were the hospitals to enforce such a lien, it would reduce the recovery paid to the individuals by any third party liable for the individuals’ injuries.

The individuals sued, claiming that the liens were void.  They argued the liens were an attempt to recover more from the individuals than the amounts the hospitals agreed to accept from the individuals and their insurers.  As such, the liens violated A.R.S. § 20-1072(F), which prohibits a hospital from charging “an enrollee of a health services organization” more than the amount agreed upon between the hospital and the “health care services organization.”  On cross-motions for summary judgment, the superior court found the term “health care services organization” ambiguous and concluded that they were synonymous with HMOs.  Because the individuals were not enrolled in HMOs, the liens were valid.  The individuals appealed.

On appeal, the Arizona Court of Appeals, Division One, affirmed.  Like the superior court, the Court of Appeals concluded that the statutory term “health care services organization” was ambiguous, and other statutory definitions were circular and unhelpful.  Also like the superior court, though, the Court of Appeals concluded that health care services organizations were synonymous with HMOs.  This was based on 50 years of history, starting with the Arizona’s Legislature’s recognition of a new health insurance entity in 1973.  Although the Legislature referred to these new entities as health care services organizations, the text of the enacted legislation was substantially derived from the HMO Model Act.  Since that time, the Legislature had consistently treated health care services organizations as HMOs.  The same was true for the other branches of government—the Arizona Department of Insurance has consistently treated health care services organizations as HMOs, and the court had previously stated (at least in passing) that health care services organizations were the equivalent of HMOs.

The Court of Appeals bolstered its conclusion by noting that adopting any different approach would render several other health care related statutes superfluous.  These other statutes further demonstrated that the Legislature had intended to limit A.R.S. § 20-1072(F) to HMOs.

Judge Thumma authored the opinion for the court, joined by Chief Judge Cattani and Judge Swann.

Posted by: Joshua J. Messer

Posted On: 1/3/2022