Opinion ID: 871144
Heading Depth: 1
Heading Rank: 2

Heading: background of the law

Text: An explanation of Wilson and its progeny, as well as of Act 198 of 2006, is provided for a better understanding of our analysis.

In Wilson, AIG Hawaii Insurance Company (AIG) denied a nofault claim for surgical treatment based on a peer review organization (PRO) report concluding the treatment was neither appropriate nor reasonable. 89 Hawai#i at 46, 968 P.2d at 648. Wilson brought suit in the District Court of the First Circuit (district court) based on the then existing PRO statute, HRS § -3-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  431:10C-308.6(f),4 which expressly provided that “any insured or provider may . . . seek an administrative hearing, arbitration, or court review of a denial of no-fault benefits based, in whole or in part, upon a peer review organization determination.” Id. (some emphasis in original). Despite the statute, AIG moved for summary judgment based on arguments that (1) Wilson lacked standing to pursue payment of medical bills to her provider; and (2) that the controversy was moot because there was no effective remedy because Wilson bore no liability under the law for payment of the provider’s services. See id. We acknowledged that HRS § 431:10C-308.6(f) expressly gave Wilson the right to seek court review of AIG’s denial of PIP benefits, but noted her admission that she was “effectively bringing the action for the benefit of her primary treating physician.” 89 Hawai#i at 48, 968 P.2d at 650. We agreed with the ICA that the issue was not whether Wilson had standing, but whether she was a real party in interest pursuant to District 4 HRS § 431:10C-308.6(f) provided, in pertinent part: (f) An insurer, provider, or insured may request a reconsideration by the peer review organization of its initial determination . . . . Any insured or provider may, in addition to or in lieu of reconsideration, seek an administrative hearing, arbitration, or court review of a denial of no-fault benefits based, in whole or in part, upon a peer review organization determination. (Emphasis added). HRS § 431:10C-308.6 was repealed in 1998. See 1997 Haw. Sess. Laws Act 251, § 59 at 551. The PRO system was repealed because it had “become expensive and time consuming,” and had “resulted in litigation between insureds and their insurance companies.” See H. Stand. Comm. Rep. No. 250, in 1997 House Journal, at 1211. -4-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  Court Rules of Civil Procedure (DCRCP) Rule 17(a).5 89 Hawai#i at 47-48, 968 P.2d at 649-50. DCRCP Rule 17(a) provided then, as it does now:
prosecuted in the name of the real party in interest; except that (1) . . . a party authorized by statute may sue in such party’s own name without joining with such party the party for whose benefit the action is brought[.] Because HRS § 431:10C-308.6(f) expressly gave Wilson the right to pursue court action, based on the clear language of DCRCP Rule 17(a), the ICA had deemed Wilson a real party in interest.6 Despite the language of DCRCP Rule 17(a), however, we stated that the inquiry could not end there. See 89 Hawai#i at 48, 968 P.2d at 650. We stated, “to qualify as a real party in interest, a party must also have a legal right under substantive law to enforce the claim in question.” Id. We then discussed HRS §§ 431:10C-304(1)(A) and (1)(B),7 5 In discussing “real party in interest” analysis, we referred to the ICA’s decision in Lagondino v. Maldonado, 7 Haw. App. 591, 789 P.2d 1129 (1990). See Wilson, 89 Hawai#i at 47-48, 968 P.2d at 649-50. 6 Wilson v. AIG Haw. Ins. Co., No. 20349, slip op. (App. Oct. 16, 1997) (depublished by Wilson, 89 Hawai#i at 51, 968 P.2d at 653). 7 When suit was commenced in Wilson, HRS §§ 431:10C-304(1)(A) and
Obligation to pay no-fault benefits. Every no-fault insurer shall provide no-fault benefits for accidental harm as follows: (1) Except as otherwise provided in section 431:10C305(d): (A) In the case of injury arising out of a motor vehicle accident, the insurer shall pay, without regard to fault, to the following persons who sustain accidental harm as a result of the -5-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  pursuant to which insurers are required to pay medical expenses directly to providers. 89 Hawai#i at 48-49, 968 P.2d at 650-51. We noted that under HRS § 431:10C-304(1), an insurer is obligated to make direct payment to the insured only for wage loss, expenses incurred as a result of accidental harm, funeral operation, maintenance or use of the vehicle, an amount equal to the no-fault benefits payable for wage loss and other expenses to that person under section 431:10C-103(10)(A)(iii) and (iv) as a result of the injury:
occupant, or user of the insured motor vehicle;

in section 249-1; (B) In the case of injury arising out of a motor vehicle accident, the insurer shall pay, without regard to fault, to a provider of services on behalf of the persons listed in item (1)(A) charges for services covered under section 431:10C-103(10)(A)(i) and (ii)[.] HRS § 431:10C-103(10)(A)(i) and (ii) related to medical and rehabilitation expenses. In 1997, HRS § 431:10C-304 was amended and the language of HRS § 431:10C-304(1)(B) was inserted in HRS § 431:10C-304(1). See 1997 Haw. Sess. Laws Act 251, § 41 at 538-39 (effective January 1, 1998). HRS § 431:10C-304 now reads, in pertinent part, as follows: Obligation to pay personal injury protection benefits. . . . Every personal injury protection insurer shall provide personal injury protection benefits for accidental harm as follows: (1) Except as otherwise provided in section 431:10C305(d), in the case of injury arising out of a motor vehicle accident, the insurer shall pay, without regard to fault, to the provider of services on behalf of the following persons who sustain accidental harm as a result of the operation, maintenance, or use of the vehicle, an amount equal to the personal injury protection benefits as defined in section 431:10C-103.5(a) payable for expenses to that person as a result of the injury: (A) Any person, including the owner, operator, occupant, or user of the insured motor vehicle; (B) Any pedestrian (including a bicyclist); or (C) Any user or operator of a moped as defined in section 249-1; . . . HRS § 431:10C-304 (2000). No substantive changes were made to HRS § 431:10C304 (1)(A)-(C) when HRS Chapter 431:10C was amended in 1998 and 2000. -6-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  services, and attorney’s fees and costs.8 See 89 Hawai#i at 49, 968 P.2d at 651. We pointed out that H.R.S. § 431:10C-304(1) does not confer upon an insured the right to receive payment of medical benefits on behalf of one’s provider, but rather designates billing and payment of medical expenses to flow between insurer and provider. See id. We noted that the insured plays no role in this process. See id. We also cited HRS §§ 431:10C-308.5(e)9 and 431:10C-308.6(j)(1993),10 which prohibited a provider from collecting payment of medical services from an insured. See id. We concluded, “viewing these statutes in pari materia,[11] . . . it is clear that the no-fault law does not allow an insured to enforce a claim for unpaid medical expenses against an insurer on behalf of his or her provider[;]” rather, we stated, “[t]he no-fault statutory scheme strongly suggests that the provider, not the insured, is entitled to pursue payment from the insurer for the cost of unreimbursed medical services to the insured.” 89 Hawai#i at 49-50, 968 P.2d at 651-52. Accordingly, we held 8 These provisions have been moved from HRS § 431:10C-304(1), and HRS §§ 431:10C-302(2), (4), and (5) now provide optional coverage for wage loss, funeral expenses, and other expenses. See HRS § 431:10C-302 (1998). Attorney’s fees are now addressed in HRS § 431:10C-211. 9 Now HRS § 431:10C-308.5(f). 10 Repealed in 1998. See 1997 Haw. Sess. Laws Act 251, § 59 at 551. 11 HRS § 1-16 provides, as it did in 1998: Laws in pari materia. Laws in pari materia, or upon the same subject matter, shall be construed with reference to each other. What is clear in one statute may be called in aid to explain what is doubtful in another. -7-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  that Wilson was not a real party in interest with respect to her claim against AIG for no-fault benefits to satisfy her provider’s unpaid bill. See 89 Hawai#i at 50, 968 P.2d at 652. In so holding, we reversed the ICA’s holding that Wilson was a real party in interest. See 89 Hawai#i at 51, 968 P.2d at 653. We opined that the ICA’s concerns regarding the insured’s continuing relationship with the provider, and her personal interest in having the insurer pay the provider, were merely altruistic. See 89 Hawai#i at 50, 968 P.2d at 652.
Wilson was decided while the appeal in Gamata v. Allstate Ins. Co., 90 Hawai#i 213, 978 P.2d 179 (App. 1999) was pending. In Gamata, Allstate Insurance Company (Allstate) denied continued PIP benefits based on a medical opinion that the insured’s continued complaints were not caused by the accident. See 90 Hawai#i at 215, 978 P.2d at 181. Gamata brought suit pursuant to HRS § 431:10C-31412 in district court, claiming that Allstate violated its statutory and contractual duties to provide no-fault benefits. See id. After filing his complaint, Gamata received and paid for the contested treatment despite Allstate’s denial. See 90 Hawai#i at 214, 978 P.2d at 180. The ICA vacated and remanded the district court’s ruling 12 HRS § 431:10C-314 provides, as it did in 1999: Jurisdiction. Any person may bring suit for breach of any contractual obligation assumed by an insurer under a policy of insurance containing such mandatory or optional provisions in any state court of competent jurisdiction. -8-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  affirming Allstate’s denial because the court had applied an incorrect legal standard.13 90 Hawai#i at 220-22, 978 P.2d at 186-88. Due to Wilson, however, the ICA ruled that any payments made by Gamata to the provider must, “as a logical consequence, be returned to [Gamata].” 14 90 Hawai#i at 224, 978 P.2d at 190. In addition, the ICA ruled that if the provider sought reimbursement, he had to become a party plaintiff. See id.
In Dacanay v. Liberty Mut. Ins. Co., 108 Hawai#i 393, 396, 120 P.3d 1128, 1131 (App. 2005), Dacanay initiated proceedings with the Insurance Commissioner pursuant to HRS § 431:10C-212, after Liberty Mutual Insurance Co. (Liberty Mutual) refused to pay several claims for PIP benefits submitted by providers who had treated him after an automobile accident. Liberty Mutual then reached settlement with the providers. See 108 Hawai#i at 395, 120 P.3d at 1130. When Dacanay requested attorney’s fees and costs, however, Liberty Mutual asserted, in light of Wilson and Gamata, that Dacanay was not a real party in interest and was therefore not entitled to an award of attorney’s fees and costs. See 108 Hawai#i at 396, 120 P.3d at 1131. 13 The district court had affirmed Allstate’s denial on the basis that it considered the treatment “palliative” rather than “curative,” not “whether the expenses were appropriate, reasonable, and necessarily incurred.” Gamata, 90 Hawai#i at 220-22, 978 P.2d at 186-88. 14 The ICA also cited to this court’s statement in Gov’t Emp. Ins. Co. v. Hyman, 90 Hawai#i 1, 7, 975 P.2d 211, 217 (1999) that “the insured has a right to receive treatment of injuries, [while] the provider has a right to receive payment for treatment rendered.” (Brackets in original.) -9-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  The ICA declined to address the real party in interest issue, deeming its resolution unnecessary. See 108 Hawai#i at 399, 120 P.3d at 1134. Based on its review of the record, the ICA concluded that Liberty Mutual had waived any objections to Dacanay’s status as a real party in interest.15 See id. The ICA stated in dicta, however, that unlike Wilson and Gamata, which involved lawsuits filed in district court, Dacanay stemmed from an administrative proceeding, and thus, DCRCP Rule 17 did not appear applicable.16 See id.

15 The circumstances the ICA considered when concluding that Liberty Mutual had waived any objection included that Liberty Mutual (1) addressed its denial of Dacanay’s health providers’ claims directly to Dacanay and specifically alerted her to the option of seeking an administrative review, if she wished to challenge the denials; (2) did not object to Dacanay’s status as a real party in interest when she sought review by the Commissioner; (3) settled the claims with Dacanay’s providers; (4) stipulated with Dacanay that the dispute relating to the denials had been resolved; (5) stipulated to the dismissal of Dacanay’s claims before the Commissioner for the denied PIP benefits; and (6) only questioned Dacanay’s status as a real party in interest after she sought an award of attorney’s fees and costs and it was too late for her to substitute her health care providers as the real parties to her case. See 108 Hawai#i at 400, 120 P.3d at 1135. 16 Because we overrule Wilson, we do not address a question raised by the insureds in these cases but not addressed by the ICA: whether the real party interest holding, which is based on DCRCP Rule 17(a), is applicable to administrative proceedings. One of the purposes of administrative remedies is to enable parties to resolve disputes in a less cumbersome and expensive manner than normally encountered in a trial in court. 2 Am. Jur. 2d Administrative Law § 4. Based on Hawai#i Administrative Rules (HAR) § 16-201- 1, however, which provides that “[w]henever this chapter is silent on a matter, the authority or hearings officer may refer to the Hawaii Rules of Civil Procedure for guidance,” Insurance Commissioner Schmidt’s Final Orders applied Wilson’s real party in interest holding to these insureds. Although we do not decide the issue, we note that “[i]t is axiomatic that an administrative rule cannot contradict or conflict with the statute it attempts to implement[,] Kaleikini v. Thielen, 124 Hawai#i 1, 33, 237 P.3d 1067, 1099 (2010) (Acoba, J., concurring) (citation omitted), and HRS § 431:10C-212 expressly gives insureds the right seek to administrative review. -10-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  Act 198 was triggered by our holding in Orthopedic Assocs. of Haw., Inc. v. Haw. Ins. & Guar. Co., Ltd., 109 Hawai#i 185, 124 P.3d 930 (2005). This case involved the “down-coding” of bills submitted by providers to PIP insurers: Between January 1, 1993 and December 31, 1999, each of the providers submitted bills to one or more of the insurers for non-emergency treatments rendered to thousands of personal injury protection (PIP) insureds allegedly injured in motor vehicle accidents. The insurers were obligated to pay appropriate PIP benefits under HRS chapter 431:10C on behalf of their insureds. . . . The insurers, however, rather than pay the bills as submitted, or deny the claim (in whole or in part), altered the treatment code because they believed that, based on the available information, the services rendered appear to be best described by [a different medical treatment] code. The resulting effect of changing the treatment codes was a reduction in the payment for the service rendered, which the parties generally refer to as down-coding. The insurers, thus, (1) paid the bills pursuant to the adjusted treatment codes and (2) offered to negotiate with the providers as to the unpaid portions. 109 Hawai#i at 191, 124 P.3d at 936 (footnote omitted). We held: In light of the unambiguous mandatory language of HRS § 431:10C-304(3)(B), an insurer is required to provide written notice of its denial--in whole or in part--of the claim for benefits. Written notice to the claimant is required where the denial or partial denial relates to the treatment service and/or the charges therefor. Where the denial or partial denial involves treatment services, the insurer must also provide written notice to the provider. 109 Hawai#i at 196, 124 P.3d at 941. Before Orthopedic Associates, HRS § 431:10C-304(3)(B), which requires that an insurer mail denial notices in triplicate to the claimant, and mail another copy to the provider, was followed by insurers only for complete denials of a provider’s PIP billing. This holding, however, required that such notices be mailed any -11-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  time an insurer partially denied a provider’s PIP billing.
The Legislature responded to Orthopedic Associates through Act 198 of 2006. Act 198 provides as follows: SECTION 1. The legislature notes that section 431:10C308.5, Hawaii Revised Statutes, limits the charges for and frequency of medical treatment covered by personal injury protection (PIP) benefits. In accordance with this limitation on charges, the motor vehicle insurer has an obligation to limit payment of the insured's benefits for treatment. The legislature finds that, as a result of the Hawaii Supreme Court's ruling in Orthopedic Associates of Hawaii, Inc. v. Hawaiian Insurance & Guaranty Co., Ltd., No. 24634, slip. op. (Dec. 7, 2005), insurers have implemented a process of issuing denials of benefits on all payments that are less than the amount billed. Some of the larger insurers are issuing several thousand denials each month. Copies of these denials are given to both the provider and the insured. This has prompted many calls from insureds who do not understand the process and are concerned that the insurer might be denying them access to medical treatment. This Act is intended to clarify the process to be followed in any billing adjustment or dispute where an insurer receives and does not dispute the treatment rendered but finds the billing to exceed the permissible charges. This Act is not intended to affect the merits of the amount billed or the amount owed under PIP. Specifically, this Act clarifies that any adjustments to payment of the amount billed is an acceptance of the treatment and not a denial of benefit. Therefore, section 431:10C-304(3), which requires a written denial of benefit, is not applicable to an adjustment to the amount payable under PIP benefits. Rather than issue a denial, this Act clarifies that the insurer's obligation is to pay all undisputed charges and negotiate in good faith with the provider on the disputed charges. SECTION 2. Section 431:10C-308.5, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows: (e) In the event of a dispute between the provider and the insurer over the amount of a charge or the correct fee or procedure code to be used under the workers' compensation supplemental medical fee schedule, the insurer shall:
after the insurer has received reasonable proof of the fact and amount of benefits accrued and demand for payment thereof; and (2) Negotiate in good faith with the provider on the disputed charges for a period up to sixty days -12-  FOR PUBLICATION IN W EST’S HAW AII REPORTS AND PACIFIC REPORTER  after the insurer has received reasonable proof of the fact and amount of benefits accrued and demand for payment thereof. If the provider and the insurer are unable to resolve the dispute[,] after a period of sixty days pursuant to paragraph (2), the provider, insurer, or claimant may submit the dispute to the commissioner, arbitration, or court of competent jurisdiction. The parties shall include documentation of the efforts of the insurer and the provider to reach a negotiated resolution of the dispute. This section shall not be subject to the requirements of section 431:10C-304(3) with respect to all disputes about the amount of a charge or the correct fee and procedure code to be used under the workers' compensation supplemental medical fee schedule. An insurer who disputes the amount of a charge or the correct fee or procedure code under this section shall not be deemed to have denied a claim for benefits under section 431:10C-304(3); provided that the insurer shall pay what the insurer believes is the amount owed and shall furnish a written explanation of any adjustments to the provider and to the claimant at no charge, if requested. The provider, claimant, or insurer may submit any dispute involving the amount of a charge or the correct fee or procedure code to the commissioner, to arbitration, or to a court of competent jurisdiction. SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored. SECTION 4. This Act shall take effect upon its approval. 2006 Haw. Sess. Laws Act 198, §§ 1-4 at 840-41 (effective June 14, 2006).