The Hawaii Supreme Court will consider whether contracts between the state’s largest health insurer and its health care providers and patients are enforceable.
The high court on Tuesday heard arguments in HMSA’s appeal of a ruling last year by since-retired Third Circuit Chief Judge Robert Kim.
Kim ruled that in three medical cases which were the subject of a lawsuit by Hilo obstetrician-gynecologist Frederick Nitta, the contracts HMSA used in making decisions about coverage are “contracts of adhesion.”
That means they were drafted entirely by the more powerful party and that the other party was unable to negotiate. While the contracts aren’t necessarily illegal, they can become so if the court deems them to be unreasonable, which Kim did.
Kim ruled that in the medical cases spotlighted in Nitta’s civil suit, the contracts are “unconscionable” and “unenforceable.”
Randall Whattoff, HMSA’s Honolulu-based attorney, argued Tuesday that Kim “committed reversible error” by considering issues in his judgment that were “wildly outside the scope” of a motion to compel arbitration between HMSA and Nitta.
Whattoff said HMSA’s standardized contracts aren’t drafted “to foist inappropriate terms onto providers” or “give itself an unfair advantage.”
“If there wasn’t consistency amongst the agreements, the administrative costs … would be significantly more expensive,” Whattoff told the five justices.
He argued HMSA negotiated the contracts by soliciting feedback from the Hawaii Medical Association, a physicians’ organization. He added that Nitta turned his feedback form in late with “nonsensical” notations on the contracts.
Hilo attorney Ted Hong, who represents Nitta, told the justices that unconscionability “is central and pervades these contracts.”
The contracts Hong refers to are called “HMSA agreements” and are standard contracts drawn up and used by the insurer.
The three contracts Kim ruled unconscionable and unenforceable are: HMSA’s Participating Physician Agreement, dated Apr. 3, 2021, in the case of Nitta; HMSA’s Provider Agreement for Medicare Plans, dated Oct. 26, 2009, in the case of the late Adrian Scott Norton, who was initially denied magnetic resonance imaging, with the insurance only covering physical therapy; and Quest Participating Physician Agreement, dated March 19, 1999, in the case of Charlene Orcino, who had a prematurely born son with chronic health issues after the insurer refused to cover her prescription of Nifedipine, which is usually prescribed for high blood pressure or chest pain, but can also treat preterm labor.
In Norton’s case, he later received the MRI, but by that time it was determined he was suffering from prostate cancer that had spread to his back, spine, hip and ribs. Norton died in 2023.
“You have clerks making decisions, like in Mr. Norton’s case, that he doesn’t need an MRI. That he only has to do more physical therapy,” Hong argued.
In questioning Whattoff, Associate Justice Todd Eddins noted the contracts appear to be “a take it or leave it situation — a contract drafted by a stronger party.”
“When the substantive terms affect the public health … do we need … a heightened scrutiny to the initial contract formulation?” Eddins asked.
Whattoff replied that standardized agreements such as HMSA’s provider contracts are “a fact of our modern life” and the insurer has a “need to rely on consistent agreements.”
“There’s nothing inherently negative about this process,” he said.
Associate Justice Sabrina McKenna and Whattoff sparred over whether the high court previously ruled that a clause preventing punitive damages is invalid, with McKenna insisting such a ruling had been made in a previous case. Whattoff disagreed.
In response to a question by Associate Justice Lisa Ginoza, Whattoff said a dismissal was sought in Orcino’s case because she was an HMSA MedQuest member and should be compelled “to follow the state-mandated rules for pursuing a claim with MedQuest,” which is an administrative process.
McKenna pointed out a clause in the MedQuest contract that requires providers seeking arbitration of a small claim has to pay half of an arbitrator’s $400 hourly fee.
“How is that not unconscionable?” she asked.
While questioning Hong, Ginoza pondered whether just the arbitration provision in the contracts could be found unconscionable.
“The question before us is, ‘Should it be decided by an arbitrator? Or should it be decided by the court below, which invalidated the entire contracts?’”
Hong disagreed with Ginoza’s analysis, cautioning the court against invalidating only the arbitration clauses.
“I’m going to quote ‘Star Wars.’ That would make HMSA the ultimate force in the Universe,” Hong said in closing.
In his closing remarks, Whattoff noted that contracts of adhesion aren’t inherently illegal or unenforceable.
“Even if this was a contract of adhesion, adhesiveness by itself is not sufficient to determine (the) agreement to be unconscionable.”
Chief Justice Mark Recktenwald said the court is taking the arguments under advisement and will issue its ruling at a later date.
Email John Burnett at jburnett@hawaiitribune-herald.com.
