• No-Fault and Managed Care Concepts
• Legal Claims by Medical Providers
• Fee Schedules and Medical Bill Auditing

No-Fault and Managed Care Concepts

When the Michigan Legislature enacted the No-Fault Automobile Insurance Act in 1973, it did not draft a statute that utilizes managed-care concepts, as have other states that enacted a no-fault system. On the contrary, the Michigan No-Fault Act is purely a fee-for-services system obligating a no-fault insurer to pay all “allowable expenses” as defined in the statute. The Michigan Act does not contain any provisions that specifically grant no-fault insurance companies the authority to invoke principles of managed care or to act as “gatekeepers” regarding a person's medical and rehabilitation treatment. Moreover, it is clear that, with certain exceptions, most persons injured in motor-vehicle accidents have a legally protected “right to choose” their own care providers. In this regard, the Michigan Supreme Court has held “the No-Fault Act preserves to the injured person a choice of medical service providers.” See Morgan v Citizens Insurance Company, 432 Mich 640 (1989). Based upon these principles, a no-fault insurance company cannot dictate what kind of medical treatment an injured person receives, the identity of the medical providers who will render that care, or the circumstances under which the care is rendered. On the contrary, the role of the no-fault insurance company is to honor its statutory duty to pay “all reasonable charges incurred for reasonably necessary products, services and accommodations for an injured person's care, recovery or rehabilitation” as required by Subsection 3107(1)(a).

There is one notable exception to the basic principle that no-fault is not a managed care system and that is the situation that exists for patients who are members of HMOs and who also have coordinated no-fault coverages. Patients in this situation must be careful to comply with the dictates of the Supreme Court’s opinion in Tousignant v Allstate Ins Co, supra.

There is no legal authority in the Michigan No-Fault Act or in any appellate-court decision that authorizes a no-fault insurance company to require pre-authorization of payment before medical expenses are legally payable. Under the law, a no-fault insurance company must pay any and all “allowable expenses” regardless of whether the insurance company was notified about the expense before the service was rendered. This is true because the Michigan No-Fault Act is not a managed-care system. Rather, it is a fee-for-services system. Therefore, patients and their medical providers are not obligated to obtain pretreatment authorization from no-fault insurance companies. If the patient’s medical providers are willing to verify that the prescribed services were “reasonably necessary,” this is typically sufficient to impose legal liability on the no-fault insurance company for payment of the charges, regardless of whether the insurer pre-authorized the treatment.

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Legal Claims by Medical Providers

Several years ago, the Michigan Court of Appeals issued two decisions that gave some powerful legal weapons to medical providers who are not promptly paid by auto no-fault insurance companies. These decisions were a great victory for medical providers and their auto accident patients and will go a long way to making the playing field more level in no-fault insurance payment disputes. One of these rulings came in the case of Lakeland Neurocare Centers v State Farm Mutual Automobile Insurance Company, 250 Mich App 35 (2002). In this unanimous opinion, the Court held that the “penalty interest” provisions of Section 3142 of the No-Fault Act and the “penalty attorney fee” provisions of Section 3148 of the No-Fault Act may be enforced by medical providers against no-fault insurance companies who do not honor their payment obligations under the statute. Section 3142 renders an insurer liable for 12-percent interest if payment is not made within 30 days after the insurer receives “reasonable proof of the fact and of the amount of loss sustained.” Section 3148 of the Act renders an insurer liable for attorney fees if the insurer has “unreasonably refused to pay the claim or unreasonably delayed in making proper payment.” The Court held that these two penalty provisions are enforceable not only by auto-accident patients, but also by the medical providers who render care to those patients. In so holding, the Court acknowledged that medical providers who treat auto-accident patients have a right to commence legal enforcement actions in their own name against no-fault insurance companies to recover payment for medical services rendered to patients insured by those companies. If a medical provider can demonstrate that payment was overdue, the medical provider can recover 12-percent interest on the balance owing. Likewise, if the medical provider can establish that the payment was unreasonably delayed or denied the medical provider can recover actual attorney fees from the noncompliant insurer.

In reaching this important holding, the Court reasoned that giving enforcement powers to medical providers furthered the purposes and goals of the No-Fault Act to avoid medical-payment delays. Furthermore, such a ruling would shift the loss from providers to insurance companies and, in the process, protect no-fault patients. In this regard, the Court in Lakeland Neurocare Centers held:

The goal of the no-fault system was to provide victims of motor vehicle accidents assured, adequate, and prompt reparation for certain economic losses. The no-fault act does not, however, accomplish its purpose or goal by sanctioning actions of no-fault insurers that include unreasonable payment delays and denials of no-fault benefits which force the commencement of legal action by the injured person's health care provider.

 

Moreover, the no-fault act may not be used by a no-fault insurer as a vehicle to shift the burden of the injured person's economic loss to a health care provider or as a weapon against rightful payees to a payee's unjustified economic detriment. . . . Failing to permit the attempted enforcement of the penalty provisions in situations involving unreasonable and unjustified payment behavior would reward that behavior while ignoring the cost exacted at the expense of a rightful no-fault benefit payee.

 

Finally, the enforcement of these penalty provisions against a recalcitrant no-fault insurer also serves to offer some protection against further economic loss faced by an injured person. The impermissible payment behavior of an insurer has an economic impact on the injured person, both directly and indirectly, usually in the form of damaged credit ratings, difficulties in securing health care services, harassment, and lawsuits initiated by health care providers for reimbursement. Permitting the imposition of these penalty provisions by health care providers provides a legitimate and enforceable incentive to no-fault insurers to perform their payment obligations, imposed by operation of law, in a reasonable and prompt manner.

A second similar decision was issued by the Court of Appeals in the case of Regents of the University of Michigan v State Farm Mutual Insurance Company and Travelers Insurance Company, 250 Mich App 719 (2002).

Medical providers who treat auto accident patients should be aware of these appellate decisions and not hesitate to utilize them if an auto insurance company has not complied with its obligations under Michigan no-fault law. Therefore, providers should immediately review their no-fault insurance accounts receivable and make an informed decision as to whether legal enforcement action should be undertaken in light of these cases. In making this decision, however, it is important to remember that the No-Fault Act contains a short statute of limitations, which, in the case of claims brought by patients, typically will expire one year after the date a service is rendered. Providers should assume that this limitations period applies to them, and therefore, enforcement action should not be delayed.

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Fee Schedules and Medical Bill Auditing

Recently, many insurance companies have refused to pay the full amount of a doctor bill or hospital charge because the insurance company claims the charges are not “reasonable” within the meaning of Subsection 3107(1)(a). Sometimes, the no-fault insurance company supports its denial of the claim by referring to certain fee schedules that are utilized in Workers’ Compensation cases or utilized to determine what benefits are payable under health insurance policies or governmental benefit programs. The Court of Appeals has clearly held that it is improper for a no-fault insurance company to use fee schedules to determine the extent to which medical expenses are compensable under Subsection 3107(1)(a) of the statute. See Munson Med Ctr v Auto Club Ins Ass'n, 218 Mich App 375 (1996) and Mercy Mt Clemens Corp v Auto Club Ins Ass'n, 219 Mich App 46 (1996). Moreover, Michigan voters rejected the use of fee schedules for no-fault claims when they defeated Proposal D in the November 1992 election and Proposal C in the November 1994 election. Therefore, it is not proper for no-fault insurance companies to utilize fee schedules to deny no-fault claims.

Faced with this reality, many no-fault insurance companies have adopted an alternative strategy of sending a patient’s medical expenses to a so-called independent auditing company for a “medical audit,” i.e., an opinion as to whether the charges are “reasonable.” In the case of Advocacy Org v ACIA, 472 Mich 91 (2005), the Michigan Supreme Court approved the basic concept of medical-bill auditing, but did not render any ruling on any specific methodology regarding how audits should be conducted.

Typically, medical audits result in a portion of the charges being denied. When this happens, the patient is caught in the middle between the provider and the no-fault insurance company. This can create problems for the patient, including an interruption in medical treatment. To avoid this situation, the Michigan Insurance Commissioner has issued Bulletin 92-03 that requires that no-fault insurance companies protect the patient from any collection efforts undertaken by the medical provider and to inform the provider that the dispute is solely between the insurer and the provider and does not involve the patient. However, it is doubtful whether this bulletin can legally cut off the right of a medical provider to sue a patient to recover the balance that remains unpaid after an audit. Therefore, patients and providers should pay close attention to whether any portion of their medical expenses is being denied because of a no-fault insurance company audit. If this is happening, patients and providers should consult with legal counsel to determine what legal rights they may have regarding the unpaid amount.

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