The Court of Appeals recently issued an opinion for publication which clarified the necessary means by which a provider may seek payment of “balance bills.” In Auto-Owners Insurance Company, et at., v Compass Healthcare, the original question put to the trial court was whether or not defendants could “seek payment of ‘balance bills’ from a patient-insured on a contractual liability theory, rather than under the No-Fault act, after a provider’s charges were audited for reasonableness and the provider was paid a partial payment based on the findings of those audits.” The Trial court, and the Court of Appeals, answered “No.”

Defendants provided medical services to claimant Casanova following his involvement in a motor vehicle accident back on July 3, 2014. Defendants then submitted bills to Casanova’s auto insurer, Auto-Owners/Home-Owners, which were paid in part. For several months, even years, Defendants sent invoices to Casanova, requesting payment on the balance bill. This was despite Plaintiffs advising each time that any dispute over the amount of the payment should be taken up with Auto-Owners/Home-Owners which was responsible for payment.

Plaintiffs finally filed suit seeking declaratory relief from the trial court as to whether or not Defendants (ie. the providers) could attempt to obtain payment of their balance bill directly from the claimant/patient, Casanova, despite the reasonable payment made by the Auto-Owners/Home-Owners. Plaintiffs also asked the court to enjoin Defendants from any further attempts to collect on the debt from Casanova. Defendant medical providers filed a motion for summary disposition as a first responsive pleading, asking the court to grant summary disposition in their favor; however, Defendants admitted that the underlying debt was unenforceable under the No-Fault Act’s one-year-back rule, MCL 500.3145. They argued that because of this, seeking declaratory relief was a moot argument, and additionally that the claim for injunctive relief was not yet ripe for review. Both parties attempted to recover attorney fees. In response, Plaintiffs filed a counter-motion for summary disposition, and Defendants responded arguing for the first time that Casanova incurred an implied contractual obligation to pay independent of the No-Fault Act.

The trial court granted summary disposition in favor of Plaintiffs. Part of its ruling was that Defendants could only pursue payment from Auto-Owners/Home-Owners, not the claimant-patient. On a motion for reconsideration, the trial court revisited its opinions, and agreed that subsequent to Covenant Medical Center v State Farm Mutual Auto Insurance Company, 500 Mich 191; 895 NW2d 490 (2007), that portion of its reasoning was erroneous, and the medical providers could legally pursue the claimant-patient, Casanova, under the provisions of the No-Fault Act. Despite this, the trial court did not believe that this warranted a different outcome on the underlying dispositive motions because the question before the court was whether providers could seek payment of “balance bills” from a patient-insured on a contractual liability theory. The court affirmed providers do not have a contractual right to pursue a patient-insured after the provider’s charges have been determined to be unreasonable under the No-Fault Act.

On appeal, the Michigan Court of Appeals reversed the trial court’s decision pertaining to the award of attorney fees finding only Casanova was entitled to attorney fees and costs not Auto Owners/Home Owners.  The Court otherwise affirmed the trial court’s decision noting that pursuant to Covenant, a provider is only entitled to seek payment for a provider’s reasonable charges and Defendants never challenged the determination of the reasonableness of their charges.  The Court found no evidence was presented that would have allowed the trial court to consider or conclude that the “balance bill” charges sought by Defendants were reasonable and necessary. Lastly, the Court concluded that Defendants’ position that they could prevail on a theory of implied contract would be contrary to the purposes of the No-Fault Act and ultimately held: “that any claim defendants may have against Casanova would be for payment of services rendered to an injured person ‘covered by personal protection insurance,’ under the No-Fault Act, and subject to the one-year-back rule in MCL 500.3145.”

Practically speaking, medical providers can recover “balance bills” from patient – insureds/claimants, but they have an affirmative obligation to pursue those bills within the time allowed by the No-Fault Act’s one-year-back rule, MCL 500.3145. Additionally, they still carry the burden of proving the reasonableness of the charges that they bill by a preponderance of the evidence.

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Sarah Nadeau, Editor of the Law Fax Publication, is a Shareholder in our Detroit Office. Sarah can be reached at 313.446.1530 or snadeau@garanlucow.com