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September 10, 2020
In Spectrum Health v Farm Bureau General Insurance Company, __ Mich App __ (2020), consolidated Docket Nos. 347553 and 348440, the Court of Appeals confirmed the distinction between “customary” and “reasonable” charges as those terms are used in the No-Fault Act, and held that evidence of what third parties pay for similar services may be relevant and admissible to whether a provider’s charges are “reasonable” under the Act.
This was a provider suit in which Farm Bureau took the position that Spectrum’s unpaid charges were not “reasonable.” At the trial court, Farm Bureau moved to admit information on how much third-party payers such as Medicaid, Medicare, and private health insurers paid for similar services. Spectrum objected and the trial court, siding with Spectrum, declared that evidence of third-party payments was irrelevant and inadmissible.
The Court of Appeals overturned the trial court’s determination, and remanded the case back to the trial court for further proceedings.
The Court noted in its opinion that though one of the goals of the No-Fault Act is to provide accident victims with adequate and expeditious compensation, another goal is to contain the costs of treatment. It recognized that No-Fault insurers play an important “gatekeeper” role in containing costs, in terms of investigating and advancing evidence of whether provider charges are compensable under the Act.
The Court observed that the Act seeks to contain costs in two ways: one, MCL §500.3107(a) and MCL §500.3157 require provider charges to be “reasonable;” and two, MCL §500.3157 also requires the provider charges not exceed what the provider “customarily” charges in cases not involving insurance.
A main point of the Court’s opinion is that “customary charges” and “reasonable charges” are two separate and distinct concepts: a provider is capped by what it “customarily” charges in cases not involving insurance, but also a provider cannot charge more than what is “reasonable.” A charge may be at or less than what is customarily charged in cases not involving insurance, but still not be reasonable. And though the opinion recognizes that while we cannot look to what third-party insurers pay to determine what is “customary,” under the literal language of MCL §500.3157, the same is not true with respect to determining whether a charge is “reasonable.”
In making this distinction the Court furthered the logic of previous decisions in Bronson Methodist Hospital v Auto Owners Ins Co, 295 Mich App 431 (2012) (holding that what a provider chooses to charge is not the sole determining factor in determining the charge’s reasonableness, and concluding that a provider’s costs in providing services could be relevant to the question of reasonableness), and in AAOP v Auto Club Ins Ass’n, 257 Mich App 365 (2003), aff’d 472 Mich 91 (2005) (holding that charges by other providers is relevant to a determination of what is reasonable). But, the Court noted, neither decision presented an exhaustive list of what could be relevant to the question of “reasonableness.”
The Court dismissed a line of cases which arguably appeared to say third-party payments are not relevant and admissible on the question of reasonableness, notably Munson Med Ctr v Auto Club Ins Ass’n, 218 Mich App 375 (1996), Mercy Mt Clemens Corp v Auto Club Ins Ass’n, 219 Mich App 46 (1996), Hofmann v Auto Club Ins Ass’n, 211 Mich App 55 (1995), and Johnson v Mich Mut Ins Co, 180 Mich App 314 (1989). The Court found that these cases were all focused on whether charges fell within what was “customary”, not with whether they were reasonable; though two of them (Munson and Mercy Mt Clemens) appeared to confuse the two standards. (The Court was especially critical of the Munsondecision for incorrectly stating that a provider could charge whatever was customary – which is not what the No-Fault Act says).
The Court also rejected Spectrum’s argument that we can never look to third-party payments because the No-Fault Act uses the term “charge” but not the term “payment,” finding that would effectively make a provider’s charges alone dispositive of what is reasonable. The Court, citing Bronson, stated this is impermissible as it “…would be to leave the determination of reasonableness solely in the hands of providers, as a collective group, and would abrogate the cost-policing function of no-fault insurers, contrary to the intention of the Legislature.”
Spectrum had also argued that the third-party payer information Farm Bureau was referring to is not discoverable under the No-Fault Act, and thus was not relevant or admissible. MCLA §500.3158 requires a provider to provide, if requested, a report and records supporting its charges. MCLA §500.3159 empowers a court to issue an order for discovery as to provider charges, and provides that a court may include provisions in the order to “protect against annoyance, embarrassment or oppression.” The Court of Appeals dismissed this argument by noting that Farm Bureau was seeking to admit publicly available information. (The Court does, however, acknowledge that Spectrum might not have to turn over third-party payment information in discovery – the Court does not say why, but presumably because it could be considered proprietary or trade secret information).
Since the term “reasonable” is not defined in the No-Fault Act, the Court of Appeals looked to a dictionary definition of the term to conclude that a provider’s charge is “reasonable” under the Act when it is “fair, proper, or moderate, in accord with reason, and not excessive.”
The Court concluded that while not dispositive, the amount that third parties pay is evidence bearing on the reasonableness of a provider’s fees. Anything that tends to make a given proposition more or less probable is by definition relevant; and while not dispositive, what others actually paid for the same services over the same general time frame tends to make it more or less likely that the amounts Spectrum charged were “fair, proper, or moderate, in accord with reason, and not excessive.” In sum, when assessing the reasonableness of a medical charge, relevant evidence includes the full range of charges and payments falling within the pertinent timeframe for the particular services, products, and treatment at issue in the case, which may include amounts paid by third parties.
Some important caveats to this opinion:
First, the Court did not hold that the specific information being offered by Farm Bureau concerning third-party payments is in fact relevant and admissible. It merely held that the trial court’s blanket exclusion of all such evidence, regardless of its specifics, was in error. The Court specifically remanded to the trial court to examine the offered evidence in detail and to make a more specific determination of whether it is relevant and admissible. Thus it remains possible that information concerning third-party payments, while generally relevant, may be inadmissible on other grounds.
Second, the Court emphasized that generalized information on third-party payments is not enough; it must be information concerning the same service and general time frame.
Third, the Court’s opinion repeatedly stated that evidence of third-party payments does not conclusively establish a reasonable amount – it is one piece of evidence to be considered with the other evidence.
Fourth, the Court seems to suggest that information concerning third-party payments may not be discoverable directly from the provider. This statement is arguably dicta and in any event, the Court states only that such direct discovery “may” not be permitted under the No-Fault Act. At minimum we can expect strong resistance from the providers to such discovery requests, who no doubt will request orders under MCLA §500.3159 that protect them against “annoyance, embarrassment or oppression” by prohibiting such discovery. At the same time an argument can be made that any of the provider’s confidential, proprietary or trade secret information can be protected by less restrictive discovery orders, such as protective orders restricting distribution and use of the information.
An interesting question is whether this decision has applicability in light of the 2019 amendments to the No-Fault Act, because this decision was based on the pre-amendment statute. The 2019 amendments, however, did not change the substantive provisions regarding “customary” and “reasonable” charges. Thus the essential points of the Court’s holding should still apply to the amended Act.
The amendments did present additional caps on provider charges, which are generally tied to percentages of the Medicare rate. Those percentages are generally higher than the base Medicare rate at any given time. Providers might now argue that, since the Legislature chose to include a specific cap that is many multiples of the base Medicare rate, that rate is no longer relevant to a dispute of whether the charge is “reasonable” even in light of this decision. However, an argument can also be made that a charge might fall within several multiples of the Medicare rate but still not be reasonable – and the base Medicare rate might still be one piece of evidence, to be considered with others, in determining if a charge is reasonable. And, even if the base Medicare rate is excluded from this consideration in light of the amendment, there are still other third-party payers (private health insurers) whose payments will be relevant to the question of what is “reasonable.”