Parties argue about what is “reasonable” in nearly every legal context. The same holds true for no-fault litigation, especially when it comes to personal protection insurance (“PIP”) benefits. While the no-fault act itself and the supporting case law firmly establish that no-fault insurers are only obligated to pay reasonable charges, the act doesn’t define “reasonable.” The Court of Appeals recently provided some guidance in Spectrum Health Hosps v Farm Bureau Mut Ins Co (Docket Nos. 347553 and 348440). The published opinion holds that the no-fault act allows a fact-finder to consider third-party payments in determining whether a provider’s charges are reasonable under MCL 500.3107 and MCL 500.3157.
Background on Spectrum Health
Pre-suit, Farm Bureau paid 80% of the charges billed by Spectrum for services provided to Farm Bureau’s insured for accident-related injuries. Farm Bureau refused to pay the remaining balance, asserting that amounts over 80% of Spectrum’s gross charges were “unreasonable.” Spectrum then filed suit, seeking payment of the full amount billed.
Farm Bureau filed a motion in limine regarding two interrelated issues: 1) the relevance of evidence pertaining to payments by third-party payers such as health insurers, Medicare, and Medicaid, and 2) the qualification of Mark A. Hall as an expert witness in “health service research,” specifically regarding healthcare costs. Among other things, Farm Bureau argued that courts should consider the open market in determining whether a charge is “reasonable,” similar to valuation questions in other contexts, given that “reasonable” isn’t defined in the no-fault act.
The trial court granted Farm Bureau’s motion in limine in part and denied it in part, adopting the law and argument in Spectrum’s brief. After further proceedings, the trial court entered a consent judgment that preserved Farm Bureau’s right to appeal the ruling on its motion in limine. Later, the trial court denied Spectrum’s request for attorney fees.
Farm Bureau appealed the trial court’s ruling on its motion in limine. Spectrum appealed the trial court’s ruling on its motion for attorney fees.
The Court of Appeals’ Ruling
The Court of Appeals began its analysis by noting the distinction between “reasonable” and “customary” charges, as those terms are used under MCL 500.3107 and MCL 500.3157. It recognized that the reasonable and customary provisions are “ ‘separate and distinct limitations on the amount health-care providers may charge, and what insurers must pay.’ ” Spectrum Health, ___ Mich App at ___; slip op at 9, quoting Advocacy Org for Patients & Providers v Auto Club Ins Ass’n, 257 Mich App 365, 376; 670 NW2d 569 (2003), aff’d 472 Mich 91 (2005). In summary, the “customary” limitation under MCL 500.3157 serves as a cap on the amount providers may charge. This cap is determined by considering a provider’s customary charges in cases involving no insurance (including private health insurance, Medicare, Medicaid, etc.). The “reasonable” limitation serves as a separate “check on healthcare providers who are without incentive to keep medical bills at a minimum.” Spectrum Health, ___ Mich App at ___; slip op at 14. However, the Court acknowledged that “the method of determining reasonableness is unclear.” Id. So, it proceeded to deliver some clarity on that question.
The Court first analyzed earlier case law in detail. It explained that prior opinions precluded the consideration of third-party payments in determining whether a provider’s charge was customary under MCL 500.3157. But these decisions did not address whether third-party payments are relevant to the reasonableness limitation. Noting the definition of “reasonable” generally used by the Michigan Supreme Court, the Court of Appeals held that the no-fault act allows a fact-finder to consider third-party payments in determining whether a provider’s charge is reasonable. The Court summarized its holding as follows: “Simply put, third-party payments which are accepted by a healthcare provider as payment in full during the pertinent timeframe for products and services are relevant to determining the reasonableness of charges for those very same products and services in the context of treatment covered by PIP benefits.” Spectrum Health, ___ Mich App at ___; slip op at 22. So, while not dispositive, evidence of third-party payments is relevant to the reasonableness determination.
The Court of Appeals also rejected Spectrum’s counterargument that “payments” are not relevant to the reasonableness of “charges” under MCL 500.3157. It explained that, under the “customary” limitation, the only relevant question is what the provider customarily charges in cases without insurance. Under the “reasonable” limitation, the amount charged is not dispositive, even if it’s customary. Instead, the amounts paid by third-party payers—and other evidence regarding the amounts charged and paid in the open market—are also relevant.
Significance of Spectrum Health
This case is certain to have a substantial effect on no-fault litigation. No-fault insurers will no longer find themselves with their eyes closed and their hands tied as they contest the disparity between amounts paid by third-party payers and no-fault carriers. Instead, no-fault insurers may admit evidence of third-party payments as well as other evidence “present[ing] the complete picture of the range of charges and payments for medical services on the open market.” Spectrum Health, ___ Mich App at ___; slip op at 24. Spectrum Health’s holding also reflects a tacit understanding that the no-fault act’s concern for the rising costs of health care requires that no-fault insurers have the ability to “check” health care providers that submit excessive charges to no-fault insurers while accepting lesser payments from third-party payers. In short, the opinion is a resounding win for no-fault carriers seeking to establish that a provider’s charges are unreasonable.