Michigan Court of Appeals; Docket Nos. 300566 and 300567; Published
Judges Hoekstra, K.F. Kelly, and Beckering; Unanimous; Per Curiam
Official Michigan Reporter Citation: Forthcoming; Link to Opinion
STATUTORY INDEXING:
Allowable Expenses: Reasonable Charge Requirement [§3107(1)(a)]
Obligations of a Medical Provider to Provide Treatment History, Information, and Record Copies [§3158(2)]
Issuance of Court Orders in Discovery Disputes
TOPICAL INDEXING:
Not Applicable
CASE SUMMARY:
In this unanimous published Opinion dealing with consolidated cases, the Court of Appeals held that a no-fault insurance company was entitled to conduct discovery regarding the wholesale costs paid by a hospital for certain surgical implant products that were inserted into patients during surgical admissions (i.e. screws, plates, etc.). In this particular case, the no-fault insurers were charged $61,237.50 for implant products for one patient and $28,810 for implant products for another patient. The insurers admitted they had not paid these charges because plaintiffs had failed to provide reasonable proof of the fact and amount of the loss and refused to comply with the discovery provisions of § 3158(2) of the statute. The Court of Appeals held that the hospital was required to disclose to the no-fault insureds the hospital’s actual costs for these surgical implant products and in so holding stated:
"We find that, in accordance with the defendants’ clear statutory right and obligation to question the reasonableness of the fees, the no-fault act permits defendants to discover the wholesale costs to plaintiff of the surgical implant products for which the insureds were charged. Therefore, the trial court erred when it denied defendants’ prior motion to compel discovery. Because of the error denying discovery, summary disposition was granted prematurely. We also stress that the ultimate burden of proof regarding the reasonableness of the fees rests with the provider. Finally, we conclude that the attorney fee penalty provision of the no-fault act was not triggered.”
In reaching this holding, the court referred to the discovery provisions of § 3158(2) and § 3159, which clearly indicate that a no-fault insurer is entitled to discover information related to “costs of treatment”; a phrase that appears in both of these discovery provisions. Therefore, discovery regarding the providers actual costs for the surgical products at issue was clearly within the scope of these discovery sections of the Act.
The Court also went on to reject the hospital’s argument that its actual wholesale costs for the surgical items was not relevant to a determination of whether the hospital’s charges were “reasonable charges” under section § 3107(1)(a) because the hospital’s charges were consistent with its “customary charges” within the meaning of § 3157 of the Act and also were consistent with the charges of other hospital providers for similar products in the geographic area. The Court rejected both of these interpretations of “reasonable charge” under § 3107(1)(a) and held:
“While § 3157 specifically sets forth that a provider’s charge ‘shall not exceed the amount customarily charged in cases not involving insurance,’ the language of the statute did not define what was ‘reasonable;’ rather, the language simply placed a maximum on what a provider could charge in no-fault cases. Thus, although § 3157 limits what can be charged, nowhere in that section does the Legislature indicate that a ‘customary’ charge is necessarily a ‘reasonable’ charge that must be reimbursed in full by the insurer.’ Id. at 376. Such a finding would be contrary to the purpose of the no-fault act. . . .
“While [AOPP v ACIA, 257 Mich App 365] supports an insurer’s practice of determining the reasonableness of a provider’s charges for surgical implant products by comparing those charges to the amounts charged for those products by other, similar providers, AOPP does not suggest that this is the only permissible approach under the act. In AOPP, we specifically declined to ‘delineate the permissible factors’ that defendants may consider when determining whether a charge is reasonable, while specifically rejecting the notion that providers are permitted to ‘unilaterally determine the ‘reasonable’ charge to be paid by the insurer’ by way of their customary charges, or that the act should be interpreted in a manner that effectively eliminates the cost-policing function of insurance companies as contemplated by the no-fault act. Id. At 379-380. To limit assessing the reasonableness of provider charges based solely on a comparison of such charges among similar providers, 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. Accordingly, defendants’ ability to assess the reasonableness of provider charges is not limited to a comparison of customary charges among similar providers. Rather, the act contemplates that, as happened here, insurers will assess the reasonableness of a provider’s charges, paying that portion deemed reasonable, with the provider having the prerogative to then challenge the insurer’s decision not to pay the entire charge submitted, by filing suit. Once an action is filed, the provider has the burden of proving, by a preponderance of the evidence, the reasonableness of its charges. AOPP, 257 Mich App at 379-380. The parties are free to introduce evidence to the fact-finder as to the reasonableness of plaintiff’s charges. Plaintiff is free to argue that its charges are in line with those of other similar providers for the surgical implant products at issue here, and defendant may respond by asserting that plaintiff’s mark-up over that average wholesale costs of those products renders the charges excessive. But ultimately, the burden of proof is on the provider to show how and why the charges are reasonable.”
The Court went on to emphasize that, although the insurers were entitled to discover the wholesale costs to the hospitals of the surgical implant products involved in this case, the Court was limiting its ruling to durable medical products, not provider costs in general. In this regard, the Court stated:
“In keeping with the insurers’ obligation to determine the reasonableness of a provider’s charges, we believe that defendants were entitled to discover the wholesale cost of the surgical implant products for which the insureds were charged. The no-fault act permits defendants to discover plaintiff’s ‘costs of treatment of the injured person’ not the ‘costs of treatment to the injured person,’ which presumably are plaintiff’s ‘customary charges.’ Accordingly, defendants are permitted to consider the cost to plaintiff of providing that treatment and not merely the cost of treatment as billed by the provider to the injured person when evaluating the reasonableness of the charges submitted for payment. We recognize that permitting insurers access to a provider’s cost information could open the door to nearly unlimited inquiry into the business operations of a provider, including into such concerns as employee wages and benefits. However, we explicitly limit our ruling to the sort of durable medical supply products at issue here, which are billed separately and distinctly from other treatment services and which defendants represent (and plaintiff has not disputed) require little or no handling or storage by a provider. Here, the surgical implants are stand-alone items that can be easily quantified. Plaintiff must come forward with evidence to convince a jury that charges for the durable medical equipment were reasonable.”
The Court found further support for its ruling in the recent Court of Appeals’ decision in Hardrick v Auto Club, where the Court held that in family-provided attendant care cases, the charges of commercial agencies and the agency’s employee costs were all relevant factors that a jury could take into consideration in determining what is a reasonable charge under § 3107(1)(a). However, the agency’s employee costs are not dispositive of that question. Applying the principles of Hardrick to the case at bar, the Court stated:
“Similarly, the plaintiff’s actual cost for the surgical implants is not dispositive on the issue of whether their charges were reasonable; however, the actual cost of the durable medical equipment is certainly a piece of the overall ‘collage of factors affecting the reasonable rate’ of plaintiff’s charges. Again, it cannot be overstated that, when factually disputed, the reasonableness of the charges is a question of fact for the jury to determine. The jury can only make such a determination if it has been provided with all relevant and probative evidence.”
The Court also stressed the fact that its ruling requiring hospitals to provide this wholesale cost information to insurers was consistent with the obligation of insurers to question the reasonableness of charges submitted for payment under the Act. In this regard, the Court stated:
“As discussed above, an insurer is not foreclosed from assessing the reasonableness of a provider’s charges merely because those charges are the provider’s customary charges; rather, insurers have a duty under the act to ‘audit and challenge the reasonableness’ of charges submitted for payment. Thus, defendants were required to assess the reasonableness of plaintiff’s charges for surgical implant products.”
Finally, the Court ruled that the attorney penalty provisions of § 3148 were not triggered by the defendants’ conduct in this case. In light of the fact that the defendants’ were obligated to question the reasonableness of plaintiff’s charges and given the fact the defendants were not provided with the information they were entitled to receive under the Act, the Court said, “we believe that their actions thus far in paying only the undisputed portions of the bills were reasonable under the circumstances and the attorney fee penalty provision of the no-fault act was not triggered.”
Revised 4/18/12