Michigan Court of Appeals; Docket # 347553 and 348440; Published
Judges Tukel, Markey and Gadola; per curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
TOPICAL INDEXING
SUMMARY:
This 30-page decision arises out of a lawsuit filed by Spectrum Health Hospitals (“Spectrum”) to recover the unpaid balance of its charges from Farm Bureau Mutual Insurance Company of Michigan and Farm Bureau General Insurance Company of Michigan (collectively referred to as “Farm Bureau”) for services rendered to an individual insured by Farm Bureau who was injured in a 2016 auto accident. For those services, Spectrum charged $225,279.10. However, Farm Bureau only paid 80% of the bill, asserting that charges in excess of that percentage are not “reasonable” under the No-Fault Act. This prompted Spectrum to file suit, seeking not only the unpaid no-fault benefits but also a declaratory judgment that Farm Bureau was liable for the benefits and that its practice of only paying 80% of a claim violated the Act.
After suit was filed, Farm Bureau sought discovery from Spectrum on matters including (1) “the amount generally billed for the same care for the same dates of service”; (2) “the 115% Medicare rate for the care”; and (2) “the rates Priority Health and Blue Cross/Blue Shield each paid for such care.” (Slip Op at 4.) Spectrum objected to the information sought as irrelevant, leading Farm Bureau to file a motion in limine seeking, inter alia, a ruling that (a) “what is paid on the open market is relevant to the reasonableness of the gross charge”; (b)“evidence of payment rates of payers other than no-fault insurers are relevant to the reasonableness of Spectrum’s gross charges”; and (c) “the amount generally billed is relevant, discoverable and admissible with regard to the reasonableness of the gross charge.” Id. at 5-6. In response, Spectrum argued the amount paid by others is not relevant to what constitutes a “reasonable” charge, citing several appellate decisions for this proposition, and the trial court agreed and denied Farm Bureau’s motion.
Following discovery, the parties stipulated to the amount owed and to preserve all issues for appeal, and the trial court entered a consent judgment, from which Farm Bureau appealed.
On appeal, the Court was asked to consider “whether third-party payments are a permissible consideration under the no-fault act for purposes of assessing reasonableness.”
The Court answered that question in the affirmative and held that “the amount that third-parties pay is . . . evidence bearing on the reasonableness of a healthcare provider’s fees.” Id. at 22. Elaborating further, the Court concluded that “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.” Id.
In reaching this holding, the Court conducted a lengthy 3-part analysis. First, the Court reviewed the distinction between a “reasonable” and “customar[y]” charge as set forth in the pre-2019 amendments version of §3157 of the Act. The Court emphasized that “the reasonable and customary provisions [of §3157] are two ‘separate and distinct limitations on the amount health-care providers may charge and what insurers may pay.’” Id. at 12, quoting AOPP v ACIA, 257 Mich App 365, 376 (2003).) With regard to this distinction, the Court reiterated that “under §3157, a provider’s ‘customary’ charge functions as ‘the cap on what health-care providers can charge,’ but it is ‘not, automatically, a ‘reasonable’ charge requiring full reimbursement under §3107.” Id. at 13, quoting AOPP, 257 Mich App at 377.)
Second, the Court distinguished the appellate authority that has long been relied on as holding that third-party payments is not relevant for purposes of assessing whether a provider’s charge is “reasonable.” While the Court acknowledged that it has previously and “correctly” held that third-party payments have “no bearing on the customary prong of §3157”, it concluded that the “caselaw precluding consideration of third-party payments in the context of the customary inquiry does not control whether those payment[s] may be considered when determining reasonableness.” Id. at 15. In reaching this conclusion, the Court emphasized that it “has not squarely addressed whether the amounts actually paid by third parties for the same services might be relevant to the reasonableness of a charge.” Id. To underscore this point, the Court examined the cases Spectrum relied on for the proposition that third-party payments are irrelevant in assessing whether a provider’s charge is “reasonable” and concluded that “this specific question was neither at issue nor expressly considered in these decisions.” Id. at 21.
Third, the Court reviewed the concept of “reasonableness” and the characteristics of relevant evidence to determine “whether third-party payments are a permissible consideration under the no-fault act for purposes of assessing reasonableness.” Id. Applying this analytical framework to the discovery sought by Farm Bureau, the Court concluded that a “comparison of the amounts that Spectrum charged for the services [the patient] received to the amounts that others actually paid for the same services during the same general timeframe – and that Spectrum accepted as payment in full for these services – tends to make it more or less likely that the amounts Spectrum charged were reasonable or unreasonable.” Id. at 22 (emphasis added). More broadly, the Court concluded that “when determining reasonableness, the amount that others pay for the same goods or services is a pertinent factor to be considered.” Id. at 23. However, the Court clarified that such evidence must be specific to the charges and timeframe at issue to be relevant. In addition, the Court emphasized that third-party payments do not “conclusively establish a reasonable amount.” Id. at 24, FN 13. Rather, they are “just one measure – among all the evidence the parties might wish to present – regarding the reasonableness of the charges.” Id.
Ultimately, the Court held that “evidence regarding third-party payments may be relevant and admissible for purposes of assessing reasonableness under §3107(1)(a) and §3157.” Id. at 29. The Court reversed the judgment in favor of Spectrum and remanded to the trial court to assess the relevance of the discovery sought by Farm Bureau “under the proper legal framework.” Id.
