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Auto insurance companies fail to use cost controls built into Michigan’s No Fault Law

July 31, 2013 by Steven M. Gursten

Keep this, and other myth busters in mind when reading a recent mailing from the auto insurance industry on No Fault “reform”

Michigan auto insurance companies fail to use cost controlsMichigan auto insurance companies fail to use cost controls

Did you receive mail from your auto insurance company in the past month touting what they say is the need for No Fault “Reform?”

This propaganda  piece,  mislabeled as a “Common-Sense Plan For Reform,”  identifies the following “idea” as part of its plan:

“Make medical reimbursement rates for auto insurance match rates for health insurance. Auto accident victims are currently charged 300%-500% more.”

Given how misleading and deceptive this flyer is  (paid for by the Coalition for Auto Insurance Reform), our attorneys are reviewing what they’ve mailed to people all over this state, and why these arguments are either completely untrue or intentionally misleading, in a series of upcoming blog posts called 7 reasons why this auto No Fault “reform” junk mail is trash.

Regarding the insurance industry’s argument that it aims to make medical reimbursement rates for auto insurance match those for health insurance, as “auto accident victims are currently charged 300%-500% more,” this is just dead wrong.

L. Brooks Patterson, an Oakland County Republican and well known fiscal conservative, put it best when he compared this to an irresponsible person with horrible credit demanding the same rates as someone who has acted responsibly.

But, even assuming for the sake of argument that this contention from the insurance industry’s propaganda mass mailings is true, the auto insurance industry has no one to blame but itself.

All along, No Fault auto insurers have had the power and cost-control tools to keep No Fault medical costs low.

But, for reasons that have yet to be shared with the public, Michigan No Fault auto insurers chose to do nothing, thereby creating – rather than averting – the so-called cost “crisis” of which they now complain.

When the Legislature enacted the No Fault Law 40 years ago, lawmakers included the following specific cost control measures for the express purpose of empowering No Fault auto insurers to manage No Fault medical costs:

  • No Fault insurers were required to pay No Fault medical benefits to cover only “reasonable charges … for reasonably necessary products, services and accommodations for an injured person’s care, recovery, or rehabilitation.” (MCL 500.3107(1)(a))
  • Physicians and hospitals who treat auto accident victims could charge only a “reasonable amount for the products, services and accommodations rendered.” (MCL 500.3157)
  • A physician’s or hospital’s “charge” could “not exceed the amount the person or institution customarily charges for like products, services and accommodations in cases not involving [No Fault auto] insurance.” (MCL 500.3157)
  • If so requested by an auto accident victim’s No Fault auto insurer, the victim’s treating physician, hospital or clinic must provide to the insurer a “written report” as well as the records documenting the “costs of treatment of the injured person.” (MCL 500.3158(2))
  • “In a dispute regarding an insurer’s right to discovery of facts about an injured person’s … costs of treatment, a court may enter an order for the discovery.” (MCL 500.3159)

Michigan case law has reaffirmed time and again both the purpose and the effectiveness of the No Fault “cost controls” set forth in the statutes above:

  • Former Michigan Supreme Court Justice Clifford W. Taylor, during his pre-Supreme Court tenure on the Michigan Court of Appeals, explained in McGill v. Automobile Association of Michigan (Michigan Court of Appeals, 1995) that the No Fault cost-control statutes, which represent “insurance companies’ cost-policing function as contemplated by the No-Fault Act,” “clearly indicate that an insurance carrier need pay no more than a reasonable charge and that a health care provider can charge no more than that.”
  • “[A] no-fault automobile insurance company may use the services of a subsidiary company in determining the reasonableness of charges to its insureds by a health care provider and it is not required to use a disinterested third party in determining reasonableness.” Attorney General Opinion #6865, 1995.
  • “[R]efusing to pay unreasonable medical expenses is allowed under the insurance contract …,” wrote former Michigan Supreme Court Justice Clifford W. Taylor, during his pre-Supreme Court tenure on the Michigan Court of Appeals, explained in LaMothe v. ACIA (Michigan Court of Appeals, 1996).
  • “[N]ot only should an insurer audit and challenge the reasonableness of bills submitted by health care providers, but the providers should expect no less.” LaMothe v. ACIA, footnote 3 (Michigan Court of Appeals, 1996)
  • A No Fault auto insurer’s “ability to assess the reasonableness of provider charges is not limited to a comparison of customary charges among similar providers. Rather, the [No Fault] act contemplates that … 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. … The parties are free to introduce evidence to the fact-finder regarding 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 … products at issue …, and [No Fault auto insurers] may respond by asserting that [the] markup over the average wholesale cost of those products renders the charges excessive.” Bronson Methodist Hospital v. Home-Owners Insurance Company (Michigan Court of Appeals, 2012)
  • No Fault auto insurers “are permitted to consider the cost to [the accident victim’s doctor or hospital] of providing … [the] treatment [in question] 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.” Bronson Methodist Hospital v. Home-Owners Insurance Company (Michigan Court of Appeals, 2012)

Yesterday, we discussed why the grass is definitely not greener in No Fault states with medical benefit caps. Tomorrow, we will be tackling why wrongdoing and fraud by auto insurers will continue to go unpunished.

For more information about Michigan No Fault Reform, please check out Michigan Auto Law’s “The Auto Insurance Consumers’ Guide To Michigan No Fault Reform & House Bill 4612.”

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