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How do doctors get paid by insurance companies under No-Fault?

April 4, 2019 by Steven M. Gursten

For years, doctors’ and hospitals’ medical bills have been slashed by No-Fault insurers using the insurers’ own de facto medical-provider fee schedules

How do doctors get paid under No-Fault? Insurers have de facto fee schedules

How do doctors get paid by insurance companies under Michigan No-Fault? Under Michigan’s No-Fault auto insurance law, there is no official, statutorily-required fee schedule governing what doctors and hospitals can charge – and what auto insurers must pay – for medical care and treatment of car accident victims. However, insurance companies have for years used their own de facto medical-provider fee schedules to reduce medical charges and determine what portion of those bills they are willing to pay.

How do doctors get paid by insurance companies under Michigan auto No-Fault after treating and caring for car accident victims?

Hint: It’s not what the auto insurance industry would like you to believe.

Yes, we’ve all seen the big billboards by now showing what the charges are under No-Fault for things like MRIs. But this is what you don’t know – No-Fault auto insurers do NOT pay what doctors and hospitals charge.

Not even close.

Instead, No-Fault auto insurance companies in Michigan have for years been using their own de facto No-Fault medical-provider fee schedules to slash charges – often by as much as 50% – and sometimes more.

What you don’t know, and what the billboards and Mayor Duggan and politicians like Senator Lana Theis never tell you, is that the medical charges submitted by doctors and hospitals for things like MRIs are never what the insurance companies actually pay under No-Fault.

Medical bills and charges are very different from what is paid out under No-Fault in Michigan

Watching the news and the debate about how to implement changes to Michigan No-Fault to make it less expensive, you have likely seen people calling for a No-Fault fee schedule. They claim that until a fee schedule is enacted, car insurance prices will continue to go through the roof.

The problem with that is that a fee schedule already exists. Michigan already has de facto No-Fault medical-provider fee schedules that every auto insurer uses to slash bills before they are paid out.

In fact, last year Michigan’s former Insurance Commissioner gave auto insurers even more reason to feel safe in using de facto fee schedules.

In Bulletin 2018-13-INS, he encouraged and sanctified insurers’ de facto No-Fault fee-schedule process by reminding “auto insurers and health care providers” that insurers must audit and challenge medical bills – and doctors and hospitals and providers should expect no less.

It’s the way business has been done for a very long time in this state.

A fee schedule is nothing new.

A de facto fee schedule already exists.

How do insurance companies pay out claims for No-Fault medical benefits?

I’ve been doing auto accident litigation for 26 years now. The short answer to this question is that they make it up as they go.

Based on their own criteria or criteria that is cooked up by so-called “cost containment” services like Review Works, Cofinity, and Ingenix, auto insurers take the bills they receive and slash them down, often to whatever amount they seemingly pluck out of the air.

However, even that is often ONLY if they can’t find some other way to reject the bill all together.

Here are some recent examples from the EOBs or “Explanation of Benefits” documents that are sent to car crash victims:

  • Review Works (on behalf of Pioneer State Mutual Insurance) has slashed medical bills by up to 58% based on its conclusion – apparently without proof, substantiation, or any source or data – that the “charge exceeds that which would be reasonable . . .” and based on its use of “a Cofinity auto contract.” Additionally, even when Review Works has concluded that medical bills were “[w]ithin reasonable and customary guidelines,” it has still cut the bills by between 25% and 40%.
  • Liberty Mutual Insurance says “[p]ayment [is] based on the usual and customary amount for geographical area.”
  • AAA Michigan has slashed medical bills by as much as 54% based on AAA’s own conclusory assertion that the “amount allowed is based on provider charges within the provider’s geographic region” and by as much as 63% because the “amount allowed is based on benchmark data provided by Ingenix.”
  • Nationwide Insurance/Allied Insurance has been known to cut a medical bill by 44% because a “network discount has been applied in accordance with your Cofinity preferred provider contract.”
  • Allstate has slashed medical bills by nearly 50% based on the amounts allowed under Cofinity auto and preferred provider contracts.
  • State Farm relies on Cofinity preferred provider contracts to slash medical bills.
  • Geico has slashed medical bills by up to 76% based on its own assertions that the “service charge exceeds an amount that is reasonable when compared to the charges of other providers in the same geographic area.”

How do hospitals get paid by insurance companies?

It’s not easy – for hospitals or for doctors or for any medical provider that helps to heal car crash victims.

As L. Brooks Patterson explained, getting auto No-Fault insurance companies to pay a bill can be a very painful, frustrating and aggravating process – and one that the insurance companies already have nearly exclusive control over. The only thing a medical provider or hospital can do is hire a lawyer to start a provider lawsuit to protect its bills.

Are there inflated bills submitted for the treatment of car accident victims under No-Fault?

Yes. The billboards are right that the charges can be inflated for services under No-Fault. I’ve long argued for fee schedules in this auto lawyer blog, but I’ve argued for them as a way to streamline and simplify the process, guarantee faster and prompt payment for services, and as a way to get rid of all the provider lawsuits that are clogging the courts today.

But I also understand that the main argument used in support of medical fee schedules in Michigan is largely bogus. It’s not what the bill’s charge is. It’s what the insurance companies pay. And the two are often widely different.

What does the future hold for de facto medical fee schedules in Michigan under No-Fault?

In Bulletin 2018-13-INS, entitled “Disputes Between No-Fault Automobile Insurers and Health Care Providers,” which was issued on June 6, 2018, former Michigan Insurance Commissioner Patrick McPharlin gave official approval to auto insurers’ slash-and-pay approach to medical bills – putting medical providers on notice that the road to payment would be a bumpy one for the indefinite future.

Specifically, the Bulletin stated:

  • “Together, these sections of the Code [MCL 500.3107(1)(a), MCL 500.3157] ‘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.’ McGill v Automobile Ass’n of Michigan, 207 Mich App 402, 502; 526 NW2d 12 (1994). Further, the ‘customary fee’ that a particular provider charges under section 3157 does not define what constitutes a “reasonable charge” under section 3107. See Advocacy Org for Patients & Providers v Auto Club Ins Ass’n, 257 Mich App 365; 670 NW2d 569 (2003). Rather, the ‘customary fee’ is simply the cap on what health care providers can charge, and is not, automatically, a ‘reasonable charge requiring full reimbursement under section 3107.’ Id. at 376.”
  • “The Director reminds auto insurers and health care providers that . . . ‘not 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 Auto Club Ins Ass’n, 214 Mich App 577, 582, n 3.; 543 NW2d 42 (1995) (overruled on other grounds by Covenant)] ‘[C]onsequently, insurers must determine in each instance whether a charge is reasonable in light of the service or product provided.’ Advocacy Org, supra, at 379.”

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