People tapping Michigan's no-fault car insurance may be on hook for medical bills

MICHIGAN - A controversial Michigan Supreme Court decision has upended bill-collection practices for hospitals and clinics that treat people after auto accidents and could result in some patients getting surprise medical bills in the mail, although insurance companies say it may reduce costs for consumers.

The state's highest court issued an opinion May 25 that says medical providers have no legal right to sue auto insurance companies for the unpaid bills of patients who received treatment through no-fault insurance benefits.

The opinion upends decades of common practice in Michigan in which hospitals, clinics, MRI centers and medical transportation companies have routinely filed lawsuits against auto insurers over unpaid or underpaid bills for accident patients. These lawsuits are generally prompted once an insurance company balks at paying claims or cuts off benefits for a person whom the insurer contends is now all better from the accident.

A Free Press investigation last month found that such lawsuits, known as first-party lawsuits, have been on the rise statewide, especially in Wayne County, and contribute to Detroit's highest-in-the-nation auto insurance premiums. Plaintiffs in these suits are also commonly the people who were in the auto accident.

The Coalition Protecting Auto No-Fault (CPAN), a lobbying group of medical providers, patient advocates and plaintiffs lawyers, called the state Supreme Court's decision "a nightmare for consumers" and said patients are now solely responsible for making sure their auto insurance company pays their doctors and care providers.

That is because if an insurer fails to pay for a service or treatment, hospitals, clinics and other providers are now more likely to turn to the patient for the unpaid balance.

"This will create scenarios where doctors and hospitals will be forced to sue the very same patients they are caring for, and then patients will turn around and sue their insurance companies," coalition President John Cornack said in a statement.

Others say there could be an upside for consumers: 

  • Medical providers may lower their prices for services and procedures to avoid insurance denials.
  • Medical providers may start writing off more no-fault bills that insurance doesn't pay.
  • Unpaid bills could be picked up by patients' regular health insurance plans, which often pay less for medical services than no-fault insurers.

Another result of the ruling: Providers could start asking patients to "assign" them their right to sue insurance companies for no-fault benefits. Patients may then have to execute an assignment for each medical provider they visit and renew their assignments after each billing statement.

This option would offer patients some protection against surprise medical bills, as providers almost always write off unpaid balances should litigation against an insurance company fail or a settlement fall short.

The high court's ruling doesn't change the requirement that no-fault insurers pay legitimate claims and medical bills within 30 days or face 12% penalty interest. And accident victims still possess the ability to sue insurance companies over no-fault benefits, including medical bill payment, lost wages and in-home attendant care.

Auto insurers have been applauding the decision.

Dyck Van Koevering, general counsel of the Insurance Alliance of Michigan, an industry group, called it "a win for consumers because it will reduce costly litigation by medical providers and limit the unscrupulous practice of charging victims of auto accidents two to three times more than what others would normally pay for the same products or services."

In the state Supreme Court case, justices ruled 5-1 in favor of State Farm in a lawsuit brought against the insurance company by Covenant Medical Center in Saginaw. The medical center sought payment for nearly $45,000 in medical bills generated by a Saginaw man whom the center treated for injuries from a 2011 car crash.

The man filed his own lawsuit against State Farm in June 2012 for no-fault benefits. That suit was settled for $59,000, and as part of the settlement, he released the insurance company from past claims related to the crash.

However, the settlement didn't include money for Covenant's medical bill. Covenant proceeded to file its own lawsuit against State Farm in April 2013, demanding payment.

State Farm argued it didn't have to pay the medical center because Covenant's claim was secondary to that of the Saginaw patient — and therefore extinguished by the patient's settlement.

Saginaw County Circuit Court sided with State Farm in a 2014 ruling. Covenant appealed, and the Michigan Court of Appeals reversed the lower court's decision, saying State Farm's settlement wasn't in good faith because the insurer had notice at the time that Covenant's bill wasn't paid.

The Supreme Court overturned the appeals court. The five justices said the Court of Appeals has for decades erroneously interpreted Michigan's no-fault system as giving medical providers the right to sue auto insurers directly over no-fault benefits. Yet in fact, the law never empowered providers to do so, the justices' opinion said.

"We overrule all Court of Appeals case law inconsistent with this conclusion," the justices wrote.

Justice Richard Bernstein was the lone dissenter in the case. Newly appointed Supreme Court Justice Kurtis Wilder didn't participate.

The court's opinion says that instead of suing a patient's auto insurance company for unpaid bills, medical providers can pursue the patient to get payment.

Hospitals are still deciding how they will adjust their collection practices in light of the decision, said Laura Wotruba, director of public affairs for the Michigan Health and Hospital Association. She added that the association was disappointed by the decision. 

"Our hospitals are examining their options," Wotruba said. "The court’s decision raised more questions than it answered.”

Attorney Dick Hillary, who represented Covenant Medical Center, said the court's decision has put injured people and their families in the middle of disputes between medical providers and insurance companies.

"Within a day of the opinion, insurance companies began notifying medical providers that they intended to seek dismissal of pending cases, immediately exposing injured persons to personal liability for their medical charges and forcing them to hire their own attorneys to battle their insurance companies," Hillary wrote in an e-mail.

Attorney Steve Sinas with Lansing-based Sinas Dramis Law Firm, which represents many patients and providers, also faulted the ruling. He said there is great uncertainty about what now happens to the pending lawsuits over no-fault benefits in courthouses across the state.

It's still unclear whether cases that were brought by medical providers have all been rendered moot.

"Some insurance companies are looking at this uncertainty as an opportunity to not pay any of the medical expenses at issue in these pending cases," said Sinas, who teaches no-fault law at Michigan State University and is associate general counsel for CPAN.

© 2017 Detroit Free Press


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