Safeco’s Utilization of Peer Reviews for PIP Policies: Quality Cost Containment vs. Insurers Bad Faith
By Richard H. Adler
February 13, 1996
On April 21, 1995, Safeco mailed a form letter to health care providers across the state of Washington. The letter advised that Safeco “will be utilizing the Targeted Care Review and bill audit program offered by Intracorp” to monitor medical costs billed under Safeco’s insureds’ PIP (Personal Injury Protection) policies for motor vehicle accident cases.
Safeco further detailed the utilization approach by advising that when they receive a bill from the health care provider, it will be forwarded to Intracorp where it will be reviewed to ensure that it is a reasonable and customary fee for the services rendered. These decisions will be based on data gathered by Medical Data Research which is tailored to specific geographical regions. An explanatory statement will accompany each payment that does not cover the entire billed amount. If you have questions about the amount paid, representatives of Intracorp will be available to help you resolve the issues.
The bills will also be reviewed to verify that the treatment being provided qualifies as “reasonable and necessary” medical treatment for the injuries being treated. If the medical specialist at Intracorp has questions about the treatment, the case will be referred to a Physician Advisor for review. The Physician Advisor will then contact you to discuss the patient’s current treatment and agree upon a future treatment plan. If at some point in your patient’s treatment you decide that agreed plan will not adequately address your patient’s needs, you will need to contact the Physician Advisor at Intracorp to discuss this.
As you are probably aware, PIP policies are fairly uniform in the state of Washington and provide that, in exchange for the insured paying his premiums, the insurer is responsible for “reasonable and necessary” expenses from health care needs for injuries resulting from motor vehicle accidents. A standard PIP policy states:
We will provide medical and hospital benefits incurred because of bodily injury caused by automobile accidents… “Medical and hospital benefits” means payments for all reasonable and necessary health care incurred for treatment prescribed by a licensed practitioner.
Health care providers have begun expressing concern that Safeco’s utilization program will mean denial of payment of bills, interference in the provider’s treatment plan, interference in the doctor-patient relationship, and wasted time corresponding and communicating with utilization reviewers. These concerns are based on experiences encountered when State Farm initiated a utilization review program based on Fee Facts which ultimately resulted in a class action lawsuit by its insureds. The class action lawsuit settled in the fall of 1994. Safeco’s use of Intracorp, who relies upon information from Medical Data Research, sounds similar to State Farm’s use of Fee Facts. Fee Facts provided information about existing health care providers’ fee structures in a given geographical area by conducting a survey of providers’ charges. Fee Facts then averaged these charges to arrive at a “usual or customary” fee. If a provider’s fee was higher than the average, the insurer would pay a reduced amount. Health care providers would then receive a letter from State Farm stating:
Our analysis of the charges presented in your statement indicate that these charges as submitted exceed the prevailing reasonable, customary charges for this area. This position is based on a comparison of your charges in this case with those presented in a recently published survey, Fee Facts.
We feel a strong obligation to monitor the charges of health care providers as our policyholders are concerned about rising health care costs as well as the cost of insurance coverage. We feel our resolution in this matter is fair.
This letter would be addressed to the provider and a copy sent to the patient. Additionally, the patient would often receive another letter drawing into question the provider’s charges and advising the insured that he/she did not owe the excess amount.
State Farm’s use of this cost containment tool, in the name of their policyholders, was protested by many insureds, their attorneys, and health care providers. The issues that surfaced with State Farm’s use of Fee Facts mirrors those of Safeco’s utilization program with Intracorp. Those concerns include the following:
The insured is not getting what he/she paid for. The insured/patient pays insurance premiums for PIP automobile insurance coverage. PIP provides for the payment of treatment charges that are “reasonable, necessary, and related” to the accident. Safeco’s use of Intracorp and its use of Medical Data Research retroactively changes the insurance contract from “reasonable, necessary, and related” to “reasonable and customary fees.” These are different legal/insurance phrases with different meanings. Nowhere in the Safeco policy is “reasonable and necessary” defined, nor is it interchangeable with the phrase “reasonable and customary.”
Medical Data Research. The Safeco letter sent to providers states that “…decisions will be based on data gathered by Medical Data Research, which is tailored to specific geographical regions…” One can only question what type of data has been gathered, by whom, whether the population sample is large enough, whether the results are statistically reliable, whether the results are statistically valid, and whether the methodology in gathering, compiling, and reporting the data conforms to generally accepted statistical standards.
Interference with the provider/patient relationship: If Safeco advises a patient that a bill will not be paid because his/her health care provider is charging fees in excess of what is reasonable and customary, a patient may begin to think badly about their doctor. Perhaps the patient switches health care providers. Perhaps the patient chooses not to pay his/her bill incurred for treatment. Perhaps the doctor threatens collection processes against his/her own patient. These considerations obviously do not foster strong provider/patient relationships, but rather tend to undermine them.
Safeco’s program became effective on May 1, 1995. As time goes on, we hope to learn more about the program and shed light on questions that remain. Those concerns include:
- Which published practice guidelines, case utilization procedures, and standards of practice will Intracorp utilize in its initial screening process?
- Which published practice guidelines, case utilization procedures, and standards of practice will Intracorp utilize to decide when a file should be transferred to its Physician Advisor?
- Who owns and operates Medical Data Research?
- Is the research statistically valid? Statistically reliable?
- Does the methodology used in compiling, gathering, and analyzing this data conform to generally accepted statistical standards?
- Who qualifies to serve as a “Physician Advisor?” Is this person a doctor? Health care professional? Trained in a specialty? Licensed to dispense health care advice?
- What are the criteria for selecting such Physician Advisors for employment at Intracorp?
- Will the Physician Advisor send a report to the provider explaining the basis of a bill reduction or termination of a provider’s treatment plan?
- Will the patient or health care provider have access to the fee data compiled by Medical Data Research purporting to show “reasonable and necessary” charges? “Reasonable and customary” charges?
- Who qualifies as a “Medical Specialist” at Intracorp? Is this person a doctor? Health care professional? Trained in a specialty? Licensed to dispense health care advice?
- What are the criteria for selecting a “Medical Specialist” for employment at Intracorp?
REMEDIES FOR HEALTH CARE PROVIDERS
Health care providers must bear in mind that they do not have “standing” to complain or bring an action against Safeco, even if Safeco’s practices are deemed to be in bad faith and violation of the insurance policy. The reason is simple: Safeco has an insurance contract with its insured/your patient. If Safeco denies payment for treatment or attempts to reduce a bill, then it is the patient’s rights that have been affected.
A provider can, however, report abuses of insurance practices to the Washington State Insurance Commissioner’s Office by sending a letter documenting the specifics of the alleged abuse. Copies should, of course, go to the patient and patient’s attorney, if any.
If the patient does not have an attorney, it is prudent to advise the patient to seek counsel to assist in sorting out legal rights and duties.
Maintain a well documented file. Health care records are important for documenting specific services received by the patient so the provider can be reimbursed. Insurance companies, patients, and patients’ attorneys need to know the severity of the patient’s injuries, length of treatment, type of treatment received, future care needs, patient’s progress with treatment received, etc. There is no dispute that health care records are critical in a variety of health care contexts as well as medical/legal contexts. Health care records will be relied upon to justify the care provided to the patient on a specific day and there must be justification for the overall treatment plan. The justification for treatment must be in the records, not in the provider’s head.
Involve your patient in the documentation process. One component of a well-documented file is to ask your patient to complete pain questionnaires periodically. Additionally, have your patient describe, in his/her own words, the ways treatment has been helpful and why additional treatment is necessary.
REMEDIES FOR SAFECO’S INSUREDS/YOUR PATIENTS
Since the patient has the insurance contract with Safeco, he/she is in a position to request information pursuant to Safeco’s decisions. For example, a patient can write to Safeco and ask for a copy of his/her policy, as well as for that part of the policy that defines “reasonable and necessary care” and “reasonable and customary fees.”
The patient can write Safeco asking for an explanation of a decision to reduce payment of specific bills or to terminate coverage. The patient has the right to find out what written standards or guidelines were used in determining whether treatment expenses were reasonable and necessary.
The patient has a right to the identity of the Physician Advisor, his/her credentials, and the basis of the Physician Advisor’s decision to terminate care or reduce payment of bills.
Your patient needs legal counsel at this point. All rights that a patient has under Washington law or the insurance policy will be done better, more effectively, and with more leverage if the patient’s has an experienced personal injury attorney in his/her corner.
Attempts are being made to have an informational meeting with Safeco representatives. We will update you through this newsletter when we obtain more information.
As always, if your patient needs legal counsel or just a consultation, we are available to answer questions and provide direction. Simply give us a call.
Very truly yours,
ADLER GIERSCH, P.S.
Richard H. Adler
Attorney at Law