The Washington Supreme Court Decides Insurers Can Use Database to Reduce PIP Payments to Healthcare Providers
A February 15, 2024 Washington State Supreme Court decision has sent shockwaves through legal and healthcare communities. The case, Schiff vs. Liberty Mutual, involves Liberty Mutual Insurance Company’s practice of using their company’s computer database to determine whether a provider’s bill for patient services is reasonable, and whether it should be fully paid.
For several years, Stanley Schiff, MD, Ph.D., submitted over 20 treatment bills to Liberty Mutual under his patient’s personal injury protection (PIP) or MedPay auto coverages. Based on Liberty Mutual’s use of its computer database, several of Dr. Schiff’s bills were reduced to the 80th percentile. Under Liberty Mutual’s practice, if a provider’s bill was below 80% of similar providers charged for the same services for the area, it was paid in full. However, if the provider’s charge exceeded the 80th percentile, then Liberty Mutual only paid up to 80% of what other similar providers were charging. Liberty Mutual uses a third-party database called “FAIR Health” to compare provider charges for specific treatments in a geographical area, based on a ZIP Code, and determine different percentiles for those charges.
In May 2017, Dr. Schiff sued Liberty Mutual alleging that its practice of reducing payments to healthcare providers violated Washington state’s PIP law, Administrative Code, and Consumer Protection Act. Dr. Schiff further asked the court to stop Liberty Mutual from making reductions to provider bills because Liberty was not conducting a “reasonable investigation” before refusing to pay bills in full.
Liberty Mutual claimed that the use of FAIR Health, and the 80th percentile practice, was reasonable based on the language of PIP insurance law in Washington and the Washington Administrative Code, which do not require an investigation into the reasonableness of an individual provider’s bills. Liberty also claimed that, since this practice was reasonable, there were no PIP law nor Consumer Protection Act violations.
In analyzing whether Liberty Mutual’s practice violated the Consumer Protection Act, the court used the five-factor test previously established in the case of Hangman Ridge[1]:
- Is this an unfair or deceptive act or practice;
- In trade or commerce;
- Which affects the public interest;
- From an injury to plaintiff’s business or property; and
- Is there a causal link between the unfair or deceptive act or practice, and the injury.
In examining the fairness issue, the court addressed this under the applicable Washington Administrative Code section 284 – 30 – 330, which requires an insurer to adopt and implement reasonable standards for the investigation of claims arising under insurance policies, and requires insurers to conduct a reasonable investigation before refusing to pay a claim.
Shockingly, despite Liberty Mutual’s reliance on a single database, and using a blanket approach to determine reasonableness instead of analyzing the specific bill submitted, the Supreme Court found that the use of the FAIR Health and 80th percentile practice was not universally unfair and found no violation of the Consumer Protection Act. In reaching this conclusion, the court looked to other states, such as Illinois and Delaware, where the use of a similar database by a PIP insurer was considered reasonable.
Speaking for the dissent, Justice Debra Stephens noted that Liberty Mutual had not shown that its application of an 80th percentile rule using the FAIR Health database constituted a “reasonable investigation” into a specific charge or established that a provider’s charge was unreasonable. Justice Stephens rightly noted that “it is entirely possible that patients may incur reasonable medical expenses greater than the 80th percentile benchmark in a given geographical area, and Liberty does not demonstrate how FAIR Health provides sufficient information to categorically reject all charges above the 80th percentile.“
Justice Stephens further noted that while the use of databases such as FAIR Health can provide a useful tool in conducting a reasonable investigation, it should not be the only method used to determine if the investigation was reasonable. She also noted that to determine the amount of a bill is categorically unreasonable, without further inquiry, fails for the same reason that the court held the “maximum medical improvement (MMI)” methodology at issue in Durant vs. State Farm[2] failed: it is clearly more restrictive than the ordinary meaning of “reasonable” requires.
Justice Stephens added that it was “naïve” to pretend that insurance coverage limits and reimbursements do not affect providers’ charges over time, as the majority opinion contended. This will likely have an impact on what “usual and customary” charges are in network-based healthcare coverages. For example, a study done in Alaska measured healthcare costs in a 10-year period using this 80th percentile methodology. The study concluded this method caused an 8.16% to 24.65% increase in healthcare expenditures in Alaska. In fact, the Alaska legislature recently passed a law in January of this year that repealed the 80th percentile rule.
We are disappointed with the court’s interpretation of PIP law and the Administrative Code in this instance. If you are also disappointed by the Washington Supreme Court’s decision, we recommend you contact your legislator and voice your concerns. We have provided a link below that you can use to find your legislators. A link to the Supreme Court decision is also below. We will continue to advocate fiercely for our client’s rights to have all of their healthcare bills fully paid.
[1] Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 783, 719 P.2d 531 (1986)
[2] Supreme Court Overrules Insurers Denial of Personal Injury Protection (adlergiersch.com)
