Changes in No Fault Law: How They Will Affect Your Case

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Changes in No Fault Law: How They Will Affect Your Case

Covenant Medical Center v. State Farm – What Was the Ruling And What Are Some of the Effects?

Last month, the Michigan Supreme Court released the most important ruling the Court has issued on personal injury law in years. In Covenant Medical Center v. State Farm, docket no. 152758, the Michigan Supreme Court ruled that medical providers do not have an independent, statutory right to file a lawsuit against a no-fault car insurance carrier to recover the payment of medical expenses incurred by their patients following a car accident.

This case affects Michigan car accident lawsuits throughout the state, from Detroit to Grand Rapids to Traverse City.

This ruling is extremely important. No longer can medical providers hire their own attorneys to file a lawsuit against a car insurance carrier to protect the payment of their charges following car accident treatment. Instead, health care providers must rely upon their patient and his or her attorney to file a lawsuit against the applicable no-fault insurer for the payment of its outstanding charges.

Although the Court left open the possibility for medical providers to pursue a lawsuit on other grounds, this ruling greatly diminishes the leverage medical providers have in representing their own interests. It will also reduce the number of lawsuits filed in various state courts.

Let’s review what the holding says. In essence, the Michigan Supreme Court overruled decades of prior decisions and case law that granted medical providers an independent right to file a lawsuit against a car insurance carrier to get its bills paid. And when I say decades of prior case law, I mean decades.

Instead, medical providers must rely upon the injured patient’s own lawsuit to ensure the payment of their bills.  As the majority opinion held, “a provider that furnishes health care services to a person for injuries sustained in a motor vehicle accident may seek payment from the injured person for the provider’s reasonable charges.”

In making this ruling, the Michigan Supreme Court reviewed the language of MCL 500.3112, which states in part:

Personal protection insurance benefits are payable to or for the benefit of an injured person …

[P]ayment by an insurer in good faith of personal protection insurance benefits, to or for the benefit of a person who it believes is entitled to the benefits, discharges the insurer’s liability to the extent of the payments unless the insurer has been notified in writing of the claim of some other person.

The Court then reviewed each part of the statute. Most notably, it found that just because an insurance company can issue payment directly to a medical provider does not mean the medical provider “has a statutory entitlement to that method of payment.” In addition, in no part of the statute are medical providers conferred a right to directly sue a car insurance carrier for payment.

The Covenant decision greatly affects the litigation process of all Michigan no-fault claims. Prior to this decision, medical providers, like Beaumont Hospital or the Detroit Medical Center, could hire their own attorneys and file their own lawsuits to collect payment of their bills. This could be accomplished even if the underlying patient already had his or her own lawsuit pending against the car insurance carrier for the same benefit.

Very often car insurance carriers were defending multiple lawsuits in various district courts and circuit court stemming from the same car accident and involving the same plaintiff.

For example, John Smith is injured in a car accident and has Progressive Insurance. Progressive is responsible for the payment of all no-fault benefits, which includes the payment of auto-related medical expenses. As part of his treatment, Mr. Smith sought treatment from Beaumont Hospital and ATI Physical Therapy. Mr. Smith retains his own attorney to obtain his no-fault benefits, which includes the payment of these bills, as well as wage loss benefits.

Prior to Covenant, Beaumont and/or ATI Physical Therapy could retain its own attorney and file its own lawsuit against Progressive in district or circuit court (if the bill was $25,000 or more) for the payment of its bills. However, due to the Covenant case, no longer will medical providers like Beaumont or ATI be able to file their own direct lawsuits.

Covenant has also blocked the ability for medical providers to intervene in currently pending lawsuits against insurance carriers. Before Covenant, a healthcare provider could retain its own lawyer to intervene in a lawsuit already filed by the injured person. This was accomplished through MCR 2.209 and was a mechanism that allowed medical providers to “piggy back” off the underlying plaintiff claim.  The Covenant decision seems to have destroyed this alternate method for health care providers to enter a lawsuit and seek payment of its own medical bills.

However, the Covenant decision seems to leave open alternative avenues for health care providers to file causes of action to recoup payment directly from an auto insurance carrier.

Assignments

The first workaround is through assignments. An assignment in this context is when a patient intends to transfer the right to claim payment of medical expenses to the healthcare provider. In other words, instead of the patient suing the car insurance carrier for the payment of a Beaumont hospital bill, the patient is granting Beaumont the right to sue the car insurance carrier for its outstanding bill on the patient’s behalf.

The Covenant decision specifically stated in a footnote “our conclusion today is not intended to alter an insured’s ability to assign his or her right to part or presently due benefits to a healthcare provider. See MCL 500.3143.” It is important to note that assignments cannot encompass future benefits, only past and present benefits. Therefore, a patient cannot assign his right to future medical charges.

However, one can expect medical providers (through their attorneys) all over Michigan will scramble to get in touch with old as well as current patients to get them to sign a written assignment that grants the medical provider the right to pursue its outstanding medical charges against the no-fault insurer.

In fact, this has already started. Our firm has already been contacted by multiple attorneys for various medical providers asking us to have our clients sign their assignments so they can represent Provider X for their bills.

Balance Billing

Another avenue that medical providers (and their attorneys) will pursue to maintain a cause of action against a car insurance carrier is through balance billing lawsuits. In most Michigan no-fault lawsuits involving medical bills, car insurance carriers utilize auditing companies such as Corvel and Mitchell to review a medical expense for reasonableness. These audits inevitably result in the insurer paying less than the charged amount by the doctor or hospital. Usually, the doctor or hospital will write off the rest.

However, the medical provider does not have to do this and is allowed to file suit against the patient for the balance amount. When this occurs, the car insurance carrier is obligated to fully defend and indemnify the patient in a claim for the “balance bill.”

So what medical providers may do is file a lawsuit against his or her own patient for a balance bill, thereby igniting the insurance carrier’s obligation to defend and indemnify (protect and pay for) the patient. This will then allow the health care provider and its attorney to enter into litigation for the payment of its medical bill.

What are the Effects of the Covenant Decision?

The effect of all this is not known, but some things are readily apparent. First, attorneys for medical providers are desperate to retain business and will go to great lengths to maintain their ability to collect attorney fees for the payment of the outstanding medical bills owed by car insurance companies under the Michigan no-fault law.

This could include having patients sign assignments granting healthcare providers the right to retain their own attorneys to collect existing outstanding medical bills. Another more disturbing possibility is the prospect of medical providers suing their own patients for the payment of outstanding bills.

Second, insurance carriers and their lawyers will file hundreds of motions to dismiss against health care providers in cases currently pending in state court. Litigation in these pending claims will only increase as medical providers and insurance companies battle over the feasibility of assignments, balance billing and other alternative theories of recovery.

Third, the number of lawsuits will inevitably decrease in Wayne County and other metro Detroit jurisdictions as judges move to dismiss the direct medical provider lawsuits.

Last, and most certain, car insurance carriers will benefit greatly as they work the system to decrease the amount of payments they make on no-fault cases.

The attorneys at the Law Offices of Lee Steinberg, P.C. is here to help car accident victims who have been injured in a car, truck or motorcycle accident. Please call us at 1-800-LEE-FREE (1-800-533-3733) with any questions you may have. We stand by ready to assist.

About the Author:

Eric joined the Law Offices of Lee Steinberg, P.C to fight for injury victims throughout Michigan. He has been selected to Super Lawyers and is a member of the National Trial Lawyers Top 40 Under 40. A graduate of the Chicago-Kent College of Law, he devotes 100% of his practice to representing victims who have been injured by the negligence of others. He is on the Executive Board for the Michigan Association for Justice.

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