Washington Case Law Update: Washington Court of Appeals Sets the Stage for a Change in PIP Billing Practices
From the Desk of Smith Freed Eberhard: Some insurers use automated software to adjust their PIP payments to match the standard rate for specific procedures in specified geographic areas. Some states, such as Oregon, have prohibited this practice. Is Washington the next state to follow that trend? Read on to find out.
Claims Pointer: In this class action lawsuit, a chiropractic clinic brought a Consumer Protection Act claim against an insurer for its use of software to determine the reasonableness of PIP payments. After the lawsuit was dismissed by the trial court, the court of appeals reversed and reinstated the lawsuit. It concluded that the chiropractic clinic properly alleged a violation of Washington’s CPA because the insurer failed to individually examine claims to determine whether they were reasonable and necessary. This case may be the first step Washington courts take towards eliminating an insurer’s ability to use software such as Fair Health to determine the reasonableness of PIP payments to providers.
Folweiler Chiropractic PS (“Folweiler”) is a chiropractic clinic based out of King County, Washington. In 2016, Folweiler filed a class action lawsuit against American Family Insurance Company (“American Family”) alleging violations of Washington’s Consumer Protection Act. Folweiler alleged that, from 2012 to 2016, it treated numerous patients with PIP coverage provided by American Family and was directed to bill American Family directly. However, Folweiler alleged, rather than accepting and paying each bill, American Family processed the bills through a payment database maintained by Fair Health which compared Folweiler’s bills to the same procedures in the same zip code and reduced such bills to the 80th percentile of payments in the database. Folweiler argued that American Family’s use of the software violated its duty to individually examine each PIP payment to determine its reasonableness.
American Family moved to dismiss the suit, arguing that its practices complied with both the PIP statute and Washington’s Consumer Protection Act. The trial court agreed, finding that the practice did not violate either statute. Accordingly, the court dismissed Folweiler’s lawsuit. Folweiler appealed.
The court of appeals explained that its review would not declare whether American Family’s settlement practices were prohibited. Rather it would only decide whether Folweiler’s allegations were sufficient to survive a motion to dismiss for failure to state a claim upon which relief could have been granted.
First, the court examined American Family’s settlement practice to determine whether it was in violation of Washington’s PIP statutes. It noted that the PIP statutes, collectively, “require payment of all reasonable and necessary expenses incurred by or on behalf of the insured.” When determining whether such payments are “reasonable and necessary,” the statutes necessarily impose a duty to look at each claim individually. Accordingly, the court declared that, because the law requires an individualized assessment, and American Family substituted “a formulaic approach that only pays 80 percent of the average charge for a large geographic area,” Folweiler’s complaint “sufficiently alleged an unfair act in violation of the CPA based on a violation of the public interest embodied” in the PIP statutes.
The court then examined Folweiler’s alternative argument that American Family’s claim settlement process was unfair and contrary to WAC 284-30-330. That statute establishes “certain minimum standards which, if violated with such frequency as to indicate a general business practice, will be deemed to constitute unfair claims settlement practices.” It lists an example of such an unfair practice as “refusing to pay claims without conducting a reasonable investigation.” Taken together, the court concluded, WAC 284-30-330 “unequivocally establishes a duty to actually investigate and conduct a reasonable investigation of claims.” Because Folweiler’s complaint alleged that American Family used a formula based on geographic location to assess each claim regardless of individual circumstances, the allegations were “sufficient to establish an unfair act in violation of the CPA based on a violation of the public interest embodied in WAC 284-30-300.”
In conclusion, the court ruled that, because Folweiler sufficiently established an unfair act in violation of the CPA based on the PIP statutes and settlement practices statutes, the trial court erred in granting American Family’s motion to dismiss. The case was remanded back to the trial court.
This case serves as a preview for what could soon happen in Washington. Insurers using software such as Fair Health to adjust PIP payments in accordance with geographic regions may soon be prohibited from doing so. Although this case did not conclusively state that such settlement practices are prohibited, it is possible that subsequent cases will establish just that.
View full opinion at: http://www.courts.wa.gov/opinions/pdf/764489orderpubandopin.PDF
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