THE GOOD AND THE BAD... AS WE SEE IT FOR THE 2019 AMENDMENT TO THE MICHIGAN NO-FAULT ACT
The newly amended No-Fault Act made significant changes to Michigan auto-insurance requirements. Many of the changes were highly publicized, such as tiered benefit systems, a "Fraud Division," and lowered costs. Although most of our clients are well aware of the law and have read many pros and cons from different sources, the Amendment adds verbiage and language that creates unnecessary intricacy to an already complex system. This bulletin addresses some of the concerns that we have identified as potential impacts to future claims handling, investigation, analysis and exposure involving both first and third-party issues. What follows is a discussion of a few key areas of the amendment that will immediately effect our clients.
First-Party Litigation Issues
Schedules And Payments.
The new law attempts to resolve the long-standing disputes over reasonableness determinations for medical expenses by setting forth various, new fee schedules governing the reasonable amount for medical services. These new fee schedules are applicable to "a physician, hospital, clinic, or other person that renders treatment or rehabilitative occupational training to" an individual harmed in a motor vehicle accident. MCL 500. 3157(2).
The type of facility where the injured person receives care will dictate the fee schedule that is followed. Reimbursement for each facility will vary between 190 and 250 percent of the amount payable by Medicare. If Medicare does not provide for payment for a specific service, then the provider is eligible to be reimbursed at a severely reduced amount ranging from 52.5 percent to 75 percent of the cost of treatment. The Director of Insurance and Financial Services will make the determinations for each facility's fee schedule.
We anticipate that the fee schedule will eventually simplify future litigation once the kinks have been ironed out. By administratively setting the prices that can be reimbursed, balance billing issues should not be the center of future litigation. It is expected that providers will eventually navigate around the pricing structure and create either new or ambiguous coding to increase payments. Time will also factor into the determination of each providers status and entitlement. There has been no indication of how long the Director of Insurance has to determine each fee schedule. Although the goal is to eventually streamline the system, we anticipate that new facilities with multiple specialties cropping up regularly and billing directly will prolong the legislature's ability to achieve that purpose.
As the new law currently reads, the fee schedules and limitations, as outlined in section d, will be retroactively applied, and there are rumors that this will be challenged on constitutional grounds.
a. The One Year Back Rule.
Currently, one "may not recover benefits for any portion of the loss incurred more than one (1) year before the date on which the action was commenced." Under the new law, the one-year back rule "is tolled from the date the person claiming the benefits makes a specific claim for the benefits until the date that the insurer formally denies the claim."
The new provisions contain a limitation to tolling if the insured "fails to pursue the claim with reasonable diligence." "Reasonable diligence" is sure to be reviewed on a case-by-case basis. Expenses incurred by a provider, claimant or attorney should be examined for delay when this issue raised. As in the past, it will be our recommendation that all submissions be addressed immediately in writing either requesting additional information advising the insured or provider of the insurer's position or payment—delay has never been the preferred action. The change should reduce the number suits filed simply to preserve the one-year back rule.
b. Attorney Fees for Plaintiffs.
There are strict changes to penalty attorney fees. Now, Plaintiff's attorneys can be responsible to insurers if they solicit clients in "violation of the laws of this State or the Michigan Rules of Professional Conduct." The new law does not address the age-old problem of solicitation of patients by a provider. If there is a violation of the laws against solicitation, the insurer can be awarded a "reasonable amount" for defending the case—a major change from the prior law. While violations are sometimes hard to catch, the penalty certainly acts as a deterrent.
The law also limits attorney liens to a period of three (3) years for future benefits. In disputes involving entitlement to allowable expenses for attendant care, attorney fees are not awarded "in relation to future payments ordered more than three (3) years after the trial court judgment or order is entered." We are all aware of attorneys who require insurers to put names on all PIP drafts issued to their client. The new addition should curb this prior practice.
The revision contains a prohibition on awarding attorney fees to attorneys who have a "direct or indirect" interest in the person who provided the treatment. An attorney has a "direct or indirect" interest when the medical provider makes a payment or provides a financial incentive to the attorney related to the treatment, within the 24 months of the treatment. In essence, the law will bar attorneys from collecting fees if clients treat with the attorney's family members working for medical providers or have some other loose connection to the medical provider.
Clearly, this provision was in response to some of the recent news reports concerning attorney affiliation with providers and referring physicians. The same section forces attorney to prove that a claim is overdue before asserting a lien on benefits.
c. Attendant Care.
Under the new law, auto insurers are only required to pay for a limited amount of attendant care provided by an individual who is related to the insured, an individual who is domiciled with the insured, who had a business relation with the insured, or had a social relation with the insured. The limitations of 56 hours are tied to the Workers Compensation Act. Insurance companies are only required to pay related individuals under MCL 500.3157(10) up to 56 hours of attendant care. This does not limit the amount of attendant care that must be provided, but merely the amount that insurance companies must pay to related individuals. An insurance company may pay a related individual more than 56 hours if need arises. Since insurers can still be required to pay for unlimited attendant care provided by commercial agencies, the limitation will not greatly affect coverage.
We expect threats of utilizing a commercial agency at a higher cost to leverage a contract for family members, in excess of 56 hours, and at a negotiated rate. This concept has been used consistently in the past and will continue under the new law. The limitation however will prevent the former practice of submitting a 24/7 claim by a family member for past services rendered.
d. Assignments and A Medical Provider's Statutory Cause of Action.
After Covenant v State Farm Mut Ins Co, 895 NW 2d. 490, medical providers lacked a direct statutory action against insurance companies. Accordingly, medical providers had to obtain an assignment of rights from the insured to bring an action to enforce payment. The new law removes the assignment requirement and provides that a "health care provider listed in section 3157 may make a claim and assert a direct cause of action against an insurer or under the Assigned Claims Plan." The legislature has reinstated the pre-Covenant law and has reinstated a medical provider's direct statutory action against insurance companies. Assignments will no longer be necessary and separate lawsuits arising out of the same accident are back.
e. Independent Medical Examiners.
The new law imposes two (2) major restrictions on the selection of medical experts for Independent Medical Evaluations ("IMEs"): (1) the examining IME expert must specialize in the field for which the injured person is being examined; and (2) the expert must have devoted the majority of his or her professional time to either clinical work or teaching medical students. Full time IME experts will no longer meet the criteria necessary for 3151 examinations. These restrictions only apply to IME experts as the new law does not contain a similar requirement for the doctors providing services/treatment to an injured party.
This section seems to be aimed at ensuring that IMEs do not derive the majority of their income from providing services to insurance companies. Insurers are required to conduct preliminary research on the proposed IME doctor. In addition, a doctor utilized on a regular basis may, over time, lose their qualification to act under the standards of this section.
The section does examine the qualifications of a doctor one year before the examination. We could otherwise envision a situation in which a doctor would conduct an examination and by the time he was deposed for trial his or her qualifications would change barring his or her testimony. Fortunately, there is protection for this scenario.
Third-Party Litigation Issues.
1. Threshold Injury And Non-Economic Damages.
The new law codifies the McCormick test and appears to be nearly identical to the language used in the case. The legislature explicitly stated that the new amendments were to codify and give full effect to McCormick v Carrier, 487 Mich 180 (2010)." For "serious impairment of body function" the court made it clear that an "impairment" must be: (1) objectively manifested, (2) an important body function, and (3) it affects the injured person's ability to lead his or her normal life.
However, this change also impacts a Plaintiff's burden for establishing objective impairment. Previously, Motions for Summary Disposition on Threshold Injury would routinely rely on post-McCormick v Carrier cases, which held that self-imposed limitations and subjective complaints of pain, without objective medical restrictions, were insufficient to create a question of fact. The new law essentially renders these cases inapplicable for Plaintiffs that can simply establish that the conditions or actual symptoms are observable or perceivable "by someone other than the injured party." The law is set to take effect immediately regarding third party tortfeasors.
As discussed in the following section, the new law also requires each person carry 250/500 in liability limits. Upon proper election however, an insured can choose the lower limits of 50/100. The election is based on the full disclosure of the repercussions of choosing a lower limit and a signed acknowledgement of understanding. We expect to see a greater volume 50/100 policies than was likely anticipated by the legislature.
Prior claims, while not subject to the threshold requirement were limited because medical expense was not considered. The new section, which will allow for claims by Medicare, Medicaid and health insurance liens, either from dollar one or even in excess or the first level of $50,000, will make a $50,000 liability policy a frequent settlement. This will be true in even minor injury cases with no threshold injury but the involvement of preventive medical treatment and diagnostic workup.
2. Expanding Potential Exposure for Tortfeasor Liability as Result of Capping PIP.
While the new law continues to abolish tort liability subject to the enumerated exception, it also expands a tortfeasor's potential exposure for all future allowable expenses and work loss in excess of the applicable PIP limit chosen by the injured party. This means that a tortfeasor will be potentially liable for what was previously lifetime medical through the injured party's PIP coverage.
Under the circumstances, with exposure for future or excess medical expense and wage loss, the 50/100 limits will be exposed in more cases than in the past. We also foresee unlimited tort exposure in instances of catastrophic loss. While limits of liability can certainly be underwritten, this change will certainly affect liability limits, personal and commercial umbrellas, underinsured motorist ("UIM") and uninsured motorist ("UM") coverage. Making Medicare and Medicaid primary based on the insured's election will not prohibit the continued practice of placing liens on all settlements. Importantly, the lien will be on third party settlements instead of the previous practice of conditional payments awaiting PIP reimbursement, under the new law.
We also expect that since the levels of PIP can be chosen, expenses in excess of selected limits will be deemed outside the realm of the No-Fault statute. Health policies will, therefore, be entitled to claim liens previously barred by Great American vs Queen. Health policies providing coverage for motor vehicle accidents will undoubtedly incorporate new lien language in their policies.
We have all read the legislation or at least summaries prepared in its aftermath. The ink is still drying on the law and we don't expect anyone to have all the answers right away. We will all be working with those issues that we have been struggling with since 1973 combined with a brand-new set of issues, anticipated as well as unexpected. We hope to assist you with the journey of navigating the new law as efficiently and penalty free as possible. Please feel free to contact us about any questions or concerns you have.