In the continuing struggle between recovery of medical expenses billed vs. recovery of discounted medical expenses paid by insurers, an Arizona federal court has sounded off on the duty and obligation of a Med Pay carrier with respect to paying its insured for medical bills. In Jimenez v. Progressive Preferred Ins. Co., 2020 WL 2037113 (D. Ariz. 2020), Jimenez was insured by Progressive for auto insurance, including $5,000 in Med Pay coverage. After Jimenez was injured in an accident, Jimenez was billed $6,719 in medical expenses by his medical providers and made a claim with Progressive for the entire $5,000 of Med Pay coverage. Instead of paying this amount, Progressive paid Jimenez only $3,455.09—the discounted amount which the medical providers agreed to accept via contracts with Progressive. Jimenez sued Progressive for bad faith, breach of contract, and violation of the Arizona Consumer Fraud Act.
Jimenez pointed to a 2002 Arizona Supreme Court decision which held that necessary medical expenses that were paid by an HMO to treat an insured were incurred by the insured within the meaning of automobile policy coverage for all reasonable expenses actually incurred by an insured person, even though the insured was not directly and legally liable and would receive a windfall from the automobile insurer. Samsel v. Allstate Ins. Co., 59 P.3d 281 (Ariz. 2002).
The Supreme Court added that the phrase “actually incurred by the insured” in the insurance policy means “actually incurred for treatment of the insured rather than actually incurred for treatment for which the insured is directly legally liable.”
Federal judge Roslyn Silver granted Progressive’s Motion for Summary Judgment, determining that Progressive properly paid Jimenez the discounted amount of $3,455.09. The judge took notice of “the unique payment practices of the health care industry, whereby health care providers routinely accept an amount less than the amount billed as payment in full.” Although previous decisions had held that the original billed amounts had been “incurred,” the cases had not addressed “the proper interpretation of the word “reasonable” when applied to such charges. The judge decreed that even if it were to agree with Jimenez that he had “incurred” the full amount reflected in the original charges, Progressive never agreed to pay such charges. Because the Progressive insurance policy required it to pay the “reasonable expenses incurred for necessary medical services”, and no Arizona case required an insurance company to accept the originally billed amounts as “reasonable,” the judge felt that the term “reasonable expenses” means the discounted amounts which a health care provider accepts as payment in full. Judge Silver used the hypothetical of Jimenez’ providers billing him $1 billion for the same medical services—concluding that such an amount would not necessarily be deemed “reasonable” simply because it had been billed. A more objective view was taken.
This ruling is only the latest in the nationwide evolution of the issue of whether expenses incurred in the medical context are those billed or those accepted as payment in full. This issue exists in both first-party claim and third-party tort settings, and it varies significantly across the country, with some states determining that the amount billed is reasonable, others that the amount paid is reasonable, and still others decide which of those amounts could and should be heard as evidence by a jury in a tort lawsuit. It is an evolving area of the law and takes into account a variety of collateral source statutes and rules.
In recent years, the issue of what is considered the “reasonable value” of medical services has become complicated and distorted by the deep discounts demanded by insurance companies, laws that require hospitals to treat patients who cannot pay, and benefits like Medicaid and related state programs that pay a set amount for all treatment of a patient. The result has been an ever-widening gap between hospitals’ standard rates for uninsured patients and the discounted amounts hospitals accept from insurance companies. Moreover, the types and number of “collateral sources” available to plaintiffs have multiplied. In addition to the insurance and gratuitous payments that were the subject of early collateral source rules (see below), in today’s environment, plaintiffs in personal injury cases may have received benefits from unions, free treatment at a veterans’ facility, or at a reduced rate at a charity-affiliated provider.
The implication of this evolving area of law and evidence is having a profound impact in the area of subrogation, and recovery professionals would do well to be aware of these laws from state to state. A detailed chart depicting and explaining the law in this area in all 50 states can be found HERE. For any questions regarding this article or subrogation in general, please contact Mark Solomon at msolomon@mwl-law.com.
