No-Fault’s One-Year-Back Rule Applies To Medical Provider’s “Balance Bills”

The No-Fault Act’s one-year-back rule, MCL 500.3145, bars a medical provider’s efforts to collect on a patient-insured’s “balance bill” when the action to collect the balance is untimely filed - or, as in this case, not filed at all, the Michigan Court of Appeals has ruled.

In Auto Owners Ins Co, et al v Compass Healthcare PLC, et al (Docket No. 339799), the Court of Appeals clarified that in the wake of Covenant Medical Center, Inc v State Farm Mutual Auto Ins Co, 500 Mich 191 (2017), a medical provider’s claims against a patient-insured are brought under the No-Fault Act and not under an implied contract theory.

The Michigan Supreme Court, in Covenant, had ruled that medical providers do not have an independent cause of action against insurance companies for the payment of no-fault personal injury protection (PIP) benefits.

In its published and binding decision, the Court of Appeals also acknowledged that while a medical provider must pursue the reasonableness of charges with the patient-insured and not the insurance company pursuant to Covenant, the one-year-back rule applies to “balance bills.” The No-Fault Act’s one-year-back rule (MCL 500.3145) says:

“An action for recovery of personal protection insurance benefits payable under this chapter for accidental bodily injury may not be commenced later than 1 year after the date of the accident causing the injury unless written notice of injury as provided herein has been given to the insurer within 1 year after the accident or unless the insurer has previously made a payment of personal protection insurance benefits for the injury. If the notice has been given or a payment has been made, the action may be commenced at any time within 1 year after the most recent allowable expense, work loss or survivor's loss has been incurred. However, the claimant may not recover benefits for any portion of the loss incurred more than 1 year before the date on which the action was commenced. …”

Court of Appeals Judges Kathleen Jansen and Michael Gadola joined the per curiam opinion. Judge Mark Boonstra wrote a separate concurring opinion.

Auto Accident Injuries

Caleb Casanova was injured in a July 3, 2014 auto accident and was treated at Sparrow Hospital in Lansing. Defendant-Compass Healthcare submitted a bill for $1,859 to Casanova’s no-fault insurer, plaintiff-Home-Owners Insurance Company. Home-Owners paid $1,076.14, deeming it to be the reasonable amount for services. Compass Healthcare later sent an invoice directly to Casanova on for the “balance bill” of $782.86.

Home-Owners then sent Compass Healthcare a letter advising that, if the reasonableness of the payment was in dispute, Compass Healthcare should deal with Home-Owners directly and not with Casanova. However, Compass Healthcare continued to send Casanova invoices for the balance due.

On March 1, 2016, Home-Owners advised Compass Healthcare that payment had been made in accordance with the No-Fault Act. Home-Owners also informed Compass Healthcare that if it wanted to contest the reasonableness of the payment or pursue legal action, it should deal directly with Home-Owners. Compass Healthcare, however, continued to try and collect the balance from Casanova.

Home-Owners took legal action against Compass Healthcare in November 2016, seeking a ruling as to whether Compass Healthcare could obtain payment of the balance bill directly from Casanova, although Home-Owners had made payment. Compass Healthcare moved for summary disposition, arguing that Home-Owners’ claim was moot because the underlying debt was unenforceable pursuant to the one-year-back rule in the No-Fault Act.

Casanova also filed a motion for summary disposition, claiming that Compass Healthcare could not collect the balance from him because his medical costs were covered by his no-fault policy and Home-Owners had already paid a reasonable amount. In response, Compass Healthcare asserted that while the balance bill was unenforceable under the No-Fault Act, Casanova had an “implied contractual obligation” to pay and the implied contract was independent of the No-Fault Act.

The Ingham County Circuit Court granted Casanova’s summary disposition motion. According to the trial court, Home-Owners was responsible for paying all reasonable charges incurred for Casanova’s care, treatment and rehabilitation. The trial court further ruled that Compass Healthcare, as the medical provider, had a duty under the No-Fault Act to charge a reasonable amount. In a written opinion, the trial court emphasized that an insurance company is obligated to audit charges and make only “reasonable payments as part of a cost-policing function meant to provide health care providers an incentive to keep costs to a minimum.”

Accordingly, the trial court held that a medical provider “cannot lawfully charge more than a reasonable amount” and that, once an insurer has made a reasonable payment, it cannot then pursue and collect the remaining balance from the patient-insured.

Two days after the trial court issued its written decision, the Michigan Supreme Court decided Covenant. As a result, Compass Healthcare filed a motion for reconsideration, arguing that Covenant precluded a ruling in favor of Home-Owners. Compass Healthcare maintained that while medical providers have no statutory cause of action under the No-Fault Act against insurers, “they are not remediless as providers can seek payment from the insured person for their reasonable charges.”

The trial court denied Compass Healthcare’s motion for reconsideration, finding that Covenant did not affect its initial ruling.

The Impact Of ‘Covenant’

On appeal, Compass Healthcare argued the trial court erroneously ruled that, after Covenant, medical providers do not have a contractual right to seek payment from patients once an insurance company has paid what it deems a “reasonable” amount.

“We disagree,” the Court of Appeals wrote. “The original question before the trial court was whether [Compass Healthcare] could seek payment of ‘balance bills’ from a patient-insured on a contractual liability theory, rather than under the No-Fault Act, after a provider’s charges were audited for reasonableness and the provider was paid a partial payment based on the findings of those audits. We agree with the trial court, and conclude that the answer is no.”

The Court of Appeals explained that under MCL 500.3157, a medical provider can only charge a “reasonable amount” for its products, services and accommodations. Similarly, the Court noted that under MCL 500.3107(1)(a), a no-fault insurer is only responsible for paying “allowable expenses consisting of all reasonable charges incurred for reasonably necessary products, services, and accommodations for an injured person’s care, recovery or rehabilitation.”

Here, the trial court correctly held that Covenant did not change either the standard of reasonableness or the insurer’s duty to audit, the Court of Appeals said. “As the trial court concluded …, ‘[t]he only effect of Covenant was to place the dispute over the reasonableness of the charges between a provider and a patient-insured, rather than between a provider and an insurer.’ It did not alter the method of disputing the reasonableness of the amount paid.”

According to the Court of Appeals, it was “clear” that Compass Healthcare did not pursue legal action against Home-Owners or Casanova to challenge the reasonableness of the charges. Further, Compass Healthcare never raised the reasonableness of its charges as an issue and never offered any evidence that the $1,859 was reasonable and necessary in its motion for summary disposition or any responsive pleading, the Court noted. Instead, Compass Healthcare chose to “harass” Casanova “outside the courts” for more than two years, seeking payment of the $782.86 balance bill, the Court stated.

“To conclude that [Compass Healthcare] could prevail on the theory of an implied contract is contrary to the purpose of the No-Fault Act, and its implications would allow medical providers to circumvent the protective nature of the No-Fault Act,” the Court of Appeals wrote. “Therefore, we conclude that any claim [Compass Healthcare] may have against Casanova would be for payment of services rendered to an injured person ‘covered by personal protection insurance’ under the No-Fault Act.”

One-Year-Back Rule

Compass Healthcare further argued the one-year-back rule does not apply to benefits payable under Michigan contract law because, after Covenant, a medical provider’s claim against its patient is not an action for recovery of PIP benefits but, rather, is an “attendant contract claim.”

“We disagree,” the Court of Appeals said, pointing out the Covenant court said: “We conclude today only that a healthcare provider possesses no statutory right to sue a no-fault insurer. … This Court need not consider whether [a medical provider] possesses a contractual right to sue … because [the medical provider] did not allege any contractual basis for relief in its complaint.”

Here, Compass Healthcare never filed a complaint seeking payment from either Home-Owners or Casanova under a theory of implied contract or otherwise, the Court of Appeals explained. “The first time [Compass Healthcare] advanced a theory of contractual liability was in a reply in opposition to Casanova’s response to its motion for summary disposition. Moreover, given our conclusion … that any claim … would still fall squarely within the parameters of the No-Fault Act, [Compass Healthcare’s] recovery would be subject to the one-year-back rule found in MCL 500.3145.”

The Court of Appeals noted that Compass Healthcare acknowledged it did not file any legal action. “Accordingly, any claim [it] may have had against Casanova is now barred by the one-year-back rule. The trial court did not abuse its discretion in concluding the same.”

Concurring Opinion

In a concurring opinion, Judge Mark Boonstra said he wrote separately to offer an “alternative” reasoning.

“In essence, I conclude that where a healthcare provider seeks to collect on a ‘balance bill’ from an injured person who is entitled to no-fault benefits, the claim is in the nature of a contract claim; nonetheless, the contract in question is necessarily subject to principles of public policy as expressed in the no-fault act …,” Boonstra said. “Under the circumstances of this case, those principles preclude [Compass Healthcare] from collecting on their balance bill to … Casanova.”

According to Boonstra, a medical provider’s cause of action in such a circumstance cannot be characterized as a “stand-alone” contract action. “[I]t is based on a contract, albeit in this case an implied one, that necessarily is subject to the public policy limitations of the no-fault act, including the one-year-back rule of MCL 500.3145.