In a rare victory for insurers in Washington state, on February 15, 2024, the Washington Supreme Court ruled in favor of Liberty Mutual Insurance Company (Liberty) regarding Liberty’s practice of using computer calculations to track medical costs within a geographical area.
The Case
In Schiff v. Liberty Mut. Fire Ins. Co. et. al., 2024 WL 60242 (2024), the Supreme Court determined this practice does not violate the Washington Consumer Protection Act (CPA) or Washington’s Personal Injury Protection (PIP) Statutes, as it constitutes a reasonable investigation into an insured’s medical charges.
Liberty offers supplemental medical payment coverage to insureds in Washington state. In 2017, after years of accepting Schiff’s bills without reductions, Liberty reduced two of his bills based on the 80th percentile cost of similar treatments in the area. Schiff, along with other Washington healthcare providers, sued Liberty, claiming the practice violated Washington’s PIP Statutes, the Washington Administrative Code (WAC), and the CPA. Because the calculations took the percentile of medical costs from the geographic area, Dr. Schiff, and the other providers, alleged Liberty failed to conduct a reasonable “individualized” assessment into each of their medical bills as required.
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Washington law mandates insurers pay all reasonable and necessary medical expenses. See Personal Injury Protection Statutes RCW Ch. 48.22 et.al. While the statutes do not specify what constitutes a reasonable investigation into medical expenses, the statutes explain that failing to implement prompt and reasonable standards constitutes an unfair practice. WAC 284-30-330(3). The CPA likewise offers additional protection to insureds and providers against unfair handling of claims.
The Reasoning Behind the Decision
The court explained that when Liberty Mutual receives a medical bill, Liberty refers to a national medical claim database, FAIR Health, to determine the cost of specific treatments within the relevant geographical area. If the cost of the submitted medical bill is below the 80th percentile for the geographical area, Liberty Mutual’s practice is to pay the bill in full. The court noted, that, however, if the claim is above the 80th percentile, the payment is reduced to the 80th percentile amount.
The court stated that the relevant sections of the WAC simply require insurers to adopt reasonable standards and reasonable investigation into claims. See WAC 284-30-330(3)-(4). The court found that Liberty’s 80th percentile practice was a permissible way to conduct a reasonable investigation and determine reasonableness of medical bills.
Additionally, the court distinguished Schiff from a previous Washington Court of Appeals opinion which held that American Family Insurance Company’s claim evaluation process, similar to Liberty’s, may constitute an unfair practice. Folweiler Chiropractic, PS v. Am. Fam. Ins. Co., 429 P.3d 813, 819 (2018). The Court of Appeals in Folweiler specifically stated that “individualized assessment of claims should be used instead of a geographic based formula.” Id. The Supreme Court found that because American Family improperly calculated what constitutes the 80th percentile in Folweiler, and since Liberty’s practice was to reduce only bills that are 20% higher than those in a particular geographical area, Liberty’s practice was appropriate and fair.
The court went on to say that the calculations Liberty uses incorporate other important factors. For example, the court cited to the fact that the calculations necessarily include how much a doctor is compensated for their experience by including all bills submitted to insurance providers in a given area. The court also addressed concerns that the percentile practice would result in treatment charges being reduced over time. The court explained that only fluctuations in the market would affect the 80th percentile, and that it is more likely the percentile will increase as providers increase their charges.
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The Supreme Court noted that other courts in other jurisdictions have upheld the use of the percentile practice, citing to the Delaware Supreme Court’s recent holding that Geico’s 80th percentile practice did not violate the state’s Personal Injury Protection statute. See GEICO General Ins. Co. v. Green, 276 A.3d 462, 2022 WL 2052195 (Del. 2022).
Ultimately, the Washington Supreme Court concluded that Liberty’s practice serves as a legitimate way to assess medical bill reasonableness by comparing costs within the same geographical area. This ruling opens the door for other insurers to potentially adopt similar methods.
In a lengthy dissent, Justice Stephens stated that the majority’s attempt to distinguish Folweiler based on its purported mathematical error was a distraction. He indicated that Folweiler clearly compels a finding that an individualized assessment of medical bills is required by the reasonableness standard and that an insurer’s reliance on a formulaic percentile-based method falls short of this requirement.