No-Fault Litigation Utilization Reviews are Certainly no Vulcan Mind Trick

Space . . . the final frontier . . . to boldly go where no man has gone before” is a phrase that set the parameters for the Starship Enterprise’s mission and adventures and expanded the imaginations of millions of fans of TV’s “Star Trek” generation.

In a case of first impression, the appellate court treaded into uncharted space and addressed the Michigan No-Fault Act's utilization review statute – True Care Physical Therapy, PLLC v Auto Club Group Ins Co, ___ Mich App ___, ___; ___ NW2d ___ (2023)(Docket No. 362094). Ultimately, the Michigan Court of Appeals held that a health care provider does not have to exhaust administrative remedies by appealing an auto insurer’s utilization review prior to filing a lawsuit.

Appealing Utilization Review Determination Not Required

In True Care, the insurer paid for two years of physical therapy treatment that started 10 months after a 2018 accident. The sessions included hot/cold packs, therapeutic exercises, manual therapy, and electrical stimulation to address neck, lower back and shoulder pain. The provider charged between $655 and $925 for each visit.

Over two years after treatment began – in September 2021 – the insurer received a utilization review, which indicated that 10 visits over eight weeks would be reasonable to treat the patient’s injuries. It should be noted that, by mid-June 2021, the provider completed more than 137 physical therapy visits – far in excess of what was deemed reasonable by the utilization review.

Thereafter, the insurer’s Explanation of Benefits (EOB) denied payment based on the utilization review. The EOB also provided information on how to appeal the insurer’s determination to the Department of Insurance and Financial Services (DIFS); specifically, it detailed how to appeal a denial based on a utilization review under DIFS Rule 500.65. The provider did not appeal the utilization review to DIFS.

In the trial court, the insurer moved for summary disposition, arguing that the provider’s failure to appeal the utilization review barred the lawsuit. The trial court denied the insurer’s motion for summary disposition by holding that MCL 500.3112 grants a direct cause of action without any preconditions, including an administrative appeal of an insurer’s utilization review.

Next, the trial court noted that both the Legislature and DIFS used the discretionary term “may” in the No-Fault statutes (i.e., MCL 500.3157a(5)) and DIFS rules (i.e., DIFS Rule 500.64(3) and 500.65(1)) to indicate that the decision to appeal to the DIFS is a discretionary choice for the provider.

Finally, the trial court found that requiring an appeal of a utilization review under MCL 500.3157a effectively shortens the timeline applicable to suits under MCL 500.3112 and 500.3145, which creates a question of legislative intent between the statute and the related administrative rules. The trial court resolved the conflict in favor of the direct, independent cause of action in MCL 500.3112. The insurer appealed the determination.

The appellate court ruled on two issues: (1) determining whether an appeal of a utilization review is permissive or mandatory; and (2) determining whether exhaustion of the administrative appeal is required before filing a lawsuit. Looking to the language of the No-Fault Act, the appellate court recognized that the plain language of MCL 500.3157a provided a “nonexclusive grant of jurisdiction to the DIFS.” Additionally, the DIFS’ administrative rules allow, but do not require, an administrative appeal of an insurer’s utilization review. For these reasons, providers are allowed to to pursue their claims in the trial court without “exhausting [the] permissive” utilization review appeal process.

It should be noted that the appellate court stated in a footnote that the insurer did not directly challenge the reasonableness or necessity of the provider’s treatment under MCL 500.3107(1) in its motion for summary disposition. While it did not appear to have a bearing on the outcome, it is possible that this could have been a missed opportunity for an alternative argument.

What Are the Benefits of a Utilization Review?

The True Care decision illustrates important uses and strategies for an insurer as it manages ongoing claims for Personal Injury Protection (PIP) benefits:

  • An insurer’s denial based on a utilization review determination is not a shield against future litigation by the health care provider, but it provides a reasonable basis to deny further PIP benefits and reduce exposure to attorney fees.
  • An insurer’s denial based on a utilization review determination directly relates to the reasonableness and need for the health care provider’s treatment of an injured person. As a result, the insurer should consider raising such arguments and defenses before and during litigation, otherwise they may not be preserved for appellate review.
  • Because the medically accepted standards discussed in the utilization review statute are not defined, it is suggested that insurers that intend to rely on a utilization review to deny PIP benefits should do so in combination with a peer review of the provider’s records. This review should include specific comments on how the provider’s treatment compares or deviates from acceptable treatment according to the utilization review determination.
  • If the insurer schedules an Independent Medical Examination (IME) for the underlying claimant, the insurer should forward the IME physician the results of any utilization review conducted for specific comments on how the claimant’s treatment by health care providers compares or deviates from acceptable treatment according to the utilization review determinations.

An insurer can strategically reduce its potential exposure to attorney fees and overall liability by using utilization reviews in combination with peer reviews or IME reports. The key is to use utilization reviews proactively, with the goal of challenging the reasonableness and need for a health care provider’s treatment as excessive and beyond what is acceptable for the injuries involved.

After all, space may be the final frontier for adventure and imagination, but in the legal universe, MCL 500.3107 is only about reasonable charges and reasonably needed products, services and accommodations for the injured person.

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