Spectrum Health Hosps. v. Farm Bureau Mut. Ins. Co. of Mich.

333 Mich.App. 457

960 N.W.2d 186

SPECTRUM HEALTH HOSPITALS, Plaintiff-Appellee,

v.FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN, Defendant,andFarm Bureau General Insurance Company of Michigan, Defendant-Appellant.

Spectrum Health Hospitals, Plaintiff-Appellant,

v.Farm Bureau Mutual Insurance Company of Michigan, Defendant,andFarm Bureau General Insurance Company of Michigan, Defendant-Appellee.

No. 347553

No. 348440

Court of Appeals of Michigan.

Submitted May 5, 2020, at Grand Rapids.

Decided September 3, 2020, 9:05 a.m.

Miller Johnson (by Joseph J. Gavin, Grand Rapids) for Spectrum Health Hospitals.

Kuiper Kraemer PC (by Jack L. Hoffman, Grand Rapids) for Farm Bureau General Insurance Company of Michigan.

Before: Tukel, P.J., and Markey and Gadola, JJ.

Markey, J.

In this dispute involving personal protection insurance (PIP) benefits under the no-fault act, MCL 500.3101 et seq. , defendant Farm Bureau General Insurance Company of Michigan (Farm Bureau)¹ paid 80% of the charges billed by plaintiff Spectrum Health Hospitals for treating a person insured by Farm Bureau who was injured in a motor vehicle accident, but it refused to pay the full amount on the basis that charges exceeding 80% of the total amount billed were "unreasonable." Spectrum filed suit against Farm Bureau, seeking payment of the balance. The trial court denied Farm Bureau's motion in limine regarding, primarily, the relevance of evidence pertaining to payments by third-party payers such as health insurers, Medicare, and Medicaid, concluding categorically that this evidence was not pertinent to the question whether Spectrum's charges were reasonable within the meaning of the no-fault act. Thereafter, the parties entered into a consent judgment, preserving Farm Bureau's right to challenge the trial court's ruling on its motion in limine. Subsequently, the trial court entered an order denying Spectrum's request for attorney fees under the attorney-fee penalty provision of the no-fault act, MCL 500.3148. In Docket No. 347553, Farm Bureau appeals by right, challenging the trial court's earlier decision on the motion in limine. In Docket No. 348440, Spectrum appeals by right the denial of its request for attorney fees. The appeals have been consolidated by this Court.² We reverse in Docket No. 347553, which requires us to also reverse in Docket No. 348440, and remand for further proceedings.

I. BACKGROUND FACTS AND PROCEDURAL HISTORY

On August 22, 2016, Brett Sabby suffered bodily injuries in a motor vehicle accident that occurred when the car in which he was a passenger left the road and struck a tree. As a result of the accident, Sabby received medical care and treatment at Spectrum. Many of the medical records available to us on appeal have been heavily redacted. But from the available information, it appears that, among other injuries, Sabby suffered a femur fracture, a complex open ankle fracture, broken ribs, a knee laceration, and a "Roy-Camille type III sacral U fracture." From the redacted billing-related documents, it also appears that Sabby's treatment included surgery, laboratory tests, x-rays, implants, physical therapy, "recovery room" services, and pharmacy services. For treatment and services provided between August 22, 2016, and September 2, 2016, Spectrum's charges totaled $225,279.10.

Farm Bureau was responsible for providing Sabby with PIP benefits under the no-fault act. Spectrum submitted Sabby's bills to Farm Bureau for payment, but Farm Bureau only partially paid the bills. In total, Farm Bureau paid Spectrum $180,223.27, or 80% of the total requested, leaving an unpaid balance of $45,055.83. In denying full payment, Farm Bureau maintained that any charges in excess of 80% of Spectrum's gross charges were unreasonable for purposes of the no-fault act. Accordingly, Farm Bureau refused to pay any more than 80% of Spectrum's total charges. In denial letters dated October 14, 2016, Farm Bureau more fully explained its reasons as follows:

Based on recent court rulings, Farm Bureau understands that in cases not involving insurance, your hospital customarily discounts gross charges by twenty percent if payment is made within ninety days of the date the charges are billed. In those cases, the courts have ruled that under MCL 500.3157, charges to no-fault insureds may not exceed eighty percent of gross charges if payment is made within ninety days. Farm Bureau is making payment within thirty one days of the date the charges have been billed....

Furthermore, based on our own investigation, charges in excess of eighty percent of gross charges are charges in excess of reasonable charges. Because under MCL 500.3107(1)(a) and 3157 a hospital's charge to a no-fault insured may not exceed a reasonable charge, this is an additional reason why no-fault benefits are not owed for charges in excess of eighty percent of gross charges.

On August 22, 2017, Spectrum filed the current lawsuit against Farm Bureau.³ Spectrum sought (1) payment of Sabby's benefits under the no-fault act, (2) a declaratory judgment to the effect that Farm Bureau was liable for payment of Sabby's no-fault benefits, (3) a declaratory judgment providing that Farm Bureau's practice of unilaterally paying only 80% of a claim was unreasonable and violative of the no-fault act, and (4) an award of prefiling interest, costs, and attorney fees pursuant to MCL 500.3142, MCL 500.3148, MCL 600.6013, and MCR 2.625. In its answer to Spectrum's complaint, Farm Bureau denied that it had any outstanding liability for no-fault benefits. According to Farm Bureau, Spectrum's total charges were in "excess of reasonable charges"; therefore, Farm Bureau did not owe any additional amount.

The parties’ arguments regarding the reasonableness of Spectrum's charges and how reasonableness should generally be determined focus primarily on MCL 500.3157, MCL 500.3158, and MCL 500.3159.⁴ Relevant to the parties’ arguments, MCL 500.3157 provided:

A physician, hospital, clinic or other person or institution lawfully rendering treatment to an injured person for an accidental bodily injury covered by personal protection insurance, and a person or institution providing rehabilitative occupational training following the injury, may charge a reasonable amount for the products, services and accommodations rendered. The charge shall not exceed the amount the person or institution customarily charges for like products, services and accommodations in cases not involving insurance. [Emphasis added.]

MCL 500.3158(2) states:

A physician, hospital, clinic or other medical institution providing, before or after an accidental bodily injury upon which a claim for personal protection insurance benefits is based, any product, service or accommodation in relation to that or any other injury, or in relation to a condition claimed to be connected with that or any other injury, if requested to do so by the insurer against whom the claim has been made, (a) shall furnish forthwith a written report of the history, condition, treatment and dates and costs of treatment of the injured person and (b) shall produce forthwith and permit inspection and copying of its records regarding the history, condition, treatment and dates and costs of treatment.

And finally, MCL 500.3159 provides:

In a dispute regarding an insurer's right to discovery of facts about an injured person's earnings or about his history, condition, treatment and dates and costs of treatment, a court may enter an order for the discovery. The order may be made only on motion for good cause shown and upon notice to all persons having an interest, and shall specify the time, place, manner, conditions and scope of the discovery. A court, in order to protect against annoyance, embarrassment or oppression, as justice requires, may enter an order refusing discovery or specifying conditions of discovery and may order payments of costs and expenses of the proceeding, including reasonable fees for the appearance of attorneys at the proceedings, as justice requires.

During discovery, Farm Bureau sought documents and information from Spectrum on matters that Farm Bureau asserted related to the reasonableness of Spectrum's charges for Sabby's care and treatment for purposes of the no-fault act. Farm Bureau requested information concerning (1) the average annual increase in Spectrum's charges and (2) whether charges for uninsured persons were the same as for individuals with no-fault insurance. With respect to Sabby's charges more specifically, Farm Bureau sought information regarding (1) the amount generally billed for the same care for the same dates of service, (2) the 115% Medicare rate for this care, and (3) the rates Priority Health and Blue Cross Blue Shield each paid for such care. Farm Bureau also asked whether Spectrum compared its charges to other hospitals and, if so, whether the charges were comparable. Additionally, Farm Bureau requested that Spectrum produce financial records for the 2015 to 2016 fiscal year, including (1) Spectrum's federal Hospital and Hospital Health Care Complex Cost Reports, (2) Spectrum's IRS Form 990, (3) Spectrum's Audited Financial Statements, (4) Spectrum's Financial Assistance Policy, and (5) various documents related to billing and collection.

Spectrum objected to many, though not all, of these requests on the grounds that the information was "irrelevant and not reasonably calculated to lead to the discovery of admissible evidence." Briefly stated, Spectrum indicated that, to support its charges at issue in this case, Spectrum "anticipate[d] that it [would] rely on its billing and medical records related to the dates of service at issue ... as well as its financial statements and comparative charge data for the years in dispute."

Relevant to its claim that the charges were unreasonable, on the same date that Farm Bureau filed its answer in this case, Farm Bureau also filed an initial witness list, which included, among other witnesses, Mark A. Hall,...