• Are You Paying Too Much For Durable Medical Equipment In First Party Medical Claims?
  • March 5, 2014
  • Law Firm: Thomas Thomas Hafer LLP - Harrisburg Office
  • A Federal District Court in the Eastern District of Pennsylvania has ruled that an automobile insurer may reimburse providers of unscheduled durable medical equipment (DME) at 80% of the “usual and customary” charge, based upon the carrier’s own research of providers’ charges in that geographic area.

    In Freedom Medical Supply Inc. v. State Farm, (E.D. Pa. Feb. 12, 2014), Freedom Medical filed a putative class action suit against State Farm, after State Farm reduced its reimbursement payments for neuromuscular stimulators (EMS) and portable whirlpools (Whirlpool) provided to its insureds.

    Under the MVFRL, reimbursement for goods and services are generally tied to the Medicare scheduled cost. Reimbursement for treatment or products that are not on the Medicare schedule is capped at 80% of the provider’s “usual and customary” charge.

    Both the EMS and Whirlpool equipment are nonscheduled DME. Freedom Medical charged State Farm $1,600 for EMS and $525 for Whirlpools. Freedom Medical’s cost for the items was approximately $20 for the EMS and $39 for the Whirlpools. In June, 2010, State Farm, after researching the going rate charged from providers not billing auto insurers, determined that the “usual and customary” charge for EMS and Whirlpool products in the Philadelphia area was $151 and $97, respectively. Thereafter, State Farm began paying 80% of these amounts, or approximately $120 for EMS and $77 for Whirlpools. Not satisfied with these payments, Freedom Medical filed a class action lawsuit.

    Freedom Medical argued that the MVFRL mandated that “usual and customary” fees be calculated based upon either the amount billed by the provider or on data from a Medicare affiliated organization. State Farm argued that, though the MVFRL may permit calculations through these two methods, they were not the exclusive ways of computing the “usual and customary” charge and that it correctly based its calculation on its own research. After discovery, both sides filed cross motions for summary judgment.

    In granting State Farm’s motion for summary judgment, the Court rejected Freedom Medical’s arguments. The Court held that the language of the MVFRL supported State Farm’s position that the two methods contained in the regulations were not the exclusive methods for determining “usual and customary charges.”

    The Court further opined that the MVFRL requires that providers’ charges be reasonable. They found that Freedoms’ almost 7000% markup on the products was unreasonable and contrary to the principles of the MVFRL to provide insureds the greatest coverage and to reduce insurance costs.