RejectedThe Court of Appeals recently decided Houchens vs. GEICO, a case that questioned whether a reparations obligor in Kentucky is entitled to utilize “paper reviews,” which are not tendered to nor reviewed by a court, as the sole basis for terminating or denying an insured’s no-fault benefits (BRB’s).

Houchens contended that the only “medical review expressly sanctioned by Kentucky’s MVRA is contained in KRS 304.39-270 and requires court oversight.  GEICO, on the other hand, argues that the statutory language is purely permissive in nature, and that it has the discretion whether to utilize the statutory procedure or to seek its own paper review of an insured’s medical records.”

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The Supreme Court published Neurodiagnostics, Inc. v. Kentucky Farm Bureau, which discussed whether a medical provider could assert a direct action against an insurance company to recover basic reparations benefits through an assignment by the insured.  The case arose out of two lawsuits filed by Neurodiagnostic’s, Inc. against Farm Bureau and State Farm Insurance Company, arising out of medical services performed on insureds for injuries resulting from two auto accidents.

The Supreme Court concluded:

Upon review, we conclude that the MVRA no longer affords a direct right of action by assignment to medical providers against reparation obligors. Instead, the control rests with the insured to direct payment of his or her benefits among the different elements of loss.

The Court noted the affect of the repeal of the assignment statute:

With this change in the law, the legislature recognized that it is a more efficient, economical, and equitable system to keep the provider out of the reparations process and afford the insured the control of how his or her benefits are paid because there is only a certain amount of money available for payment. If each and every medical provider obtained an assignment-as a matter of course-of any right to benefits under the MVRA, the insured’s benefits could be exhausted after an accident, leaving the insured no ability to decide at a later date that he or she would be better served by directing reparation benefits to cover some other element of loss, such as economic loss.

The MVRA no longer allows an insured to assign his or her claim for basic reparation benefits.  Instead, the insured directs those benefits, in any manner or means allowed by the MVRA, including directing payment of lost wages or other economic loss.

Editor’s Note:  Why is it so important for the PIP carrier to pay these bills as opposed to health insurance or the insured?  The answer is simple.  Under PIP, Neurodiagnostics, Inc., receives compensation for 100% of its bill versus the reduced rate usually paid by a health insurer or worse the amount paid by the insured out of the settlement proceeds.  How important has the race to the PIP payout become.  Important enough that medical providers will apparently try to sue the insurance companies directly to recover their bills.

The Kentucky Law Review posted an op-ed on HB 478, which apparently removes the right of an insured to direct withholding of no fault benefits for the payment of lost wages, in cases of emergency care. It would require the no fault obligor to pay emergency services directly to the medical provider and that the benefits be considered primary to all other forms of payment. While not specifically mentioned in the op-ed, the bill also contains language establishing a means to challenge whether a medical bill or treatment is reasonable or necessary by establishing a review and appeal process, including examinations.

This bill appears to be an attempt to address some of my earlier concerns in my post titled Chiropractor on Trial, PIP Abuse, and Other Thoughts. I question why hospitals and emergency services should receive priority over other medical services or wage loss claims. Especially, in light of my earlier questions regarding extensive workups for relatively minor injuries. I am unsure what costs in healthcare have risen the most recently but I would imagine emergency services are right up there. I don’t see how this would maximize the use of no fault benefits to the injured party’s benefit. I disagree with Mike’s comments that the “PIP insurer wins”, because I don’t think it matters to the PIP carrier whom it pays, the hospital or the insured.

The procedure suggested certainly appears to address the issue of what treatment is reasonable or necessary, but as I mentioned in my earlier posts addressing reasonable and necessary treatment does not make the charges reasonable or necessary or maximize the PIP coverage. It also seems to pit the PIP carrier against the insured in that determination by requiring examinations, reviews, and appeals of requested treatment. Most of these options are already in place but simply are not effective. I am concerned this language will lead only to increased costs and litigation, without accomplishing any real change in the means in which unreasonable and unnecessary charges are dealt with.

What Kentucky needs is for someone to address the disparity in no fault benefits as payment for medical expenses compared to other forms of compensation for these expenses. What Kentucky needs is for someone to address the ridiculous gold mine that is no fault and its propensity to encourage unreasonable and unnecessary treatment, leading to a reduction in the value of no fault insurance coverage over time. It’s the manner in which the coverage is administered that is the problem not in the means in which it is accomplished.

All of which brings me to something I have been thinking about. Should Kentucky simply do away with its no fault law?

The Kentucky Supreme Court published Schmidt v. Leppert, finding that “Kentucky’s MVRA leads to the inescapable conclusion that Schmidt [was], in fact, personally liable to Nationwide for repayment of BRB because Schmidt [was] not a “secured person” under the MVRA.”

Schmidt admitted he negligently caused an auto accident in Kentucky. Schmidt, an Indiana resident, was insured by a policy of insurance with American Family Insurance Company. American Family did not do business in Kentucky nor did it provide basic reparations benefits. Nationwide Insurance Company, who had paid benefits on behalf of its insured, Leppert, sought recovery of those benefits directly from Schmidt.

Resolution of the case turned on KRS 304.39-070, which allows subrogation of reparation benefits directly from any person or organization, “other than a secured person.” A secured person is an owner or operator of a secured vehicle. In order to have “security” on a motor vehicle, an insured’s policy must include “basic reparation benefits.” Because Schmidt’s policy did not provide for the payment of BRB’s it did not qualify as “security”, and Schmidt was not a “secured person.” Because Schmidt was not a secured person, Nationwide could sue him directly.

As noted by the Schmidt Court, this analysis is the same as the one undertaken in City of Louisville v. State Farm for Kentucky entities opting out of the payment of BRB’s. If the security does not provide for the payment of BRB’s, the insured is not a “secured person” and is subject to personal liability. In Schmidt, American Family admitted it would indemnify him for any BRB’s he had to pay.

This is simply the same result reached in the days before the MVRA. Typically, the injured party would sue the negligent party to recover the medical expenses paid. If “at fault” the insurer would pay those sums due up to the policy limits. With the advent of the MVRA the personal insurer steps in and pays the first $10,000.00 of those payments. The MVRA now provides a procedure for the reimbursement of those sums in place of the tort system. However, it leaves the old tort system in place in those instances when the a person is someone other than a “secured person.”