Introduction

In the landmark case of Stan Schiff, MD, PhD, et al. v. Liberty Mutual Fire Insurance Company and Liberty Mutual Insurance Company, the Supreme Court of Washington addressed critical issues surrounding insurance practices under the Personal Injury Protection (PIP) statutes and the Washington Consumer Protection Act (CPA). The case centered on Liberty Mutual's use of an 80th percentile rule, based on data from the FAIR Health database, to determine the reasonableness of medical provider charges. Dr. Stan Schiff, representing a class of similarly situated healthcare providers, challenged this practice, arguing that it violated both the PIP requirements to cover "all reasonable and necessary" medical expenses and the CPA by engaging in unfair business practices.

Summary of the Judgment

The Supreme Court of Washington reversed the Court of Appeals' decision, ultimately holding that Liberty Mutual's 80th percentile practice does not constitute an unfair practice under the CPA. The Court found that Liberty's method of determining the reasonableness of medical bills by comparing them to the 80th percentile of charges in a given geographic area, as facilitated by the FAIR Health database, satisfies the statutory requirements of a reasonable investigation under the PIP statutes. Consequently, the Court reversed the Court of Appeals' judgment and remanded the case for summary judgment in favor of Liberty.

Analysis

Precedents Cited

The judgment heavily relied on several key precedents that shaped the Court's interpretation of the PIP statutes and the CPA. Notably:

• Folweiler Chiropractic, PS v. American Family Insurance Co.: This Court of Appeals decision previously held that an insurer's formulaic approach to claim evaluation, without individualized assessment, could constitute an unfair practice under the CPA.
• Durant v. State Farm Mut. Auto. Ins. Co.: Emphasized that insurers must honor the ordinary meaning of "reasonable" in PIP statutes, rejecting overly restrictive interpretations.
• Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co.: Established the five elements required to prove a CPA violation, including the identification of an unfair or deceptive act or practice.
• GEICO General Insurance Co. v. Green: The Delaware Supreme Court upheld the 80th percentile practice, reinforcing its validity in determining reasonable medical expenses.

Additionally, the Court referenced several cases from other jurisdictions that upheld similar percentile-based practices, reinforcing the legitimacy of Liberty's approach.

Legal Reasoning

The Court engaged in a detailed statutory interpretation, focusing on the meaning of "reasonable" within the PIP statutes. It concluded that Liberty's 80th percentile method constitutes a reasonable investigation for several reasons:

• Compliance with Statutory Language: The PIP statutes mandate insurers to pay "all reasonable and necessary" medical expenses. The Court interpreted "reasonable" to align with its ordinary dictionary meaning, avoiding overly restrictive interpretations.
• Use of FAIR Health Database: Liberty's reliance on an independent, nonprofit database ensures that the determination of reasonableness is data-driven and geographically relevant.
• Percentile Methodology: The 80th percentile approach ensures that the majority of medical bills are paid in full, while only the highest 20% are subject to reduction, which the Court found to be a fair and balanced method.
• Precedential Support: Drawing on precedents like GEICO v. Green and Lebanon Chiropractic Clinic, the Court highlighted that similar practices have been consistently upheld across jurisdictions.

The Court also addressed Schiff's arguments, emphasizing that the 80th percentile rule does not inherently violate the PIP statutes or the CPA, as it constitutes a reasonable standard for insurers to assess claim validity.

Impact

This judgment has significant implications for insurance practices in Washington State and potentially beyond. By upholding the 80th percentile rule:

• Standardization of Claim Assessments: Insurers can continue using data-driven, formulaic methods to evaluate medical claims, promoting consistency and fairness.
• Protection for Insurers: The decision provides legal backing for insurers to utilize established databases and percentile-based methods, reducing the risk of CPA violations.
• Implications for Healthcare Providers: While some providers may face reductions in payments above the percentile threshold, the ruling ensures that the majority of claims are honored in full.
• Future Litigation: The judgment may influence future cases challenging insurer methodologies, potentially limiting the scope of CPA claims against data-driven practices.

Complex Concepts Simplified

80th Percentile Rule

The 80th percentile rule involves ranking all submitted medical bills for a specific treatment within a geographic area from lowest to highest. Bills falling below the 80th percentile are paid in full, while those above are reduced to the 80th percentile amount. This approach aims to ensure that payments are aligned with regional standards, preventing excessive charges.

FAIR Health Database

FAIR Health is an independent, nonprofit database that collects and analyzes medical insurance claims data. Insurers use this database to compare provider charges for specific treatments across different geographic regions, helping them determine what constitutes a reasonable bill.

Personal Injury Protection (PIP) Statutes

PIP statutes require automobile insurers to cover "all reasonable and necessary" medical expenses resulting from an accident. These statutes mandate that insurers conduct a reasonable investigation into claims to ensure expenses are justified.

Consumer Protection Act (CPA)

The CPA prohibits unfair or deceptive business practices in trade or commerce. Under the CPA, individuals can sue for damages if they are injured by such practices, including insurers' methods of handling claims.

Conclusion

The Supreme Court of Washington's decision in Schiff v. Liberty Mutual reaffirms the legitimacy of data-driven, percentile-based methodologies in insurance claim assessments. By upholding the 80th percentile rule and the use of the FAIR Health database, the Court has provided clarity and stability for insurers operating under the PIP statutes and the CPA. While healthcare providers like Dr. Schiff may face challenges under these guidelines, the ruling emphasizes the importance of reasonable, standardized practices in maintaining fairness and preventing excessive medical billing. This judgment not only resolves the immediate dispute but also sets a precedent that will guide future interpretations and applications of insurance regulations in Washington State.