(Nadia Borowski Scott)

An automobile insurance carrier’s failure to adjust the cost of an insured’s medical bills resulted in the premature exhaustion of her first-party benefits, a common pleas court judge has ruled in allowing her claim to go forward against the insurer.

Lawrence County Court of Common Pleas Judge Craig Cox said in Pavelko v. Unitrin Direct Auto Insurance that the plaintiff’s allegation that her auto insurer’s failure to adjust the bill, or “re-price” medical services by paying a lower rate to the medical service provider, meant that primary care limits under the policy could have been reached too soon.

He rejected the insurance company’s argument that the “re-pricing” issue could not give rise to an actionable claim.

Cox likened the case to a recent Commonwealth Court decision dealing with personal injury protection benefits, and found that, under the Motor Vehicle Financial Responsibility Law, the carrier did have an obligation to prolong the coverage.

“Section 1797(a) mandates, ‘providers subject to this section may not bill the insured directly but must bill the insurer for a determination of the amount payable,’” Cox said. “That portion of the statute indicates that an insurer is required to adjust the amount due for medical bills it pays on behalf of an insured.”

Cox also warned plaintiffs counsel Daniel Herman regarding some language he had used in the amended complaint, and said the carrier presented a legitimate question of law that needed to be decided by the court.

According to Cox, the plaintiff’s amended complaint said the preliminary objections were filed out of “ignorance,” “stupidity, sloth, or mendacity,” and that the objections showed either a “lack of understanding” of the law, or that opposing counsel was being “completely disingenuous with the court.”

“It is important to emphasize that there was a legitimate basis for filing preliminary objections as neither party was able to provide the court with case law concerning the issue presented, which indicates that the defendant’s argument was not against the weight of the authority,” Cox said.

But Herman told the Law Weekly he had not in 30 years of practice seen an insurance carrier refuse to re-price an insured’s medical bills.

According to Cox, plaintiff Valerie Pavelko had an insurance policy with Unitrin Direct Auto Insurance when she was involved in an automobile accident in October 2008. Pavelko was injured in the crash and treated at Jameson Memorial Hospital. She was billed by the hospital and several health care providers for a total of nearly $5,000. Unitrin paid the bills in full without repricing, Cox said.

Pavelko contended that the payments exhausted her policy limits, and, as a result, she had unpaid bills she needed to pay for out-of-pocket. She alleged that her first-party benefits could have covered the bills if the carrier would have adjusted the amounts instead of paying 100 percent of the amounts due. Pavelko argued that, under the Motor Vehicle Financial Responsibility Law, a carrier is required to reprice the amounts owed for medical bills to delay the exhaustion of first-party benefits.

Unitrin disputed the claim, arguing that a carrier is not required to reprice in order to postpone the exhaustion of first-party benefits, and that an insurer is not required to pay medical bills according to the 75 Pa. C.S.A. Section 1797 fee schedule.

Cox noted the state Superior Court’s 1999 decision in Pittsburgh Neurosurgery Associates v. Danner, which held that cost containment provisions in Section 1797 applied to medical bills remaining after an injured party’s first-party benefits were exhausted and the injured party was seeking recovery for a third party’s liability insurance. The court in that case held that when enacting the section, the General Assembly intended to reduce the cost of purchasing motor vehicle insurance by decreasing premiums through cost containment provisions.

Cox further said that the Commonwealth Court’s 2011 decision in Houston v. Southeastern Pennsylvania Transportation Authority was applicable.

In Houston, two claimants were injured while riding a SEPTA bus. While the authority was required to provide $5,000 of personal injury protection benefits, the medical providers sent bills directly to the injured bus riders. Bills for both riders exceeded to $5,000, and SEPTA paid $5,000 for each injured rider without adjusting the medical bills.

The claimants contended that SEPTA was required to pay the benefits in accordance with the section’s cost-containment provisions, which required insurers to adjust medical providers’ bills and to pay medical expenses at no more than 110 percent of the allowances applicable under the Medicare program.

SEPTA contended that, as a self-insurer, it was not subject to Section 1797(a).

According to Cox, the Commonwealth Court noted the General Assembly saw the Medicare program as an appropriate basis to calculate reimbursement allowances for treatment covered by liability, uninsured, underinsured, or first-party medical benefits insurance. The court then held that SEPTA needed to pay the bills in accordance with Section 1797(a).

“The Houston court maintained that the trial court correctly ruled that cost containment provisions of Section 1797(a) mandated that insurers adjust the amount due to medical providers when paying benefits on behalf of an insured to limit the amount of out-of-pocket expenses to be paid by the appellees,” Cox said. “In accordance with the decision in Houston, the plaintiff has filed a legally sufficient claim based upon the defendant’s failure to adjust the amount paid for the plaintiff’s medical bills, which increased her out-of-pocket expenses.”

Herman said that if the court had accepted Unitrin’s argument, “then every insurance carrier in this commonwealth can immediately pay out the limits, not reprice the bills and close their files,” Herman said. “The act was not designed with that purpose in mind.”

Joseph A. Hudock Jr. of Summers, McDonnell, Hudock & Guthrie did not return a call for comment.

Max Mitchell can be contacted at 215-557-2354 or mmitchell@alm.com. Follow him on Twitter @MMitchellTLI.

(Copies of the 13-page opinion in Pavelko v. Unitrin Direct Auto Insurance, PICS No. 14-1195, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information. Account holders can use the online form to order.) •