The state Supreme Court has ruled that an insurer cannot be ordered to pay a medical provider’s attorney fees when the insurer properly employed the peer review process before denying coverage because it deemed the medical care unnecessary.

In Herd Chiropractic Clinic v. State Farm Mutual Automobile Insurance, the justices ruled 4-2 to reverse a Superior Court decision that unanimously affirmed a Dauphin County trial court’s ruling awarding $27,047 in attorney fees to plaintiff Herd Chiropractic Clinic and against State Farm.

Justice Thomas G. Saylor, writing for the majority, said Section 1797(b)(4) of the Motor Vehicle Financial Responsibility Law only allows providers to appeal insurers’ coverage refusals, "the reasonableness or necessity of which the insurer has not challenged before a [peer review organization]."

Section 1797(b)(6), meanwhile, only allows for courts to award attorney fees "pursuant to paragraph (b)(4)," Saylor said.

"Thus, both subsections, by their explicit terms at least, apply only in the circumstance in which an insurer has not pursued peer review," Saylor said. "There is, as insurer emphasizes, simply no express statutory authorization for fee shifting on provider challenges to peer-review determinations."

Saylor was joined by Chief Justice Ronald D. Castille and Justices J. Michael Eakin and Debra Todd.

Justice Max Baer penned a dissent, arguing that a provider’s due process right to seek judicial review requires Section 1797(b)(4) to be read as allowing attorney fee awards regardless of whether an insurer uses the peer review process.

Baer said Herd raises the same due process concerns that led the Supreme Court to determine in the 1994 case Terminato v. Pennsylvania National Insurance that an insured does not need to seek reconsideration of a PRO decision before seeking judicial review because PROs are not as neutral as fact-finders.

"Because we have permitted a direct appeal to the trial court under Section 1797(b), it follows that such an appeal must be real and meaningful, and not illusory, to comport with due process," Baer said, calling Section 1797 "flawed" because it does not provide a mechanism for judicial review of a PRO determination.

Baer was joined by Justice Seamus P. McCaffery.

Saylor said the court was not unsympathetic to concerns about the "financial incentives" of PROs and admitted that Section 1797 is "neither comprehensive nor a model of clarity."

"Nevertheless, fee shifting raises a host of mixed policy considerations in and of itself, which this court has found are best left to the General Assembly, in the absence of contractual allocation or some other recognized exception to the general American rule," Saylor said. "The legislature’s failure to adjust Section 1797 over time as imperfections have been revealed by experience, while unfortunate, does not alter the functions ascribed to our respective branches of government."

Saylor added that Terminato did not circumvent the statutory language to allow for appeals from PRO decisions.

"Rather, Terminato reflects the far more modest and restrained holding that a statute providing an evaluation process funded by an interested party could not serve to foreclose judicial review on the filing of a civil action in the nature of an appeal from an adverse decision arising from such process," Saylor said.

In Herd, according to court documents, Miriam Mitten was injured in a car accident and received care from Herd Chiropractic.

State Farm submitted the bills to a peer review organization pursuant to Section 1797 of the MVFRL, which defines the peer review process as a professional assessment of whether medical treatment is reasonable, designed to assist insurers in determining whether or not coverage of a claim is warranted, court documents said.

State Farm ultimately refused to pay for certain treatments Herd Chiropractic provided and the medical provider sued the insurer, seeking unpaid medical expenses, attorney fees and damages, according to court documents.

The trial court determined that the medical care was reasonable and necessary, granting $1,380 in unpaid medical expenses, but denied treble damages and attorney fees. Herd Chiropractic filed a motion for reconsideration, which the trial court granted, and was awarded attorney fees of $27,047, court documents said.
On appeal, a three-judge panel of the Superior Court unanimously agreed.

"The fact that State Farm adhered to the peer review procedure does not mean that attorney fees are precluded if a court determines on review that the care was medically necessary," Judge Anne E. Lazarus said.

But Saylor said the statute’s plain language clearly states otherwise.

Herd Chiropractic’s attorney, Robert F. Claraval of Claraval & Claraval in Harrisburg, said the court’s decision "exposes the fatal flaw in the MVFRL and creates a crisis for patients and doctors in Pennsylvania."

"Victims injured in a crash who have paid a premium to automobile insurance carriers will not receive their full medical benefits," Claraval said in an emailed statement. "Automobile insurance carriers are now free to act with impunity and will increase their use of biased peer reviews to deny care for victims injured in crashes."

State Farm’s attorney, Lee Ullman of Forry Ullman in Reading, Pa., could not be reached for comment at press time.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.

(Copies of the 25-page opinion in Herd Chiropractic Clinic v. State Farm Mutual Automobile Insurance, PICS No. 13-0435, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •