Court says database alone not sufficient in determining reimbursement costs

The Colorado Court of Appeals has ruled against State Farm Mutual Automobile Insurance Co., noting that the insurer’s exclusive use of a computer database to determine reimbursements of medical costs was unreasonable. The decision opens the door for a class-action lawsuit to move forward that would represent patients who had payments from State Farm unilaterally reduced after the company processed the charges through Sloans Lake Auto Injury Management, a medical database that compares physician charges against “same or like services” in a geographic region.

In Pauline Reyher and Dr. Wallace Brucker v. State Farm Mutual Automobile Insurance Co., Reyher was injured in an auto accident and was treated by physician Wallace Brucker, the Junta, Colo., area’s only orthopedic surgeon. Under Reyher’s no-fault insurance policy, State Farm was obligated to pay “all reasonable and necessary expenses for medical” care. Brucker treated Reyher and submitted the charges to State Farm. The insurer processed the bills and reduced the payments, claiming that its database showed other physicians in the area charged less for similar services.

Reyher and Brucker filed suit against State Farm and Sloans Lake, and their complaint included allegations on behalf of a class of persons similarly situated. The court decided that the computer database used to determine “reasonable” reimbursement of medical costs was flawed and could not accurately assess the reasonableness of Brucker’s charges.

According to the court, “a claimant’s application and a provider’s itemized billing statement are usually sufficient to establish ‘reasonable proof of the fact and amount of the expenses.'” The court said it was “not persuaded by State Farm’s argument that Dr. Brucker’s bills were unreasonable as a matter of law because the database said they exceeded 90 percent of charges for similar procedures in the same geographic area. A question of fact exists as to whether the database accurately assessed the reasonableness of the bills.”

Attorney Rob Carey of Hagens Berman Sobol Shapiro also noted that there was a problem with State Farm’s conclusion because Brucker is the only doctor in his area who performs the type of medical services that Reyher required. Indeed, “reasonable jurors could infer … that State Farms’ repricing decision was invalid because there are no similar practitioners in Dr. Brucker’s geographic area,” the court said.

In a 3-0 decision, Judge Hawthorne remanded the case to the trial court that originally dismissed Reyher and Brucker’s case, and granted summary judgment to State Farm.

For more information, visit http://www.courts.state.co.us/coa/opinion/2007/2007q3/06CA0239.pdf