The Holding

In Jimenez v. Progressive Preferred Ins. Co., 2020 WL 2037113 (D. Ariz. Apr. 28, 2020), a putative breach of contract and insurance bad faith class action arising from a MedPay claim, the Arizona District Court held the phrase "reasonable expenses incurred for necessary medical services' are those expenses which the healthcare provider accepts as payment in full.”

The Takeaways

• If an insurer’s policy limits MedPay benefits, or perhaps UM or UIM benefits, to “reasonable medical expenses,” then the insurer should determine whether an insured’s medical providers contracted to accept less than the amount billed as payment in full to determine the benefits owed.
• Because Arizona’s model personal injury damages instruction, RAJI Personal Injury Damages 1 (Measure of Damages), limits Arizona personal injury plaintiffs' recovery of medical expenses to “reasonable expenses of necessary medical care,” some Arizona insurers and personal injury defendants may begin to cite Jimenez and argue the recovery of medical expenses by Arizona personal injury plaintiffs and insureds should be limited to the amounts accepted by medical providers as payment in full rather than billed amounts.

The Facts

In Jimenez, the Policy stated the Insurer would pay MedPay benefits for “reasonable expenses incurred for medical services” and the Insurer would “determine whether the expenses for medical services are reasonable.” The Insurer had contracted with an entity that entered “Provider Agreements” with medical providers that agreed to deliver medical services at specific contract rates. The Insurer had also contracted with another entity that made the Insurer part of a Virtual Provider Network in which a network of medical providers similarly agreed to deliver medical services for the entity’s clients, such as the Insurer, at reduced rates.

The Insured was in a car accident, incurred $6,719 of medical expenses, had no health insurance, and made a MedPay claim for his $5,000 MedPay limits. The Insurer determined the Insured’s medical providers had contracted with the above two entities and agreed to accept reduced rates, specifically $3,455, as payment in full, and paid that amount of MedPay benefits.

The Insured filed a putative class action against the Insurer for himself and other insureds whom the Insurer paid less than policy limits because of similar contracts/Voluntary Provider Networks and asserted claims, among others, for breach of contract and bad faith. The Insured and Insurer filed dueling motions for summary judgment, and the Court granted the Insurer’s motion.

The Rationale

First, the Court noted the Insured violated the conditions precedent for suing the Insurer. The Insured had not paid money of his pocket to his medical providers before suit, and the Insured’s medical providers had initiated no collection activity against the Insured.

Second, the Court noted the Arizona District Court had previously “noted the unique payment practices of the health care industry, wherein health care providers routinely accept an amount less than the amount billed as payment in full.” But, it and the Arizona Supreme Court had “considered simply what charges were ‘incurred’” rather than “addressed the proper interpretation of the word ‘reasonable’ when applied to such charges.” Indeed, the Arizona District Court limited its analysis to the phrase “actual charges” in Pierce v. Cent. United Life Ins. Co., 2009 WL 2132690 *5 (D. Ariz. July 15, 2009), and the Arizona Supreme Court limited its analysis to the phrase “actually incurred by the insured” in Samsel v. Allstate Ins. Co., 59 P.3d 281, 286, 291 (Ariz. 2002).

Third, the Court noted a “few courts have addressed the question of whether, in the medical expenses context, ‘reasonable’ expenses are those billed or those accepted as payment in full,” “the Court finds persuasive those that have interpreted reasonable expenses as those expenses accepted as payment in full,” and cited these cases:

• West v. Shelby Cty. Healthcare Corp., 459 S.W.3d 33, 44-46 (Tenn. 2014) (In Tennessee, “with regard to an insurance company’s customers, ‘reasonable charges’ are the charges agreed to by the insurance company and the hospital”—in other words, the amount accepted as payment in full. Using the amount billed is unreasonable because “virtually no public or private insurer actually pays full charges,” and a “more realistic standard,” which “reflect[s] what is [actually] being paid in the market place,” is “what insurers actually pay and what the hospitals [are] willing to accept”—i.e. the amount accepted as payment in full.)
• Allstate Ins. Co. v. Holy Cross Hosp., Inc., 961 So. 2d 328, 335 (Fla. 2007) (If a healthcare provider “has agreed in a valid and enforceable contract to accept payment for services at a particular rate, that rate would necessarily be a ‘reasonable amount for the services ... rendered.’”) (quoting Nationwide Mut. Ins. Co. v. Jewell, 862 So. 2d 79, 86 (Fla. Dist. Ct. App. 2003)).
• Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1142 (Cal. 2011) (“We do not suggest hospital bills always exceed the reasonable value of the services provided ... If we seek ... the exchange value of medical services the injured plaintiff has been required to obtain, looking to the negotiated prices providers accept from insurers makes at least as much sense, and arguably more, than relying on [the amount billed].... For this reason as well, it is not possible to say generally that providers’ full bills represent the real value of their services ...”).
• Kenney v. Liston, 760 S.E.2d 434, 451 (W. Va. 2014) (Loughry, J., dissenting) (“Given the current complexities of health care pricing structures, it is simply absurd to conclude that the amount billed for a certain procedure reflects the ‘reasonable value’ of that medical service.... ‘[b]ecause so many patients, insured, uninsured, and recipients under government health care programs, pay discounted rates, hospital bills have been called ‘insincere,’ in the sense that they would yield truly enormous profits if those prices were actually paid.”) (quoting Howell, 257 P.3d at 1142).

Accordingly, the Court held:

• “the ‘reasonable expenses incurred for necessary medical services’ are those expenses which the healthcare provider accepts as payment in full”;
• the Insurer “did not breach the [Policy] by paying the amount the healthcare providers agreed to accept as payment in full”; and
• the Insurer did not act in bad faith because “it was reasonable for [the Insurer] to promptly send full payments of the amount the healthcare providers were contractually obligated to accept.”