A health system's actual procurement costs for surgical implants is subject to disclosure for payment consideration by auto no-fault insurers

Patients of Bronson Methodist Hospital, in Kalamazoo, Michigan, were involved in motor vehicle accidents and sustained traumatic, orthopedic injuries requiring surgical implants.  Pursuant to the no-fault act (MCL 500.3107(1)(a)), Bronson submitted its charges incurred by the patients to the liable no-fault auto insurer (Auto-Owners Insurance Company) for payment.  The no-fault insurer paid the health system's charges except for the line item for the implants.  For payment consideration and pursuant to a different section of the no-fault act (MCL 500.3157 and MCL 500.3158), Auto-Owners requested that Bronson disclose its actual cost to acquire the implants.  Bronson refused to disclose this proprietary information.  Consequently, Auto-Owners refused to timely issue payment for the full amount of the implant charges submitted.  Bronson filed suit to compel payment of the charges incurred by the patients for the implants.

During the course of the litigation, Auto-Owners (relying on CorVel Corporation, its retained audit/review company's recommendation) issued payment for what it maintained was in line with what the health system actually paid for the implants, plus a 50% mark-up.  At the trial court, Bronson requested the court to rule that it was not obligated to disclose its proprietary information and that it was entitled to be paid the full charge incurred by the patient.  The trial court agreed.  Auto Owners, therefore, appealed the decision.

In a Published Opinion dated February 16, 2012, the Michigan Court of Appeals reversed the trial court and held that a health system's actual procurement costs for surgical implants is subject to disclosure for payment consideration by auto no-fault insurers.  The court, however, limited the application of its newly announced rule solely to "durable medical supply products at issue here."

What this means for patients and providers.

First, the Bronson case is binding law now in Michigan.  It will remain so unless and until our Michigan Supreme Court says otherwise.  An appeal to the Michigan Supreme Court is discretionary and not guaranteed because the Supreme Court may decline Bronson’s request which effectively means it agrees with the current rule.  Bronson has 42 days to preserve a timely application to appeal the decision.  MCR 7.302(C)(2).  At this time, no application has been filed yet.  You can track the appellate history of this case here.

Second, as you see in this case, Bronson did not disclose the amount of its hard costs and yet, it still was paid a portion of its bill.  For health systems, generally, that will be the likely outcome going forward when a health system decides to continue its internal policy to withhold the proprietary data.  If the hospital decides to pursue the balance bill in litigation, however, then the data will be subject to disclosure.

Finally, in deciding whether to initiate that balance bill case, health systems must be able to demonstrate with other evidence that there is more to the overall cost to delivering an implant to a patient besides its raw, wholesale cost.  What about the costs to store/maintain its purity from contamination before actual use?  What about insurance costs to protect against its loss from contamination or fire before use?  This list of added over-head to the delivery of the implant  is incomplete but it is intended to help illustrate how health systems should begin analyzing and developing their case response.  Recognize, too, that a built-in profit is o.k..  A jury gets that.  It also understands over-head.  So, what is the total over-head to deliver the implant?  That answer is what will justify a health system’s cost-to-charge ratio.

You can read the Published Court of Appeals opinion here.

Authored by L. Page Graves