The U.S. District Court for the District of New Jersey recently issued a technically non-precedential opinion which nonetheless could very well establish an adverse precedent for insurer groups writing auto insurance in New Jersey. In the matter of Ambulatory Surgical Center of Somerset v. Allstate Fire Casualty Insurance Co. (No. 16-5378), the Court recently decided that when a New Jersey medical provider demands payment for treatment covered by the personal injury protection (PIP) benefits under an auto insurance policy issued outside of New Jersey, such provider is not bound by the obligation to arbitrate such claims at the insurer’s election, and instead is free to sue the insurer in federal court. The Court’s decision, if follow by other New Jersey judges, could significantly increase the volume of costly litigation, rather than simplified arbitration, auto insurers face from medical providers regarding bill payment.

In the matter at issue, an ambulatory surgical center (ASC) filed a putative class action against a major auto insurer in federal court alleging that the insurer undercompensates ASCs for providing care covered by PIP benefits. In New Jersey, all medical care paid for as PIP benefits is subject to medical fee schedules promulgated by the New Jersey Department of Banking and Insurance (DOBI), set forth at N.J.A.C. 11:29.1 et. seq. The fee schedules provides indicated charges to be paid by auto insurers to medical providers for an extensive but finite number of medical procedures represented by CPT codes. As medical practices and procedures evolve, however, new CPT codes are introduced, and some come into more frequent use which are not accounted for on the New Jersey fee schedules. 

When providers bill CPT codes that are not accounted for in the fee schedules, auto insurers are required by DOBI regulation to pay "usual and customary" amounts. The definition of "usual and customary" is a source of near constant dispute between providers and insurers, and leads to frequent arbitration of disputes regarding such pricing before the state's PIP dispute resolution (arbitration) forum. Under pertinent sections of the New Jersey Auto Insurance Cost Reduction Act (AICRA), set forth at N.J.S.A. 39:6A-5.1, when either party to a dispute regarding PIP benefits demands, such claim shall be submitted to binding arbitration before the forum selected by DOBI. 

The question recently before the Court in the ASC of Somersetmatter, however, was whether in instances where the insurance policy paying PIP benefits to the medical provider in question was issued outside of New Jersey, to a non-New Jersey resident, should the portions of AICRA which require disputes between medical providers and insurers over PIP benefits be subject to the New Jersey statutory obligation to arbitrate? Under New Jersey law, when a person insured under an out-of-state auto policy drives into New Jersey, even if their policy does not provide PIP benefits (because their state of residence does not require such benefits), if the policy was issued by an insurer which is part of a group of companies of which at least one writes auto insurance in New Jersey, his or her policy is “deemed” to provide PIP benefits when the insured vehicle is operated in New Jersey. See N.J.S.A. 17:28-1.4 (i.e., the “Deemer Statute”). 

What the Court decided in the ASC of Somerset matter was that when an insurer is paying PIP benefits on behalf of a non-New Jersey resident insured, pursuant to the “Deemer Statute,” if the non-resident’s medical provider (specifically including New Jersey-resident medical providers) disputes compensation (such as disputing whether payment was duly usual and customary), the insurer has no right to compel such dispute to arbitration. Instead, the insurer may be compelled, as in the subject case, to defend the claim in federal court. The Court’s analysis would similarly allow the claim to be litigated in state court, if federal jurisdiction requirements were not met.

The Court’s analysis and reasoning was premised on the notion that the out-of-state insured is not provided with notice that his or her claim for PIP benefits will be subject to binding arbitration. Additionally, the Court concluded that the New Jersey “Deemer Statute” does not specifically apply PIP dispute resolution procedures to out-of-state policies which are “deemed” to provide such coverage. 

This reasoning, however, appears ripe for challenge. First, in almost all instances, claims for PIP medical expense benefits are asserted by the New Jersey medical providers who treat such patients (pursuant to an assignment of benefits). The actual patient and insured has little to do with the claim, and may not even have knowledge that their provider is pursuing such a claim. While the Court may reason that an out-of-state driver cannot be charged with knowledge of New Jersey PIP dispute resolution procedure, it stands to reason that the New Jersey medical providers who regularly treat such patients can be charged with knowledge of New Jersey law. Moreover, under the PIP medical fee schedule regulations, providers are expressly prohibited from balance billing patients. See N.J.A.C. 11:3-29.4(m). In short, the patient out-of-state insured has no vested interest in whether or how much the provider gets paid, and is therefore irrelevant to the actual dispute.

In the coming months, auto insurers in New Jersey will need track development in the case discussed here, and also monitor whether medical provider community in New Jersey begins pursing more costly litigation against insurers over PIP benefit disputes. Given New Jersey’s location in the I-95 and Northeast Corridors, and resulting large number of out-of-state drivers, without statutory or judicial remedy, the ASC of Somerset decision could prove costly for insurers.

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