Lawsuits throughout the country have challenged the use by automobile insurers of automated bill review systems to help determine whether the amounts charged for medical services are "reasonable." In one such suit, the Supreme Court of Colorado recently suggested an important line of defense: The insurer successfully opposed class certification by presenting evidence that its adjusters may depart from the conclusions of the automated system in at least some cases, even if those departures might be uncommon.  

The Legal Analysis

State Farm Mutual Automobile Ins. Co. v. Reyher, 2011 WL 5120836 (Colo. Oct. 31, 2011), arose out of a 2001 automobile accident involving a State Farm insured. Under the Colorado No-Fault law then in effect, State Farm had to pay "reasonable and necessary" medical expenses for covered injuries. Bills for the services the plaintiff received were submitted to a vendor, whose automated system compared each charge with charges for similar services stored in a database operated by Ingenix. The system determined that certain charges were unreasonably high, and State Farm paid only a reduced amount.  

The trial court denied the plaintiffs' motion for class certification: It identified several questions that were common to the claims of all class members, but which (the court held) could not be answered on a class-wide basis, and so it held that "individualized facts of each repriced bill will have to be examined to answer the question of what is reasonable." The Court of Appeals reversed, on the ground that the plaintiffs could "conceivably" establish class-wide liability by proving either (1) that State Farm "had a company-wide practice of unlawfully relying solely on the database without investigation to reprice the class members' bills," or (2) that State Farm "systematically failed to pay the class members' reasonable medical bills because it determined reasonable payments by using a database incapable of determining reasonableness, thus rendering the repriced payments necessarily not reasonable." Reyher v. State Farm Mutual Automobile Ins. Co., 230 P. 2d 1244, 1257-58 (Co. Ct. App. 2009) (emphasis added).

The Supreme Court reversed again. It held that the Court of Appeals had erred by "accept[ing] at face value" the allegation that State Farm "had a practice of relying solely on the database." The proper course, the court explained, was to apply the trial court's findings of fact to the plaintiffs' theories-including findings that "State Farm did not rely solely on the database to review every claim, but rather had a three-step claim review process." Because that finding did not involve an abuse of discretion, the Supreme Court deferred to it and reinstated the trial court's ruling.  

Possible Signficance

The findings of fact on which the Colorado Supreme Court relied for its decision were based on testimony by a State Farm employee that outlined, in general terms, what procedures the insurer and its vendor followed for repricing medical charges. The trial court did not cite any evidence about whether, or how often, State Farm had actually relied on something other than charge data to make a repricing decision. Furthermore, all aspects of the "three-step claim review process" cited by the Supreme Court were carried out by the insurer's vendor, rather than by State Farm itself, suggesting that the Court made a distinction between "relying solely" on a "database"-which would be unacceptable-and relying heavily on an automated bill review process, of which the database is only a part.

By basing its decision on this evidence, the Colorado Supreme Court held that, to defeat class certification, it is not necessary for an insurer to show that it routinely, or even frequently, conducts an independent determination of the "reasonableness" of medical charges. Instead, it is sufficient to show that the insurer does not "rely solely" on charge data for "every" claim-that it does not have "a class-wide practice of relying solely on the database." Moreover, this showing can be made with testimony about claims practices in general, without analysis of the automated system's overall impact on pricing decisions, and without specific examples of decisions that were based on something other than charge data.  

The decision is significant, because the Court's demand for a "rigorous analysis" of the evidence relating to class certification follows a renewed emphasis on such analysis by the United States Supreme Court, in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551-52 (2011) ("Frequently that 'rigorous analysis' will entail some overlap with the merits of the plaintiff's underlying claim. That cannot be helped"). Evidence that an insurer actively discourages independent analysis of the "reasonableness" of medical charges has been cited by several decisions in which class certification was upheld. E.g., Strawn v. Farmers Ins. Co. of Oregon, 258 P. 3d, 1199, 1204 (Or. 2011). Reyher shows that insurers do not have to go to opposite extremes to produce a better result, and that certification can be defeated with evidence of a judicious use of automated bill review systems: an approach that relies heavily on charge data, but does not rule out consideration, where appropriate, of additional information from other sources.