Pennsylvania Supreme Court Limits Attorneys’ Fees in Peer Review Cases

By Katharine A. Mooney, Esq.*

In Doctor’s Choice Physical Medicine & Rehabilitation Center, P.C. v. Travelers Personal Ins. Co., 2015 Pa. LEXIS 3010 (Pa. Dec. 21, 2015), the Pennsylvania Supreme Court addressed the availability of attorneys’ fees in the first-party personal injury context. The court reversed the Superior Court’s 2014 decision, which was being used by plaintiffs to assert that attorneys’ fees were available under § 1797 of the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL) if an insurance company failed to submit the treatment to a valid peer review.

In Pennsylvania, the peer review process is the exclusive method by which an insurance company can contest its first-party medical obligations. In this context, Peer Review Organizations (PROs) are health care entities that engage in reviewing medical files for the purpose of determining that medical and rehabilitation services are medically necessary. Pursuant to § 1797 of the MVFRL, insurance carriers are required to submit contested treatment to a PRO. Section 1797(b)(4) provides that if an insurer refuses to pay for medical treatment without having challenged the medical necessity or reasonableness before a PRO, a provider or an insured can file suit. If an insurance company fails to challenge the treatment before a PRO and a court later determines that the treatment was medically necessary, the insurance company must pay the outstanding amount plus interest at 12 percent, as well as costs and attorneys’ fees.

In Doctor’s Choice, Travelers stopped payment on chiropractic treatment being rendered to its insured after a peer review concluded it was no longer medically necessary. The provider filed suit against Travelers, claiming that the PRO failed to comply with a regulation contained in Title 31 of the Pennsylvania Code that PROs shall apply national or, when appropriate, regional norms in conducting their determinations. If national or regional norms do not exist, a PRO shall establish written criteria to be used in conducting its reviews based upon typical patterns of practice in the PRO’s geographic area of operation. 31 Pa. Code Section 69.53(3). At the trial court level, the parties essentially agreed that no national or regional norms existed for the particular treatment at issue. The court then analyzed whether, in the absence of these accepted norms, the PRO had provided written criteria, as the regulation requires, and found that it had not. The trial court concluded that, as a result, no valid peer review had occurred. The court awarded damages to the provider, including attorneys’ fees, on the basis that Travelers had not effectively challenged the treatment before a PRO pursuant to § 1797(b)(6). After Travelers filed post-trial motions, the court modified the verdict, removing the attorneys’ fee portion, based on the Pennsylvania Supreme Court’s decision in Herd Chiropractic Clinic, P.C. v. State Farm Mutual Automobile Insurance Company, 64 A.3d 1058 (Pa. 2013). The Herd case, which post-dated the trial court’s decision, stands for the proposition that § 1797 of the MVFRL does not serve as a basis for attorneys’ fees awards on provider challenges to peer review determinations.

The provider appealed to the Superior Court. Notwithstanding the decision in Herd, the Pennsylvania Superior Court held that the phrase “challenged before a PRO” as employed in § 1797(b)(4) requires more than a mere referral to a PRO of bills for contested treatment but, rather, requires a completed, compliant and valid peer review determination. 92 A.3d 813 (Pa.Super. 2014), rev’d 2015 Pa. LEXIS 3010 (Pa. Dec 21, 2015). It further held that a non-compliant peer review can subject an insurance company to the penalties listed in § 1797(b)(6), including attorneys’ fees. The Superior Court adopted the trial court’s conclusion that no valid peer review had taken place due to the reviewer’s failure to adhere to 31 Pa. Code Section 69.53(3). The Superior Court went on to hold that challenges before a PRO require a valid, completed peer review. This interpretation empowered plaintiffs’ attorneys to argue that certain reviews are invalid and then seek attorneys’ fees from the insurance company on the basis that it had not effectively challenged the treatment.. This decision had obvious implications for insurance carriers as it ostensibly placed the burden on them to oversee the regulatory compliance of the PROs with whom they contract. 

The Pennsylvania Supreme Court agreed to consider whether the Superior Court improperly interpreted § 1797 of the MVFRL to allow attorneys’ fees, even when an insurer has utilized the peer review process. It also agreed to review whether the Superior Court had improperly interpreted and misapplied § 1797(b)(4) by holding that the insurer must oversee the statutory compliance of PROs.

In December 2015, the Supreme Court answered both questions in the affirmative and reversed the Superior Court’s holding to the extent that it had allowed attorneys’ fees to be assessed against Travelers. The Supreme Court relied on the American Rule, that there can be no recovery of attorneys’ fees from an adverse party in litigation absent express statutory authorization or agreement by the parties. The court found no such authorization within the MVFRL and found no express language signifying that a challenge necessarily requires a valid review. The Supreme Court opined that the Superior Court’s decision was “policy driven.” It also expressed concern with the peer review process. However, it felt changes to the current system were best left to the legislature.

The Supreme Court’s decision in Doctor’s Choice is far from surprising, but it creates a bright-line rule regarding attorneys’ fees in this context; as long as an insurance company submits the treatment to a PRO in a timely manner, attorneys’ fees will not be available. That being said, the opinion left other important questions unanswered. The Doctor’s Choice case involved a peer review that did not comport with the insurance regulations and was consequently labeled “invalid” by the trial court and the Superior Court. Unfortunately, the Supreme Court opinion did not discuss in any great detail what is necessary to comply with this particular regulation, whether failure to do so truly renders the PRO determination invalid, or whether an insurance company’s reliance on a non-compliant review could result in a liability in some other context, such as bad faith.

*Katie is an associate in our Doylestown, Pennsylvania office. She can be reached at 267.880.2022 or kemooney@mdwcg.com.

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_{Defense Digest, Vol 22, No. 1, March 2016}

_{Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2016 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}