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Freedom Medical Supply, Inc. v. State Farm Fire and Casualty Co.

United States District Court, E.D. Pennsylvania

February 12, 2014

FREEDOM MEDICAL SUPPLY, INC., Plaintiffs,
v.
STATE FARM FIRE AND CASUALTY COMPANY, , Defendant.

OPINION

JOEL H. SLOMSKY, District Judge.

I. INTRODUCTION

Plaintiff Freedom Medical Supply, Inc. ("Freedom Medical") brings this class action on behalf of itself and other parties who submitted bills to State Farm Fire and Casualty Company and State Farm Mutual Automobile Insurance Company (collectively, "State Farm" or "Defendants") for reimbursement for two medical devices not listed on the Medicare Fee Schedule. Plaintiff claims that members of the class should have been paid 80% of their usual and customary charge for these medical devices pursuant to the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa. Cons. Stat. §§ 1701 et seq. (hereafter "MVFRL"). Plaintiff argues that State Farm paid less than the required amount.

In order to vindicate its right to the 80% reimbursable amount, Freedom Medical filed this class action suit on February 3, 2012 in the Court of Common Pleas in Philadelphia, Pennsylvania. (Doc. No. 1, Ex. A.) On February 28, 2012, the case was removed to this Court. (Doc. No. 1.) The Complaint contains two counts in which reimbursement is sought. Count I alleges a violation of 75 Pa. Con. Stat. §§ 1716 and 1797, and Count II alleges a claim for negligence. Under 75 Pa. Con. Stat. § 1716, benefits must be paid by insurers, such as State Farm, within thirty days after the insurer receives reasonable proof of the amount of the benefits. Under 75 Pa. Con. Stat. § 1797, the amount of reimbursement is subject to a statutory limit.

On May 15, 2013, both parties filed Motions for Summary Judgment. (Doc. Nos. 53, 56.) Both Motions have been fully briefed by the parties and are now ripe for disposition.[1] For reasons that follow, Defendants' Motion for Summary Judgment will be granted and Plaintiffs' Motion will be denied.

II. BACKGROUND

Plaintiff Freedom Medical is a medical supplier that distributes medical equipment to individuals injured in automobile accidents when the injury is covered by an automobile insurance policy. After Freedom Medical supplies the medical device to an injured person, it then bills the patient's insurance company for reimbursement. State Farm is an insurance company that provides automobile insurance which includes coverage for the devices supplied here.

At issue in this case are two devices that Freedom Medical supplies to injured insureds of State Farm, a neuromuscular stimulator ("EMS") and a portable whirlpool ("Whirlpool"). The EMS and Whirlpool are both considered Durable Medical Equipment ("DME") that Freedom Medical is permitted to provide directly to insureds.

In Pennsylvania, the MVFRL, codified in 75 Pa. Con. Stat. §§ 1701 et seq., and the accompanying regulations codified in 31 Pa. Code § 69.1 et seq., govern reimbursement for products and services for those injured in motor vehicle accidents. Both Freedom Medical and State Farm are required to comply with the MVFRL and accompanying regulations.

The MVFRL distinguishes between prices listed on the Medicare Fee Schedule for treatments and products, and those that are not listed. For those treatments and products not listed on the Medicare Fee Schedule, Section 1797(a) states that the amount of the payment may not exceed 80% of the provider's usual and customary charge. 75 Pa. Con. Stat. § 1797(a). Neither the EMS nor the Whirlpool are included on the Medicare Fee Schedule and are therefore unlisted products subject to the 80% limit. (Doc. No. 54 at ¶ 2.)

Freedom Medical primarily purchases the equipment from wholesalers. Freedom Medical pays $20 to $26 for the EMS. (Doc. No. 54 at ¶ 5.) Between 2010 and 2011, Freedom Medical charged patients $1, 525 for the EMS, and sought to be paid 80% of this charge by State Farm, or $1, 200. (Id. at ¶ 9.) From 2012 to the present, Freedom Medical has charged $1, 600 for the EMS, and seeks to be reimbursed $1, 280 from State Farm. (Id. at ¶ 12.) Freedom Medical pays $39.95 for the Whirlpool, and charges patients $525. (Doc. No. 54 at ¶ 6.) Freedom Medical seeks to be paid 80% of this charge by State Farm, or $420.

Prior to June 2010, State Farm reimbursed Freedom Medical at 80% of the amount it charges patients for the EMS and Whirlpool. In June 2010, however, Jamie Arnold, a State Farm claim representative in Pennsylvania, undertook a review of the amounts that providers in Pennsylvania billed for the EMS and Whirlpool. (Doc. No. 54 at ¶ 17.) In connection with his review, Arnold conducted market research to determine an average price for both products. (Id. at ¶¶ 24-29.)

First, Arnold conducted an individualized inquiry for each device by researching the make and model of the EMS and Whirlpool being dispensed. In connection with this review, he contacted DME providers located in the Philadelphia area to determine their prices for both products. He learned that the EMS models for which State Farm was being billed by providers were all of a like kind and quality, and were priced similarly. (Doc. No. 53 at 7.)

Next, Arnold purchased EMS and Whirlpools from providers in Berks, Bucks, Chester, Delaware, Montgomery, and Philadelphia counties in Pennsylvania, and Camden and Gloucester counties in New Jersey, to determine an average price for these devices. (Id.) For the EMS, Arnold based his average price on the purchase of five different models from ten different sellers, including internet sources, which ranged from $93.95 to $264.95. He then added a six percent Pennsylvania sales tax. Arnold concluded that the average price for the EMS is $151.10, with 80% of that charge being $120.88. For the Whirlpool, Arnold based his average price on the purchase of devices from eight different providers, with prices ranging from $54.79 to $106.65. Again, he added a six percent Pennsylvania sales tax.[2] Arnold determined that the average price for the Whirlpool is $97.19, with 80% of that charge being $77.75. (Id. at ¶¶ 30, 32-33, 36-37.)

Beginning in June 2010, State Farm began paying Freedom Medical $120.88 and $77.75 respectively as the reimbursable amount for the EMS and Whirlpool, which is 80% of the usual and customary charge for each device based on Arnold's research and calculations.[3] (Id. at 38.) As a result, on February 3, 2012, Freedom Medical commenced this class action against State Farm in the Court of Common Pleas in Philadelphia, Pennsylvania. On February 28, 2012, the case was removed to this Court. As noted above, the Complaint contains two counts. Count I alleges a violation of 75 Pa. Con. Stat. §§ 1716 and 1797, and Count II alleges negligence.

III. STANDARD OF REVIEW

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). In reaching this decision, the court must determine whether "the pleadings, depositions, answers to interrogatories, admissions, and affidavits show there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Favata v. Seidel , 511 F.Appx. 155, 158 (3d Cir. 2013) (quoting Azur v. Chase Bank, USA, Nat. Ass'n , 601 F.3d 212, 216 (3d Cir. 2010) (quotation omitted)). A disputed issue is "genuine" only if there is a sufficient evidentiary basis on which a reasonable jury could find for the non-moving party. Kaucher v. Cnty. of Bucks , 455 F.3d 418, 423 (3d Cir. 2006) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986)). A factual dispute is "material" only if it might affect the outcome of the suit under governing law. Doe v. Luzerne Cnty. , 660 F.3d 169, 175 (3d Cir. 2011) (citing Gray v. York Papers, Inc. , 957 F.2d 1070, 1078 (3d Cir. 1992). The Court's task is not to resolve disputed issues of fact, but to determine whether there exist any factual issues to be tried. Anderson , 477 U.S. at 247-49.

The movant "bears the initial burden of identifying those portions of the record that it believes illustrate the absence of a genuine issue of material fact." Mendoza v. Gribetz Intern., Inc., No. 10-1904, 2011 WL 2117610, at *2 (E.D. Pa. May 27, 2011) (citing Celotex Corp. v. Catrett , 477 U.S. 317 (1986)). If the movant makes such a showing, "then the burden shifts to the non-movant, who must offer evidence that establishes a genuine issue of material fact ...


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