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Covenant FN 40: A Silver Lining for Health Care Providers?

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Covenant FN 40: A Silver Lining for Health Care Providers?

The Covenant Med. Ctr., Inc. v. State Farm Mut. Auto. Ins. Co., decision last year posed new problems for health care providers seeking to litigate no-fault benefit payment disputes against insurance companies. The Michigan Supreme Court held that providers could no longer bring direct causes of action against no-fault insurance companies for payment denials or underpayments because the no-fault statute does not mention any such cause of action. However, Footnote 40 of the Court’s opinion offered another option: the health care provider can enforce an assignment of past or present—not future—benefits from the patient. If the patient signs an assignment of benefits form at the time of each service, the health care provider can bring an action against the no-fault insurer on behalf of the patient. It remained unclear though how Michigan courts would interpret this footnote and whether the courts would impose additional restrictions on providers’ use of assignments to litigate payment disputes with no-fault insurers. Recent case law clarifies how providers may use Footnote 40.

There are several potential pitfalls to the assignment theory that providers need to be wary of:

  • The no-fault insurance contract with the insured may prohibit assignment. Note though that a recent string of non-binding federal court and lower state court cases have held that these anti-assignment clauses cannot be used under Michigan law to bar the assignment of present or past rights to payment for medical services.
  • The complaint may not properly plead the assignment claim. Courts have consistently allowed providers to amend their complaints to add an assignment theory when the case was pending at the time Covenant was decided, but courts may not be as generous when the complaint is filed post-Covenant.
  • Patients may not always sign assignment documents. Since the assignment can be one of past benefits, an after-the-fact assignment may suffice if the provider is able to track down the patient to sign an assignment after services were provided.

Providers will need to update their policies and procedures to take full advantage of the Footnote 40 opportunity.

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