Re: hidden truth
Posted by wake up on 4/04/04
StateFarmAgentsWhoCare.org Document Archives
Cutting Claims with Fraud?
Records Sealed In Major Insurer's Case
Washington Post Staff Writer
Sunday, July 4, 1999
The nation’s largest automobile insurer has settled several lawsuits over
the past year that allege the company used fraudulent medical reports by
outside firms to slash or deny insurance claims submitted by people
injured in car accidents.
Now, three consumer groups have gone into federal court in Oregon seeking
to unseal the records of one of the cases, arguing that it holds clues to
what could be a widespread practice within the industry.
The case, in U.S. District Court in Eugene, Ore., involves the settlement
of a lawsuit filed by Debbie Foltz, an Oregon woman, against State Farm
Mutual Automobile Insurance Inc. After her son was injured in an auto
accident, Foltz alleged that State Farm sent her medical claim to a
supposedly independent outside firm for review, knowing that the firm
would return a phony medical analysis that said State Farm should deny or
reduce the claim.
According to Foltz’s lawyer and others who have represented plaintiffs in
lawsuits against auto insurers, the Foltz case, which began in 1994, is
but a small piece of a larger pattern. The use of independent, outside
firms to review medical claims is extremely common in the insurance
industry, and is even mandated in two states. The plaintiffs’ lawyers
charge that, in an effort to keep down costs, insurance companies are
systematically using dubious reports from some such firms as a pretext to
cut their payments for medical treatment.
Last year, a jury in Idaho found State Farm did exactly that in one case.
A few months later, the insurer settled with Foltz and several other
policyholders who had made similar allegations.
But the details of the Foltz case and others that were settled may never
be known. A key provision of the settlement, insisted upon by State Farm,
was that U.S. District Judge Michael R. Hogan seal virtually the entire
case record, an apparently voluminous file containing four years of
pretrial skirmishing by lawyers for the two sides. Lawyers involved in
the case are precluded from discussing it or identifying the related
cases that were settled at the same time.
The records in those cases are also believed to be sealed. The secrecy
surrounding the Foltz settlement, and the insurance industry practices
that it may shroud, is the focus of the new legal action by the consumer
groups and the Washington-based Trial Lawyers for Public Justice
Foundation. The groups are attempting to persuade Hogan to unseal the
court records in an effort to shed light on a relatively new practice by
the insurance industry that plaintiffs’ lawyers say is saving insurance
giants like State Farm millions of dollars a year at the expense of their
"Consumers cannot fight what they do not know about," said Linda Sherry
Action, one of the groups that is attempting to intervene in the case. At
the heart of the Foltz case and several others against major insurance
companies is a process known as "utilization review" or "paper review."
It involves the review of insurance claims by outside companies that
employ physicians and other medical experts to determine whether medical
treatments were necessary and the charges reasonable, the standard set in
law. Much of the analysis is done by computer, matching the claims
submitted to an insurance company against stored information on past
treatments and charges for the same condition.
But critics charge that some insurance companies, which began using
utilization review about 10 years ago in an attempt to root out claims
for unnecessary medical treatments and inflated charges, have entered an
alliance with unscrupulous outside firms that promise they will reduce
insurers’ costs by generating reports that are all but guaranteed to
recommend denial or slashing of claims.
One such case that reached trial was in Idaho, where in 1994 Cindy
Robinson sued State Farm over a three-year delay in the payment of
medical claims stemming from an automobile accident. When the trial ended
last year, the jury awarded Robinson $2,500 in damages under her policy,
$100,000 in additional damages for intentional infliction of emotional
distress and $9.5 million in punitive damages.
In a blistering opinion last August, Idaho District Judge D. Duff McKee
upheld the jury verdict and the amount of damages. Reviewing the
testimony in the case, McKee wrote that "the evidence was overwhelming
that the utilization review company selected by the claim examiner was a
completely bogus operation. The company did not objectively review
medical records but rather prepared ‘cookie-cutter’ reports of stock
phrases, assembled on a computer, supporting the denial of claims by
insurance companies. The insured’s medical records were not examined and
reports were not prepared by doctors or even reviewed by doctors."
McKee said that State Farm’s management knew that the reports it was
receiving from outside utilization review companies were false but
condoned the practice because it was "leading to reduced claim expenses."
"The defendant’s conduct in this case was outrageous, intentional,
harmful and an extreme deviation from reasonable conduct," McKee
wrote. "The practice of manufacturing evidence to use in defeating a
claim being made by the insurance company’s own insured is reprehensible."
The utilization review firm that produced the reports in Robinson’s case
was Medical Claims Review Services (MCRS), which was based in Bethesda
and is now apparently defunct.
Ten years ago, the company’s president, Ronald E. Gots, wrote an article
in an insurance industry trade publication urging the industry to turn to
utilization review as a way to combat what he described as the "vast
economic interests" that were constantly pressing for "exaggerated
medical losses." Gots, a physician who now heads two other companies in
Rockville, did not respond to messages left at his office.
State Farm, which has 36.7 million auto insurance clients, is appealing
the Robinson verdict. Officials at the company’s Bloomington, Ill.,
headquarters said they could not comment on any of the cases or the
general subject of utilization review. "Anything we say about this topic
could come back to haunt us in discovery in some case involving this,"
said Dave Hurst, a State Farm spokesman.
But the cadre of plaintiffs’ lawyers who daily do battle with the
insurance industry in courtrooms and law offices across the country are
more than eager to talk about the topic.
Rick Friedman, an Anchorage lawyer who represented Robinson, said that
during the case he obtained 79 MCRS reports on medical claims in Idaho
and Montana and that every one said either that the claimant was not
injured or that the injury was not caused by the accident that led to the
"These are supposed to be independent reviews of medical records,"
Friedman said. "At the trial, a former State Farm adjuster said they get
these reports, send them to the insured and tell them this is what the
independent review concluded. She said most people just give up at that
point. Some will call back and she said she was trained to say we have
lawyers to fight this. She said then everybody gives up."
"It’s all over the country, these phony medical review services," said
Daniel J. Gatti, a personal injury lawyer who represented Foltz. "They
have a computer program that says all soft tissue injuries heal in six
months. To put everybody in the same group and use a computer program to
say this is what they get is [expletive]. We think it’s fraud."
Another person who will talk about this system is James Mathis, a former
State Farm supervisor who sued the company in 1997 for wrongful discharge
from his job in Washington state three years earlier. Last year, a
federal judge issued a summary judgment against Mathis in the case. He is
Mathis said that when he was in charge of processing medical claims by
State Farm policyholders in Washington state the insurer’s position
was "you don’t use an [outside utilization] company that did not provide
you with at least a 20 percent reduction in the billing. Otherwise it
would not be cost effective."
Mathis said one company that he considered "too aggressive" in cutting
medical claims was Comprehensive Medical Review (CMR), which is
headquartered in San Diego and is headed by William J. Marvin, a former
chairman of the San Diego County Republican Party. CMR provided the
medical reports in the Foltz case.
"CMR had a mind-set. They were going to prove to State Farm that they
were a profit machine," said Mathis, who gave testimony in the Robinson
and Foltz cases. "They were going to cut every bill." Attempts to reach
Marvin by phone were unsuccessful.
David Snyder, assistant general counsel of the American Insurance
Association, a trade association of property and casualty insurers, said
that during the 1990s there has been "tremendous pressure on insurers to
reduce expenses and premiums. One way a number of insurers have responded
is to more closely review medical bills to make sure they are ‘reasonable
and necessary,’ which is the standard."
Snyder said this was particularly important because in some states the
amount of medical charges set the parameters for the amount of awards
for "pain and suffering" in lawsuits stemming from automobile
accidents. "The higher you can drive the medical bills the greater the
litigation value of the case," he said. "That’s why insurers need to
control medical costs, because otherwise this can greatly increase the
cost of insurance for everybody."
Snyder added that the utilization review system is one factor behind a
trend toward stable or lower auto insurance premiums and is considered so
important in Pennsylvania and New Jersey two historically high-cost
insurance states that such reviews are mandated by law.
Friedman, Robinson’s lawyer, said, "Most people would agree that there is
a place for paper review in handling insurance claims, but like any tool
it can be misused." Speaking of the two companies that reviewed the Foltz
and Robinson claims, he added, "I don’t think that you would find that
these are two bad apples out of a healthy barrel, but that half the
barrel is rotten. What’s going on, in my opinion, is the insurance
industry is waging an undeclared war against American consumers. They
know exactly what they are doing."
"The insurance industry is making more and more use of utilization
firms," said Matthew Whitman, an Oregon lawyer who is working with the
consumer groups. "It’s an out for the insurance company."
Whitman and other lawyers for the consumer groups argue that the sealing
of records in the cases that have been settled makes it difficult to
determine if there is widespread abuse in the industry and unnecessarily
shields companies from public accountability. They also charge that the
extent of secrecy in the Foltz case is virtually unprecedented, involving
not only the court record but also the very existence of the case itself.
According to Whitman, when he visited the federal courthouse in Eugene
last April, the court clerk told him that Foltz v. State Farm did not
exist because it did not show up in the court’s internal computer system.
A physical search later located the thin case file that is public. But
Whitman said the file contained references to about 450 motions and other
items that have been sealed.
Sarah Posner, a staff attorney for Trial Lawyers for Public Justice, said
that as recently as last week an attempt to locate the case through a
nationwide computer system that lawyers routinely use came up blank.
"Inevitably, this favors big corporations such as insurance companies and
other defendants," Whitman said of the system that enables companies to
demand silence in exchange for large monetary settlements. "Debbie Foltz
cannot defend the rights of everyone to access to the courts. At some
point the money gets too big."
Articles appear as they were originally printed in The Washington Post
and may not include subsequent corrections.
Back to Archive Index
On 4/04/04, open eyes wrote:
> Cutting Claims With Fraud?
> Records Sealed in Major Insurer's Case
> By Edward Walsh
> Washington Post Staff Writer
> Sunday, July 4, 1999; Page A01
> In a blistering opinion last August, Idaho District Judge D. Duff
> McKee upheld the jury verdict and the amount of damages.
> Reviewing the testimony in the case, McKee wrote that "the
> evidence was overwhelming that the utilization review company
> selected by the claim examiner was a completely bogus operation.
> The company did not objectively review medical records but rather
> prepared 'cookie-cutter' reports of stock phrases, assembled on a
> computer, supporting the denial of claims by insurance companies.
> The insured's medical records were not examined and reports were
> not prepared by doctors or even reviewed by doctors."
> The utilization review firm that produced the reports in
> Robinson's case was Medical Claims Review Services (MCRS), which
> was based in Bethesda and is now apparently defunct. Ten years
> ago, the company's president, Ronald E. Gots, wrote an article in
> an insurance industry trade publication urging the industry to
> turn to utilization review as a way to combat what he described
> as the "vast economic interests" that were constantly pressing
> for "exaggerated medical losses."
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