All Eyes Are on the Horizon

Florida has 14.8 million licensed drivers who operate nearly 14 million passenger cars and trucks within state. When Florida became just the second state in the country to enact a no-fault auto insurance scheme in 1972, it was viewed as a means to rein in carriers' legal defense fees and speed up reimbursements to policyholders, health-care providers, and claimant attorneys. The no-fault system is somewhat similar to workers' compensation in that it is a mandated coverage designed to be self-executing by guaranteeing accident victims certain benefits in exchange for the victims not suing another driver.

Under the current state law, all policyholders must carry at least $10,000 in PIP coverage, which pays up to 80 percent of medical expenses, 60 percent of lost income, and a $5,000 per-person death benefit. The benefits are payable in cases where a person is injured, irrespectively of who is responsible for the accident. The law also prevents lawsuits against at-fault drivers for non-economic damages, such as pain and suffering, except in cases of a permanent injury. For policyholders to file suit, they must allege the injuries caused significant and permanent scaring or disfigurement, resulted in the significant loss of important bodily functions, or was fatal (referred to as the "verbal threshold"). The law also allows policyholders to sue in cases where there is no scaring or disfigurement if the injuries are determined to be permanent within a reasonable degree of medical probability.

As for attorney fees, the state statute includes a provision that calls for so-called one-way attorneys' fees. Simply put, if the carrier loses a case, it must pay the claimant's attorney fees. However, if the defense attorney prevails, claimants are under no obligation to reimburse the carrier for their litigation costs. The judge can use two approaches to calculating claimant attorneys' fees. The first is the lodestar method, whereby judges multiply the number of hours an attorney spends on the case by an hourly rate. The second, more expensive attorney fee calculation method involves using a contingency risk multiplier. In such a case, the judge calculates a lodestar fee and multiples it by a figure between one and 2.5 if he finds the injured worker could not have obtained a competent attorney without the additional fee. It should be noted that the law does not specify what should be considered a reasonable hourly attorney fee.

When the no-fault law was established, the benefits and attorney fees schedule were designed to mark boundaries that would encompass the majority of vehicular accidents. As a result, the theory went, there would be less litigation and consumers would benefit by receiving quicker settlements, which would help pay medical bills and other expenses. Time, however, has seriously eroded that underlying premise, as unscrupulous individuals and groups have conspired to abuse the PIP system and collect benefits to the detriment of policyholders.

As evidence of that point, one need look no farther than the systematic use of criminal means to fraudulently collect PIP benefits. The level of fraud in the PIP system is legendary and was the subject of a detailed state grand jury investigation in 2000. Among other things, the grand jury uncovered the use of crime rings, which staged accidents for the benefit of collecting PIP benefits. These rings also used runners to collect law enforcement crash reports which were used by unscrupulous attorneys to solicit victims. The lawyers then worked in concert with clinics, where physicians ordered unnecessary and costly tests to drive up reimbursements. In turn, doctors would kick back part of the insurer payments to the lawyers.

As a result, lawmakers in 2001 and 2003 implemented a number of reforms to stop the most egregious fraudulent practices. For example, with the exception of individuals involved in an accident and their attorneys, all other individuals must wait until 60 days after the date of the accident to access police reports. Lawmakers also made it a third-degree felony to unlawfully obtain accident reports. Additionally, medical clinics were required to be licensed by the Agency for Health Care Administration. To date, 2,435 clinics have registered with the agency, with over 65 percent of those clinics located in Dade, Broward, and Palm Beach counties.

The evidence shows that the reforms have allowed law enforcement officials to take a tougher stand on fraud. According to the state's Division of Insurance Fraud, PIP is the leading source of fraud, followed by workers' compensation. PIP fraud referrals increased by 400 percent from 615 in fiscal year 2002-2003 to 2,628 in 2004-2005. At the same time, the number of PIP arrests grew by 74 percent and the number of cases brought to trial increased by 49 percent. In fiscal year 2004-2005, PIP accounted for 52 percent of all open cases, 41 percent of all prosecutions, and 39 percent of all convictions.

Per usual, lawmakers, regulators, the industry, and other interested parties salute the revamped fraud efforts. And from the trial bar and health-care providers point of view, the aggressive pursuit of fraud remains the answer to lawmakers' concerns over the no-fault system. "We think the reforms of 2001 and 2003 are working," said Paul Jess, general counsel of the Academy of Florida Trial Lawyers. "The Division of Fraud has made significant progress and we believe even more emphasis needs to be placed on fraud."

Does Workers' Comp Hold the Solution?

While the industry is more than willing to grant the aggressive approach to fraud its due, the industry does not view the emphasis on fraud as some sort of panacea that will solve the problems with PIP. For the industry, the real driving forces behind costs are the increased use of medical services and the level of attorney involvement. Critics say that, unless some controls are placed on those services, PIP costs will continue to rise. With those goals in mind, critics turn to the state's workers' compensation system for answers. Both PIP and workers' comp are mandated coverages that provide policyholders with benefits in exchange for placing limits on their right to sue. And both systems involve the same interested parties including carriers, health-care providers, and attorneys.

The state's workers' comp system is an appealing model to those supporting PIP reform because workers' comp has a high degree of certainty, which allows carriers to project losses. Among other things, workers' comp has detailed criteria that workers must meet to collect various benefits, including the ability of injured workers to qualify for permanent disability benefits. In the 2003 workers' comp reforms, lawmakers created a standard that linked an injured worker's ability to qualify for permanent injury benefits with the injured worker's ability to work. Specifically, an injured worker suffering a catastrophic injury is presumed to be permanently injured unless the employer/carrier establishes that the worker can be employed in a sedentary job within a 50-mile radius. Otherwise, the worker must prove they are unable to hold a sedentary job within a 50-mile radius.

By comparison, auto policyholders can sue for non-economic damages regardless of their ability to work. Critics point to the provision which allows auto victims to sue for non-economic damages even in cases where there is no scaring or disfigurement as long as an injury is determined to be permanent within a reasonable degree of medical probability. Allstate Floridian representative George Grawe pointed out that a "reasonable degree of medical probability" is so vague, it leaves insurers with little ground to construct a legal defense. "Insurers have no direction on what is reasonable or medically necessary," he said.

If there is one aspect of workers' comp that insurers overwhelmingly would support being applied to no-fault, it would be the introduction of a medical fee schedule. Workers' comp has provider reimbursement manuals for doctors, hospitals, and allied health-care workers, which are based on the federal Medicare fee schedules. There are no similar mandated medical cost controls in PIP. As Florida Insurance Council representative Gary Guzzo noted, "PIP is the last bastion where insurers pay full medical charges."

The impact of the lack of medical fee schedules is seen in several studies. The Property and Casualty Insurance Association, which represents more than 50 percent of the state's auto market, recently conducted a study that found Florida's average PIP claim severity costs far outstripped the national average. The study found the national average rose by 15 percent between 2000 and the first quarter of 2005. By comparison, Florida's average cost per claim increased by 44 percent. The Insurance Research Council also conducted a study that found that certain medical treatments are more expensive in Florida when compared to Michigan, New York, and California. For example, the average total amount charged by chiropractors in Florida for PIP patients reached nearly $5,000, as compared to the $1,500 in Michigan and New York.

Doctors and Lawyers Unite

While the industry stays focused on the issues that are driving up PIP costs, the physicians and attorneys have joined together in a coalition to present a united front in favor of the status quo. The coalition includes the Academy of Florida Trial Lawyers, the Florida Medical Association (FMA), Choice Medical Centers, Florida Chiropractic Association, the Florida Osteopathic Medical Association, and the Florida State Massage Therapy Association.

The coalition is taking several approaches to rebut the industry's criticism of the state's no-fault PIP system while also trying to put the industry on the defensive. For example, with regards to the industry's desire for a medical fee schedule, the FMA says it could penalize injured drivers because fewer doctors would be willing to treat victims of an auto crash. "Fee schedules would destroy the free market and create the same problem we have in workers' comp, Medicaid and Medicare, where it is hard to find physicians willing to treat patients," said FMA representative John Knight.

Knight and other medical association representatives also pointed out that, for many individuals, PIP coverage is the only type of affordable coverage available to them. They point out that if the legislature abolishes PIP, it will create another class of uninsured individuals whose medical expenses would be cost-shifted to the state. "PIP is critical to the underinsured and uninsured and without it, the only thing left for those folks is Medicaid," said Gary Brown of Choice Medical Centers. "If that person doesn't have PIP coverage, which only costs a couple of hundred dollars a year, they are going on the taxpayer dole."

While the coalition is ready to debate the fine points in the PIP debate, its main defense is to exploit the dissonance between the industry's clarion call for reform and the lack of a market crisis. As AFTL General Counsel Paul Jess told lawmakers, "There is no crisis and PIP costs are stabilizing if not decreasing." Based on that position, the coalition is calling for a mandatory rate rollback on the ground that consumers should benefit from any cost savings as opposed to insurance companies. By taking the high ground in the PIP debate, the coalition is counting on the Legislature's reluctance to enact substantive reforms without a market crisis.