State Farm, viewing Freedom's charges as excessive, conducted its own review of the usual and customary charges for the products and used its findings to calculate reimbursements. As described by the district court:

First, [State Farm] conducted an individualized inquiry for each device by researching the make and model of the EMS and [w]hirlpool being dispensed. In connection with this review, [it] contacted … providers located in the Philadelphia area to determine their prices for both products. [It] learned that EMS models for which State Farm was being billed by providers were all of a like kind and quality, and were priced similarly.

Next, [it] purchased EMS[s] and [w]hirlpools 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. For the EMS[s], [State Farm] based [its] average price on the purchase of five different models from ten different sellers, including internet sources, which ranged from $93.95 to $246.95. [It] then added a six percent Pennsylvania sales tax. [State Farm] concluded that the average price for the EMS is $151.10 with 80% of that charge being $120.88. For the [w]hirlpool, [State Farm] based [its] average price on the purchase of devices from eight different providers, with prices ranging from $54.79 to $106.65. Again, [it] added a six percent Pennsylvania sales tax. [State Farm] determined that the average price for the [whirlpool] is $97. 19, with 80% of that charge being $77.75.

Beginning in June 2010, State Farm began paying [Freedom] $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 [State Farm's] research and calculations.

On February 3, 2012, Freedom filed a class action on behalf of itself and similarly-situated providers in the a Philadelphia court, arguing that State Farm had violated the Motor Vehicle Financial Responsibility Law (“MVFRL”) and 31 Pa.Code § 69.43 because its calculation of Freedom's reimbursements was not predicated on either of the two bases provided for in the regulation:

- Freedom's requested payment amount on its bill for services; or

- Data collected by the carrier or intermediaries.

State Farm removed the case to the U.S. District Court for the Eastern District of Pennsylvania, where it argued that Section 69.43(c) merely permitted it to make a calculation predicated on the bases provided for therein, but did not require it to do so, so long as its calculation was consistent with the MVFRL's other provisions and Section 69.3's definition of the “usual and customary charge” for a product.

The district court agreed with State Farm, and granted State Farm's motion for summary judgment on that basis. Observing that no Pennsylvania court had yet determined whether Section 69.43(c) was permissive or mandatory, the district court found the regulation's plain language demonstrated that it was permissive. Specifically, the district court found that the Pennsylvania Insurance Department's use of “may,” rather than “shall,” in the last clause of Section 69.43(c) clearly imparted discretion on an insurer as to whether or not to make its calculation of usual and customary charges predicated on the bases provided for therein.

Freedom appealed to the U.S. Court of Appeals for the Third Circuit.

The circuit court, noting that no Pennsylvania court or agency had addressed the question, sought to certify it to the Pennsylvania Supreme Court. That court granted certification to answer the following question:

May an insurer use methods not specifically identified in [the MVFRL] to calculate the “usual and customary” charge for devices and services not listed on the Medicare Fee Schedule for purposes of determining the amount to be paid to providers of those devices and services?

Freedom argued that Section 69.43(c) provided an either/or proposition: that reimbursements must be calculated either on the basis of a provider's requested amount in its bill or on the basis of data from the carrier or intermediaries.

State Farm, by contrast, argued that Section 69.43(c) merely illustrated two possible methods of calculation. State Farm claimed that the term “may” imparted discretion, particularly in contrast to the Insurance Department's use of “shall” in Section 69.43(c)'s two earlier clauses.

Pennsylvania Law

Section 69.43(c) provides:

An insurer shall pay the provider's usual and customary charge for services rendered when the charge is less than 110% of the Medicare payment or a different allowance as may be determined under § 69.12(b) (relating to exemption from payment limitations). An insurer shall pay 80% of the provider's usual and customary charge for services rendered if no Medicare payment exists. In calculating the usual and customary charge, an insurer may utilize the requested payment amount on the provider's bill for services or the data collected by the carrier or intermediaries to the extent that the data is made available.

31 Pa.Code § 69.43(c) (emphasis added).

The Pennsylvania Supreme Court's Decision

The court held that Section 69.43(c) permitted, but did not require, that reimbursements be calculated predicated on the provider's bill for services or the data collected by the carrier.

The court found, with respect to whether Section 69.43(c) permitted or required calculations of reimbursement to be predicated on one of the two bases provided therein, that the regulation was “reasonably capable of both constructions offered by the parties.”

It then decided that State Farm's argument was “more persuasive.”

The case is Freedom Medical Supply, Inc. v. State Farm Fire and Cas. Co., No. 8 EAP 2015 (Penn. Feb. 16, 2016).