New Jersey’s auto insurance personal injury protection (PIP)
regulations are due for an update. The state’s law requires that the
Department of Banking and Insurance (DOBI) revisit the rules every two
The proposed rule changes are drawing a great deal of scrutiny from
various parties involved in the PIP system–from carriers and medical
providers to lawyers.
The department released its proposal at the end of July. So far, it’s
gotten more than 12,000 comment letters, with some supporting it, some
protesting it, and still others offering additional ideas. The comment
period has been extended by additional 17 days beyond the typical 60
days. It will be closed on Oct. 17.
According to New Jersey regulators, the PIP system is in a dire shape and it is going to get worse unless changes are made.
DOBI insurance director Doug Wheeler was one of 30 or so people who
spoke at the Oct. 6 government hearing called by Assemblyman Gary
Schaer. More than 100 people attended the hearing in Trenton. He told
listeners that the department’s proposed changes aim to close loopholes
that are being exploited by some providers. The proposals also aim to
lower the number of outside arbitration cases that are reportedly
costing $1 billion a year for the industry.
Insurance Commissioner Thomas Considine will have the final say on
what proposals will be implemented and which comments and
recommendations, if any, will be incorporated.
The main proposals currently under considerations are:
• Applying the ambulatory surgical center (ASC) fee schedule to
outpatient hospital procedures. It aims to clamp down a loophole
exploited by some pain-management doctors, other treatment professionals
and a “certain North Jersey hospital” mentioned in Wheeler’s Oct. 6
speech. Some of these treatment providers have been charging exorbitant
prices for their outpatient procedure, according to the department.
• The fee schedule on outpatient services would be applied regardless
of where the procedure takes place–whether in an ASC, hospital or
doctor’s office. (There is no fee schedule regarding in-patient PIP
• Doctors would have only up to five days to appeal an insurance company’s denial of a claim.
• Patients would be subject to an internal review process before requesting outside arbitration.
PIP Mills Go After Pot of Gold
New Jersey drivers can buy as much as $250,000 of PIP benefits, the
second highest in the country behind Michigan which has unlimited PIP.
While having that much coverage helps support the state’s top of the
line trauma system, insurance director Wheeler said, “it unfortunately
also means for some a pot of gold to abuse.”
Targeting that pot of gold are “PIP mills,” the provider offices
whose existence is solely predicated on PIP and are linked to certain
attorneys who promise injured accident victims big pay days.
These mills have advertised to New Jersey consumers, telling them
that they may not realize they were hurt in the accident but that they
really were, Wheeler told legislators.
“They are primarily certain chiropractors and pain management doctors
and now a certain northern New Jersey hospital whose existence is based
on tapping into the high PIP limits most New Jersey policies provide,”
Recounting what he said is a true story, Wheeler said one of his
investigators was in a car accident and soon afterwards received no less
than a dozen solicitations from these PIP mills. One solicitation had a
fake million dollar bill taped to it.
These mills exist because New Jersey’s PIP system is broken, he said
at the hearing. These PIP mills also mean one thing–higher costs for
The lack of a fee schedule for outpatient services has become a
loophole being used to divert patients from certain surgical centers to a
hospital solely to circumvent the fee schedule. The fee schedule for
the ASCs went into effect in 2009. As a result, Wheeler said, companies
are seeing the same egregious billing practices that existed in ASCs
Wheeler said in just two years, carriers went from a 5.3 percent
profit to a 5.2 percent loss. Also during that period, New Jersey went
from the 12th-most profitable state for auto carriers, to the second
least profitable, only behind Michigan.
“On average from 2000 to 2009, for every dollar of PIP premium,
insurers paid $1.23 in PIP claims. This means that carriers lost 23
cents for every dollar of PIP premium received.”
Wheeler pointed out that the proposals also have many “pro-provider
elements.” The department will implement a uniform process with one form
to be used by all companies. And for providers receiving payments for
procedures currently on the fee schedule, the new and revised fee
schedule includes fee increases on 85 percent of the existing codes on
Fixing Arbitration System
He said the proposals also tackle another major area of exploitation:
the PIP arbitration system. The current PIP arbitration system is rife
with abuse, inefficiencies for practitioners and excess costs for
insurers, according to Wheeler. It is a system that has turned into an
estimated $1 billion cost to the insurance industry–costs that shift
monies available for patient care to the providers’ attorneys’ pockets.
Providers’ attorneys have every incentive to file the arbitration,
Wheeler said, because if they win a small fraction of the amount, they
still get their attorneys fees paid for by the insurer. One example he
gave was a case where the amount in dispute was $3,000; the amount
finally awarded was $17 and attorneys fees awarded were $1,500.
The arbitration process has gone from a last resort to the primary
vehicle for some trial attorneys. The number of PIP arbitration filed in
2005 was approximately 34,000. That number is now over 61,000.
More Needs to be Done
Insurance groups came out in support of the proposals, though they say more changes will still be needed.
“The problem is, there has been an explosion in fees charged by
various medical providers. There’s also been a significant increase in
the number and cost associated with various arbitration,” said Frank
O’Brien, vice president of state government relations at Property
Casualty Insurers Association of America. He also spoke at the Oct. 6
“These costs are exploding. They are having a direct impact on
premiums which are beginning to or have begun to rise. We believe the
proposed regulations are a good first step, which will bring some sanity
back into the system. But they still do not go far enough,” he told
But one attorney says the changes don’t do enough to help the
patients. Dennis Brotman is a New Jersey-based personal injury lawyer
who’s been practicing law for 35 years, with 75 auto cases filed at any
one time. He’s also one of the industry participants who spoke at the
hearing. He told Insurance Journal that some of his client patients are kept waiting for up to a year for appeals to be decided.
“So there is a very serious concern about that. I’ve had clients on
the brink of suicide because they were denied important treatment,” he
said. “They talk about providers, lawyers representing providers over
billing and fee issues. I hope the new regulations will also address the
interest and the rights of the injured people.”