Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca3-14-01628/USCOURTS-ca3-14-01628-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______

No. 14-1628

______

FREEDOM MEDICAL SUPPLY INC,

Individually and On Behalf of All Others Similarly Situated,

Appellant

v.

STATE FARM FIRE AND CASUALTY COMPANY; 

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

______

 

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil No. 2:12-cv-1078)

District Judge: Honorable Joel H. Slomsky

______

 

Submitted Pursuant to Third Circuit L.A.R. 34.1(a)

December 9, 2014

Before: VANASKIE, COWEN, and VAN ANTWERPEN, Circuit Judges.

(Opinion Filed: June 8, 2016)

_____________

OPINION*

_____________

 

* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 

does not constitute binding precedent.

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VANASKIE, Circuit Judge. 

In 2012, Appellant Freedom Medical Supply, Inc. (“Freedom”) commenced a 

class action against the Appellees (collectively “State Farm”), alleging that State Farm 

violated the Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”), 75 

Pa. Cons. Stat. § 1701 et seq., in determining the “usual and customary charge” for an 

electrical muscle stimulator (“EMS”) and a portable whirlpool. The District Court 

granted summary judgment in favor of State Farm, finding that State Farm was not 

required to accept the amount charged by Freedom for these devices as the “usual and 

customary charge.” On appeal, Freedom reiterated its argument that Pennsylvania law 

constrained State Farm to accept Freedom’s charges as the “usual and customary charge.” 

We petitioned the Supreme Court of Pennsylvania to accept certification of the following 

question of state law:

May an insurer use methods not specifically identified in 

Pennsylvania’s Motor Vehicle Financial Responsibility Law, 

75 Pa. Cons. Stat. § 1701 et seq., 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 Med. Supply, Inc. v. State Farm Fire & Cas. Co., No. 14-1628, Certification 

Order at 11 (3d Cir. Dec. 19, 2014).

The Pennsylvania Supreme Court granted our petition, answered our question in 

the affirmative, and relinquished jurisdiction to us. Having carefully considered the 

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holding of the Pennsylvania Supreme Court and the parties’ submissions, we will now 

affirm the District Court’s grant of summary judgment in favor of State Farm. 

I.

We write primarily for the parties, who are familiar with the facts and procedural 

history of this case. Accordingly, we set forth only those facts necessary to our analysis.

A.

Payments to medical providers for the provision of products and services to 

automobile accident victims are governed by the MVFRL, as amended by the Act of 

February 7, 1990, P.L. 11, No. 6 (“Act 6” or “The Act”). Act 6 creates two schemes for 

reimbursement—one for products and services listed in the Medicare Fee Schedule and 

one for those not listed in the Medicare Fee Schedule. See 75 Pa. Cons. Stat. § 1797(a). 

For products and services listed in the Medicare Fee Schedule, the Act prohibits medical 

providers from accepting payment greater than 110% of the charge in the Medicare Fee 

Schedule. Id. For those products and services not listed in the Medicare Fee Schedule—

the issue in this case—“the amount of the payment may not exceed 80% of the provider’s

usual and customary charge.” Id. 

Although the Act does not define the phrase “usual and customary charge,” the 

Act’s implementing regulations provide both a definition and guidance for the phrase. As 

it pertains to this discussion, 31 Pa. Code § 69.3 defines “[u]sual and customary charge” 

as being “[t]he charge most often made by providers of similar training, experience and 

licensure for a specific treatment, accommodation, product or service in the geographic 

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area where the treatment, accommodation, product or service is provided.” The 

regulations further provide that “[i]n 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.”1 31 Pa. Code § 69.43(c).

Neither EMSs nor portable whirlpools are included on the Medicare Fee Schedule. 

Accordingly, Freedom is only entitled to payment in the amount of 80% of the “usual and 

customary charge” for these devises. From 2010 through 2011, Freedom billed patients 

$1,525 for an EMS. After 2012, Freedom charged $1,600 for an EMS. Based on these 

amounts, Freedom sought payment from State Farm of $1,200 and $1,280. For the 

whirlpool, Freedom charged patients $525 and sought payment from State Farm of $420.

Believing that the “usual and customary charge” was far lower than the amounts sought 

by Freedom, State Farm undertook a survey by making open-market purchases of the 

same devices from several vendors. 

Specifically, in June 2010, State Farm began a review to determine the average 

open market cost of the supplied devices, as opposed to relying on the prices charged by 

 

1 The regulations define “carrier” as an “organization with a contractual 

relationship with HCFA [Health Care Financing Administration, renamed the Centers for 

Medicare and Medicaid Services in July, 2001] to process Medicare Part B claims.” 31 

Pa. Code § 69.3. An “intermediary” is an “organization with a contractual relationship 

with HCFA to produce Medicare Part A claims.” Id. Because only Part B claims are 

involved in the present appeal, the term “intermediary” is irrelevant. Furthermore, State 

Farm did not make use of data collected by a carrier.

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Freedom. To do so, State Farm omitted all prices charged by several existing medical 

providers for such devices, believing those charges to be inflated. Then, State Farm 

purchased EMSs from ten different vendors, including internet retailers located outside of 

Pennsylvania. State Farm concluded that the average price for an EMS was $151.10, 

requiring reimbursement of $120.88—as opposed to the $1,280 sought by Freedom.

2

State Farm similarly purchased whirlpools from eight different vendors, yielding an 

average price of $97.19 and a corresponding reimbursement of $77.75—as opposed to 

the $420 sought by Freedom.

3

 State Farm’s approach is not explicitly authorized by 

statute or regulation.

B.

Freedom brought suit on February 3, 2012, in the Court of Common Pleas for

Philadelphia County. The action was then removed to the Eastern District of 

Pennsylvania on February 28, 2012. The Complaint contains two claims. Count One 

alleges violations of 75 Pa. Cons. Stat. §§ 1716 and 1797 for failure to adequately 

reimburse Freedom under the MVFRL. Count Two alleges a claim for negligence. The 

premise of Freedom’s claims was that 31 Pa. Code § 69.43(c) mandated that State Farm 

calculate payments to Freedom based either upon Freedom’s charges to its patients or 

upon data collected by carriers. 

 

2 Freedom purchased the EMSs from wholesalers for roughly $20 to $26 each.

3 Freedom purchased the whirlpools from wholesalers for about $40 each.

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On February 1, 2013, the District Court denied Freedom’s motion to compel 

discovery regarding State Farm’s reimbursement levels in other states. On February 12, 

2014, the District Court decided cross motions for summary judgment in favor of State 

Farm, reasoning that 31 Code § 69.43(c) presented two “illustrative and not mandatory” 

methods for calculating a provider’s usual and customary charge. See Freedom Med. 

Supply, Inc. v. State Farm Fire & Cas. Co., No. 12-1078, 2014 WL 626430, at *4–5 

(E.D. Pa. Feb. 18, 2014). As such, the District Court concluded that State Farm’s 

calculation method—using independent research of medical device vendors—was 

reasonable and complied with the purpose and spirit of Section 69.43(c), even though it 

was not one of the two prescribed methods. Id. at *6–7. The District Court then found 

that State Farm otherwise complied with Code Section 69.3 when calculating the usual 

and customary charge for the EMSs and Whirlpools. In reaching this conclusion, the 

District Court looked to Hospital Association of Pennsylvania, Inc. v. Foster, 629 A.2d 

1055 (Pa. Commw. Ct. 1993), to explain “that ‘usual and customary’ may refer to a 

single provider seeking reimbursement, or an aggregate or average of multiple providers’ 

charges.” Freedom Med. Supply, 2014 WL 626430, at *6 (citing Foster, 629 A.2d at 

1058). The District Court explained that State Farm’s “research relied on a group of 

providers of similar training, experience, and licensure in accordance with Section 69.3” 

and that the providers “were similarly situated [] providers.” Id. (citation omitted). The 

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District Court held that State Farm’s calculation method thus complied with the MVFRL

and its corresponding regulations as a matter of law.

4

 This appeal followed. 

C.

On appeal, the parties vigorously disputed the question of whether State Farm’s 

calculation method was permitted by state law, an issue that had not been decided by the 

Supreme Court of Pennsylvania. Accordingly, we certified that question to the 

Commonwealth’s highest court for guidance. See generally Freedom Med. Supply, No. 

14-1628, Certification Order. The Pennsylvania Supreme Court, agreeing with the 

District Court, concluded that 31 Pa. Code § 69.43(c) “permits, but does not require, 

insurers to” calculate a provider’s usual and customary charge using the two bases 

provided within the regulation. See Freedom Med. Supply, Inc. v. State Farm Fire & 

Cas. Co., 131 A.3d 977, 978 (Pa. 2016); accord Freedom Med. Supply, 2014 WL 

626430, at *5. The court found “the regulations at issue reasonably capable of both 

constructions offered by the parties,” Freedom Med. Supply, 131 A.3d at 983, but 

ultimately concluded that “State Farm’s argument is more persuasive.” Id. at 984. 

In support of its holding, the court noted that under Freedom’s construction of 

Sections 69.43(c) and 69.3, “reimbursements would have to be calculated based on the 

particular provider’s bill.” Freedom Med. Supply, 131 A.3d at 985. Wary of the fact 

 

4 Because it found that State Farm properly calculated the usual and customary 

charge, the District Court also found that Freedom’s negligence claim failed as a matter 

of law. See Freedom Med. Supply, 2014 WL 626430, at *9.

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that, under Freedom’s approach, “a particular provider’s bill may be well below or well 

above the charge most often made by similarly-situated providers in the geographic 

region,” the court explained that “the only way to bring Section 69.3 and Section 69.43(c) 

into harmony is to read the latter as permitting insurers to ‘utilize’ the provider’s bill or 

data from the carrier,” but not requiring insurers to do so. See id. The court rejected 

“Freedom’s proposition that permitting insurers to conduct a review of market data in 

calculating reimbursements will lead to insurance industry chicanery and market 

uncertainty.” Id. The court explained that “even if [State Farm] is not bound to calculate 

reimbursements predicated on the bases provided in Section 69.43(c), it must 

nevertheless comply with the remainder of the MVFRL and the Department’s 

regulations, including Section 69.3.” Id. The Court noted, however, that “the question of 

whether State Farm has abided by the remaining provisions of the MVFRL, and 

particularly Section 69.3’s definition of ‘usual and customary charge,’ is not before this 

Court,” and it “offer[ed] no view” as to whether State Farm complied with the remaining 

provisions of the MVFRL. See Id. at 985 n.8. The Pennsylvania Supreme Court then 

relinquished jurisdiction to us.5

 

5 After the filing of the Pennsylvania Supreme Court’s opinion, we instructed 

counsel to file letter briefs setting forth their positions on how the Pennsylvania Supreme 

Court’s decision should affect the disposition of this case.

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II.6

The only question before us now is the issue not addressed by the Pennsylvania 

Supreme Court: “whether State Farm has abided by the remaining provisions of the 

MVFRL, and particularly Section 69.3 . . . .” Freedom Med. Supply, 131 A.3d at 985 n.8. 

We conclude, like the District Court, that State Farm’s method for determining the usual 

and customary charge for Freedom’s insurance reimbursement was in compliance with 

the remaining provisions of the MVFRL, including Section 69.3. 

Freedom asserts that the District Court erroneously relied on Foster in order to 

interpret the phrase “usual and customary” as used in Section 69.3. In Foster, the court

addressed the validity of “section 69.3 of the final regulations which sets forth the 

definition of the phrase ‘usual and customary charge.’” 629 A.2d at 1057. The 

Pennsylvania Hospital Association asserted that Section 1797’s use of “the phrase, ‘the 

provider’s usual and customary charge,’” meant “a particular charge made by a particular 

provider, not an aggregate or average of multiple providers’ charges.” Id. at 1058. 

 

6 The District Court had jurisdiction pursuant to 28 U.S.C. § 1332. We have 

jurisdiction pursuant to 28 U.S.C. § 1291. “We review the District Court’s grant of 

summary judgment de novo, applying the same standard the District Court applied.” 

Alcoa, Inc. v. United States, 509 F.3d 173, 175 (3d Cir. 2007) (citation omitted). 

Accordingly, we “must view the facts in the light most favorable to the nonmoving party 

and draw all inferences in that party’s favor.” Interstate Outdoor Advert., L.P. v. Zoning 

Bd. of Twp. of Mount Laurel, 706 F.3d 527, 530 (3d Cir. 2013) (citation and internal 

quotation marks omitted). We may affirm a grant of summary judgment where the 

moving party demonstrates “that there is no genuine dispute as to any material fact and 

the movant is entitled to judgment as a matter of law.” Id. (quoting Fed. R. Civ. P. 56(a)) 

(internal quotation marks omitted). 

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Rejecting this contention, the Commonwealth Court ruled that the Pennsylvania 

Insurance Commissioner did not abuse her discretion in interpreting Section 1797 to 

provide that “the reimbursement level for the single provider [may be] based on an 

aggregate of charges for several similarly situated providers.” Id. at 1059. Thus, 

contrary to Freedom’s claim, Foster provides clear guidance on the meaning of “usual 

and customary charge,” and the District Court properly determined that the phrase “usual 

and customary” may refer to an aggregate or average of multiple providers’ charges. 

Next, Freedom argues that the District Court erroneously found that the MVFRL 

did not require State Farm to rely on data provided by “Billing Providers,” the 

Pennsylvania Workers Compensation Law, and other data sources to calculate the usual 

and customary charge. We agree with the District Court that consideration of such data 

was not required because “the MVFRL and related regulations do not state which

providers should or should not be included in calculating a usual and customary charge.” 

Freedom Med. Supply, 2014 WL 626430, at *7. As the District Court noted, “[n]othing 

in the MVFRL or accompanying regulations . . . requires that insurers must consider the 

Workers’ Compensation Fee Schedule, or links the Workers’ Compensation statute to the 

MVFRL.” 7 Id. at *8. With respect to Freedom’s assertion regarding “Billing Providers,” 

we note that the Pennsylvania Supreme Court rejected the idea that “Billing Provider”

data must be considered. See Freedom Med. Supply, 131 A.3d at 985 (explaining that the 

 

7

Indeed, Freedom, itself, concedes “that Act 6 does not mandate adoption of the 

Workers Compensation Fee Schedule.” Appellant’s Br. at 46. 

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“legislature’s adoption of Act 6” did not “mandate[] an assessment based on whatever 

providers deemed an appropriate amount to bill”); see also id. (explaining that 

“Freedom’s insurer manipulation concern” was “of minor weight in comparison” to “the 

effects of interpreting Section 69.43(c) as potentially granting providers the right to set 

their own rates of reimbursement”).

8

 

Finally, Freedom argues that State Farm failed to look to “persons or entities 

actually rendering treatment in the Commonwealth in connection with claims under a 

Pennsylvania insurance policy.” Appellant’s Letter Br. of Mar. 17, 2016, at 2 (citations 

omitted). In other words, Freedom contends that State Farm failed to comply with the 

MVFRL because the vendor charges State Farm considered were not involved in the 

MVFRL reimbursement process. Again, we disagree.

As the District Court observed, the vendors State Farm relied upon “were from 

Berks, Bucks, Chester, Delaware, Montgomery, and Philadelphia counties in 

Pennsylvania, and Camden and Gloucester counties in New Jersey, and are located in the 

 

8 Freedom argues that it should have been able to obtain out-of-state data to 

buttress its argument that State Farm violated the MVFRL in calculating the amount it 

paid for the EMSs and whirlpools. Reimbursement data from states other than 

Pennsylvania would have little, if any, relevance on what similarly situated providers in 

Freedom’s geographic area charge for the devices. Accordingly, the District Court did 

not abuse its discretion by denying State Farm’s motion to compel such data. See 

Washington v. Hovensa LLC, 652 F.3d 340, 348 n.6 (3d Cir. 2011) (noting that we 

review such discovery denials “for abuse of discretion”); In re Fine Paper Antitrust 

Litig., 685 F.2d 810, 818 (3d Cir. 1982) (explaining we should “not upset a district 

court’s conduct of discovery procedures absent a demonstration that the court’s action 

made it impossible to obtain crucial evidence”) (emphasis added). 

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geographic area where the EMS and Whirlpool are sold by Freedom Medical.” Freedom 

Med. Supply, 2014 WL 626430, at *6. Notably, the Pennsylvania Supreme Court did not 

foreclose the use of data from vendors who were not involved directly in the MVFRL 

reimbursement process. See Freedom Med. Supply, 131 A.3d at 985 (explaining that 

Section 69.43 permits “insurers to ‘utilize’ the provider’s bill or data from the carrier as a 

relevant, but not controlling, measure of the appropriate ‘usual and customary charge’ for 

the product at issue”) (emphasis added). Instead, data from other vendors may be

considered because “the General Assembly’s use of the language ‘usual and customary,’ . 

. . suggests that market data and industry custom will come to bear on the appropriate 

amount of reimbursement.” Id. (emphasis added). 

Consideration of such market data is consistent with the MVFRL’s “two major 

policy goals: providing coverage for injured persons and providing it at a reasonable cost 

to the purchaser.” Id. at 984 (citation omitted). Thus, as the District Court explained, in 

order “for State Farm to conduct unbiased research of average prices not subject to 

inflation, it was necessary to examine providers not involved in the insurance 

reimbursement process.” 9 Freedom Med. Supply, 2014 WL 626430, at *6. 

 

9

In its letter brief, Freedom argues that State Farm relied upon the wrong data for 

two reasons: (1) it “discard[ed] data from Pennsylvania providers” and “selected charges 

of vendors from New Jersey, California, Texas, Illinois, New Hampshire, and 

Washington State, none of which sold under the MVFRL,” and (2) the evidence shows 

one vendor—VSP Medical Supply—“purposely is not part of the market.” Appellant’s 

Letter Br. of Mar. 24, 2016, at 2 (citation omitted). But there is simply no basis for 

Freedom’s claim that State Farm discarded Pennsylvania provider data because it is 

undisputed that the majority of providers relied upon were within Freedom’s geographic 

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In the end, Freedom has not shown that State Farm failed to comply with the 

MVFRL. This is particularly so, considering the fact that Freedom (1) presented no 

evidence showing that the providers State Farm considered lacked the same “training, 

experience or licensure” as Freedom in providing the products at issue, and (2) presented 

no expert testimony or evidence in the District Court showing that State Farm’s 

methodology failed to yield a usual and customary charge in this case. 

III.

For the foregoing reasons, we find that State Farm complied with the MVFRL and 

its corresponding regulations. Accordingly, we will affirm the order of the District Court. 

 

area. Moreover, with respect to the concern about VSP Medical Supply, the District

Court aptly explained that State Farm, “used other providers in [its] research in addition 

to VSP,” such that “including VSP was not in error.” Freedom Med. Supply, Inc., 2014 

WL 626430, at *7.

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