This case involves personal injury protection (PIP) benefits offered by insurance policies written by Farmers. Both by statute and by contract, Farmers was obligated to pay “[a]ll reasonable and necessary expenses of medical, hospital, dental, surgical, ambulance and prosthetic services incurred within one year after the date of the person’s injury,” up to a certain limit. ORS 742.524(1)(a).(2) Because the parties do not take issue with the summary of the facts provided by the Court of Appeals (which were set out in the light most favorable to plaintiffs, as the prevailing party), we quote that summary here:
“Before 1998, Farmers processed requests for PIP benefits by having its claims adjusters review each medical bill to determine whether the bill was reasonable — that is, whether it was both ‘usual and customary.’ In 1997, however, Farmers decided to change that process. In an effort to recover losses and regenerate its surplus after the 1994 Northridge, California earthquake, Farmers instituted its ‘Bring Back a Billion’ campaign. Farmers’ corporate headquarters in Los Angeles alerted its regional offices of the ‘increasing importance’ of generating money without raising premiums. In June 1997, Farmers instructed its Portland office to reduce payment of PIP benefits to realize ‘PIP dollar savings * * *[,] an untouched area.’
“In an effort to reduce PIP payments, the Oregon PIP claims manager, Heatherington, contracted with Medical Management Online (MMO), a bill review vendor. MMO, in turn, licensed a ‘cost containment software program’ from Medata, a company that manages a database of roughly 100 million medical expenses. The software sorts those medical expenses by Current Procedural Terminology (CPT) codes, geographic region, and price. CPT codes, which are created by the American Medical Association, are used by medical providers to bill insurers. Geographic regions in the database are defined according to ‘PSRO’ areas, which are socio-demographic regions established by the federal government in 1980 for workers’ compensation purposes. For Oregon, the federal government identified two PSRO areas: (1) the Portland-metro area and (2) the rest of the state.
“The software allowed MMO’s clients (mostly insurance companies and state agencies) to determine whether a bill from a medical provider was more expensive than a given percentage of the range of charges in other bills for the same CPT code in the provider’s designated geographic area. Clients were able to select any percentile that they wished, and MMO then evaluated the bills that it received from the client to determine whether the bills exceeded that percentile. If a bill exceeded the preselected percentile, MMO generated an Explanation of Benefits (EOB) form that reduced payment with reference to ‘reason code’ ‘RC40.’ The EOB explained the code as follows:
“‘RC40: This procedure was reduced because the charges exceeded an amount that would appear reasonable when the charges are compared to the charges of other providers within the same geographic area.'[(3)]
“The software was promoted as reducing medical provider payments by 26 percent.