The team at Dodson Parker Behm & Capparella, PC shares updates and thoughts on developments in the law.

Collateral Source Rule under Attack

July 15, 2016

This article by Donald Capparella originally appeared in the Tennessee Tort Law Letter.

The Court of Appeals recently decided a case that will affect every personal injury case in Tennessee…

Background

Jean and Fred Dedmon filed a personal injury lawsuit against John T. Cook to recover medical expenses resulting from a car accident between the parties. This dispute arose regarding the necessity and reasonableness of Ms. Dedmon’s medical bills.

Ms. Dedmon attached medical bills totaling $52,482.87 to her complaint and deposed one of her treating physicians, who testified that the bills were “appropriate, reasonable and necessary.”

In response, the defendants filed a motion in limine to exclude the bills, claiming that, under the recent Tennessee Supreme Court decision, West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014), the medical bills were not evidence of reasonable medical charges. The defendants argued that “reasonable medical expenses are defined as that which the medical provider accepts from medical insurance, as a matter of law,” and therefore, Dedmon should not be permitted to recover any amount in excess of what her medical providers accepted as full payment from her insurance company—$18,255.42.

The plaintiffs opposed the defendants’ motion, asserting that the West decision was confined to the Tennessee Hospital Lien Act (THLA) and did not define reasonableness for medical expenses in personal injury cases. The plaintiffs also argued that existing Tennessee law permitted them to use expert testimony to prove the reasonableness of their medical expenses. They claimed that this broad expansion of West would violate existing statutory and case law, “the Collateral Source Rule, public policy, and would lead to widely disparate, unfair results.”

The trial court granted the Defendants’ motion in limine, stating that the West case only addressed THLA but the same logic used there must apply here. The trial court granted the plaintiffs permission to seek an interlocutory appeal.

Ruling

On appeal, the plaintiffs raised the issue of whether West is limited to THLA or if it is also applicable to personal injury actions filed directly against the alleged tortfeasor. The Court of Appeals determined that it must review this issue de novo, in order to determine whether the trial court erred in its decision to grant the motion in limine.

The Court began its analysis by reviewing the state of the law in Tennessee regarding “necessary and reasonable” medical expenses in personal injury actions. It noted that competent expert testimony was accepted and required evidence to support a plaintiff’s claim that medical expenses were reasonable.

The Court next reviewed litigation in other jurisdictions, noting that courts were split on whether reasonable costs in personal injury litigation were determined from the undiscounted sum of the hospital’s bill, or the discounted cost that hospitals negotiated with insurance companies and accepted as full payment.

The Court then addressed the Tennessee Supreme Court’s West decision, which held that hospitals may not maintain liens to recover the unadjusted costs of medical services from third-party tortfeasors after patients’ insurance companies paid the adjusted bills. West held that non-discounted charges were not reasonable under THLA. First, those charges do not reflect the actual payments being made. Secondly, hospitals contract with insurance companies, agreeing to accept discounted payments as “reasonable” to further their own economic interests.

The Court of Appeals noted an even split in the eight Tennessee trial courts that have addressed “reasonable” costs in personal injury litigation since West. The courts are divided between extending West’s reasonableness definition to personal injury litigation and limiting it to THLA.

Additionally, three federal courts in the Western District of Tennessee extended West to personal injury cases. In the first case, the judge compensated the plaintiff using the discounted costs. It acknowledged that West was not controlling in personal injury, but extended its logic and found California law persuasive.  Keltner v. U.S., No. 2:13-CV-2840-STA-DKV, 2015 WL 3688461 at *3-5 (W.D. Tenn. June 12, 2015) (citing Howell v. Hamilton Meats & Provisions, Inc., 52 Cal.4th 541, 565 (2011) (holding that discounted charges constitute reasonable medical expenses in personal injury litigation). In the other two cases, the courts granted defendants’ motions in limine to exclude undiscounted costs under West’s logic. Smith v. Lopez-Miranda, No. 15-CV-2240-SHL-DKV, 2016 WL 1083845, at *1-3 (W.D. Tenn. Feb, 10, 2016); Hall v. USF Holland, Inc., No. 2:14-CV-02494, 2016 WL 361583, at *2 (W.D. Tenn. Jan. 12, 2016). These cases later settled.

The defendants argued that West controls the definition of reasonable medical expenses in personal injury litigation. They argued that the West Court’s observation that there is a “reasonable and necessary” requirement for medical expenses in personal injury litigation showed  that the West definition should apply in those cases. Additionally, the Court’s approving tone in West toward states that had adopted discounted costs as reasonable in personal injury litigation evidenced the same intent.

The plaintiffs argued that West is confined to THLA, based on the explicit statement of the Tennessee Supreme Court that its conclusion defining reasonable costs was “for the purpose of” THLA.

The Court agreed with the plaintiffs, additionally noting that the West placed limitations on its holding, even within THLA.  The Court of Appeals observed that that “if the [West] court did not intend for its opinion to apply to hospital liens in all circumstances, surely the court did not intend for its opinion to be binding as to all determinations of reasonable medical expenses under Tennessee law.”

The Court further rejected the defendants’ urging that the court extend the reasoning of West to personal injury litigation, stating that speculation about whether the Supreme Court would extend its reasoning in this case is insufficient grounds overturn existing case law. The existing case law allows plaintiffs to present a physician’s testimony that amounts billed to the plaintiffs are reasonable, so the Court reversed the motion in limine.

Existing law also allows defendants to offer proof countering a plaintiff’s claim of reasonableness, as long as their evidence is not barred by the collateral source rule. The plaintiffs argued that the defendants should be barred from introducing evidence of any discounted medical bills based on Fye v. Kennedy, 991 S.W.2d 754 (Tenn. Ct. App. 1998) (holding that a medical bill that was in “some way, legally forgiven”—paid by Medicaid through no contractual basis—was a gratuity and evidence of such is barred by the collateral source rule).  The Court stated that Fye involved a “gratuitous benefit,” and was not controlling on whether the collateral source rule bars evidence of discounted medical bills “paid pursuant to a contract with a private insurer” (emphasis added). The Court only stated that the defendants’ proof must not “run afoul” of the collateral source rule, but also parenthetically quotes a Kansas Supreme Court case stating that the collateral source rule “does not address, much less bar, the admission of evidence indicating that something less than the charged amount has satisfied, or will satisfy, the amount billed.” Martinez v. Milburn Enters., Inc., 233 P.3d 205, 222-223 (Kan. 2010)

The Court, and its concurrence, expressed hope that the Tennessee Supreme Court would review this case and make a final decision on this issue. Currently, there is no pending action in the case, but we can likely anticipate a petition to the Tennessee Supreme Court.

Since the Dedmon decision came out on June 2, 2016, the federal Western District Court denied a motion in limine, in which a defendant requested the exclusion of the plaintiff’s undiscounted medical costs. Boettcher v. Shelter Mutual Insurance Company, 2016 WL 3212184 at *# (W.D. Tenn. June 8, 2016). The court recognized that the district had extended West in the past, but held that the Court of Appeals recent holding in Dedmon and Tennessee statutory law entitle personal injury plaintiffs to the admission of their undiscounted bills. Responding to the plaintiffs’ argument that the discounted medical bills violate the collateral source rule, the court cited Dedmon’s reference to Martinez, stating that the defendants were entitled to admit proof disputing the reasonableness of the plaintiff’s medical expenses.

Concurring Opinion

Special Judge Joe G. Riley wrote a brief concurrence to advocate for the Tennessee Supreme Court’s broad application of West. He fully concurred with the majority’s decision, based on the existing case law, but expressed a concern that non-discounted charges are no longer accurate indicators of reasonable medical expenses—the more realistic standard is the payment that hospitals are willing to accept as full satisfaction. This would prevent the penalizing, in his opinion, of uninsured plaintiffs because they would still be able to recover the non-discounted amount, if that is what the hospital requires. Special Judge Riley also agreed with the Court that the collateral source rule does not bar evidence of an amount accepted in full satisfaction of medical expenses.

COMMENTARY FROM DONALD CAPPARELLA

I strongly agree with the decision to not extend the West decision to personal injury cases.  It overextends the ruling in such a way as to destroy the collateral source rule.  If only the Court of Appeals had left it there.  Instead, the Dedmon Court held that it would allow defendants to introduce evidence of  the discounted bill to counter plaintiff’s proof that the medical bills incurred for his or her medical treatment was reasonable and necessary.  Essentially, the Court held that defendants can introduce evidence indicating that “something less than the charged amount has satisfied, or will satisfy, the amount billed. “

In my view, allowing the admission of what the health insurance company actually paid would just as effectively destroy the collateral source rule.  Extending West as the defendants wanted in Dedmon would be like death by firing squad for the collateral source rule.  However, allowing defendants to introduce evidence of what the health insurance company “really” paid would be death by a thousand cuts.  Either way, the collateral source rule would (unfairly) be dead. It would also allow defendants yet another opportunity to paint the injured victim as “greedy,” allegedly trying to recover a windfall.

The truth is that the amount a health insurer actually pays for the health care received by the injured plaintiff has nothing to do with the plaintiff’s injuries, but is solely related to the economics of the health care system.  Even experts cannot understand the complexities of health care economics, and asking a lay jury to understand the public policy behind the collateral source vs. the economics of why health insurers pay less than what is charged is asking too much.  Why should the wrongdoer benefit from the injured plaintiff’s decision to purchase health insurance, and the lower negotiated amount that Blue Cross gets for all of its patients given its huge size?  In reality, of course, it is not the wrongdoer who is benefitting, it is the wrongdoer’s liability insurance company who benefits.

I hope that the Supreme Court takes the Dedmon case. More importantly, I hope that it reinforces the collateral source rule, and does not allow it to be so weakened that it will be left to bleed to death.

DPBC attorneys Donald Capparella, Tyler Chance Yarbro, and Elizabeth Sitgreaves serve as editors of the Tennessee Tort Law Letter. To learn about subscribing click here.

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