Doctor.jpgCharges for health care, once based on the provider’s costs and profit margin, have more recently been driven by government regulation and negotiations with private insurers. A two-tiered structure has evolved: ” list” or ” full” rates sometimes charged to uninsured patients, but frequently uncollected, and reimbursement rates for patients covered by government and private insurance. Few patients today ever pay a hospital’s full charges, due to the prevalence of Medicare, Medicaid, HMOs, and private insurers who pay discounted rates. Hospitals, like health care providers in general, feel financial pressure to set their “full” charges as high as possible, because the higher the “full” charge the greater the reimbursement amount the hospital receives since reimbursement rates are often set as a percentage of the hospital’s “full” charge. Although reimbursement rates have been determined to be reasonable under Medicare or other programs, or have been reached by agreements between willing providers and willing insurers, providers nevertheless maintain that “list” rates are also reasonable. Providers commonly bill insured patients at “list” rates, with reductions to reimbursement rates shown separately as adjustments or credits. Portions of bills showing only list charges are often admitted in evidence in court proceedings, with proof of the reasonableness of the charges coming from testimony by the provider. Against this backdrop of health care pricing practices, the Texas Legislature enacted Section 41.0105 of the Texas Civil Practices and Remedies Code.

Section 41.0105, provides that, in addition to any other limitation under law, recovery of medical or health care expenses in a personal injury suit is limited to the amount actually paid or incurred by or on behalf of the claimant. In the recent opinion of Haygood v. De Escabedo, 356 S.W.3d 390 (Tex.2011), the Texas Supreme Court stated that Section 41.0105 is a limitation on the claimant’s recovery so that only evidence of recoverable medical expenses is admissible at trial. In other words, only evidence of expenses actually paid or incurred by the claimant can be presented to a jury and any determination of what was paid or incurred precedes any reduction for the claimant’s percentage of responsibility.

In Haygood, the Texas Supreme Court reasoned that although reimbursement rates have been determined to be reasonable under Medicare or other programs, or have been reached by agreements between willing providers and willing insurers, providers nevertheless maintain that list rates are also reasonable. The court stated that as a general principle, compensatory damages, like medical expenses, are intended to make the plaintiff whole for any losses resulting from the defendant’s interference with the plaintiff’s rights. But the collateral source rule is an exception to this principle. Long a part of the common law of Texas and other jurisdictions, the collateral source rule precludes any reduction in a tortfeasor’s liability because of benefits received by the plaintiff from someone else as a collateral source. For example, health insurance payments to or for a plaintiff are not credited to the damages awarded against the defendant because of the collateral source rule..

The Petitioner in the Haygood case argued that the theory behind the collateral source rule is that a wrongdoer should not have the benefit of insurance independently procured by the injured party to which the wrongdoer was not privy and that any adjustment in billed medical charges required to be made by an insurer is a collateral benefit covered by the rule. But the Supreme Court disagreed. The court stated that the benefit of insurance to the insured is the payment of charges owed to the health care provider. An adjustment in the amount of those charges to arrive at the amount owed is a benefit to the insurer, one it obtains from the provider for itself, not for the insured. The collateral source rule reflects the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor. However, the court reasoned that to impose liability on the tortfeaser for medical expenses that a health care provider is not entitled to charge does not prevent a windfall to a tortfeasor; it creates one for the claimant.

In support of its ruling in Haygood, the court relied on Daughters of Charity Health Services of Waco v. Linnstaedter, 226 S.W.3d. 409 (Tex 2007). In that case Linnstaedter and Bolen sued Jones for injuries they sustained in a motor vehicle accident, claiming damages for the full amount of their hospital expenses. The hospital was reimbursed part of those expenses by workers’ compensation insurance and was precluded from seeking payment of the unpaid balance from its patients by the Workers’ Compensation Act. Nevertheless, the hospital asserted a lien on any damages the patients recovered against Jones. Jones settled with the patients and paid the hospital the balance on its bill to discharge the lien. The patients then sued the hospital for the amount of that payment. The court held that the hospital’s claim to part of the patients’ recovery against Jones was a claim against the patients themselves that was precluded by the Workers’ Compensation Act. To allow the hospital to recover more than the reimbursement allowed by the Workers’ Compensation Act would defeat its purpose of controlling medical costs. But the patients had sued Jones for the full medical charges billed by the hospital rather than the reduced amount paid by their compensation carrier. The court determined that a recovery of medical expenses in that amount would be a windfall and because the hospital had no claim for these amounts against the patients, they in turn had no claim for them against Jones.

The fallout from Haygood is that, if the claimant’s medical expenses have been paid by a collateral source and the reimbursement to the provider was adjusted, only evidence of the claimant’s “adjusted” medical expenses is admissible at trial. That is, a court can only admit evidence of what was actually paid to the provider or actually incurred by the claimant, the cost that the claimant was initially billed prior to adjustment is not admissible. In order to avoid violating the collateral source rule, the prudent practitioner should admit evidence of medical expenses as summary exhibit that gives the total amount for each provider after adjustment, or in redacted form, so that the jury does not see any reference to insurance payments.

At the Law Office of Stephen O’Rear, P.C. we help people recover their medical expenses.