A recent discussion on LinkedIn’s Transportation Litigators Group page prompted me, and some prominent members of the group to debate how the Obama administration’s push for a nationalized health care plan might affect the Collateral Source Rule.  The question is, “if everyone has governmentally provided health care, whether state or federal, would payment for medical treatment be considered a collateral source.”  While nationalized health care is not currently the law of the land, it is so clearly on the administration’s wish list so as to warrant discussion.

           
For those of you who may practice in a state with no collateral source rule, the rule is a common law doctrine that developed more than one hundred and fifty years ago.  It is both an evidentiary and substantive rule which prohibits a defendant from introducing evidence of collateral source payments in order to mitigate a potential damage award, nor may a plaintiff’s damage award be reduced by benefits collateral to the tort action.  Likewise, an award cannot be reduced by financial benefits paid to the plaintiff from third-party collateral sources, such as first-party insurance or unemployment benefits.  The practical application of the rule is to bar defendants from introducing into evidence at trial that a plaintiff’s healthcare insurer, or Medicare/Medicaid has paid his or her medical bills. 

           
Obviously we do not have legislation or statutes to guide the discussion with regard to precisely how these potential benefits will be meted out to the public at large—will the nationalized health care plan be treated as a “network plan” like many other such currently existing plans, which would presuppose that people currently in a private health care plan could exercise an option to remain in that plan?  This seems the most likely scenario as the alternative would be to abolish all private health care plans and require all citizens to partake in the nationalized health care plan, in which case most, if not all, doctors would become employees of the federal government.  Regardless of how the benefits will be made available to the public, the issue for litigators is if these governmental sponsored payments should be introduced at trial, and, if so, how they will be introduced.

           
Most jurisdictions allow the plaintiff to recover the “reasonable value” of the medical services provided, and many jurisdictions provide that a paid bill is prima fascia evidence of “reasonable value.”   What trial attorneys often observe is the amount paid to discharge the debt is not necessarily the amount charged, but is some lesser amount which I call the “satisfaction payment.”  Despite the discrepancy, plaintiff attorneys often seek to introduce the amount charged rather than the amount paid and further seek a ruling that the collateral source rule bars introduction of the “satisfaction payment.”  The argument being offered by plaintiffs is that the amount written off and/or down is a “benefit” under the language of the collateral source rule and therefore inadmissible.  Defendants counter that allowing a plaintiff to recover amounts that he/she has never paid and will never have to pay for medical services constitutes an unjust windfall for the plaintiff and an improper penalty against the defendant. 

           
Assuming Congress establishes the “nationalized healthcare network plan” can payments and/or negotiated write downs/offs be considered a collateral source and therefore inadmissible?  The deciding question in most jurisdictions centers on whether the plaintiff has paid some consideration in order to obtain the coverage.  If plaintiff paid any part of the premium, or if plaintiff received the coverage as part of his/her compensation package through employment, the benefits are generally considered a collateral source and therefore inadmissible at trial.  So, if the “nationalized healthcare network plan” is paid for through tax payer dollars, which would ostensibly include taxes paid by plaintiff, would it be considered a collateral source?

           
The most sensible place to begin this analysis would be to see how courts have treated benefits the plaintiff has received through current government sponsored Medicaid.  Medicaid is meant to be a supplement to a health care plan, not a primary health care plan, but is currently funded by tax payer dollars and does not require an individual plaintiff pay a separate and distinct premium or compulsory payroll tax for the coverage.  

           
Indiana has seen a recent push in this area with two landmark cases arguing that plaintiffs are entitled only to the amount actually paid for medical services as opposed to the amount charged. We all know that often times the amount billed by the provider is negotiated down to a lesser amount by whatever the collateral source might be (private health insurer, Medicaid, etc.). 
           
The first case, Butler v. Indiana Dept. of Insurance, 904 N.E.2d 198, (Ind.Sup.Ct. 2009), is a medical malpractice case where the amount billed was not in controversy. However, the amount actually paid to satisfy the amount due and owing was significantly less than the amount charged. Plaintiff (estate) alleged that it was entitled to recover the full amount charged as opposed to what was actually paid. Based, at least partially, on Indiana's Medical Malpractice Act and the elements of damages allowed therein, the Supreme Court held that the estate was entitled only to the amount actually paid and not the amount charged.

           
In a related case, Stanley v. Walker, 906 N.E.2d 852 (Ind.Sup.Ct. 2009), the Supreme Court held that a defendant may introduce evidence of write offs or lowered payments made to satisfy outstanding debt for medical services in a straight forward personal injury action. A close reading of the Butler decision forecast that the Supreme Court may draw a distinction between the “reasonable value” of services a plaintiff is entitled to recover under common law and “reasonable medical… expenses necessitated by the wrongful act” a plaintiff is entitled to recover under the Indiana Malpractice Act.  The Supreme Court did act as predicted and held, “The collateral source statute does not bar evidence of discounted amounts in order to determine the reasonable value of medical services. To the extent the adjustments or accepted charges for medical services may be introduced into evidence without referencing insurance, they are allowed.” Id.  How to introduce this evidence without referencing insurance will have to be a separate article.

           
Interestingly, the Federal District Court for the Northern District of Indiana in Maurer v. Lehl, 2008 WL 4238942 (N.D.Ind. 2008), interpreted the Indiana Court of Appeals decision in Butler to allow the introduction of write offs or satisfaction payments of something less than the billed amount under both Medicare and the plaintiff's private health insurance carrier to be admissible at a personal injury trial. The court did not hold that plaintiff was entitled to recover only the amount of the satisfaction payment, but that the lowered payment was admissible to show the reasonable value of the service provided.

           
Perhaps the Stanley and Maurer decisions are the best guideposts for prognostication of how courts will deal with issue in personal injury cases.  It is at least plausible to conclude that if a “nationalized health care network” is formed courts would abrogate the collateral source rule in favor of a “reasonable value” approach.  Under this approach I would expect courts to allow plaintiffs to introduce the amount charged for services as evidence of reasonable value, and to also allow defendants to introduce the “satisfaction payment” as evidence of reasonable value and allow jurors to decide the question as an issue of fact.

           
One issue that may require further thought and discussion if a nationalized healthcare plan becomes a reality, assuming that those in a private healthcare plans can opt out of the national plan, is how to decide what the reasonable value of medical services are if there is a discrepancy between what the two different plans are charged.  It stands to reason that the government sponsored plan would pay less than a private plan for the same procedure (it is currently estimated that Medicare pays 20-30% less than a private health insurer).  So, which is actually the reasonable value—the amount the government pays, or the amount the private carrier pays?

           
It would certainly benefit the defense bar to begin exchanging theories on reasonable value of medical expenses; look for expert witnesses in medical service related forensic accounting in order to better attack larger medical damage cases and those involving expensive life care plans; and begin incorporating questions regarding billing and reasonable value of services into depositions of medical providers.

Robert  R. Foos, Jr.

Lewis Wagner LLP

501 Indiana Avenue, Suite 200

Indianapolis, Indiana 46202

(317) 237-0500, ext. 242

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