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Medical Expense Discounts and the Collateral Source Rule
Kevin F. Dugan and Kenneth C. Brown
When a person injured in an automobile crash receives medical treatment, the provider may accept $750 from the patient’s health insurance carrier for that care despite the fact that the provider’s normal charge would be $1,000. Such discounts are becoming customary whether the patient is privately insured or is covered under Medicaid or Medicare. Defendants in personal injury cases, however, are beginning to ask trial courts in New Hampshire to limit plaintiffs’ recoverable medical expenses to the discounted amount rather than the customarily billed amount.
Courts in other states have rejected defendants’ efforts to take advantage of discounted medical bills, holding that such discounts are collateral sources. Although the issue has not yet reached our Supreme Court, New Hampshire’s collateral source rule requires the same result.
II. Out of State Authority:
Appellate authority on this issue is quite sparse, however several courts in other jurisdictions have squarely rejected the argument that a plaintiff’s damages are limited to the amount actually paid by the health insurance carrier or by Medicaid or Medicare. One of the first decisions on point came in the 1987 Louisiana case of Brannon v. Shelter Mutual Insurance Company. In Brannon, the plaintiff was badly injured in an automobile crash. Only a portion of her hospital bill was paid by her health insurance carrier and the hospital wrote off the rest. Although the plaintiff was eligible for Medicaid, the hospital told her attorney that the amount paid by her health insurance was greater than Medicaid would pay and that the hospital’s policy was to take a loss on any amount Medicaid would not pay.
In the resulting personal injury case, the defendant argued that the plaintiff was only entitled to recover the amount the hospital accepted from her insurance carrier. The court disagreed.
The Medicaid program is jointly funded by the state and
federal government and provides medical aid for persons
falling below a certain income level. Under the “collateral
source rule”a tort-feasor may not benefit from plaintiff’s
insurance benefits from sources independent of the wrong-
doer’s procuration or contribution. Even if the hospital
regularly writes off as “contractual adjustments” these types
of losses in order to participate in the Medicaid program we
do not feel that the defendants should benefit from a policy
which is intended to afford medical treatment to those in need.
Seven years later, a different Louisiana appellate court ruled that a plaintiff was entitled to recover the amount written off by a medical provider after a discounted payment from Medicare. Of note is the court’s rejection of the defendant’s argument that the plaintiff would reap an improper windfall if she were compensated for the full value of her medical care:
[T]he insurer’s suggestion that it would somehow be
unconscionable and against public policy for plaintiff to be
paid this “windfall” is not only unfounded, but disingenuous.
What the insurer is essentially arguing is that it, rather than
plaintiff, should reap the “windfall.” The amount at issue
actually represents money foregone by the health care
providers, and in the posture of this case we can discern
no public policy which would recommend that the insurer,
rather than the plaintiff, should profit by this circumstance.
In October, 1998, the unanimous Arkansas Supreme Court affirmed a trial judge’s ruling that the plaintiff’s negotiated hospital bill discount was a collateral source. In Montgomery Ward & Company, Inc. v. Anderson, the plaintiff was injured when she fell in a Montgomery Ward department store. She incurred medical expenses of nearly $25,000, but her attorney negotiated a fifty percent discount with her medical care providers. Prior to trial, the defendant moved unsuccessfully to prohibit the plaintiff from introducing the total medical bill and asked that she be limited to introducing evidence of the amount she would be responsible to pay. Following a verdict in favor of the plaintiff, the defendant appealed.
After reviewing the collateral source rule, the Supreme Court observed that “[t]here is no evidence of record showing that Montgomery Ward had anything to do with procuring the discount of Ms. Anderson’s bill . . . The rationale of the [collateral source] rule favors her, just as it would had she been compensated by insurance for which she had arranged.” The court then reviewed the recognized exceptions to the collateral source rule and concluded that none applied. It found support for the trial judge’s ruling in the Restatement (Second) of Torts. Specifically, the court cited section 920A and its accompanying comments.
Comment b to that Restatement section explains that, if the
plaintiff is responsible for the benefit received, the law allows
the plaintiff to keep it. Further, if the benefit was a gift to
the plaintiff from a third party or established for the plaintiff
by law, the plaintiff should not be deprived of the advantage
that it confers. . . . Comment c(3) indicates that gratuities of
cash or services are collateral sources that are not subtracted
from a plaintiff’s recovery. The comment gives the example
of a doctor who does not charge for medical services.
The court expressly rejected Montgomery Ward’s argument that “gratuitous medical services may not be an item of recovery because the policy behind the collateral source rule does not apply where the plaintiff has incurred no expense or obligation for the services needed.” Instead, it held that “gratuitous or discounted medical services are a collateral source not to be considered in assessing the damages due a personal-injury plaintiff.” This rule, it concluded, was consistent with the Restatement of Torts and with the state’s policy of allowing the innocent plaintiff, instead of the tortfeasor defendant, to receive any windfall associated with the cause of action.
In the most recent case, a Louisiana appeals court reversed a trial judge’s ruling that the defendant in a personal injury case could introduce evidence of medical bill discounts obtained by the plaintiff’s health insurance carrier. In LeBlanc v. Acadian Ambulance Service, Inc., the plaintiff was injured when his car was struck by an ambulance. His health insurer obtained a substantial discount on his medical bills because his treatment was rendered by a preferred provider organization. Evidence of this discount was permitted to go to the jury and the jury awarded substantially less than the full value of the plaintiff’s medical expenses. The plaintiffs appealed.
The appeals court analyzed the issue as follows:
[T]he collateral source rule provides that a tortfeasor may
not benefit, and an injured plaintiff’s tort recovery may not
be diminished, because of benefits received by the plaintiff
from sources independent of the tortfeasor’s procuration
or contribution. LeBlanc argues that this rule precludes
the defendants from benefitting from discounts obtained
through his own insurer. We agree.
Like the Arkansas Supreme Court, the court in LeBlanc rejected the argument that the plaintiff was obtaining an improper windfall by the application of the collateral source rule to the medical expense discounts.
[I]f we accepted the defendants’ argument, they would be
the beneficiaries of such a windfall, i.e., they would benefit
from lower prices contracted for by [the plaintiff’s health
insurance carrier] rather than paying the higher prices
they would have had to pay if they had taken responsibility
for the expenses initially. We find that such a benefit is
contrary to the collateral source rule and, therefore, deny
the requested credit.
III. New Hampshire’s Collateral Source Rule:
The cases described above apply the traditional collateral source rule. The result is the same under New Hampshire’s rule. "It is settled law in this jurisdiction that a tort defendant can derive no benefit from the fact that plaintiff was insured or that his bills have been paid by a workmen's compensation insurer or from other sources.” One offshoot of this fundamental rule is that “an award of damages may not be reduced by the amount of benefits a plaintiff receives from a collateral source.” Recognized collateral sources in New Hampshire include “benefits paid under an insurance policy or by a relief association; employment benefits; gratuitous payments; social legislation benefits such as social security, welfare, pensions; and benefits received under certain retirement acts.”
Our Supreme Court has described the arguments in favor of the collateral source rule. First, is the belief that “a tort-feasor should not be allowed to escape the consequences of his wrongful act merely because his victim has received a benefit from a collateral source which would constitute a windfall to the defendant wrongdoer.” Second, “in many instances the plaintiff has paid for these benefits in the form of insurance premiums or concessions in the wages he received because of such fringe benefits.” Third, where the collateral source payment is purely gratuitous, “it is maintained that the maker of these payments did not intend to relieve the tort-feasor of any liability, but rather to aid the plaintiff by doing him a favor.” Fourth, “[i]t is also argued that the collateral source rule is designed to offset the inability of ordinary damages to adequately compensate an injured accident victim.” Lastly, the Court has recognized that some collateral source payments are subject to a right of subrogation, meaning that the plaintiff may have to pay them back. In adopting the collateral source rule, the Court concluded that, if there is a “windfall” to be had from collateral source payments, it should go to the plaintiff rather than the defendant.
For present purposes, the relevant collateral sources are insurance benefits, social legislation benefits, and gratuitous payments. Insurance benefits are the quintessential collateral sources. As early as 1898, our Supreme Court rejected a defendant’s request that the jury be instructed to deduct the plaintiff’s insurance proceeds from his damages. The Court disagreed that the jury instruction was necessary to prevent a double recovery. “[T]he answer to this is that [the plaintiff] recovers but once for the wrong done him, and he receives the insurance money upon a contract to which the defendant is in no way privy, and in respect to which his own wrongful act can give him no equities.”
With respect to social legislation benefits, the leading New Hampshire case held that an injured serviceman was entitled to a full recovery from the defendant even though the federal government continued his pay without a right of subrogation. Benefits under the Medicaid and Medicare programs would appear to fit squarely within the category of social legislation benefits to which the collateral source rule applies.
Gratuitous payments have also been recognized as collateral sources in New Hampshire. In one case, a personal injury defendant sought to introduce evidence that the plaintiff’s medical bills were paid by the Manchester Firemen's Relief Association. The trial court refused. On appeal, the defendant argued that the plaintiff should not be permitted to recover medical expenses unless he paid for them himself or at least incurred a legal liability to pay them. The Supreme Court disagreed.
On principle it should make no difference to the defendants
whether the payment was made by virtue of friendship,
philanthropy or contract with a third party. The medical
service given to the plaintiff was for his benefit and not for
the benefit of the wrongdoer who has been adjudged liable.
It is no concern of the wrongdoer whether the bills for medical
services and expenses were paid by an indulgent uncle, a liberal
employer or a relief association.
The New Hampshire case that comes closest to addressing the present issue is Lefebvre v. Government Employees Insurance Company. In Lefebvre, the plaintiff was injured when she was struck by a car. She received free medical care because her husband was a military serviceman. When she filed suit against the driver of the car, the United States asserted its statutory right to subrogation and had the woman’s attorney bring a claim on its behalf to recover the value of the free medical care it had provided. The woman settled the claim against the driver and the United States was paid in full out of the settlement proceeds. The injured woman then made a claim under the medical payments coverage of her automobile insurance policy. The carrier refused to pay the value of the free medical care provided by the federal government.
The case was submitted to the Supreme Court on stipulated facts. The Court held that by federal statute the right of recovery was solely the right of the United States, and as a result, the woman had not “incurred” any expenses within the meaning of the med pay provision of her insurance policy. The Court noted, however, that even though the care had been provided for free, “under our collateral source rule, plaintiff was entitled to recover the full value of the services from a third party tort-feasor and in the absence of a subrogation agreement or assignment would be able to keep the full amount recovered.”
The Court’s recognition in Lefebvre that a personal injury plaintiff is entitled to recover the full value of medical care from the tortfeasor even if the care was provided for free is entirely consistent with New Hampshire’s collateral source rule. It is also in accord with the out-of-state decisions set forth above. The governing principle in each of these cases is that a tort defendant can derive no benefit from the fact that the plaintiff was insured or that his bills have been gratuitously paid.
Discounts from medical providers, whether they are voluntary write-offs or contractual adjustments arising from insurance arrangements, are nothing more than gratuitous medical services. Thus, when a defendant asks to have his liability for medical expenses limited to the discounted amount actually paid on the plaintiff’s behalf, he seeks to take advantage of what is in essence a gift given to the plaintiff. If the collateral source rule stands for anything, it is that such gratuitous benefits do not reduce a tortfeasor’s liability.
It is also important to note that oftentimes medical care providers will not simply write off the difference between their customary charges and the amount paid by the patient’s insurer. Standard forms signed by most patients give the provider the right to recover the difference from the patient. In one case, Elliot Hospital tried to recover the difference between its bill and the amount paid by Medicare even though this is expressly prohibited by the Medicare statute. The case went all the way to the First Circuit. Although the court easily rejected the Elliot’s arguments in an opinion written by then-Judge Breyer, this shows that medical care providers do not always take “contractual adjustments.” The possibility that a plaintiff may be responsible for the difference between the full medical bill and the amount paid on his behalf is sufficient to require tortfeasors to pay the full value of the medical care.
As long as New Hampshire continues to hold that a tort defendant can derive no benefit from the fact that the plaintiff was insured or that his bills have been gratuitously paid, courts in this state should not permit personal injury defendants to limit their liability when a portion of the plaintiff’s medical bills have been forgiven. The collateral source rule requires that personal injury plaintiffs must be permitted to recover the full value of the medical treatment they receive.
. 520 So.2d 984 (La.App. 1987).
. Id., 520 So.2d at 986 (citations omitted).
. Kozina v. Zeagler, 646 So.2d 1217, 1221 (La.App. 1994).
. 976 S.W.2d 382 (Ark. 1998).
. Id., 976 S.W.2d at 384.
. Id., 976 S.W.2d at 385.
. So.2d , 1999 WL 826130 (La.App., October 13, 1999).
. Id. at *11 (citations omitted).
. Anderson v. DeLaurier, 106 N.H. 57, 59 (1964) (emphasis added). See also Merchants Mutual Insurance Group v. Orthopedic Professional Association, 124 N.H. 648, 656 (1984) (quoting Anderson); Bell v. Primeau, 104 N.H. 227, 228 (1962).
. Cyr v. J.I. Case Company, 139 N.H. 193, 195 (1994).
. Moulton v. Groveton Papers Company, 114 N.H. 505, 509 (1974).
. Id., 114 N.H. at 510.
. See Carson v. Maurer, 120 N.H. 925, 940 (1980).
. See id.
. See Rolfe v. Boston & Maine Railroad, 69 N.H. 476, 477 (1898).
. Id. (quoting Perrott v. Shearer, 17 Mich. 48, 56).
. See Bell, supra note 13, 104 N.H. at 229.
. Clough v. Schwartz, 94 N.H. 138, 140-41 (1946).
. 110 N.H. 23 (1969).
. Id., 110 N.H. at 25.
. Clough v. Schwartz, 94 N.H. 138, 140-41 (1946).
. See Rybicki v. Hartley, 792 F.2d 260 (1st Cir. 1986).