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Court of Appeals Decision May Increase Damages Awards for Injured Plaintiffs Covered by Public Health Insurance Plans

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By Anthony Holton

November 30, 2015

Generally, an injured plaintiff who requires medical treatment is entitled to recover the “reasonable value of medical services” from the accident, and Indiana juries can only consider evidence of this “reasonable value.”  In our complex health care billing system, where the healthcare provider’s total charges rarely match what a patient (or a patient’s insurer) actually pays, the idea of “reasonable value of medical services” has caused equal complexity in the law.  A jury is potentially faced with three amounts when deciding the “reasonable value of medical services”: the initial bill from a healthcare provider, the discounted bill following insurance intervention, or the actual out-of-pocket expense paid by a patient after insurance.  Which amount should a jury be allowed to consider at trial when determining the “reasonable value of medical services” awarded to a plaintiff?

Indiana’s Collateral Source Statute, Ind.Code § 34-44-1-2, provides that when deciding a “reasonable value,” a jury may not consider evidence of insurance payments made by an insurance plan, whether private or state-sponsored.  But what about evidence of medical discounts that are negotiated by a private insurer, or mandated by a public insurance plan, prior to payment? After all, at the end of the day healthcare providers only recoup around 40% of what is actually billed.

The seminal Indiana Supreme Court case Stanley v. Walker, 906 N.E.2d 852 (Ind. 2009) holds that a jury may consider evidence of discounted amounts in order to determine the reasonable value of medical services.

However the Court of Appeals in Patchett v. Lee, 2015 WL 7352582 (Ind.Ct.App. 2015) departed significantly from Stanley.   In Patchett, the issue at trial was the “reasonable amount of medical services” incurred by the plaintiff after a disfiguring car accident. The trial court prohibited the jury from considering evidence that the plaintiff’s medical bills were fully paid, following a deep-discount mandated by her state-sponsored insurance plan.  Therefore when determining the award for plaintiff, the jury only considered the full $87,000.00 hospital bill charged, rather than the reduced $12,000.00 bill mandated by the state, or even the $0.00 left over after the state paid the bill.  The jury returned a $70,000.00 verdict as the “reasonable value” of medical expenses incurred.

The Court of Appeals affirmed, holding that the Stanley rule does not apply.  Patchett reasoned that the discounts in Stanley resulted from negotiations between a private insurer and the hospital.  Because these discounts reflect an arms-length negotiation between two market participants, they tend to reflect a “reasonable value” of medical services.

But what about discounts made as a result of state-sponsored plans, where the discount is simply mandated?  Patchett holds that the jury may not consider evidence of payments made after the state-sponsored discount.  Patchett reasoned that these discounts, and the subsequent payments, are mandated by law and have no bearing on the “reasonable value of medical services.” 

It is unclear how trial judges will treat evidence of state-discounted medical bills following the Patchett decision.  Patchett may have an impact on the exposure faced by defendants in personal injury litigation involving plaintiffs covered by public insurance plans such as Medicare and Medicaid if trial judges choose to follow Patchett rather than Stanley.  Defendants will argue that Patchett has no applicability because it conflicts with the Stanley opinion issued by a higher authority.  Plaintiffs are likely to argue that Patchett is an exception to Stanley and thus Patchett is controlling for Medicare and Medicaid cases.  Patchett nevertheless leaves intact the defense’s ability to show juries discounts where they result from private insurance plans.

If you have any questions regarding the Patchett decision or have any other questions regarding general liability and damages, please call one of our General Liability/Excess and Surplus Risk Practice Group members.

This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel. 

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