Butler v. Department of Insurance

Today the Indiana Court of Appeals issued the case of Butler v. Indiana Department of Insurance (pdf) which potentially has significant implications for personal injury lawsuits. It has to do with the amount of compensation to which an injured person is entitled for medical expenses. The Indiana Rules of Evidence allow a plaintiff to set forth a prima facie case as to the reasonable value of medical services by presenting their medical bills. Indiana’s collateral source doctrine acted to exclude Defendants from providing evidence of certain sources of payment made on behalf of the Plaintiff, including for example insurance payments or Medicaid/Medicare payments.

All of this is fine on a basic level. You don’t want to make a Plaintiff have to drag in a battalion of doctors or hospital administrators just to get reimbursed for an emergency room bill. You also don’t want a tortfeasor to get out of paying just because the Plaintiff was responsible enough to pay for medical insurance — the insurer typically retains an interest in the lawsuit such that the Plaintiff has to pay back some or all of the insurance payments from the proceeds of the judgment or settlement. However, in practice, the billed cost of medical procedures often bears little relationship to the actual cost. Anybody who has ever reviewed the EOB from their medical insurer knows that the billed amount is akin to the sticker price of a car at a used car lot or “full price” at a mall jewelry store. Medical providers often accept deep discounts from the billed amount as payment in full of the bill.

Because of these factors what happens in many cases is that the Plaintiff receives medical services, gets billed $100, has their insurance company pay $50 as payment in full, and goes to court and establishes a prima facie case of a $100 bill. The Defendant is precluded from providing evidence that the real cost was $50 and ends up paying the $100 to the Plaintiff. The Plaintiff pays the $50 back to the insurer and gets a $50 windfall. These numbers are just made up. Sometimes the amounts are significantly greater. For example, in the case at hand, the billed amount was $410,000. The paid amount was $122,000.

It’s not absolutely clear that this case will apply to the average personal injury case where the Plaintiff has paid premiums and the Plaintiff’s health insurer has paid the bills. This case specifically applies to Medicare and Medicaid payments paid in a wrongful death case (where different rules sometimes apply). However, the logic of the case seems to apply to the more general situation.

Per the court:

We will first address the Estate’s claim that the trial court erred by admitting evidence of medical provider write-offs involving Medicare and Medicaid. According to the plain language of the statute codifying the collateral source rule, the rule applies to evidence regarding “collateral source payments.” I.C. § 34-44-1-2 (emphasis added). However, a write-off is not a payment because money is not delivered to the creditor.
. . .
Specifically, the Estate argues that the AWDS [Adult Wrongful Death Statute] allows a plaintiff to recover reasonable medical expenses and that the billed amount represents the reasonable value of Nondis’s medical expenses. Thus, the Estate argues that the amount written off by the medical providers is inconsequential.
. . .
We have emphasized that “[t]he purpose of this new collateral source rule statute is to determine the actual amount of the prevailing party’s pecuniary loss and to preclude that party from recovering more than once from all applicable sources for each item of loss sustained in a personal injury or a wrongful death action.”

Therefore, Indiana’s collateral source rule, which abrogates the common law rule, supports the conclusion that pursuant to the AWDS, a plaintiff’s recovery is limited to the amount of pecuniary loss sustained by the decedent’s medical treatment, which is represented by the amount actually paid for the treatment, not the amount billed.

My guess is that the Plaintiff’s bar will argue, among other things, that private insurance is different. The write downs given by medical providers to insurers is a benefit purchased through payment of premiums and a Defendant should not receive that benefit. However, the fact of the matter is that the billed prices of medical procedures bear little relationship to the real value of the procedure. I think it’s an acceptable legal fiction to let Plaintiffs create a rebuttable presumption that the billed price is the correct amount simply because I think it puts an undue burden on the Plaintiff to make him or her do more. I think this legal fiction goes too far if a Defendant is not allowed to rebut this presumption simply by showing that the medical providers accepted a lesser amount as payment in full for the services.