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Evidence of Medical Expenses as Special Damages
The Kansas Supreme Court has pronounced that “[t]he purpose of awarding damages is to make the party whole by restoring that party to the position he or she was in prior to the injury.”[1] Further, the “basic principle of damages” espoused by the Kansas Supreme Court is that the injured party should not be granted “a windfall”.[2]
The admission into evidence of expenses that have been paid by a third party is governed by the common-law collateral source rule. The collateral source rule generally states that “benefits received by the plaintiff from a source wholly independent of and collateral to the wrongdoer will not diminish the damages otherwise recoverable from the wrongdoer.”[3] In short, the collateral source rule permits an injured party to recover full compensatory damages from a tortfeasor irrespective of the payment of any element of those damages by a source independent of the tortfeasor. Bates v. Hogg, 22 Kan.App.2d 705, 921 P.2d 249 (1996). Kansas courts have consistently have applied the collateral source rule to require the exclusion of “‘evidence which would show damages claimed by a party were in fact paid by someone else, or that services had been provided gratuitously.’”[4] Many defense practitioners, in accordance with Bates, have argued for years that the amount the health care providers agreed in advance to accept as full and complete payment for their goods and services became the “customary charge” and, therefore, the reasonable value of the medical care.[5]
Bates v. Hogg
Defendant, Clinton Hogg, and Bates were involved in an injury accident in January 1992. Hogg's pickup truck, traveling at approximately 40 miles per hour, struck Bates' vehicle from behind. Hogg filed a motion in limine seeking to limit Bates’ evidence of economic damages to the amount of medical bills paid by Medicaid on her behalf. A jury returned a verdict, finding Hogg 100% at fault and awarding Bates $1,305.23 in medical expenses, $0 for future medical expenses, $3,310 in noneconomic loss to date, and $0 in future noneconomic loss. After trial, the court found that Bates had not met the $2,000 threshold for economic damages required by K.S.A. 40-3117 and eliminated the noneconomic damages, thus leaving total damages awarded to Bates of $1,305.23.
On appeal, Bates argued that she should be permitted to present the full value or market value of the medical treatment she received as a result of the accident. According to plaintiff, limiting her recovery to the amounts paid by Medicaid would do violence to the collateral source rule thereby permitting the tortfeasor to gain an advantage by way of Medicaid’s contractual arrangements with her medical providers.
The Bates court first reviewed the collateral source rule and determined that it was inapplicable to the issue presented. Bates at 705. Again, the collateral source rule prevents a tortfeasor from introducing evidence that an injured party’s medical bills or other damages have in fact been paid by a third party. In this instance, defendant Hogg was not intending to introduce evidence of the payment but rather to seek a pretrial declaration of law from the court that plaintiff’s recovery was limited to the amount paid by Medicare after write-offs. Thus, the Court concluded that the collateral source rule was inapplicable to the issue raised by the defendant.
The Bates court next considered whether the proper measure of damages for medical expenses under the circumstances presented was the total amount charged by providers before write-offs, or the net amount remaining after reductions for Medicaid. The Court noted that a medical provider by contract could not charge Medicaid patients for the difference between their customary charges and the amount paid by Medicaid. Since the plaintiff could not be financially required to pay the difference between the provider’s customary charge and the amount paid by Medicaid, the Bates court concluded that it would be improper to allow the plaintiff to recover the difference between the charges and “pocket the windfall.” Bates, 22 Kan. App. 2d at 706, citing Gordon v. Forsyth County Hospital Authority, Inc., 409 F.Supp. 708, 719 (N.D.N.C. 1976).
Bates was upheld on appeal by a split panel of the Kansas Court of Appeals, with the majority rejecting Bates' arguments that the district court's evidentiary ruling violated the collateral source rule and violated the Equal Protection Clauses of both the Kansas and United States Constitutions. The Bates majority stated that “[t]he fundamental principle of the law of damages is that a person who suffers personal injuries because of the negligence of another is entitled to recover the reasonable value of medical care and expenses for the treatment of his or her injuries.” 22 Kan.App.2d at 704. The opinion then turned to a consideration of the role that the collateral source rule should play in the analysis. The collateral source rule “ ‘is that benefits received by the plaintiff from a source wholly independent of and collateral to the wrongdoer will not diminish the damages otherwise recoverable from the wrongdoer.’ Masterson v. Boliden-Allis, Inc., 19 Kan.App.2d 23, 27, 865 P.2d 1031 (1993)” 22 Kan.App.2d at 705. Thus, the plaintiff can “ “ ‘recover full compensatory damages from a tortfeasor irrespective of the payment of any element of those damages by a source independent of the tortfeasor.” ” 22 Kan.App.2d at 705 (quoting Wentling v. Medical Anesthesia Services, 237 Kan. 503, 515, 701 P.2d 939 (1985)).
Overall, the Bates opinion concluded that Kansas litigants could not recover the difference between the amounts paid by Medicaid and the amounts charged by medical providers. The Bates decision, however, did not suggest whether this rule of law would extend into contractual arrangements agreed between medical providers and private health insurance companies such as Blue Cross Blue Shield, PPOs or HMOs, an issue that remained highly litigated until 2009’s Adamson v. Bicknell, 41 Kan.App.2d 958, 207 P.3d 265 (2009).
Jackson v. City of Kansas City
Kansas courts’ next opportunity to comment on this issue was in Jackson v. City of Kansas City, 236 Kan. 143, 947 P.2d 31 (1997). Jackson involved an individual who had been handcuffed and seated on a sidewalk by police officers during a domestic disturbance. While sitting, Jackson’s girlfriend was able to elude two law enforcement officers standing nearby and cut the handcuffed Jackson’s neck with box knife from ear to ear. Jackson eventually sued the city for damages including medical care he incurred as a result of his treatment. The jury awarded Jackson $158,500 in total damages, including $8,500 in economic damages (medical expenses) and an additional $150,000 in noneconomic damages.
During his direct examination, Jackson testified about the amount of his medical bills. During cross-examination, the City's attorney questioned Jackson about the fact that he had not paid the full amount of the bills. The City did not state the actual amount of the bills which was still due and owing. Instead, the City confirmed that Jackson had paid a lesser amount than what was actually due and that this lesser amount was indicated on the billing. The three bills themselves were then admitted into evidence.
The first bill listed the amount due as $6,146.86 and the amount “due from patient” as $6,021.54, indicating that Jackson only paid $125.32 of this bill. The second bill listed an amount due of $339.50, with a handwritten note indicating that Jackson paid only $136.50, leaving an amount of $203. Finally, the third bill listed an amount due of $1,700, with a handwritten note indicating that Jackson only paid $1,194.50, leaving an amount of $505.50. It appeared that Jackson's medical expenses totaled $8,186.36. However, Jackson had only paid $1,456.32 of these medical bills. Apparently, some of these payments may have been made by the Kansas Crime Victims Fund. Nonetheless, the jury awarded Jackson $8,500 in damages for his past and future medical expenses.
The City filed a motion for remittitur and claimed that it should only be required to pay damages to Jackson in the amount that Jackson himself actually paid toward the bills. However, there was no evidence in the record that the hospital had settled for less than the amount due or had written off the remaining portion of the bills. Further, the court found that the Crime Victims Fund could have served a lien on Jackson's attorney to recover money the Fund pay for Jackson's medical expenses from the damage award Jackson received.
In Jackson there was no evidence that any of the amounts remaining due on the medical bills had been written off by the medical providers. The City stipulated to the admission of the medical bills without any limitation on that admission. Further, The City did not offer any evidence from the medical providers to indicate that the remaining amounts due on the bills had been written off. The court found that when all the evidence and reasonable inferences therefrom were considered in the light most favorable to Jackson, it appeared that Jackson still owed the full amount of the medical bills. The law did not require that Jackson's damages for medical expenses be reduced to the amount he actually paid since no evidence indicated the amount still owing on the bills had been written off by the medical providers. Instead, the evidence indicated that Jackson was still responsible to pay the full amount of the bills.
In short, the Jackson decision at least suggested that the Bates analysis could be extended beyond Medicaid. Also, the Jackson opinion suggested that an injured party could maintain a claim for unpaid balances which have not been formally written-off by a third-party provider. Most importantly, the opinion implied that the defendant City failed to offer evidence that the remaining amounts due on the bills had actually been written-off. The implication to be drawn was that the party seeking the reduction in the bills must supply the court with at least some information or evidence tending to establish the amount of write-offs, although the Jackson opinion did not formally address which party bears the burden of proof concerning the ultimate totals associated with write-downs or write-offs.
Strahley ex rel. Strahley v. Mercy Heath Center of Manhattan, Inc.
In the ensuing years, litigants continued to battle over whether the Bates analysis was strictly limited to the context of write-offs mandated by governmental reimbursement programs, particularly Medicaid. However, the United States District Court for the District of Kansas eventually extended the analysis first articulated in Bates to private heath care insurance. Strahley ex rel. Strahley v. Mercy Heath Center of Manhattan, Inc., 2000 W.L. 1745291 (D.Kan. 2000).
In Strahley, Plaintiffs alleged that the defendants acted negligently during the birth of Andrew Strahley. Defendant Mercy Health Center of Manhattan filed a Motion in Limine to Exclude Evidence of Medical Expenses Written Off By Health Care Providers, seeking to exclude evidence of amounts which represented contractual adjustments or “write-offs” of plaintiff’s medical expenses to those medical expenses amounts that were actually paid by plaintiffs, their insurance carrier or Medicaid – as opposed to amounts billed by their health care providers.
Although the admissibility of evidence in diversity cases in federal court is generally governed by federal law (See Romine v. Parman, 831 F.2d 944, 945 (10th Cir. 1987)), if an evidentiary question is intertwined with a state substantive policy, state law applies. See Moe v. Avions Marcel Dassault-Breguet Aviation, 727 F.2d 917, 930-33 (10th Cir. 1984) (in diversity case Kansas law controls admissibility of subsequent remedial measures). In the end, Strahley found that the “[a]pplication of the collateral source doctrine, while an evidentiary rule, is closely tied to state substantive policy, and thus is governed by Kansas law. See Hottie v. Beech Aircraft Corp., 47 F.3d 106, 109-110 (4th Cir. 1995) (state evidentiary rule excluding private internal company documents applies in diversity case, even though documents otherwise admissible under the Federal Rules of Evidence).
Strahley acknowledged that under the collateral source rule, the fact that Medicaid and private health insurance paid plaintiff’s medical expenses was not admissible. The principle question in Strahley, however, was whether plaintiffs could introduce evidence of amounts which represented write-offs of medical expenses. Defendant Mercy Health Center argued that the write-offs were not part of plaintiffs' damages, relying primarily on Bates. The Strahley Court reasoned that “[a]lthough Bates addressed only a Medicaid write-off, the same reasoning applies to amounts written off in conjunction with private health care insurance. No one, including plaintiffs, is liable for the amount of the write-offs. Therefore, they do not represent actual losses.” at *2. The Strahley Court further reasoned:
“Discounting is a reality of modern medical economics and it does no violence to the collateral source doctrine to bring to the tort compensation system the same intended savings. By allowing the plaintiff to show the discounted medical expenses as evidence of his damages, even though he paid no part of them, but refusing any evidence of the write-offs that no one incurred, there is a proper balance of the competing interests at issue.”
See Mitchell v. Hayes, 72 F.Supp.2d 635, 637 (W.D.Va. 1999); Feraca v. Kliker, 2000 WL 1210862 (Va.Cir.Ct. May 2, 2000) (no one liable for written-off portions of medical bills, so collateral source rule does not require that plaintiff be permitted to recover written-off portion); see also Jackson v. City of Kansas City, 263 Kan. 143 (1997) (suggesting in dicta that plaintiff may not recover expenses written off by medical providers).
In the end, the Strahley Court sustained Defendant’s Motion in Limine to Exclude Evidence of Medical Expenses Written Off by Health Care Providers and precluded the plaintiffs “from referring to or introducing at trial any amount of medical bills that represent adjustments or write-offs.”[6]
Rose I: Rose v. Via Christi Health System, Inc.
In the Fall of 2003, the Kansas Supreme Court appeared to deviate from the Bates analysis in the decision of Rose v. Via Christi Health System, Inc., 276 Kan. 539, 78 P.3d 798 (2003). Rose involved a medical negligence case brought against the hospital after patient Lyle Rose died as a result of injuries he sustained from falling out of a Via Christi hospital bed. Rose remained in the hospital being treated for injuries resulting from the fall until he died approximately a month later. Via Christi billed him and Medicare for the full cost of treatment for the injuries. Medicare did not pay approximately $154,000 of the amount billed. In a wrongful death action, the jury found Via Christi 36% at fault, awarded total damages of $582,186.01, and awarded $261,422.46 in medical expenses. Via Christi's portion of the total judgment was $209,586.96, and Via Christi's share of the medical expenses portion of the judgment was $94,112.09.
Among the issues presented concerned the hospital’s effort to off-set any judgment issued by the amount of medical expenses it itself wrote off for the patient pursuant to it’s contract with Medicare. In other words, the hospital had originally billed the patient through Medicare and Medicare had significant contractual adjustments that reduced the amount the hospital/defendant received for the medical care rendered.
On October 31, 2003, the Kansas Supreme Court, in an opinion ironically authored by then Supreme Court Justice Gernon, took the legs out from under Bates. Justice Gernon limited the Bates holding to only cases involving Medicaid and specifically held that the collateral source rule prohibited a tortfeasor from reducing its liability based on amounts written off pursuant to Medicare. See Rose I, 276 Kan. at 546. In Rose I, the trial judge allowed the plaintiff to claim the full amount of her bills, including amounts written off, at trial. Id. at 541. After the jury returned a verdict in her favor, however, the trial court allowed the defendant, Via Christi, to “offset” against the medical expenses portion of the verdict, those portions of its charges it had written off pursuant to Medicare. Id. Specifically, trial court allowed Via Christi to offset the $209,586.96 by $94,112.09. The plaintiff appealed the trial court’s decision to allow the “offset” and the defendant cross-appealed the trial court’s decision to allow the plaintiff to submit the full amount of the medical bills to the jury - an issue that would only be reached in the event the court reversed the trial court’s decision to allow the “offset.” Id. at 540.
In Rose I, the Kansas Supreme Court reversed the trial court’s decision to allow an offset holding that the offset amounted to a “charge,” to a Medicare beneficiary which is prohibited by 42 U.S.C. § 1395cc(a)(1)(A)(i). Id. at 544. The Court then turned to whether a plaintiff should be permitted to claim the full amount of a health care provider’s charges despite portions being written off pursuant to Medicare, a third party insurance contract.
The Court began by acknowledging the collateral source rule as it has existed in Kansas throughout the years: “benefits received by the plaintiff from a source wholly independent of and collateral to the wrongdoer will not diminish the damages otherwise recoverable from the wrongdoer.” Id. at 544. Justice Gernon set forth the rationale for the rule as follows:
The purpose of the collateral source rule is to prevent the tortfeasor from escaping full liability resulting from his or her actions by requiring the tortfeasor to compensate the injured party for all of the harm, not just the net loss.... A benefit secured by the injured party either through insurance contracts, advantageous employment arrangements, or gratuity from family or friends should not benefit the tortfeasor by reducing his or her liability for damages. If there is to be a windfall, it should benefit the injured party rather than the tortfeasor.
Justice Gernon then reasoned that in Kansas, recovery is not limited to amounts paid or incurred; rather, a plaintiff is entitled to recover the “reasonable expense of treatment” and that amounts written-off pursuant to Medicare contracts are collateral source benefits that cannot be used to reduce a tortfeasor’s liability. Id. at 548-49. Justice Gernon reasoned that the benefits of the contractual write-offs in the case of Medicare or private health insurance should flow to the injured party as opposed to the tortfeasor and articulated this policy as follows:
Public policy in Kansas supports the theory that any windfall from the injured party’s collateral source should benefit the injured party rather than the tortfeasor, who should bear the full liability of his or her tortuous actions without regard to the injured parties’ method of financing his or her medical treatment.
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In Rose I, Justice Luckert authored a thorough dissent that disagreed with the majority’s disposition of the issue. First, Justice Luckert disagreed with the majority’s holding that the offset allowed by the trial judge amounted to a prohibited charge under 42 U.S.C. § 1395cc(a)(1)(A)(i). Id. at 553 (J. Luckert dissenting). Secondly, Justice Luckert made the point that in that particular case, because the health care provider writing off portions of the bill was the defendant, the source of the benefit was not truly “collateral.” See id. Importantly, Justice Luckert made a point to distinguish the Rose I situation from the more common situation where the write off comes from a health care provider that is not the defendant:
In these cases the plaintiff is injured through the negligence of or other wrongful act of a defendant and receives treatment for those injuries from a Medicare provider who is not a defendant. The bill for medical services is then paid by Medicare, and the provider writes off those amounts which Medicare does not reimburse, thus, providing a benefit to the plaintiff to which the wrongdoer did not contribute and which is, therefore, collateral to the tortfeasor. By definition, the collateral source rule applies in these situations.
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Justice Luckert’s dissent argued that because the write-off was made by the defendant itself, it should be considered an off-set against the reasonable value of the medical treatment. Likely due to the issues raised by Justice Luckert, the Court granted a motion for rehearing thereby suspending the effect of the Rose I opinion. After rehearing was granted but before the Kansas Supreme Court handed down the second opinion in the case “modify[ing]” the initial opinion the effect of the Rose I decision was suspended. During this time, the Kansas Court of Appeals handed down two unpublished decisions, heard by the same three judge panel, ignoring the reasoning of Rose I and extending the holding of Bates to private health insurance and Medicare. See Fischer v. Farmers Ins. Co., Inc., No. 90,246, 2005 WL 400404 (Kan. Ct. App. Feb. 18, 2005) (extending the reasoning of Bates to preclude recovery of private health insurance write-offs); Liberty v. Westwood United Super, Inc., No 89,143, 2005 WL 1006363 (Kan. Ct. App. 2005) (extending the reasoning of Bates to preclude recovery of Medicare write-offs).
In a split decision, the Kansas Supreme Court indicated that the hospital could not reduce the amount of medical expenses awarded by the amounts written off pursuant to the contract with Medicare, despite the fact that plaintiff’s claim for damages against the defendant included the medical expenses of the hospital itself. Thus, the hospital was forced under the Medicare system to accept a significant adjustment downward in the total bill, yet the injured party was able to request reimbursement for the total amount originally charged by the hospital itself for the medical care. As we will see, the Rose case was eventually reconsidered by the Kansas Supreme Court.
Fischer v. Farmers Ins. Co.
While under reconsideration, Rose I was brought into serious question when the Kansas Court of Appeals issued the decision of Fischer v. Farmers Ins. Co., Inc., 106 P.3d 99 (Kan.App. 2005). Fischer arose out of a motor vehicle collision in which plaintiff claimed personal injuries. Dana Fischer was injured when her automobile was struck by a pickup truck after the driver disobeyed a stop sign. She settled with the pickup driver's insurer for the tortfeasor's $25,000 bodily injury liability insurance limits. Fischer then filed suit against her own automobile insurance carrier, Farmers Insurance Company, Inc., seeking to recover under her policy's underinsured motorist coverage. Prior to trial, Farmers convinced the district court to exclude evidence of that portion of Fischer's medical expenses which had been written off by the medical care provider pursuant to an agreement with Fischer's group health insurance carrier. Fischer was then limited to presenting the jury with the portion of the total bill which was actually paid by her medical insurer plus the amount which was assigned and billed to her. The amount of the provider discount which was not billed to the patient was $1,316.51. The jury awarded Fischer a total of $34,000 in damages, resulting in a net recovery of $9,000 in underinsured motorist coverage benefits after deducting the amount collected from the tortfeasor's insurer. Fischer subsequently appealed the district court's order in limine which excluded evidence of the unpaid medical expenses for which the patient was not responsible.
Among the damages sought included medical expenses which had been written off by plaintiff’s medical providers pursuant to an agreement with Fischer’s group health insurance carrier. The Fischer court noted that the Supreme Court’s decision to rehear the Rose case suspended the application of that rule of law until the decision became final. Thus, the Fischer court was able to avoid the apparent inconsistency between the result reached in Rose from the result reached in Fischer, where the court ultimately concluded that the proper measure of damages for the recovery of medical expenses was the net amount remaining after contractual adjustments and write-offs.
Ordinarily, the standard of review for a district court's decision on a motion in limine is abuse of discretion. See Gerhardt v. Harris, 261 Kan. 1007, 1010, 934 P.2d 976 (1997). However, the Kansas Court of Appeals had previously exercised unlimited review over the question of the admissibility of evidence of the amount a medical provider writes off without recourse to the patient to prove economic damages. See Bates v. Hogg, 22 Kan.App. 702, 704, 921 P.2d 249, rev. denied 260 Kan. 991 (1996).
Before the district court, Farmers argued that the Bates majority holding was controlling, while Fischer argued that the Bates dissent made it clear that the case should be limited to Medicaid write-off cases. The district court opined:
“This issue has come before me several times since Bates v. Hogg. When it initially came to me shortly after the time Bates versus Hogg was decided, I read the opinion and determined that it was not limited to just the Medicaid situation. If you look at the rationale for the decision in that case, the rationale provides that if health care services are provided and charged at a certain amount, then through contract or some other provision, the health care provider agrees to accept less than the amount billed in full satisfaction of the debt, that the amount that they accepted in full satisfaction of the debt, by contract or other agreement, represents the amount of medical expenses that the plaintiff is entitled to claim.”
The Fischer Court agreed with the district court's assessment that the language employed in the Bates majority opinion suggests that its holding was not principally driven by the fact that the write-off was mandated by a Medicaid contract. First, the Bates majority stated: “ ‘[T]he purpose of awarding damages is to make a party whole by restoring that party to the position he [or she] was in prior to the injury.’ Samsel v. Wheeler Transport Services, Inc., 246 Kan. 336, 352, 789 P.2d 541 (1990), overruled in part on other grounds 248 Kan. 824, 844, 811 P.2d 1176 (1990).” 22 Kan.App.2d at 704.
The Fischer Court pointed out that the fundamental issue concerned the plaintiff's economic damages, not future expenses, pain and suffering, or disfigurement. The Court found that when the plaintiff is awarded damages equal to the amount that the health care provider agreed to accept in full satisfaction of the necessary medical services rendered, the plaintiff is restored to his or her exact economic position prior to the injury. Further, the plaintiff does not have the amount of the nonrecourse discount to pocket, but neither does the plaintiff owe anything for medical services.
The Fischer Court pointed out that the principle of restoration should be applicable to all plaintiffs, regardless of whether they be uninsured, covered by Medicaid, covered by Medicare, covered by an employer's group health policy, or covered by an individually purchased private insurance contract.
The Fischer opinion provides a helpful illustration of this situation. Assume that five occupants of an automobile are injured by another's negligence; that each of the five plaintiffs incurs medical bills, at customary rates, of $10,000; that the tortfeasor has sufficient bodily injury liability limits to cover all five claimants' injuries; that the medical insurance payor has the right to be reimbursed out of the plaintiff's recovery from the tortfeasor; and that the claimants' collateral sources are as follows:
(1) one is uninsured;
(2) one has Medicaid which requires a $5,000 write-off;
(3) one has Medicare which requires a $2,500 write-off;
(4) one has group health insurance which has contracted with the provider to write-off $1,500; and
(5) one has private insurance which does not have a write-off agreement with the provider.
The potential respective net recoveries, restricting the Bates holding to Medicaid cases, is as follows:
The potential recoveries applying Bates across the board is as follows:
|
| Maximum Award from tortfeasor | Medical bill after contracted write-off | Reimbursement to insurer from plaintiff's recovery | Pocketed by plaintiff |
| (1) Uninsured | $10,000 | $10,000 | -0- | -0- |
| (2) Medicaid | $ 5,000 | $ 5,000 | $ 5,000 | -0- |
| (3) Medicare | $ 7,500 | $ 7,500 | $ 7,500 | -0- |
| (4) Group (write-off) | $ 8,500 | $ 8,500 | $ 8,500 | -0- |
| (5) Private (no write-off) | $10,000 | $10,000 | $10,000 | -0- |
One argument, according to the Fischer Court, in favor of permitting the windfall is that a plaintiff who has previously obtained medical insurance should be allowed to reap the benefits of that pre-planning. However, that argument loses steam when one considers that an individual who is not eligible to be part of a group health plan is presumably paying a higher premium than a member of a group health plan, yet the individually insured plaintiff would be less likely to have write-offs to pocket. Further, it is difficult to apply that rationale to a Medicare recipient, whose contributions to the plan, if any, were involuntary. In short, Fischer Court concluded that applying Bates to all plaintiffs effects their restoration to pre-accident status without arbitrarily overcompensating some injured persons.
The Bates majority acknowledged that the amounts that are actually paid by plaintiff's health insurer to the health care provider are benefits from a collateral source, but questioned whether the amount actually paid or owed was the full measure of the benefits received from the collateral source. In other words, is the amount a health care provider writes off a benefit from a collateral source? The definitive answer was:
“It is our conclusion that the collateral source rule is not applicable under these circumstances. Nothing in the reasoning underlying the collateral source rule supports Bates' position on this issue.” “Presently, a medical provider, by agreement and contract, may not charge Medicaid patients for the difference between their customary charge and the amount paid by Medicaid. Therefore, the amount allowed by Medicaid becomes the amount due and is the ‘customary charge’ under the circumstances we have before us.” 22 Kan.App2d at 705.
The Fischer Court thus found that by agreement between Fischer's group health insurance carrier and the health care provider, Fischer was not to be charged for the difference between the provider's customary charge and the amount negotiated by the group health insurance. Therefore, for all members of Fischer's health insurance group the customary charge is that amount remaining after the required nonrecourse discount.
The Fischer Court further held that:
“Bates instructs us that the appropriate measure of Fischer's economic damages is the amount that the health care provider has agreed, in advance, to accept as full payment for the services. This holding is consistent with the measure of damages employed in other areas. As a practical matter, the health care provider write-offs emanate from the bargaining power of the payor. If a health care provider wants to treat Medicaid patients or members of a group health plan, it must agree to discount its bill. The same concept is prevalent in the business world. An analogous situation would be a local business that joins a purchasing cooperative to obtain a volume discount on the price of computer paper from an office supply chain with a local outlet. If a tortfeasor causes the loss of the business' supply of computer paper, the measure of damages would not be the price per ream that an individual would pay at the office supply store to buy one ream. The business' economic damages would be computed using the discounted price per ream.”
“Perhaps most compelling in persuading us that Bates was not intended to be limited to Medicaid cases is its handling of Bates' equal protection argument. The court summarily rejected the argument because “Bates is being treated no differently from any other injured person attempting to recover damages in Kansas.” 22 Kan.App.2d at 706. We agree with that concept. Fischer should be treated no differently than Bates. Nor should Fischer be treated differently than an individual who purchases a private insurance policy, just because Fischer was fortunate enough to work for an employer that provided group health insurance with a carrier that had the bargaining power to extract a discount from health care providers.” Fischer at *4.
The Fischer Court again noted that Bates was not a unanimous decision. “The dissent focused primarily on the oft-stated concept that “ ‘it is usually considered more just that the injured person should profit, rather than let the wrongdoer be relieved of full responsibility for his [or her] wrongdoing.’ 22 Am.Jur.2d, Damages § 566, p. 638.” 22 Kan.App.2d at 709-710 (Rulon, J., dissenting). The Bates dissent also “noted that the majority's holding would preclude any recovery for gratuitous services provided to the injured party.” 22 Kan.App.2d at 710. “However, the latter argument fails to address the distinction that health care provider discounts are contractually agreed upon in advance of services being provided and, thus, are mandatory. Gratuitous services, by definition, are not mandated.”
Additionally, while Fischer was pending, the Kansas Supreme Court published a split decision addressing the issue of whether a plaintiff could introduce evidence of write-offs mandated by Medicare. See Rose v. Via Christi Health System, Inc., 276 Kan. 539, 78 P.3d 798 (2003). The majority limited the Bates holding to cases in which the nonrecourse discount was mandated by a Medicaid contract. The overarching rationale for the distinction was that recipients of Medicare, like private insurance policyholders, directly contribute at least a portion of the coverage costs. The high court opined that because health care providers voluntarily contract with Medicare in the same manner as the providers contract with other private insurers for reduced rates, the benefit of the write-offs should be attributed to the Medicare participant rather than the health care provider. The opinion then announced that the public policy in Kansas supports the theory that any windfall from the injured party's collateral sources should benefit the injured party rather than the tortfeasor, who should bear the full liability of his or her tortious actions without regard to the injured parties' method of financing his or her medical treatment.
Obviously, the Kansas Supreme Court's majority decision in Rose I would have mandated that the Fischer Court reverse and remand back to the trial court. However, prior to the oral arguments in Fischer, the Supreme Court granted a motion for rehearing or modification and set oral arguments, suspending the effect of the original decision until the matter is decided on rehearing. See Supreme Court Rule 7.06(a) (2004 Kan. Ct. R. Annot. 53). Thus, the Fischer Court was not actually bound by the Rose I decision, and chose to proceed, based upon the then effective precedent of Bates and upon their belief that the collateral source rule has no place in the determination of the proper measure of damages to be applied to all plaintiffs' economic damages.
The Fischer Court suggested that the sentiment that public policy dictates giving a plaintiff a windfall in order to hold the tortfeasor fully liable for his or her tortious conduct is, in practice, an illusion. Rather, the Fischer points out that:
“[i]n most cases, a tortfeasor pays nothing personally; the plaintiff's judgment is paid by a liability insurance carrier. If the wrongdoer's bodily injury liability insurance limits are inadequate to cover the plaintiff's injuries, it is common for the tortfeasor to confess judgment in return for a covenant not to execute. On other occasions, a tortfeasor discharges an excess judgment in bankruptcy.”
Fischer was a prime example of the fallacy of the “make the tortfeasor pay” rationale, as the tortfeasor was out of the picture, after having tendered the limits of his liability policy. Instead, Fischer was suing her own insurance company, Farmers. Farmers did not substitute payment and/or intervene in the negligence action and, therefore, had no right to subrogate against the tortfeasor under K.S.A. 40-284(f). Any additional recovery that Fischer might have obtained by introducing evidence of the provider write-off would, in no respects, be paid by the tortfeasor or the tortfeasor's insurance carrier. The burden of Fischer's windfall would ultimately be borne by herself and all of Farmers' other policyholders in the form of increased premiums for underinsured motorist coverage. The Fischer Court stated that certainly that cannot be the public policy of the State of Kansas.
In summary, Fischer held that the amount which a health care provider has, in advance, agreed to accept in full satisfaction for services rendered to a plaintiff is the measure of the reasonable value of medical care and expenses for the treatment of the plaintiff's injuries. Further, previously established nonrecourse discounts by health care providers are not a collateral source benefit within the ambit of the collateral source rule. Thus, Fischer concluded that a plaintiff cannot introduce evidence of the amount of the nonrecourse discounts as part of the plaintiff's economic damages.
Liberty v. Westwood United Super, Inc.
Additionally, the Kansas Court of Appeals clarified the issue in its unpublished decision of Liberty v. Westwood United Super, Inc., 110 P.3d 447 (Kan.App. 2005). Liberty is a decision arising out of a slip and fall incident in which plaintiff claimed personal injuries. A jury found the defendant, Westwood United Super Inc. (Westwood), not liable to Plaintiff Liberty for injuries sustained in a slip and fall accident. The lower court excluded evidence of Liberty’s medical expenses that were written off by the health care providers pursuant to a contract with Medicare, and Liberty appealed.
In reaching its determination the court reasoned that a person’s involuntary contributions to the Medicare program are not analogous to payment of insurance premiums, and contractual Medicare write-offs are not “payments” of medical expenses. The Liberty Court suggested that the application of the collateral source rule to mandatory Medicare discounts required a great deal of creativity.
“First, one must perceive that the nonconsensual, involuntary deductions from a person's wages to fund the federally mandated Medicare program are akin to the premiums paid by the fiscally prudent and relatively affluent purchaser of private insurance. More importantly, however, one must fictionally characterize the mandatory contractual discount for Medicare patients as a “payment” of medical expenses. The write-off is a volume discount allowed by medical care providers who want to tap into the pool of Medicare patients. No one is paid the discount, but rather the discounted cost of services assists in keeping the amount that must be deducted from one's paycheck at a manageable level. Finally, the rationale of giving the injured person a windfall in order to avoid allowing the tortfeasor to reap a windfall simply ignores reality. One can perceive that in the vast majority of cases, the “windfall” is funded by a liability insurance carrier, not the tortfeasor personally. The tortfeasor is not taught a lesson via his or her pocketbook, but rather the rest of us must share the cost of the windfall through higher liability insurance premiums.” Liberty at *5.
Additionally, the court rejected the idea of punishing the tortfeasor and giving the injured person a windfall just to prevent the tortfeasor from reaping one, when in reality the windfall is provided by the liability insurance carrier and not the tortfeasor personally. Liberty extended the Bates rationale to Medicare recipients and concluded that evidence of (Medicare) write-offs is not admissible as part of a personal injury plaintiff’s damages. Further, Liberty reiterated that “the collateral source rule has no place in the determination of the proper measure of damages to be applied to all plaintiff’s economic damages.” “[T]he amount permitted to be charged to Medicare patients is the “customary charge” for their medical treatment and, thus, represents the reasonable value of their damages attributable to medical expenses.”[7]
Rose II: Rose v. Via Christi Health System, Inc./St. Francis Campus
In 2005, the Kansas Supreme Court issued the reconsidered opinion in Rose II. Under the reissued opinion, the court did not overturn the trial court’s decision to limit the recovery of medical expenses to the amounts paid under Medicare after federally mandated adjustments. See, Rose v. Via Christi Health System, Inc./St. Francis Campus, 279 Kan. 523, 113 P.3d 241 (2005). Specifically, affirmance was not based on the collateral source rule, which again applies when the injured party receives payment from a source independent of the tortfeasor, i.e., a collateral source. Id. at 529. Rather, affirmance was “limited to the relatively rare factual situation of a tortfeasor providing the post-tort medical treatment which underlies the economic loss.” Id. at 534.
In Rose II, Justice Luckert, the author of the dissent in Rose I, delivered the opinion of the Court. The opinion essentially parallels her dissent in Rose I holding that the trial court’s decision to setoff Via Christi’s Medicare write-off did not amount to a “charge” under 42 U.S.C. § 1395cc(a)(1)(A)(i). Rose II, 113 P.3d at 244. Furthermore, because the amounts at issue were written off by the defendant Via Christi and thus the benefit to the plaintiff did not flow from a “collateral source,” the collateral source rule did not apply. Id. at 245-48. The Court did not explicitly reach the issue of whether the Medicare write-off, when paid by a third party, is a collateral source. Id. at 248. The Court left little doubt, however, about where it stood on the issue.[8]
In Rose II, the Court cited Harrier v. Gendel, 242 Kan. 798, 800, 751 P.2d 1038 (1988), and the Restatement (Second) of Torts § 920A in holding that “[t]he collateral source rule provides that benefits received by the plaintiff from a source wholly independent of and collateral to the wrongdoer will not diminish the damages otherwise recoverable from the wrongdoer.” See Rose II 113 P.2d at 245 (citing Harrier, 242 Kan. at 800 (holding that statute repealing the collateral source rule for medical malpractice plaintiffs was unconstitutional)). Thus, the Rose II Court reasoned that a tortfeasor’s liability will not be diminished by “[p]ayments made to or benefits conferred on the injured party from other sources [which] are not credited against the tortfeasor's liability although they cover all or a part of the harm for which the tortfeasor is liable.” Id.
In Rose II, the Kansas Supreme Court emphasized that the principles set forth in Restatement (Second) of Torts § 920A are “consistent with Kansas common-law principles” and specifically stated that “[t]he collateral source rule in Kansas ... is consistent with the Restatement (Second) of Torts § 920A ....” Rose II, 113 P.3d at 245. Significantly, the Rose II court has not ordered the Rose I opinion to be withdrawn; rather characterizing the holding as modifying the Rose I decision. In fact, the Rose I holding regarding the collateral source doctrine has been cited by the Kansas Court of Appeals since Rose II was handed down. In Zak v. Riffel, 34 Kan. App. 2d 93 (Kan. Ct. App. 2005)(cited supra), the Kansas Court of Appeals quoted heavily from Rose I in setting forth the rationale of the collateral source rule. See Zak, 34 Kan. App. 2d at 105-07 (quoting Rose v. Via Christi Health Systems, Inc., 276 Kan. 539, 544, 78 P.3d 798 (2003), modified on rehearing 279 Kan. 253, 113 P.3d 241 (2005) (citing Harrier, 242 Kan. at 800). The Restatement sets forth the effect of benefits conferred upon an injured party by a third party as follows:
Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable.
Restatement (Second) of Torts § 920A(b) (emphasis added). In the comments, the drafters set forth the policy behind § 920A(b) as follows:
Payments made or benefits conferred by other sources are known as collateral-source benefits. They do not have the effect of reducing the recovery against the defendant. The injured party’s net loss may have been reduced correspondingly, and to the extent that the defendant is required to pay the total amount there may be a double compensation for a part of the plaintiff's injury. But it is 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. If the plaintiff was himself responsible for the benefit, as by maintaining his own insurance or by making advantageous employment arrangements, the law allows him to keep it for himself. If the benefit was a gift to the plaintiff from a third party or established for him by law, he should not be deprived of the advantage that it confers. The law does not differentiate between the nature of the benefits, so long as they did not come from the defendant or a person acting for him. One way of stating this conclusion is to say that it is the tortfeasor’s responsibility to compensate for all harm that he causes, not confined to the net loss that the injured party receives.
Id. (comment b). In addition to explicitly endorsing the Restatement as the law of Kansas, the court in Rose II, relied heavily on Candler Hosp. v. Dent, 491 S.E.2d 868 (Ga. Ct. App. 1997). In Candler, the Georgia Court of Appeals specifically held that a tortfeasor could not reduce its liability by those portions of a medical bill written-off by a third-party health care provider after Medicare paid a portion thereof. See Rose II, 113 P.2d at 246 (noting that in Candler although the write-off was a collateral source when provided by a third party, the defendant was entitled to “setoff” of the write-off because the health care provider was the defendant, not a third party). The Rose II court, after noting the Candler court’s holding regarding the collateral source rule stated that “[t]he rationale of the Georgia court parallels Kansas common law regarding damages.” Id. at 247.
By endorsing the Restatement and the reasoning of Candler, the Kansas Supreme Court indicated that the collateral source rule is alive and well in Kansas and a benefit which flows to an injured party cannot be used to reduce a tortfeasor’s liability. Also significant is what the Kansas Supreme Court did not say. The Rose II Court chose not to adopt the reasoning of Bates v. Hogg and its progeny i.e. that the paid amount is the “customary” charge because that is the maximum that the provider could charge. In fact, the Rose II Court implicitly rejected this holding. In distinguishing between a credit and a true “offset” the Court noted that the proper terminology to be used in the setting of a tortfeasor reducing its liability by writing off a portion of its bill is a “credit” because this acknowledges that the amount written off is “an appropriate measure of recoverable damages.” Rose II, at 245. Thus, in addition to affirmatively endorsing the Restatement approach, the Rose II court rejected the reasoning of Bates.
Hayes Sight & Sound, Inc. v. ONEOK, Inc., Subrogation and Property Damages
In a relatively recent decision (2006), the Kansas Supreme Court decided a case addressing the issue of setoffs for defendants’ payments to the plaintiffs’ insurers to settle subrogation claims. Hayes Sight & Sound, Inc. v. ONEOK, Inc., 281 Kan. 1287, 136 P.3d 428 (Kan. 2006). In Hayes, the plaintiffs’ businesses were destroyed when natural gas migrated from the underground storage caverns and ignited. The trial court awarded both compensatory and punitive damages to the plaintiffs, and the defendants appealed based on the trial court’s denial of their request to setoff subrogation claims. After the accident the plaintiffs’ insurers paid the amount of their losses, an