Billed Versus Paid

In the U.S., when a patient goes to a healthcare provider, a bill for medical services is generated. Although the bill sent by a particular provider for a particular service may be the same no matter whom it is sent to, the amount paid to satisfy that bill depends on the identity of the entity that pays the bill.

Medical service costs are overwhelmingly paid by private health insurers and governmental entities. The remaining payments made to satisfy bills are made by the patients themselves—about 11 percent of healthcare expenditures are for services not covered by insurance, including co-pays, deductibles, and payments covered by health savings accounts, according to the Centers for Medicare and Medicaid Services (CMS). Depending on who pays, the payment made to satisfy the bill can be vastly different. Some entities—primarily private health insurance carriers—pay providers a percentage of the bill pursuant to a contract, while others may have a rate set by state regulation or statute.

In order to capture the maximum amount recoverable from any entity, healthcare providers often charge amounts significantly in excess of what they expect to recover from any of the entities billed. In one notable Colorado District Court case, Kadivnik v. Thistle Community Housing, et al., medical bills exceeded $1.5 million, but were satisfied by a payment of just over $185,000—a difference of more than 87 percent.

Bodily Injury Claim Values

When a plaintiff commences a claim for bodily injuries against a defendant, the reasonable value of the medical services the plaintiff received is a central component of the damages question. Claims adjusters and attorneys—and eventually jurors—often start the evaluation of the total value of a case by looking at the medical expense total. Often, non-economic awards bear some relationship to the medical expense total, as well. As a result, the question of what constitutes reasonable value for medical services can have a significant impact on the total value of a claim or lawsuit. 

The valuation of property, goods, or services has long been a fact question about which reasonable minds can differ. In most cases in which a demand for the reasonable value for goods and services is presented, both sides can present evidence regarding value. Such evidence may include the “sticker price,” amounts actually paid for goods or services, or amounts paid for similar goods or services. One would think that the determination of the value for medical expenses would be no different and that claims adjusters, attorneys, and jurors would be permitted to take into account not only the amounts billed for medical services, but also the amounts paid to satisfy those bills.

So what’s the problem? In recent years, courts across the country have started to limit the evidence that can be presented to juries regarding medical expense pricing. Generally, the courts have relied on various state versions of the collateral source rule. Such rules typically preclude defendants from introducing evidence that some or all of the plaintiff’s claimed economic damages were paid by an entity other than the defendant due to a benefit earned prior to the time the plaintiff was injured. In most cases, the collateral source is a private health insurer, workers’ compensation carrier, or Medicare.

Around the country, courts have determined that, because defendants cannot tell juries that the plaintiff received benefits from a collateral source, they are precluded from presenting evidence of the amounts that medical providers accepted in full satisfaction of the billed amounts. As a result, plaintiffs in litigation, and even in the claims stage, appear to assume that the billed amount is per se the value of medical expense damages and that determination of the value of non-economic losses must also be anchored to billed amounts.

What Can Claims Adjusters Do?

Many insurers already use medical bill repricing services for the issuance of payment under med-pay coverage, as well as the administration of first-party claims. Repricing entities use a range of data, including workers’ compensation; Medicare and Medicaid fee schedules; and amounts commonly paid by health insurers to determine usual and customary fees for particular medical services.

Repricing entities also review bills for duplication or “upcoding of procedures.” They generally check bills to make sure that services were bundled where appropriate. Claims adjusters should consider obtaining detailed written reports for their third-party claims files, as well. 

As long as claims adjusters do not rely exclusively on the amounts actually paid by a collateral source to or on a plaintiff’s behalf, adjusters should be permitted to take other factors into account in determining the reasonable value for medical expenses. An appropriate repricing report can be a useful reference tool during claims negotiations, and if claims negotiations fail, the information can provide the insurance defense litigation team with a valuable resource for reference and ongoing claims negotiation. Providing a repricing report to defense counsel once a claim reaches the litigation stage can potentially save carriers from incurring additional expert witness expenses during litigation.

What Can Defense Attorneys Do?

Many plaintiff’s attorneys assume that once their state precludes the introduction of paid amounts at trial, the billed amounts will be the only evidence admitted at trial—and some of them fail to analyze how they will introduce such evidence at trial until it is too late.

In light of this, defense counsel needs to analyze early and often whether and to what extent plaintiffs are setting cases up in compliance with the rules of procedure so that evidence of amounts billed will be admissible. Plaintiffs have to introduce evidence at trial of medical expenses through witnesses who can lay the proper foundation for such evidence.

Trial courts should preclude plaintiffs themselves from testifying that the medical expenses for which they were billed were reasonable, much in the way courts have precluded plaintiffs from testifying that certain medical services were made necessary by a particular event, because plaintiffs are generally lay witnesses who lack the expertise to testify on these issues.

Interestingly, plaintiffs’ doctors usually lack the expertise to testify with respect to the question of reasonable value. Most doctors have no idea what they charge, what they collect, or why. In order to lay the proper foundation for medical expense evidence, plaintiff’s counsel must call experts with the training, experience, and knowledge to express an opinion on reasonable value. 

Defense counsel should be mindful of these issues from the commencement of the action, but at the latest when they review plaintiffs’ expert disclosures. Plaintiffs may attempt to endorse treating doctors on the issue of reasonable value. If this occurs, and if the treating provider’s background does not suggest that the expert has the knowledge, training, or experience to testify on the issue, defense counsel may consider writing or otherwise conferring with plaintiff’s counsel to determine whether the expert truly has the experience to opine on reasonable value. This sets up a claim for attorneys’ fees if, in fact, a deposition reveals that the treating provider really knows nothing about medical service value. 

Defense counsel may consider issuing subpoenas duces tecum to experts requesting that, prior to depositions, they disclose any documents or other information showing the range of charges accepted for particular types of services.

During depositions, defense counsel should explore why that range exists and determine what percentage of the time (if ever) medical bills are satisfied for the entire amount of the bill. In this way, the defense may be able to elicit through the plaintiff’s own witnesses information favorable to the defense regarding the reasonable value for medical expenses.

Often, plaintiffs do not realize until shortly before trial that they have not endorsed as experts people qualified to opine regarding medical expenses, and instead they list “records custodians” to authenticate medical records. Defense counsel needs to be mindful that authentication and foundation are not the same thing. While a records custodian can testify that billing records are genuine copies of originals, they usually are not qualified to testify on the issue of whether the amounts billed are reasonable. Even if they are so qualified, defense counsel should evaluate whether such opinions were timely disclosed.

A strategic decision needs to be made with respect to whether challenges to evidentiary disclosure and/or foundation should be made before or during trial or whether arguments should be saved for directed verdict. If a plaintiff fails to endorse medical expense experts prior to trial, either the defense can move in limine to preclude medical expense evidence at trial or the defense may consider simply making a Rule 26 objection during trial if the plaintiff attempts to elicit medical expense evidence from a witness who was not endorsed to opine on that subject (or who lacks foundation to testify on the subject).

If plaintiff’s counsel attempts to elicit from the actual plaintiff or another lay witness testimony regarding the amount of the medical bill total but fails to elicit evidence from any qualified expert witness that the amounts billed were reasonable, the defense may want to move for a directed verdict on the medical expense claim. The argument here is that the plaintiff failed to meet the burden of proof required for establishing that claimed damages were reasonable. 

The defense can also retain expert witnesses from the medical repricing field, but defense counsel should be careful to advise such experts to avoid any reference to the amounts that were actually paid for the plaintiff’s medical care in the particular case. Ideally, the defense will have in its file any repricing information obtained during the claims phase of the case. Defense counsel should be careful not to open the door to allow in evidence of liability insurance in a third-party case by endorsing as an expert any person too closely tied to the insurer, such as an in-house repricing expert.

Where Do We Go from Here?

Entities around the country interested in tort reform are working legislatively to address these issues. These efforts are important because, without them, litigation expenses associated with issuing subpoenas, taking depositions, and retaining experts are difficult to avoid. Additionally, this issue impacts the efficiency of the entire judicial system because trials must be lengthened to allow for the testimony of reasonable-value medical-expense experts.

Members of the CLM are encouraged to post to the CLM Alliance LinkedIn group regarding strategies for reducing claims and litigation expenses associated with the valuation of medical expenses. The group can be found by searching for CLM Alliance on LinkedIn’s home page.   

Heather Salg is a shareholder at Harris, Karstaedt, Jamison & Powers, P.C., a member firm of CLM since 2010. She can be reached at hsalg@hkjp.com, (720) 875-9734.