For years, Alaska remained one of the last holdout states which had not provided any caselaw decisions to declare whether and what evidence of medical bill charges or payments could be introduced by the parties in a personal injury suit. In a personal injury case, was the “reasonable value” of medical bills incurred by the plaintiff represented by the retail amount charged by the hospital, or the discounted/ negotiated rate actually paid by health insurers, workers’ compensation carriers, and/or Medicare and Medicaid? The answer finally came on August 2, 2019, when the Alaska Supreme Court decided the case of Weston v. AKHappytime, LLC, 2019 WL 3519685 (Alaska 2019).
Years ago, medical billing was simple. A doctor or hospital would charge a reasonable fee for medical services and the patient would pay it. However, that is rarely what happens in today’s complex health care and insurance environment, where a complex web of negotiated rates, explanations of benefits, contractual relationships, healthcare coding, hundreds of different billing procedures, and the involvement of Medicare and Medicaid government billing requirements, render the process incomprehensible. As a practical matter, patients today rarely pay or otherwise become obligated to a hospital’s “full” charges. Medicare, Medicaid, HMOs, and private insurers are generally subject to discounted rates under law, or through their contracts with providers. Because the amounts they are allowed to charge are frequently a percentage of their full rate, there is an incentive for providers to inflate these full rates. But it is not these full charges that serve as the basis for the amounts recoverable for injuries, but instead the amounts that a patient or their insurer have actually paid, or otherwise become legally obligated to pay. Today’s healthcare providers almost always accept a lesser amount in satisfaction of the bill pursuant to these contractual relationships. When a person injured in an auto crash receives medical treatment, the provider may accept $700 from the patient’s health insurance carrier for that care even though the provider’s normal charge would be $1,000. The amount beyond what is accepted in full satisfaction of the bill is considered a “discount”, “write-down”, or “write-off.”
Being treated by a doctor may seem like a two-party interaction, but, it’s part of a large, complex system of information and payment. While the insured patient may only have direct interaction with one person or healthcare provider, it is really part of a three-party system – the patient, the health care provider, and the payer or entity which ultimately pays the bill – usually an insurance company or the government. When a patient receives medical services from a healthcare provider, they’re typically presented with a bill at the end of their treatment. The final bill is created by a medical biller who looks at the balance (if any) the patient has, adds the cost of the procedure or service to that balance, deducts the amount covered by insurance, and factors in a patient’s co-pay or deductible. Medical coders use medical reports to accurately translate medical services into code. Billers then abstract information from patients’ medical records and insurance plans to create accurate medical bills. The final amount paid on a $200,000 medical bill – $65,000 in the example above – depends on an entire medical billing industry which involves the complicated overlap of medical billing, diagnosis codes, ICD codes, medical compliance, “allowed amounts”, capitation, co-insurance, EOB’s, and utilization limits. The unpaid balance of $135,000 is either written off, billed to the patient in a practice known as “balance billing”, and/or passed on to other patients in the system in the form of inflated charges. Note that “balance billing” (insurance company sends patient bill for balance of services insurance doesn’t pay for), usually occurs when a patient goes “out-of-network” for medical services, and there is no contract between the provider and the insurance company agreeing to the discounted insurance rates. Balance billing for in-network providers is generally illegal. However, it is legal when the patient uses a provider that doesn’t have a contractual relationship or seeks services not covered by insurance.
As observed by courts and legislatures across the country, these developments have caused the issue of what constitutes a reasonable medical expense to become the subject of increased litigation and legislation. States have generally adopted one of three basic approaches to how much of a medical expense can be introduced into evidence and how much can be recovered:
- “Amount Paid.” The “actual amount paid” approach limits a plaintiff’s recovery to the amount paid to the medical provider, either by insurance or otherwise. States adopting this approach generally seek to avoid allowing plaintiffs any so-called “windfall” from tortfeasors. A handful of states follow this approach. They take the position that limiting plaintiffs’ recovery to the amount paid to the medical provider is not contrary to the Collateral Source Rule (CSR) because the rule is not implicated. They feel that limiting damages will help the liability insurance industry and help the business economy of their state. When insurance payments are used to compensate the plaintiff’s medical providers, they reason, limiting the plaintiff’s recovery to only the amount paid by the insurance company to the medical provider simply permits the plaintiff to recover no more than he has expended.
- “Amount Billed.” (“Benefit of the Bargain”). This approach permits recovery of the full, undiscounted medical bills, including the write-off amounts, only where the plaintiff paid consideration for the insurance benefits. It gives the prudent plaintiff the “benefit of the bargain” of having purchased insurance. Under this approach, when the plaintiff is privately insured, the negotiated rate differential is considered “as much of a benefit for which the plaintiff paid consideration as are the actual cash payments made by his health insurance carrier to the healthcare providers. However, courts that follow this approach do not allow plaintiffs to recover the amount of their full bills if they did not pay for the benefit of discounted rates and write-offs.
- “Reasonable Value.” With this approach, plaintiffs may recover the “reasonable value” of their medical expenses, regardless of whether the plaintiff is privately insured. It should be noted that the courts have approached the definition of “reasonable value” in different ways, and with different results. Among states that use this approach, a minority defines “reasonable value” as the actual amount paid, while a majority holds that the “reasonable value” can be the plaintiff’s full, undiscounted medical bills. A few courts use a “hybrid” method, allowing the trier of fact to consider both the actual amount paid and the full bill in determining the “reasonable value” of medical services provided to the plaintiff. Iowa, Ohio, Indiana, and Kansas are examples of states that have decided that a jury may consider both the amount billed and the amount paid in determining the “reasonable value” of the medical services.
Alaska was one of the last holdout states which had not yet decided on which of the three approaches it would take. In Weston v. AKHappytime, LLC—a case involving Medicare payments but broad enough to apply to all “negotiated rates.”—the Supreme Court announced that Alaska would now become a “reasonable value” state. In Weston, the court announced for the first time that in Alaska, the amount to which a medical bill is lowered (“negotiated rate”) is part of the value of that collateral benefit and should not accrue to the defendant. Alaska now allows the plaintiff to introduce the full, undiscounted medical bills into evidence at trial. However, both the actual amounts paid and any amounts the provider wrote off are relevant to the medical services’ reasonable value.
Defendants must adhere to the CSR but are free to cross-examine any witnesses that a plaintiff might call to establish reasonableness, and the defense is also free to call its own witnesses to testify that the billed amounts do not reflect the reasonable value of the services.” Such evidence may include, for example, testimony about the range of charges the provider has for the same services or what other providers in the relevant area charge for the same services. Lastly, to the extent the negotiated rate differential represents a collateral benefit for which the collateral source has no “right of subrogation by law or contract,” it is subject to the post-verdict procedure set out in AK Stat. § 09.17.070. That statute creates a post-verdict procedure for reducing a damage award if the plaintiff has received amounts “as compensation for the same injury from collateral sources that do not have a right of subrogation by law or contract. After the fact finder has rendered an award,” the defendant is allowed to introduce evidence of collateral source benefits. The plaintiff may respond with evidence of:
- the amount that the actual attorney fees incurred in obtaining the award which exceed the amount of attorney fees awarded by the court; and
- the amount that the claimant has paid or contributed to secure the right to an insurance benefit introduced by the defendant as evidence.
If the total amount of collateral benefits introduced as evidence by the defendant exceeds the total amount that the plaintiff introduced as evidence of attorney’s fees and costs incurred in securing the benefits, the court is required to deduct the difference from the damages award. This process limits the circumstances in which a victim can receive double recovery, while enhancing the chances that a tortfeasor may not be held fully accountable.
A chart detailed the law in all 50 states with regard to how this issue is treated can be found HERE. For questions regarding the subrogation and/or the Collateral Source Rule, please contact Gary Wickert at [email protected].