By: Brant Stogner & Joshua Hilbe Brant J. Stogner Board Certified - Personal Injury Trial Law

The Era Prior to “Paid or Incurred” I.

A History Lesson  If a Plaintiff received a favorable verdict forpersonal injury damages, he or she would submit:  Affidavits and medical billing records ofproviders (or live testimony);  “Reasonable and Necessary” standard.  Third party payments on behalf of the Plaintiff wasnot an issue and not admissible at trial.  If the Plaintiff prevailed, he or she was entitled torecover up to the full amount of the medical charges no matter what his or her insurance company paid..

What if a Third Party Paid for the Plaintiff’s Medical Expenses?  Under prior law, the fact that a plaintiff’sinsurance paid for the charges would beinadmissible in the trial.  Additionally, the amount that was paid tosatisfy the past medical expenses would also beinadmissible.  Both would violate the Collateral Source Rule..

The Collateral Source Rule  “ The collateral source rule is both a rule of evidence and damages. Generally, it precludes a tortfeasor from obtaining thebenefit of, or even mentioning, payments tothe injured party from sources other than thetortfeasor. In other words, the defendant isnot entitled to present evidence of, or obtainan offset for, funds received by the plaintifffrom a collateral source. ”  Taylor v. Am. Fabritech, Inc., 132 S.W.3d 613, 626 (Tex. App.—Houston [14th Dist.] 2004, pet. denied)..

Medicare Private Insurance Governmental Assistance Worker’s Compensation Plaintiff Healthcare Provider. The Collateral Source Rule

Recovery v. Evidence  Because the Collateral Source Rule hastraditionally been both a rule of recovery and evidence, the defendant may NOT introduce evidence at trial of collateralsources of compensation for a plaintiff’sinjuries.  “As a rule of evidence, the collateral sourcerule has excluded such things as evidenceof payments and downward adjustmentsin accordance with Medicare guidelines.” Haygood v. De Escabedo, 2011 WL (Tex.) at *8 (Medina, J., Dissenting).

How Long Have We Had the Collateral Source Rule ?  Texas – Since the 1800s  Tex. & Pac. Ry. Co. v. Levi & Bro., 59 Tex. 674, 676 (1883)  This is deeply rooted in Texas jurisprudence.  Texas Governor John Ireland.

How Does Insurance Affect Trial?  It is generally considered error forinsurance coverage of either party to be mentioned by the other party during trialof a personal injury cause of action; ifinsurance is mentioned, the trial court mayeither order a mistrial or instruct the jurynot to consider the improper statement.  See, e.g., TEX. R. EVID. 411; Tex. R. Civ. P. 226a(II)9; Dennis v. Hulse, 362 S.W.2d 308, 309 (Tex. 1962).

How Does Insurance Affect Trial?  This rule applies not only to evidence of adefendant’s liability insurance, but alsowhether the plaintiff has applicable healthinsurance coverage.  See, e.g., Myers v. Thomas, 186 S.W.2d 811, 813 (Tex. 1945)  This has been referred to as the “balance intrial evidence.”.

Policy for the Collateral Source Rule  “The theory behind the collateral source rule is thata wrongdoer should not have the benefit ofinsurance independently procured by the injuredparty, and to which the wrongdoer was not privy.”  Brown v. Am. Transfer & Storage Co., 601 S.W.2d 931, 934 (Tex. 1980)  “ A benefit that is directed to the injured party should not be shifted so as to become a windfall forthe tortfeasor.”  RESTATEMENT (SECOND) OF TORTS § 920A cmt. b.

Policy for the Collateral Source Rule  In other words, the windfall, if any, shouldnot go the tortfeasor.  If the injured party was prudent enough toobtain health insurance – the injured partyshould get that benefit, if any.  The injured party paid premiums to obtainthis benefit.  As a society, we want to encourage thecitizens to procure insurance to covermedical expenses..

The Result – Prior to §  Thus, prior to the paid or incurred statute, aplaintiff could:  Provide evidence of his or her total past medical expenses incurred; AND  Recover up to the full amount of those incurred expenses despite how much was actually paid byplaintiff or on plaintiff’s behalf by a third party.  Standard was “Reasonable and Necessary.”.

“Paid or Incurred” II.

Tort Reform  June 11, 2003 Governor Rick Perry signs HB 4.  HB 4 was an omnibus tort reform bill that wasoriginally aimed at capping non-economicdamages that could be recovered from doctorsand hospitals.  Included in HB 4 was the new “paid orincurred” statute.  CPRC §

CPRC § Evidence Relating to Amount of EconomicDamages: “ In addition to any other limitation under law, recovery of medical or health careexpenses incurred is limited to the amountactually paid or incurred by or on behalf ofthe claimant. ”.

Why Did it Matter ?  The new “paid or incurred” languagecreated much controversy as to its meaning.  It was no longer clear what damages aplaintiff could recover for past medicalexpenses based on the language of thestatute.  Statute did not mention anything related topresentation of evidence – just “recovery.”.

Consider an Example  Plaintiff John Doe had a total of $100,000.00in past medical expenses incurred;  John Doe’s insurance company paid$50, at a reduced rate to satisfy hischarges in full with no remaining balance..

Consider an Example  Under the old law, John Doe could:  Put on evidence of the full $100, in medical expenses that he was charged; AND  Recover up to the full $100,  Both of these were allowed, despite the thirdparty payment, pursuant to the long-standingCollateral Source Rule.  The tortfeasor did not get to reduce his or herliability due to John Doe’s payment ofinsurance premiums..

Interpretation Issue Under § , no one knew how to apply the “paid or incurred” language to either admissible evidence or recovery..

Defendant’s Interpretation  Aggressive defendants argued that this statuteonly allows John Doe the ability to presentevidence of past medical expenses of $50, – the amount that was actually paid,despite $100, being incurred.  Additionally, defendants argued that JohnDoe’s recovery as to his past medical expenses should, at most, be $50,

Defendant’s Other Arguments  John Doe should not be allowed to recover more forhis past medical expenses than was actually paid.  Defendant’s interpretation furthers the allegedpurpose of § – to limit recoverable damagesin a civil case (but ignores the word “OR” in thestatute).  Although not in the statute, aggressive defendantsalso maintained that this statute affected thepresentation of evidence and limited thatpresentation to the amount actually paid..

Plaintiff’s Interpretation - Recovery  The word “OR ” has a clear and plain meaning:  John Doe is entitled to recover any amounts thatwere actually paid (50K) OR incurred (100K) – John Doe just cannot recover more than 100K.  John Doe cannot recover more than what was actually paid OR incurred.  Therefore, John Doe is allowed the same benefitsunder the previous rule and this codifies existingand long-standing law. It also addresses thesituation with unpaid balances..

 Defendant’s interpretation would swallow thecollateral source rule completely.  Pursuant to the Plaintiff’s interpretation, thecollateral source rule is left intact and preventsthe interjection of insurance coverage into trial.  Defendant should not benefit from the fact that JohnDoe has his own insurance.  Defendant’s interpretation would not give anaccurate guidepost of medical expenses whendetermining how much to award John Doe on non- economic damages.. Plaintiff’s Interpretation - Evidence

Courts’ Initial Interpretation  § should be applied post-verdict andpre-judgment:  Evidence of John Doe’s providers’ adjustments and/or write-offs should beinadmissible before a jury;  Such evidence should be handled after theverdict has been rendered to reduce JohnDoe’s medical expenses recovery..

Courts’ Initial Interpretation  Evidence:  A jury would see John Doe’s total incurred medical expenses and enter a verdict.  Recovery:  Before judgment would be entered, the court would look to see what was actually paid by John Doe or on his behalf and reduce his past medical expenses award accordingly based on evidence of write-offs and adjustments presented by defendants..

The Effects  The courts’ initial interpretation settled inthe middle of the two competingarguments:  Defendants would not have to pay more for aplaintiff’s past medical expenses than wasactually paid to the health provider(s); and  Plaintiffs could still submit evidence of thefull amount of his or her medical charges –giving a jury an accurate guidepost forawarding non-economic damages andassessing the severity of the injury..

Argued: September 16, 2010 Opinion Delivered: July 1, 2011 Haygood v. De Escabedo III.

Facts  Involved an automobile collision in which Escabedopulled out of a grocery store parking lot and collidedwith Haygood’s vehicle;  Haygood’s injuries required surgical treatment;  Haygood sued Escabedo for injuries he sustained in thecollision, resulting in total incurred medical expenses of$110,069.12;  Haygood was a Medicare beneficiary, and his health careproviders adjusted his bills, leaving Haygood with anoutstanding balance of $27,739.43;  By the time of trial, Medicare had paid approximately$13K with the rest remaining outstanding..

Facts, cont’d…  Escabedo, relying on § , moved to exclude evidence of health care bills other than those paid or owed;  In response, relying on the long-standing Collateral Source Rule, Haygood moved to exclude evidence of health care bills other than those charged (incurred);  Trial Court granted Haygood’s motion and deniedEscabedo’s (allowed full incurred amount);  The jury found Escabedo’s negligence caused the accidentand awarded the full amount of past medical expensesincurred; and  Tyler Court of Appeals reversed, and Haygood petitionedto the Supreme Court of Texas..

Issues  Whether § precludes recovery of expenses that a health care provider billed to aplaintiff, rather than expenses actually paid orowed by or on behalf of a plaintiff; and  Whether § precludes admitting evidence of expenses that a health care provider billed to a plaintiff, rather thanexpenses actually paid or owed by or onbehalf of a plaintiff..

Respondent’s Arguments  Escabedo first argued that the court of appeals’decision should be affirmed because the plainlanguage of § indicates that a claimantcannot recover medical care expense damages which have been written off, discounted oradjusted.  Next, Escabedo maintained that § properly measures damages and limits the admissibility of medical care expenses to the amount a plaintiff owes or has paid, ratherthan the amount billed..

Petitioner’s Arguments  Haygood first argued that the plainmeaning of § clearly indicates thata plaintiff can recover the past medicalexpenses incurred:  In support of this contention, Petitionerpointed to the actual wording of the statuteand argued that “actually” only applies to“paid” and not to “incurred.”  Petitioner also argued that this wasconsistent with long-standing lawregarding the Collateral Source Rule and recovery of past medical expenses..

Holding  The Supreme Court of Texas affirmed the Court ofAppeals’ decision on both evidence and recovery;  § Texas Civil Practice and Remedies Codelimits recovery to expenses that a medicalprovider has a legal right to be paid;  Further, only evidence of recoverable medicalexpenses is admissible at trial – otherwise, notrelevant; and  Lastly, the collateral source rule continues toapply and juries may not be told whether theparties to the suit are covered in whole or in partby insurance..

John Doe Example Under the Current Law  Plaintiff John Doe has a total of $100,000 inpast medical expenses; and  John Doe’s insurance company paid only$50,000, at a reduced rate, to satisfy thecharges in full..

John Doe Example Under the Current Law  Under the current law, John Doe may onlysubmit evidence of and recover up to:  What was actually paid by him or on hisbehalf, AND  Any outstanding medical charges..

John Doe Example Under the Current Law  John Doe may only submit evidence of what was paid by his insurance company ($50K) and may not submit evidence of the actual total amount incurred ($100K);  Additionally, John Doe can only recover, if any, up to the reduced amount of $50,000 paid on hisbehalf – which must then be paid to his insurancecompany due to the contractual right ofsubrogation contained in his policy; and  John Doe does not get his premiums back or anyrecovery whatsoever for having insurance..

What are the Practical Consequences?.

Facilitating Tort Reform  Haygood v. De Escabedo facilitates the purpose of the 2003 tort reform:  In 2003, the Texas legislature enacted § asan attempt to cap plaintiffs’ non-economicdamages;  Haygood took a further step towards reaching this goal by precluding juries from using a plaintiff’stotal incurred medical charges as a guidepost onawarding non-economic damages..

Non-Economic Damages  The Rationale – What’s the Big Deal ?  The lower the amount of medical expenses that ajury sees, the lower the amount it will award fornon-economic damages.  There is an underlying presumption that aplaintiff with $50,000 in medical charges is not as severely injured as another plaintiff with $100,000 in medical charges.  It is presumed that the first plaintiff did notendure as much pain and suffering or physicalimpairment as the second plaintiff because hismedical expenses were not as substantial..

Correlation of Damages  To Dollars From Sense: Qualitative to Quantitative Translation in Jury Damage AwardsCornell Law School Legal Studies Research Paper Series, 2011 (Hans & Reyna).

Overall Damages  The Rationale  A jury instructed or inclined to use themultiplier method of calculating non-economic damages will automaticallycalculate a lower award for non-economicdamages if the “amount actually paid” is theonly admissible evidence.  If Medicare pays 15 cents on the dollar for theinjured party’s treatment – the actual severityof the injury is distorted..

Non-Economic Damages  Henderson v. Spann, Amarillo COA 2012  The trial court allowed the incurred past medicalexpenses to be submitted, then post-verdict,reduced the verdict dollar for dollar for the write-offs.  Defendant appealed and Plaintiff argued that anyerror was harmless due to the post-verdictreduction.  This was a brilliant argument. Indeed, if the goalof was simply to prevent plaintiffs fromrecovering for expenses that the provider had noright to be paid, this approach accomplishes that..

Non-Economic Damages  Henderson v. Spann, Amarillo COA 2012  However, the court held that “the post-verdictadjustment method is inadequate to accountfor or remedy any effect the inadmissibleevidence of unadjusted past medical expensesmay have had on the jury’s assessment ofnon-economic damages.”  Accordingly, it is clear that the appellatecourts ARE using this statute to limit non-economic damages..

Where Does the Collateral Source Rule Fit In?.

Using the Collateral Source Rule  The long-standing rule in Texas has been thatneither party is permitted to mention anythingregarding insurance coverage.  How do we follow this rule while also complyingwith the Haygood v. De Escabedo opinion, which is centered around the admissibility of a plaintiff’smedical expenses that may or may not have beenpaid by an insurance company ?  How do we enter evidence of past medicalexpenses ?.

Using the Collateral Source Rule  Before:  Prior to Haygood v. De Escabedo and under “paid or incurred,” a plaintiff would have a stronginterest in applying the collateral source rule.  Since a plaintiff was allowed to submit evidenceof the total amount a plaintiff was actuallycharged (incurred), a plaintiff wanted to precludea jury from seeing what was actually paid by aninsurance company or Medicare (most likely at areduced rate)..

Using the Collateral Source Rule  Now:  A plaintiff may seek to have the collateral sourcerule waived in trial and a defendant has a compelling interest to apply it.  Since a plaintiff, who had his or her healthcaretreatment covered by his or her insurance orMedicare, is only permitted to submit evidence ofwhat the insurer paid for those expenses, aplaintiff may find it to his or her benefit to waivethe collateral source rule..

Are We Rewarding the Uninsured?.

Rewarding the Uninsured  A possible unintended consequence ofHaygood v. De Escabedo is that an uninsured plaintiff, or one that has not had anythingpaid by a third party, may obtain a higherverdict than if he or she were insured..

Rewarding the Uninsured  The John Doe Example:  John Doe’s twin sister, Jane Doe, was also in thecar with him when they were negligently struckby the Defendant;  John Doe incurred $100,000 in medical expensesand his insurance satisfied these charges in fullwith a payment of $50,000;  Jane Doe incurred the exact same injuries,received the exact same treatment, and incurredthe exact amount of medical expenses ($100,000) -Jane Doe, however, has no insurance..

Rewarding the Uninsured  At trial, John Doe, is awarded $50,000 to cover theamount actually paid towards his medicalexpenses;  The jury, not seeing John’s total incurred amountof $100,000, awards John $100,000 in non-economic damages, including pain and sufferingand physical impairment at a 2X multiplier;  John Doe’s Judgment = $150,000.

Rewarding the Uninsured  Jane Doe goes to trial in front of the exact samejury, however, she is not precluded fromsubmitting her total amount of medical expensesincurred because no third party paid them on her behalf ;  Therefore, the jury awards her $100,000 to coverher past medical charges;  The jury then awards her $200,000 in non-economic damages based on the amount ofexpenses they saw for her using the samemultiplier;  Jane Doe’s Judgment = $300,000.

Rewarding the Uninsured  Result:  The courts may be setting precedent that it isbetter to be uninsured for the purposes of being awarded more in non-economic damages.  From the example, it is easy to see how a jurymay be influenced by the amount of expenses aplaintiff incurred.  Jane Doe could have easily been awarded twice asmuch in non-economic damages as her twin JohnDoe, who sustained the exact same injuries andreceived the exact same treatment at the exactsame hospital..

Big Bird Tree Services v. Gallegos  Plaintiff (Gallegos) is working for Defendant (Big Bird) on a ladder that breaks, injuring his foot and requiring multiple surgeries.  Plaintiff is indigent, without health insurance, and receives $86, in medical care from a charitable program administered by Parkland Memorial Hospital. Plaintiff did not have to pay for the medical care, and there was no balance.  Plaintiff brings a nonsubscriber case against his employer for negligence.

Big Bird Tree Services v. Gallegos  At trial, Plaintiff sought damages for the past medical expenses incurred – including the charity care.  To provide his R&N past medical expenses, Plaintiff submitted billing records affidavits and the billing records into evidence – including the expenses from Parkland Memorial Hospital.  Plaintiff was awarded $86, in past medical expenses by jury (total verdict award of $171,762.11).

Issue on Appeal by Defendant  In light of Haygood, does § preclude the recovery of medical expenses for “free” medical care so as to prevent a Plaintiff from recovering the value of the medical services received?  In this specific case, it was medical expenses paid for or born by a charitable program administered through the treating hospital..

Holding  No. Unlike in Haygood v. De Escabedo, there was no evidence of any contract or statute that would have prohibited Plaintiff’s medical providers from charging Plaintiff the full cost of his medical care.  Furthermore, the custodian of records for one of Plaintiff’s providers testified that the providers could attempt to recover their full costs from Plaintiff’s eventual recovery.  Finally, allowing tortfeasors to avoid liability for medical expenses born by a charity would result in a windfall to the tortfeasor. (public policy).

Questions from Big Bird  The holding seemed to turn on the fact that the hospital could reverse its decision and decide to collect the past medical expenses from Plaintiff.  Indeed, the hospital also testified through its records custodian that it expected to be paid if Plaintiff did recover.  However, if there were a contract or statute that prohibited the hospital from charging for the full value of services rendered, the holding would likely have been different..

Huston v. United Parcel Service, Inc.  Plaintiff (Huston) was rear-ended by a UPS delivery driver and sustained personal injuries.  Plaintiff had outstanding balances with several medical providers.  Plaintiff entered into an agreement with A/R Net, who purchased the accounts receivable for some of Plaintiff’s medical providers at a discounted rate..

Huston v. United Parcel Service, Inc.  Pursuant to the agreement, Plaintiff remained liable to A/R Net for the full amount of the medical services billed by her medical providers, not the discounted rate at which A/R Net purchased the accounts.  Receivables Purchased by A/R Net: $240,  Amount Paid by A/R Net: $81,

Huston v. United Parcel Service, Inc.  Prior to trial, Plaintiff and Defendant could not agree on the amount of past medical expenses to be submitted to the jury.  Plaintiff wanted to submit the gross total amount of her bills, since was liable to A/R Net for the total amount.  Defendant argued that Plaintiff could only submit the amount that A/R Net paid those providers for their receivables..

Huston v. United Parcel Service, Inc.  The court agreed with the Defendant, and the parties stipulated on the amount that Plaintiffs medical providers had been paid or were entitled to be paid.  The jury returned a verdict on past medical expenses that was significantly lower than the stipulated amount.  On appeal, the 1 st COA held that Plaintiff’s complaint on this issue, even if valid, amounted to harmless error. The court punted..

The Great Unknown.

Complying With Both § and §  In Texas, a victim may recover reasonable and necessary accident-related medical expenses.  § now provides that admission of medical expenses is limited to paid and unpaid amounts, but allows admission through affidavits – even from a custodian of records.  Follows Haygood v. De Escabedo  § provides that “recovery of medical or heath care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the claimant.”.

The § Affidavit a. $________Total Amount charged by (Medical Provider) b. $________Total amount written off from the total charges, which (Medical Provider) agrees that it will never seek to collect from any source. c. $________ Total amount paid to date on the referenced account by or on behalf of John Doe. d. $________________ Total amount presently outstanding on the referenced account or which (Medical Provider) is legally entitled to collect. e. $________________ Total amount paid plus total amount presently outstanding on the referenced account that (Medical Provider) has the legal right to collect (item c plus item d).

Changes to 2014 Rules a. $________Total Amount charged by (Medical Provider) b. $________Total amount written off from the total charges, which (Medical Provider) agrees that it will never seek to collect from any source. c. $________ Total amount paid to date on the referenced account by or on behalf of John Doe. d. $________________ Total amount presently outstanding on the referenced account or which (Medical Provider) is legally entitled to collect. e. $________________ Total amount paid plus total amount presently outstanding on the referenced account that (Medical Provider) has the legal right to collect (item c plus item d).

Changes to 2014 Rules.  § (b-1) now provides a sample affidavit specifically for proof of medical expenses;  What about § (c)?;  “The form of an affidavit provided by this section is not exclusive and an affidavit that substantially complies with Section is sufficient.”  Pre-trial Stipulations

What do we do now?  Defendants:  File controverting affidavits;  Reach stipulations with opposing counsel on the amounts of past medical expenses that can be presented and ultimately recovered; and  Send depositions on written questions to the plaintiff’s healthcare providers – confirm the adjustments/write-offs, amounts paid, owing, etc. (timing is important!).

What do we do now?  Defendants:  See the Adley v. Privett case. In that case, the Plaintiff submitted “flawed bills” from 3 providers.  One bill was unadjusted (whose burden?)  One bill showed write-offs  Object to any past billing records that show or contain charges that are unrecoverable. This is reversible error..

What do we do now?  Plaintiffs:  See the Metropolitan Transit Authority v. McChristian. In that case, the Defendant objected to Plaintiff’s past medical bills entered into evidence.  Defendant claimed that there was no evidence that the bills were “actually paid or incurred.”.

What do we do now?  The Plaintiff offered 15 medical bills into evidence. Some of the bills showed “billed amounts and affirmatively indicate on their face that no adjustments or write-offs have been made to the billed amounts; others show only billed amounts with no indication that ‘list prices’ have been reduced or written off pursuant to insurance reimbursement discounts or other reasons.”.

What do we do now?  The 14 th COA held that the admission of the medical bills did not violate because there was no evidence that these medical expenses included “list price charges for which the service providers billed but had ‘no right to be paid.’”  There was no evidence of any contract or statute that would have prevented these medical providers from charging Plaintiff the full value of the services rendered..

Issues Coming…  Write-offs (real or illusory ? );  Premium recovery; and  Refusing to plead or ask for recovery ofmedical expenses?  Future medical expenses – does the statuteapply to this too ?.

Future Medical Expenses?  On 1/1/2014, the Individual Mandate of theAffordable Care Act became effective  By law, virtually everyone required to havehealth insurance, so everyone’s futuremedical care could have some adjustmentsor write-offs.

Discovery  Different insurance carriers have differentdiscounts with different providers.  In re Jarvis (14 th COA) – Defendant was entitled to discover the insurance contractsbetween the plaintiff’s insurer and healthcareproviders “to aid in determining whether theproviders are required to accept payments ofless than the amounts billed.” (Past MedicalExpenses).

Issues Coming…  Other considerations…  Settlement negotiations;  Client screening;  Trial strategy;  What will be allowed by the courts; and  Plaintiff’s billing record affidavits..

Brant J. Stogner Abraham, Watkins, Nichols, Sorrels, Agosto & Friend 800 Commerce St. Houston, TX Tel: Tel: Fax :

References  Haygood v. de Escabedo…  Henderson v. Spann,  Trial strategy;  What will be allowed by the courts; and.