The “Collateral Source Rule” & How it Can Cost (or Make) You Thousands – Part II

The Real-World Impact of the Collateral Source Rule

Last week, we asked what a defendant owed a plaintiff for medical treatment received as a result of an accident for which the plaintiff’s health insurer paid $50,000, even though the medical providers billed $150,000 and the plaintiff only paid a $500 deductible. This week, we narrow in on an answer.

Generally, the collateral source rule provides that a defendant may not reduce their exposure as a result of “collateral sources” available to the plaintiff, such as health insurance. So, the defendant typically owes the full $150,000; but whether a “source” is a “collateral” source can change the result dramatically. Below, we discuss circumstances where this issue can radically alter the amount owed.

Medicaid. Medicaid is a government-run, social health care program for families and individuals with limited resources. Medicaid, through its size and leverage, negotiates rates far below those charged by doctors and hospitals. So, does a defendant whose conduct caused $150,000 in medical expenses to a Medicaid beneficiary owe the whole $150,000? No, according to the Louisiana Supreme Court decision in Bozeman v. State, 879 So. 2d 692, 701 (La. 7/2/04).

The Bozeman Court found that the reduction in medical charges obtained by Medicaid was not a collateral source. The Court utilized a “benefit of the bargain” approach. Under this approach, a plaintiff is awarded the full value of their medical expenses, including the “write-off” amounts, when the plaintiff has paid some amount towards their care. Because Medicaid recipients pay no enrollment fee and provide no consideration for the benefits received under Medicaid, they may claim no more than the amounts paid by Medicaid for their care.

Medicare. Medicare is a government program of hospitalization insurance and voluntary medical insurance for persons aged 65 and over and for certain disabled persons under 65. The Bozeman Court indicated that write-offs resulting from Medicare should be subject to the collateral source rule because plaintiff has paid some consideration for the benefits. Unlike Medicaid, Medicare recipients have paid into the system and therefore are entitled to the “benefit of the bargain.” So, the defendant in our scenario likely owes the whole $150,000 in medical expenses to the Medicare plaintiff.

Attorney-Negotiated Discounts. The Louisiana Supreme Court decision in Hoffman v. 21st Century N. Am. Ins. Co., 209 So. 3d 702 (La. 10/2/15), involved whether a write-off obtained through the plaintiff attorney’s negotiations with the healthcare provider was subject to the collateral source rule. In finding that it was not, the Court emphasized that the plaintiff did not incur any additional expense in order to receive this write-off and had not suffered a diminution in his “patrimony”, i.e., the plaintiff paid no amounts to help facilitate this reduction.

Plaintiff-Negotiated Discounts. However, if a plaintiff personally negotiates a write-off with the medical provider, the write-off amount may be subject to the collateral source rule according to the decision in Lockett v. UV Ins. Risk Retention Grp., Inc., 180 So. 3d 557 (La. App. 5 Cir. 11/19/15). In that case, the Louisiana Fifth Circuit found that the payment made by the plaintiff on the portion not written-off was considered a diminution of her patrimony and “consideration” for the write-off.

Gratuitous Medical Services.  In Johnson v. Neill Corp., 2015 WL 9464625 (La. App. 1 Cir. 12/23/15), writ denied, 189 So. 3d 1068 (La. 3/14/16), and writ denied, 189 So. 3d 1070 (La. 3/14/16), the Court found that gratuitous medical services negotiated by the plaintiff were similarly subject to the collateral source rule. In Johnson, the plaintiff was a doctor at clinic whose members provided each other with medical services at no charge. The court found that allowing recovery of the costs of these medical expenses served to deter tort activity, and the plaintiff’s requirement to provide medical services to other doctors showed a diminution in her patrimony.

So, how much does our defendant owe: $150,000, $50,000, or some other amount? As with many things in law, it all depends.