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Admissibility at Trial of Evidence of Medical Billings --
Amounts Billed Versus Amounts Paid
By Tricia Kirkby Hofmann
Indiana law provides that a prevailing plaintiff is entitled to recover the “reasonable value” of the treatment he or she receives as a proximate cause of a defendant’s negligence. Sikora v. Fromm, 782 N.E.2d 355, 359 (Ind. Ct. App. 2002)(abrogated on other grounds, Willis v. Westerfield, 839 N.E.2d 1179 (Ind. 2006)). The question then is what is the “reasonable value” – the amount billed for the services, or the amount the provider accepts in full satisfaction of those bills? There have been four relevant Indiana cases which touch on this issue.
The first case, Chemco Transport, Inc. v. Conn, 506 N.E.2d 1111, 1115 (Ind. Ct. App. 1987), affirmed in relevant part and reversed on unrelated grounds, 527 N.E.2d 179 (Ind. 1988), said that the reasonable value of medical services could be determined either by looking at the amount billed or the amount paid. However, this case did not expressly address insurance write-offs. Nonetheless, in several cases we have tried, our firm has been able to persuade the judge to allow both figures to be introduced.
Next came Brumfiel v. U.S., 2005 WL 4889255 (S.D. Ind. 2005). Brumfiel is a federal case, and is not binding authority on an Indiana state court. In this case, Defendant sought to introduce evidence of insurance write-offs, reducing the amount of medical damages claimed by Plaintiff. Plaintiff objected, arguing that the introduction of such write-offs would violate Indiana’s collateral source rule, codified at I.C. 34-44-1-2. The collateral source rule, which abrogated the common law rule, allows collateral source evidence to be admitted, unless it is evidence of a collateral source payments from sources for which the plaintiff or his/her family pays directly or benefits received from the government. The judge in Brumfiel concluded that the reason Indiana abrogated the common law rule was to reflect a change in public policy. Instead of focusing on holding a defendant fully accountable (the policy behind the common law rule), the Indiana legislature sought to prevent plaintiffs from receiving a double recovery. He therefore rejected Plaintiff’s citation to cases from states which retained the common law rule, noting they were not relevant to addressing the Indiana statute. The Brumfiel court ultimately concluded that the collateral source rule did not even apply, as it applies to “payments,” and a write-off is not a “payment.” Accordingly, Plaintiff was prohibited from seeking to recover the substantial insurance write-offs in that case.
Although the Brumfiel opinion was not binding on it, the Indiana Court of Appeals relied on it in Butler v. Ind. Dep’t of Ins., 875 N.E.2d 235 (Ind. Ct. App. 2007), the third relevant pre-Stanley case. Butler involved substantial Medicare write-offs. Like the judge in Brumfiel, the Butler court limited Plaintiff to only seek the actual payments. The court emphasized that no one will ever be paying for the write-offs, and if Plaintiff were allowed to recover them, it would result in a windfall to him. This is contrary to the public policy behind the collateral source statute. Unfortunately, the Indiana Supreme Court recently granted transfer in this case, and it may not be cited as binding authority.
Since transfer was granted in Butler, the Court of Appeals issued anopinion in Stanley v. Walker, 2008 WL 2246994 (Ind. Ct. App. 2008). The Stanley court reached a conclusion wholly opposite to Butler and Brumfiel. While it referenced Butler in a footnote as a case yielding a different result, it did not mention Brumfiel at all. Stanley is slightly different from Butler, in that it featured write-offs made by a private insurance payor. We believe the Stanley court is problematic largely because it reached its conclusions solely by applying case law from states which retained the common law rule. As stated earlier, the policy objectives of the common law rule are different than the objectives behind the Indiana statute. The Stanley court noted that the statute abrogated the common law rule, and noted specifically that to abrogate means “to do away with” and “to destroy.” It also noted the different public policy goals involved. Then, with no authority, the Court stated that it allowed to follow the policy objectives of the common law rule. It ignored case law from jurisdictions which have statutorily abrogated the common law rule, even though all of them that have addressed the issue have prevented plaintiffs from recovering the written-off amounts. While we disagree with the conclusion of a number of cases, it is unusual to find one with such a profoundly troubling and unreasonable analysis.
We anticipate transfer will likely be granted in Stanley, and that the Supreme Court will rule in both cases together. Until transfer is granted, however, Stanley is the law and is binding precedent. Due to briefing schedules, it will be some months before this issue has been resolved.
In the interim, a footnote located at the end of Stanley offers some direction. The court noted that nothing in its ruling should be construed as preventing defendants from challenging the reasonableness of medical billings. Such evidence could be introduced via a defense expert or other evidence. In appropriate cases, with sizeable differences between the amount billed and the amount paid, it may be worth considering hiring an expert in medical billings. This individual would be qualified to testify about how billing works: how providers set their rates; how contracts between providers and insurance companies or Medicare work; how adjustments and write-offs are handled; and the fact that, as part of those contracts, providers are not allowed to pursue written-off amounts from the patients. This could then be introduced at trial as evidence of what constitutes the “reasonable value” of the services.
In some cases, a treating provider may be willing to candidly testify about these issues and how he/she/it handles write-offs in practice. In those cases, a defense expert would likely be unnecessary. However, many providers, as you well know, are such advocates for their patients that they would not admit anything harmful to the patient’s case. It is in those cases where a defense medical billing expert may be appropriate.
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