DTCI: Stanley v. Walker revisited: Admissibility of discounted Medicare/Medicaid payments as evidence of reasonable value

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By Thomas R. Schultz and Angela Della Rocco

Rocco Della Rocco
Schultz Schultz

The monumental 2009 Indiana Supreme Court decision in Stanley v. Walker fundamentally changed the way medical expenses are addressed in personal injury litigation. In the years since Stanley, confusion and disagreement have emerged at the intersection of discounted payments and government-paid health benefits. In light of conflicting results in a handful of courts across the state, let us revisit Stanley in an effort to shed light on this confusion.

I. Stanley v. Walker

In a personal injury action, a plaintiff may recover the reasonable value of his necessary medical expenses. Cook v. Whitsell-Sherman, 796 N.E.2d 271, 277 (Ind. 2003). Thus, litigants must address what constitutes the reasonable value of medical expenses.

Indiana Evidence Rule 413 provides a starting point for assessing the reasonable value of medical expenses. Rule 413 reads: “Statements of charges for medical, hospital or other health care expenses for diagnosis or treatment occasioned by an injury are admissible into evidence. Such statements are prima facie evidence that the charges are reasonable.” The purpose of Rule 413 is to provide a simple method of establishing the reasonable value of medical expenses and to sidestep the need for expert testimony when there is no dispute. Cook, 796 N.E.2d at 277. “If there is a dispute, of course the party opposing them may offer evidence to the contrary, including expert opinion … .” Id.

In Stanley v. Walker, there was a dispute over the reasonable value of plaintiff’s medical expenses. To rebut the presumption created by Rule 413, the defendant sought to offer evidence of the discounted amounts accepted by plaintiff’s medical providers in full satisfaction of plaintiff’s medical expenses, thanks to discounts negotiated by his health insurer. The plaintiff objected to admission of the discounted amounts on the grounds that such evidence violated Indiana’s collateral source statute. Thus, the question addressed in Stanley was how to determine the reasonable value of medical services when an injured plaintiff’s medical treatment is paid by a collateral source at a discounted rate.

Indiana Code § 34-44-1-2 disallows evidence of compensation received by a plaintiff as a result of payments by life insurance or other death benefits, insurance benefits for which the plaintiff or a family member has paid for directly, or payments by the United States or any agency, instrumentality or subdivision of the state or the United States. “The purpose of the collateral source statute is to determine the actual amount of the prevailing party’s pecuniary loss and to preclude that party from recovering more than once from all applicable sources for each item of loss sustained in a personal injury or wrongful death action. At the same time, it retains the common law principle that collateral source payments should not reduce a damage award if they result from the victim’s own foresight – both insurance purchased by the victim and also government benefits – presumably because the victim has paid for those benefits through taxes.” Stanley v. Walker, 906 N.E.2d 852, 855 (Ind. 2009).

The Stanley court held that the collateral source statute did not bar evidence of discounted amounts paid for medical services, so long as such evidence was introduced without referencing insurance. Stanley, 906 N.E.2d at 858. In coming to this conclusion, the Stanley court adopted the reasoning of the Ohio Supreme Court in Robinson v. Bates, which found the collateral source rule was not applicable to the medical bill discounts because the discounts were not payments made by a third party to the plaintiff. Stanley, 906 N.E.2d at 857 (citing Robinson v. Bates, 857 N.E.2d 1195, 1200-1201 (Ohio 2006)). The Robinson court reasoned that “[b]ecause no one pays the write-off, it cannot possibly constitute a payment of any benefit from a collateral source …” and “[b]ecause no one pays the negotiated reduction, admitting evidence of write-offs does not violate the purpose behind the collateral source rule.” 857 N.E.2d 1195, 1201.

In coming to this conclusion, the Stanley court also reasoned that evidence of discounted payments accepted in full for medical services was relevant to determining the reasonable value of medical expenses and therefore admissible. Stanley, 906 N.E.2d at 858.

Going back to the dispute over establishing the reasonable value of medical expenses, the court noted the “reasonableness of medical expenses can be proven, in part, by demonstrating that the plaintiff paid the actual amounts incurred” since presumably, one would not pay an unreasonable bill. Id. at 856 (citing Smith v. Syd’s, Inc., 598 N.E.2d. 1065, 1066 (Ind. 1992)). Nonetheless, neither the billed amount nor the paid amount is conclusive of the reasonable value of the medical expenses. Id. at 856-57. Rather, the complexities of the health care pricing structure left the Stanley court “unconvinced that the reasonable value of medical services is necessarily represented by either the amount actually paid or the amount stated in the original medical bill.” Id. at 857. While discounts arise from contractual relationships between medical providers and “health insurers or government agencies” and reflect factors beyond the reasonable value of medical services, such evidence is still useful to the fact-finding process of determining the reasonable value of services. Id. at 858. Accordingly, both the billed and the discounted amount (among other evidence such as expert testimony) constitute relevant evidence that may be submitted to a jury to assist them in determining the reasonable value of medical expenses. Id. (citing Robinson v. Bates, 857 N.E.2d at 1200.)

Thus, following Stanley, it has been the practice in personal injury cases for plaintiffs’ counsel to proffer evidence of the billed amount, defense counsel to proffer evidence of the discounted amount, and for it to be left to the jury to decide the reasonable value of the medical expenses.

II. Medicare/Medicaid discounts

A recent development in Stanley is the argument that evidence of discounted payments resulting from Medicare or Medicaid (hereinafter collectively referred to as “Medicare”) is inadmissible to establish the reasonable value of medical expenses. Several arguments have emerged in support of this conclusion; however, none of the arguments are terribly persuasive.

A. Negotiated payments

One argument that Medicare discounts are inadmissible is premised on the notion that under Stanley only the discount two parties have negotiated and agreed to as “reasonable” may be used as evidence of the reasonable value of the medical treatment. Because there are no negotiations between Medicare and medical providers, the discounted payments allowed by Medicare are not reflective of the reasonable value of the medical services. Rather, it is argued the Medicare discount accepted by medical providers reflects the moral duty those providers feel toward treating the elderly and impoverished and, because Medicare pays so little, providers ultimately up-charge other patients to offset the losses incurred when treating Medicare patients.

This argument fails for a couple of independent reasons. First, there is no support for the proposition that Stanley requires discounts to be directly negotiated in order to be admissible evidence of the reasonable value of medical expenses. While Stanley does “recognize that the discount of a particular provider generally arises out of a contractual relationship,” the court did not couch this as any kind of requirement to admissibility. See 906 N.E.2d at 858. Rather, the court was commenting generally on the nature of these relationships that reflect the parties having contemplated factors beyond the reasonable value of medical services. Id.

Even if Stanley did require discounts to be negotiated as a threshold to admissibility, implicit in medical providers accepting Medicare patients is that they agree to the terms of the Medicare payment schedules. While the providers are unable to negotiate the rates Medicare pays, they can choose whether to accept Medicare patients and the reimbursement rates that go along with those patients. This constitutes a form of negotiation.

Furthermore and significantly, Medicare has been around since 1965, yet Stanley carved out no exceptions for Medicare discounts. Instead, Stanley specifically noted that discounts arise out of medical providers’ contractual relationships with private insurers and government agencies. Stanley, 906 N.E.2d at 858. Implicitly, the Stanley court contemplated Medicare discounts in its holding.

B. Collateral source rule

A second common argument against admissibility of Medicare discounts is that admission would violate the collateral source rule. This argument fails for the same reasons cited in Stanley. The discounts are not payments by a collateral source and, therefore, are not excluded by the collateral source statute. That the discounts are the result of Medicare as opposed to a private insurer does not change the nature of what is at issue: discounts.

An ancillary concern expressed is that there is no way to explain the reduction without referring to Medicare and thereby violating the collateral source rule. While it is correct that a defendant may not reveal that a discounted payment was issued by Medicare or even that a plaintiff is a Medicare beneficiary, a party may introduce evidence showing a plaintiff’s medical providers accepted a partial payment in full satisfaction of medical bills. This is easily accomplished in the same manner other discounts are handled. This concern seems to draw a distinction without a difference.

III. Conclusion

No Indiana state court opinions have explicitly addressed the admissibility of discounted amounts accepted from Medicare as evidence of the reasonable value of a plaintiff’s medical expenses. However, at least a handful of courts have issued orders on motions in limine regarding this issue. One order denying a plaintiff’s motion in limine regarding Medicare payments explicitly rejected the argument that Stanley requires negotiations. Unfortunately, orders granting motions in limine have not provided a rationale for the ruling, so we cannot speculate as to the arguments those courts found persuasive.

However, an opinion of the Southern District of Indiana does provide support for the conclusion that Medicare discounts are allowed. In Burton v. Riverboat Inn Corp., the defendant sought to exclude evidence of the amount the plaintiff was billed for her medical expenses. 2013 WL 6150309, *6. The court applied Indiana law and found that Evid. R. 413 and Stanley allow parties to show jurors both the billed amount and the discounted amount, irrespective of the entity that ultimately paid the bills. Id. at *5. The court rejected defendant’s argument that Stanley does not apply to cases involving Medicare. Id. at *6. The court found “no such line drawn in the text of Stanley. In fact, the Stanley court took care to mention both private and government insurers in its opinion.” Id. The court pointed to the underlying rationale of Stanley, “that the prevalence of insurance and negotiated payments has bred an inability to determine precisely the reasonable cost of medical services based on either bills or accepted payments – applies with equal force to both private insurance and Medicare beneficiaries.” Id.

While the outcome that discounted Medicare payments are admissible evidence of the reasonable value of medical expenses may seem obvious to defense counsel, this issue is far from settled. With conflicting trial court orders on motions in limine, we can expect to see this issue presented to the Court of Appeals in the future.•

Mr. Schultz is a partner and Ms. Della Rocco is an associate in the Indianapolis firm of Schutz & Pogue. Mr. Schultz is a former president of the Defense Trial Counsel of Indiana. The opinions expressed in this article are those of the authors.

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