Column: Does Patchett v. Lee make patchwork of medical specials?

December 30, 2015

By Ed Holloran and Grant Krevda

Krevda Krevda
holloran-ed-mug Holloran

The Indiana Court of Appeals recently affirmed a ruling in Patchett v. Lee, 29A04-1501-CT-1 (Ind. Ct. App. Nov. 19, 2015), which held that government reimbursement rates are not an accurate reflection of the value of health care services, and thus are inadmissible as evidence of the reasonable value of medical services in personal-injury cases. The Patchett ruling signified a major shift in Indiana law on the determination of medical specials damages.

Ms. Lee was injured in an admitted-fault accident in 2012. Her medical specials were billed at $87,706.36. She was insured under Healthy Indiana Plan, a state-funded insurance program. HIP paid $12,051.48 as full satisfaction of Ms. Lee’s medical bills to her providers. Patchett sought to introduce the paid amount as evidence of the reasonable value of her medical specials. The trial court declined Patchett’s request to introduce this evidence, holding that the paid amount did not reflect the reasonable value of her medical services.

Determining reasonable value of medical specials in Indiana

It is well-established that in personal-injury lawsuits the plaintiff is entitled to the reasonable value of their medical services. The question, then, is how should reasonable value be determined?

Arriving at a reasonable value for medical services is often debated. Typically, there is the value charged by the provider which is quite high, and that is juxtaposed with the value actually paid in full satisfaction of the claim that is negotiated by an insurer. However, with nearly 1.4 million Hoosiers receiving some form of publicly funded health benefits, personal-injury cases often involve government-set rates rather than private-market negotiated payments. The difference between the provider-billed and government-paid number is often large (about 86 percent in Patchett).

The great disparity between amounts charged by providers, accepted private payments, and accepted government reimbursement leaves the fact-finder with quite a bit of work to do to find the reasonable value of the medical services, and it is not any easier determining what evidence may be admitted to find the reasonable value.

Indiana’s collateral source statute, Ind. Code 34-44-1-2, precludes evidence of payments made by any government agency before trial to a plaintiff as compensation for the injury for which the action is brought. Presumably, the collateral source statute bars evidence of the amount paid for services, whether through private insurance or public benefits. However, an exception was created in Stanley v. Walker, 906 N.E.2d 852 (Ind. 2009), which allows evidence that a health care provider agreed to accept less than the amount charged in full satisfaction of the claim. Stanley aided in resolving the confusion because a provider’s billed charges do not equate to cost. It created a tool to help determine the reasonable value of medical expenses by allowing evidence of the amount accepted by the provider, thus establishing reasonableness somewhere between the paid and billed amount. Under Stanley, the plaintiff typically introduced the total amount billed by his/her providers and the defendant introduced the paid amount by the plaintiff’s insurer (without mentioning insurance).

Are government rates truly of no value?

The Patchett court noted the jury is to determine the reasonable value of medical services. Is it appropriate then to conclude that all government reimbursements are of no help in determining reasonable value solely because the rates were not established by negotiations?

It could be argued that certain government rates provide appropriate guidance in determining reasonable value, despite the lack of negotiation. In Patchett, the court cites an article (George A. Nation, III, “Determining the Fair and Reasonable Value of Medical Services: The Affordable Care Act, Government Insurers, Private Insurers and Uninsured Patients,” Baylor L. Rev. 425 (2013)) which states:

“There is a significant body of research suggesting that the reimbursement rates paid by government insurers such as Medicare and Medicaid are actually below fully allocated costs for most hospitals. Id. at 459.”

However, and not mentioned in Patchett, that same article states:

“Also, especially in the case of Medicare, not all reimbursement rates are unprofitable for hospitals. That is, for certain procedures or facilities the reimbursement rates may be reasonable. Id. at 460.”

Interestingly, Patchett is based on HIP rates which, admittedly, were lower than Medicare rates when that case was tried. However, in 2015, Indiana rolled out HIP 2.0. Government rates were drastically increased for providers serving the HIP 2.0 population, and now align with Medicare rates. Therefore, it is likely that government rates in Indiana are reasonable for certain procedures and facilities, and thus would be helpful in determining the reasonable value of medical services.

Patchett’s applicability: common law negligence versus statutory tort claim

The Patchett court made an important distinction between common law claims and statutory claims. Following Butler v. Ind. Dep’t of Ins., 904 N.E.2d 198 (Ind. 2009), the court noted that damages awardable under statutory claims must be narrowly construed in accordance with the statutes. For example, under Indiana’s Wrongful Death Act (Ind. Code 34-23-1, et seq.), the medical specials recoverable are “[r]easonable medical … expenses necessitated by the wrongful act.” Id. at 202-203. Expenses, the Patchett court noted, would be the paid amount, as opposed to the provider’s total billed charges.

Does a legislative solution work?

With Patchett, Indiana now has multiple classes of personal-injury plaintiffs being treated differently based upon how they are insured or what type of claim they file. Plaintiffs with private insurance are subject to Stanley, which permits evidence of the lower paid amount of their medical bills. As such, the Stanley case plaintiffs may see their medical specials awarded anywhere along the billed, something in between, or paid spectrum. Next, the government-insured Patchett plaintiffs are able to recover the much higher billed total of their medical specials with little or no room for anything less. Not to be left out, the Butler plaintiffs in statutory claims may only recover the lower paid amount of their medical specials.

Is it time for the Indiana Legislature to clear this up?•

Ed Holloran is a partner at Quarles & Brady LLP and focuses his practice in long-term care, pharmacy law, professional licensing and commercial litigation. Grant Krevda is an attorney in the firm’s health law practice group and the former legislative and policy director for the Family and Social Services Agency. The full text of the article can be found at Quarles.com. The opinions expressed are those of the author.