On October 21, 2016, the Indiana Supreme Court issued a decision in Patchett v. Lee that reaffirmed and somewhat extended the decision it made in Stanley v. Walker. The general rule in civil litigation is that, when a person has been injured through the negligence of another person, the injured party should receive an amount of money that “makes them whole.” It’s not precise, and often it’s something of a fiction, but the idea is that you ask how many dollars it would be worth for a person to never have been injured in the first place and then require the defendant to pay that much money. When the injury required medical treatment, the defendant is obligated to pay the “reasonable value” of the medical treatment. If you’ve ever wrestled with medical providers or insurance companies, you know that determining the actual value of a medical procedure can be a wildly speculative undertaking.
Back in 2009, defendants were at a disadvantage trying to prove “reasonable value.” One rule of evidence said that medical bills were prima facie evidence of the reasonable value. On the one hand, requiring plaintiffs to do anything else would be probably unfairly burdensome. On the other hand, there’s rarely anything reasonable about the sticker price for medical services. Hospitals have a charge master that forms the starting point for negotiations with insurance companies and government programs. That’s the number that gets spit out by the medical provider’s computers in the initial billing. It often has only a nodding acquaintance with the amount the provider actually expects to get paid for the service. Before Stanley, defendants were often hamstrung in their ability to present evidence of the actual value of the service by courts’ interpretation of the collateral-source doctrine. This was beneficial to Plaintiffs inasmuch as they could get the jury to award the full sticker price, repay the plaintiff’s medical insurer only the amount actually paid, and pocket the difference. The Plaintiff received a windfall depending on how inflated the medical bill was.
As I said back at the time Stanley v. Walker was decided:
There is another statutory rule of evidence known as the collateral source statute that says defendants can’t introduce evidence of, among other things, benefits from insurance paid for by the plaintiff. This makes some sense: why should the guy who hit me get a benefit from the fact that I planned ahead and paid my insurance premiums? But, this collateral source doctrine was used to prohibit introduction of evidence that a medical provider accepted not only payment from an insurance company, but also “wrote off” a chunk of the bill based on its agreement with the insurer. (For it to be a “write off,” one has to start from the premise that the starting price was something other than a fiction in the first place. A dubious proposition.)
So, what the case boils down to, as I read it, is whether the “write off” is properly characterized as a benefit purchased by the plaintiff/insured or as simply a more accurate reflection of what the “reasonable cost” of the service was in the first place. The Supreme Court, in a 3-2 decision, decided that the write-offs could be introduced as evidence of the reasonable value of the medical services — if the hospital agreed to accept the reduced amount as payment in full (regardless of whether the paid portion originated as insurance money or elsewhere), then that is evidence a jury should be able to consider along side the sticker price. The jury can then make its own decision about what the reasonable value is.
In the present case of Patchett v. Lee, the Indiana Supreme Court reaffirmed this approach: Plaintiffs can introduce evidence of the sticker price, Defendants can respond by providing evidence of what providers actually accepted for payment, and the jury can sort it out. The court described this as a middle approach when compared to other states. Some states allow only the billed amounts as evidence. Some states allow only the accepted payment as evidence. Other states, including Indiana, allow both.
The specific wrinkle in this case was whether amounts paid by the Healthy Indiana Plan, a government Medicaid program, represented a negotiated price such that it was actually probative of some sort of market value. The trial court did not think it was and, therefore, excluded evidence of the HIP payments accepted by medical providers as payment-in-full. The Supreme Court disagreed, noting that many providers accepted such payment as payment-in-full; while other providers opted simply not to participate in the HIP program: in other words, participation was not mandatory, and enough providers nevertheless did participate to suggest that the amounts paid were at least somewhat reliable proof of the actual market value of the services.