Inflated Medical Bills and Virginia’s Collateral Source Rule

Written by Brian Snyder, Esq.

Edited by Bill Pfund, Esq.

Recently, Steven Brill published “America’s Bitter Pill” an acclaimed book on how the Affordable Care Act, or Obamacare, was written, how it is being implemented, and, most important, how it is changing—and failing to change—the rampant abuses in the healthcare industry.   Many of the issues outlined in the book were first identified in his trailblazing Time magazine cover story “Bitter Pill – Why Medical Bills Are Killing Us”, which addresses a number issues about the way medical providers bill patients and common abuses in the industry.

These issues become relevant to personal injury litigation because “on the defense side, it is commonplace for medicals to be the foundation for the evaluation of worst case exposure of a claim, and of a reasonable settlement range.  Therefore if the medical bills are grossly inflated, the amount paid on the claim will be too.  Its common knowledge that health care providers charge extra to cover the cost of care provided to the uninsured, but Brill’s article is shocking because it shows that medical bills are inflated many times beyond that.”  Stratton, David B. “Bitter Pill article provides important insights for litigation” Insurance Defense Blog, Mar. 2013.

This can be frustrating from a defense perspective because in Virginia and most of the surrounding jurisdictions, the collateral source rule bars a defendant from introducing evidence of payments or benefits a plaintiff received from a third party.[1]  This makes it challenging for the defense to argue against the reasonability of a plaintiff’s medical bills and nearly impossible to do without retaining a medical expert.  While the rule is a longstanding staple of American tort law, it nonetheless invokes fervent debate.  Defense attorneys argue the rule ratifies a windfall in favor of the plaintiff by allowing him/her to recover for expenses he/she never personally incurred, which seems contrary to certain aims of tort law, such as the principle that compensatory damages should make a plaintiff whole.  While personal injury attorneys argue that the collateral source rule theoretically deters tortfeasors by ensuring that the defendant pays the entirety of the plaintiff’s medical expenses.

The purpose of the collateral source rule is to ensure that a plaintiff is entitled to recover the reasonable value of her past medical expenses.  This presumes that the amount billed for medical treatment represents its reasonable value.  However, this presumption creates a disparity when the healthcare provider inflates the bill and then accepts an amount lower than what was charged in full satisfaction of the bill.  In states where the collateral source rule bars evidence of this discount, a plaintiff may recover the entire billed amount–a sum that can be characterized as a windfall.

Some courts have approached this issue by modifying the strict common law collateral source rule to create an exception that permits the defendant to introduce evidence of write-offs.  States such as California[2] and Ohio[3] that have adopted modified approaches preserve the plaintiff’s interests protected by the collateral source rule while acknowledging the compelling argument that the presumption of reasonability given to medical bills is flawed in light of the fact that nearly no one actually pays these amounts.  Unfortunately, the Supreme Court of Virginia has refused to adopt this approach and shows no indication it intends do so in the future.  Therefore, for the foreseeable future, Virginia Plaintiff’s will be permitted to argue the full amount of their medical bills whether or not the charges are inflated or paid by a third party.

[1] See RESTATEMENT (SECOND) OF TORTS § 920A cmt. b (1979).

[2] Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130 (Cal. 2011).

[3] Robinson v. Bates, 857 N.E.2d 1195 (Ohio 2006).

Submit a Comment

Your email address will not be published. Required fields are marked *