Delaware Supreme Court Continues Growing Trend of Collateral Source Rule Erosion

06.16.15

In an eagerly anticipated ruling, the Delaware Supreme Court in Stayton v. Delaware Health Corp. et al., issued a well written and thought provoking opinion affirming a significant change in evaluating medical damages for a Medicare recipient vis-a-vis Delaware’s collateral source rule.

The underlying matter involved a plaintiff who sustained critical burn injuries while at a nursing care center. At trial, the plaintiff intended on pursuing $3,683,797.11 in past medical damages for treatments received by the plaintiff.  This total reflected the billed amounts of medical charges incurred to date.  As it so happened, the plaintiff was a Medicare recipient for all relevant times for the case. Therefore, Medicare paid for the plaintiff’s medical services in the amount of $262,550.17 with the remainder being written off due to Medicare regulations. Medicare paid approximately seven percent of the plaintiff’s medical bills and this served as full satisfaction of the plaintiff’s medical bill obligations under Medicare. 

The defendants in the case moved for judgment on the pleadings seeking a ruling that the plaintiff’s medical expenses damages were limited to the amount actually paid by Medicare rather than the amount that might have been billed for the plaintiff’s care.  The plaintiff opposed the motion on the basis of Delaware’s collateral source rule:  “if an injured party is compensated for injuries from a source independent of the tortfeasor, the payment is not admissible to limit the damages paid by the tortfeasor.”  Therefore, under traditional practice in Delaware, the plaintiff could introduce (and potentially recover) the amount healthcare providers might have billed, $3,683,797.11, instead of the amount actually paid. Through the procedural history, the Delaware Supreme Court rightly concluded that the collateral source rule does not apply to amounts written off as required by federal law.  The Court stated as a bright line rule:  “Where a healthcare provider has treated a plaintiff covered by Medicare, the amount paid for medical services is the amount recoverable by the plaintiff as medical expense damage.”  This newly elaborated rule serves a dramatic shift in damages calculations for defendants in Delaware when Medicare is involved, but also serves to illustrate the fallacy of billed medical charges, rather than actual amounts paid by insurance, being put before jurors in Delaware and elsewhere. 

To that end, the Delaware Supreme Court acknowledges many important principles about billed medical charges citing a wide range of national sources: 

  1. “Healthcare debit is simply extinguished by operation of law when the healthcare provider elects to accept payment of assigned benefits directly from Medicare.”

  2. “The fact that the written off portion of Stayton’s medical bills is 13 times the amount paid gives us pause….It also reflects the way in which the realities of today’s healthcare economy diverge from the traditional underpinnings of the collateral source rule.”

  3. “Discounting is the rule rather than exception in healthcare today. Only a small fraction of persons receiving medical services actually pay original amounts billed.”

  4. “The small share that do are typically uninsured and yet not without means, a population that is expected to decline as a result of the insurance mandate of the Patient Protection and Affordable Care Act.” 

  5. “The collateral source rule does not apply to the amounts written off by [plaintiff’s] healthcare providers.”

 

We would like to note that the Court’s brief discussion of the Affordable Care Act (ACA) invokes a practice and set of arguments being advanced nationwide by Weber Gallagher. The Delaware Supreme Court is acknowledging in this opinion that the individual mandate portion of the ACA serves further support for the general proposition that any given plaintiff is increasingly unlikely to ever pay billed medical charges for both past and future damages. That concept has launched a Weber Gallagher practice group devoted to advising our clients on reevaluating damages models and employing groundbreaking legal strategies to mitigate future medical damages utilizing the ACA. This opinion only adds to our growing repository of nationwide sources and results on this topic.

We encourage you to read this opinion, http://courts.delaware.gov/opinions/download.aspx?ID=225080 and see the very interesting concurrence authored by Chief Justice Strine. The concurrence lends further support to the constantly evolving discussion on how the traditional collateral source rule may be outdated given today’s health insurance realities.

Finally, while the opinion does not expressly address the issue, it cannot be ignored that this opinion could weigh heavily in evaluating damages for those plaintiffs who are recipients of Medicaid benefits since the reimbursement rates and regulatory scheme mirror that of Medicare.  It is certainly an issue to anticipate going forward as it being decided in several other states across the country. 

If anyone would like more information on how this ruling can help their cases in Delaware, please contact Mary Sherlock at msherlock@wglaw.com or 302.346.6377.   

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