UPDATE - On October 21, 2016 the Tennessee Supreme Court granted the application for permission to appeal filed on behalf of the defendants in Dedmon v. Steelman.
Below is an excellent article authored by C & C attorney Sean Wlodarczyk discussing the Tennessee Court of Appeal's recent opinion in Dedmon v. Steelman 2016 Tenn. App. LEXIS 386 (Tenn. Ct. App. 2016), which permits defense counsel to introduce evidence of the amount accepted by a health care provider in satisfaction of its charges in connection with the determination of the "reasonable value" of medical services claimed as damages. As Sean points out, the Dedmon decision allows defendants to argue to the finder of fact that the amount actually paid, rather than the amount charged, more accurately represents the reasonable value of the claimed medical expenses.
Dan Berexa
Nashville, Tennessee
Medical Damages Post-West and Dedmon
by Sean Wlodarczyk
Modern medical billing practices are less than straightforward. Typically, health care providers maintains two sets of prices. The first is a list price the provider ostensibly charges for a service. The second is a discounted price the provider is willing to accept pursuant to an agreement with a patient’s health insurer. Over time, these prices have diverged greatly, with services being listed at prices five to ten times greater than the amount the provider accepts as full compensation. Naturally, in personal injury and wrongful death cases, plaintiffs and their counsel routinely seek to recover the list price—hoping to profit on the difference between what the provider accepted, and what could be wrung from a defendant. In turn, defendants are usually precluded from putting on evidence of the actual amount accepted as payment from an insurer due to the collateral source rule. That, however, appears to be changing in Tennessee. Recent case law allows Tennessee defendants to assert that the amount the provider accepted as payment—the discounted price—is the real measure of medical damages.
The trend towards allowing defendants to argue that the measure of damages is the discounted price began in Tennessee with the Tennessee Supreme Court’s 2014 decision in West v. Shelby Cty. Healthcare Corp., which can be located at 459 S.W.3d 33. In West, two individuals were injured in separate accidents. In turn, they came to a hospital for treatment, and the bill was paid by their insurers at the contractually agreed upon discounted rate. Despite this, the hospital asserted a lien against the patients under Tennessee’s Hospital Lien Act for the higher list price, claiming that—because the accidents were caused by third parties who could be sued—the hospital was entitled to recover the list price just as a normal personal injury plaintiff would be entitled to. Essentially, the hospital wanted a cut of the patient’s potential recovery from the third-party tortfeasors.
In addressing the situation laid out in West, the Tennessee Supreme Court determined that the Hospital Lien Act only allowed for the recovery by the hospital of amounts charged for reasonable medical expenses, and that—at least for lien purposes—the list price is unreasonable if the hospital has accepted a discounted amount as payment in full. While the holding in West referred only to the Hospital Lien Act, its implications were obvious. Since West, four Tennessee Circuit Courts and five Federal District Courts have held that West’s logic applies to personal injury cases—and therefore that plaintiffs may no longer seek the higher list price as damages.
Since West, only one appellate decision has come down addressing this issue, and it was decided only in early June 2016. That decision is Dedmon v. Steelman, 2016 Tenn. App. LEXIS 386 (Tenn. Ct. App., 2016). In it, the Court of Appeals recited the age-old maxim that a plaintiff in a personal injury action is entitled to recover the reasonable value of the medical care necessitated by the tortfeasor. From there, the Court held that the list and discounted prices were not necessarily reasonable or unreasonable, but rather, that the amount to be awarded is a question that needs to be answered by a jury. Thus, the Dedmon Court held that both the discounted and list prices can be admitted at trial as proof of what is a reasonable charge, with the caveat that attorneys must avoid mentioning the existence of insurance, so as to maintain the integrity of the collateral source rule’s ban on defendants profiting from a plaintiff’s decision to be insured.
The Dedmon decision is a common sense way of dealing with the divergence between list prices and the actual amounts paid for services. While it remains to be seen if Dedmon will be appealed to the Tennessee Supreme Court, should it remain in place, Dedmon is a boon to defendants. They can now explicitly argue to the jury that the discounted amounts actually accepted by a health care provider as payment in full equals the reasonable value of the services provided. To put this in perspective, this means that when a plaintiff has a hospital bill of $100,000 which is then satisfied for $10,000 (this is common), defendants can assert that the lower number is the real value of the care—and can even point out that anything in excess of the lower number is pure profit to the plaintiff.
It will be interesting to see whether the Tennessee Supreme Court takes Dedmon up on appeal. Given the Court’s current composition, there is a good chance that if Dedmon is taken up, it will be either to affirm it, or to hold that list prices are per se unreasonable as West previously indicated. This would be in keeping with developments of other states. Indeed, even the plaintiff friendly bastion of California has recognized that there is nothing reasonable about a plaintiff recovering medical expenses that were billed but then satisfied at a reduced amount. It should be no surprise if Tennessee’s Supreme Court ultimately declares the same—but, in the interim, defendants must make that argument themselves to juries per Dedmon.
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