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Tort law - collateral source rule does not apply to amounts that are written off by Medicare in Delaware - Stayton v. Delaware Health Corp.

The collateral source rule in tort law holds that medical payments made by a third party to an injured party do not reduce the amount of damages recoverable from the defendant as reasonable medical expenses in medical negligence claims. (1) Most states recognize the collateral source rule; however, states approach this rule differently in a health care provider write-off framework. (2) The Supreme Court of Delaware adopted the collateral source rule for provider write-offs in two decisions involving payments made by a private insurance company and the injured individual. (3) In Stayton v. Delaware Health Corp., (4) the Supreme Court of Delaware addressed the collateral source rule's applicability to Medicare write-offs. In Stayton, the court held that the collateral source rule did not apply to amounts that were written off by Medicare. (5)

Seventy-six year old Diane Stayton ("Stayton") was severely burned during her residency at Harbor Health and Rehabilitation Center ("Harbor Health"). (6) Stayton alleged that she was burned when she attempted to light a cigarette while unsupervised. (7) Stayton's medical bills totaled $3,683,797.11, of which Medicare paid $262,550.17, and the remaining $3,421,246.94 was written off. (8) Stayton filed suit against Harbor Health seeking both general and special damages, alleging that her injuries were sustained as a result of negligence by Harbor Health Center and its employees. (9)

In assessing the recoverable damages, the Superior Court of Delaware held that only the actual amount Medicare paid to the health care provider was recoverable. (10) Stayton appealed, claiming that the written-off portion of the bill should also be included in the reasonable value of medical services provided. (11) Stayton also argued that if her recovery were limited only to the amount paid by Medicare, she would not be in the same position as other individuals recovering damages under a private insurance context. (12) The Supreme Court of Delaware granted de novo review in order to address whether she could claim the written-off portion as the reasonable value of medical expenses. (13) The court held that Stayton could not recover the amount that was written off by Medicare as the reasonable value of medical expenses. (14)

In medical negligence cases, a plaintiff can only recover reasonable medical expenses. (15) The collateral source rule is a doctrine of equity based on common law. (16) The rule strives to make an injured party financially whole by holding a defendant liable for damages and giving the benefit of a windfall to a plaintiff in a tort action instead of to the tortfeasor. (17) Delaware previously applied the collateral source rule in medical negligence cases when determining reasonable medical expenses in several contexts, but had not determined the issue in the context of Medicare payments prior to the Stayton decision. (18)

States have taken varying approaches in applying the collateral source rule to Medicare write-offs. (19) Some jurisdictions apply the collateral source rule in cases where an injured party was compensated through Medicare payments and a write-off was received, thus entitling the injured party to double recovery. (20) However, other jurisdictions prevent the introduction of the write-offs as part of a claim for reasonable medical expenses, thereby preventing double recovery for a plaintiff. (21) These inconsistencies among jurisdictions are an indication of how states struggle to apply Medicare write-offs as they would payments by a private insurer, though, unlike" private insurers, Medicare operates under federal law and includes an automatic right to subrogation. (22) The automatic right to subrogation and a large market volume of Medicare subjects the collateral source rule to more public scrutiny than that of private insurers. (23) Additionally, our growing health care system as a result of the Affordable Care Act has brought collateral source rule under more scrutiny. (24)

Another difference between the states involves determining what the reasonable value of medical expenses will be when there is a provider write-off, regardless of whether the collateral source rule allows the write-off to be included as part of determining the reasonable value of medical expenses. (25) Some states hold that the amount paid by the third party should constitute the reasonable value of health care services while others leave it to a jury to decide. (26) Delaware courts determine the reasonable value of medical expenses based on the amount paid by Medicare, not the amount billed. (27)

In Stayton v. Delaware Health Corp., the Supreme Court of Delaware addressed whether the collateral source rule applies to Medicare write-offs. (28) In dealing with this issue, the court focused on how different states have approached the collateral source rule in the context of Medicare write-offs. (29) The court assessed the three approaches that states generally take in dealing with Medicare write-offs: the third-party payment approach, the bargained-for approach, and the rejection of collateral source rule to provider write-offs. (30) The court concluded that the third-party payment approach was applicable, but declined to extend its application to Medicare payments since the write -off is not a benefit, nor a payment conferred on an injured party. (31) In supporting its conclusion, the court looked to both the language in the Restatement (Second) of Torts [section] 920A and how other jurisdictions utilize the collateral source rule as applied to Medicare write-offs. (32)

The court next addressed what constitutes reasonable value of health care provider services when there is a Medicare write-off and the collateral source rule is inapplicable. (33) The court looked to how states that do not apply the collateral source rule to these write-offs have addressed this issue, in weighing both the jury approach and the amount paid approach, and concluded that the amount actually paid by Medicare for the health care provider services are dispositive of the reasonable value of health care services. (34) To support its conclusion, the court took a similar approach to the states that treat the amount paid by Medicare as dispositive of the reasonable value of medical services, and also looked to the Restatement (Second) of Torts [section] 911, comment h. (35)

In both declining to extend the third-party payment approach to Medicare write-offs and refusing to apply the collateral source rule to Medicare write-offs, the Supreme Court of Delaware fundamentally narrowed the collateral source rule's application. (36) Employing prudent jurisdictional analysis, the court scrutinized the rule's application under each of the three general approaches, thus rejecting the benefit-of-the -bargain approach, and also rejecting the complete abrogation of the collateral source rule. (37) In its analysis, the court applied the language of the Restatement (Second) of Torts [section]920A to the conditions of the write-off Stayton received, and found further support in the comments to the Restatement. (38) In doing so, the court concluded that a benefit was neither conferred on Stayton, nor was a payment made to an injured party, when a provider wrote off a portion of the medical expenses through Medicare. (39) This conclusion mirrors the language used in the Restatement, thus flatly rejecting the collateral source rule's application to Medicare write-offs. (40)

The court accurately reasoned that the taxpayers were the true beneficiaries of the write-off, thus bolstering sound fiscal public policy. (41) The court properly concluded that the collateral source rule is not applicable to Medicare write-offs because, if the collateral source rule were applicable, it could diminish the purchasing power of Medicare, as providers might not be willing to work with Medicare to reduce their rates. (42) In keeping provider costs low, patient volume and purchasing power under Medicare can be maintained, thus resulting in a benefit to the economically burdened. (43) In rejecting the benefit-of-the-bargain approach, the court rationalized that write-offs under Medicare are not actually "bargained for" by the patient since consideration is not paid. (44) The court additionally reasoned that, when there is an adjustment in the amount charged by a provider, the portion of the bill that is paid to the provider by Medicare is a benefit to the insured, and the write-off is a benefit conferred on the insurer, not a benefit bargained for by the insured. (45)

The court appropriately promoted common law principles in holding that the amount paid by Medicare was dispositive of the reasonable value of medical services. (46) The court accurately rejected the jury approach as the method in determining the reasonable value of medical services. (47) Under the jury approach, jurors are able to view evidence of the amount paid by a collateral source to a provider, which creates a risk that the jurors will discharge defendant liability of the paid portion, thus undercutting the collateral source rule's purpose to ensure the injured party is made whole financially. (48) In its analysis, the court described the pitfalls of the jury approach, focusing on both the economic stress placed on introducing expert testimony, and the danger that Medicare recipients will be placed in a different class than those with private insurance. (49) The court accurately reasoned that the jury approach was inappropriate due to a fear that injured Medicare plaintiffs might be placed in a different class than those with private insurers if a jury is to know that the medical services rendered have already been covered. (50) The court balanced both approaches and properly concluded the amount paid is consistent with the language of the Restatement (Second) of Torts [section] 911, because it aims to make a plaintiff whole through compensatory damages. (51)

In Stayton v. Delaware Health Corp., the Supreme Court of Delaware properly determined that the collateral source rule does not apply to portions of medical bills that are written off by Medicare. (52) In taking this conservative approach, the court bore in mind the implications of its ruling and its effect on taxpayers. (53) Secondly, in determining that the amount actually paid by Medicare was determinative of the reasonable value of medical services, the court sought to protect the general common law principle found in the Restatement (Second) of Torts [section] 911 that a plaintiff is made whole through compensatory damages. (54)

Daniel L. Carpenter *

* J.D. Candidate, Suffolk University Law School, 2016; B.A., American Military University, 2011. Mr. Carpenter may be contacted at Daniel.L.Carpenter@live.com.

(1) See Restatement (Second) of Torts [section] 920A cmt. b (1979). "Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable." Id. at [section] 920A(2). Payments made by sources other than the injured party are "collateral-source benefits" which "do not have the effect of reducing the recovery against the defendant." Id. [section] 920A cmt. b.

(2) See Stayton v. Del. Health Corp., 117 A.3d 521, 527-29 (Del. 2015) (explaining three approaches to Medicare write-offs states have implemented). The first approach that some states take with respect to the collateral source rule is to treat a health care provider write-off in the same manner as a third party payment. Id. at 528-29. Under this "third party payment" approach, the injured party receives the benefit of the write-off and can claim it as reasonable medical expenses in a lawsuit. Id. Under the second approach, states view the collateral source rule as a "bargained for" write-off. Id. at 528. Under this approach, only when the insured patient bargains for a write-off with the provider can they claim the amount that was written off as reasonable medical expenses. Id. This approach is premised on the consideration that beneficiaries pay and the encouragement to purchase insurance. Id. The third approach that some states use is that the collateral source rule does not apply to provider write-offs. Stayton, 117 A.3d at 528-29. Under this approach, when the provider has written off a portion of the bill, the benefit is incurred on the injured party. Id. This occurs when the payment to the provider is made through Medicare, Medicaid, or a private insurer the benefit is given to the taxpayer or private insurer. Id. See generally Stephen L. Olson & Pat Wasson, Is the Collateral Source Rule Applicable to Medicare and Medicaid Write-Offs? Defense Practitioners Must Be Alert to the Effort to Collect "Phantom " Damages Through Claims for the Amounts Written Off by Providers, 71 Def. Couns. J. 172,172-74 (2004) (providing background on how Medicare negotiates claims). When a health care provider negotiates a special rate with an insurance provider, the difference between the actual charges for the patient and the allowable rate by the insurer is the written-off portion of the bill. Id.

(3) See generally Onusko v. Kerr, 880 A.2d 1022,1024 (Del. 2015) (allowing reasonable medical expenses as a write-off). The Supreme Court of Delaware allowed as reasonable medical expenses under the collateral source rule a write-off where the physical therapist voluntarily reduced the price per visit for an uninsured plaintiff. Id. The court allowed the plaintiff to include the full price per visit as reasonable medical expenses to present to a jury. Id. See also Mitchell v. Halder, 883 A.2d 32, 40 Del. 2005). The Supreme Court of Delaware allowed as reasonable medical expenses a portion of medical expenses that were written off by the health care providers as part of the patient's private health insurance contract. Id. at 40.

(4) Stayton, 117 A.3d at 521 (noting issue of first impression). See also id. at 530 (noting collateral source rule's applicability to Medicare write-offs as a first impression issue).

(5) Stayton, 117 A.3d at 534. "For the foregoing reasons, we affirm the judgment of the Superior Court that the collateral source rule does not apply to Medicare write-offs." Id. See also infra notes 36-45 and accompanying text (summarizing court's reasoning and analysis for declining to extend the collateral source rule).

(6) Stayton, 117 A.3d at 523.

(7) Id. See also Stayton v. Del. Health Corp., C.A. No: K12C-04-026 RBY, 2014 WL 4782997, at *1 (Del. Super. Ct. Sept. 24, 2014). According to the complaint, Stayton was paralyzed in one arm, one of her legs, and confined to a wheelchair at the time of the incident. Id. Over twenty-three percent of her body was burned and she spent six months at Crozer Burn Center in Pennsylvania. Id.

(8) Id.

(9) Id. See also Restatement (Second) of Torts [section] 924 cmt. f (1979) (explaining reasonable medical expenses are recoverable as compensatory damages in a tort action).

(10) Stayton, 117 A.3d at 525; Stayton, 2014 WL 4782997, at *6. The recoverable amount did not include the amount that was originally billed. Id.

(11) Stayton, 117 A.3d at 526.

(12) Id. Stayton alleged that the collateral source rule would limit her recovery only to the amount that was paid by Medicare, placing her in a different position than similarly situated injured claimants receiving greater compensation through their private medical insurance. Id. The court addressed this issue by weighing the jury's approach and considered whether the amount being paid was "dispositive of the reasonable value of the services as a matter of law." Id. at 531-34. The court held that the amount paid is determinative of the reasonable value of medical services, adopting public policy and common law tort principles. Id. See also infra notes 49-50 and accompanying text (explaining court's reasoning for indirectly rejecting Stayton's discriminatory argument).

(13) Stayton, 117 A.3d at 526. The Supreme Court of Delaware undertook de novo review of "the Superior Court's legal determination," as this was an issue of first impression in the jurisdiction. Id.

(14) Id. at 534.

(15) See Halder, 883 A.2d at 38. A plaintiff can recover damages for the reasonable value of medical services from the tortfeasor, even if that injured party, the plaintiff, has already received complete compensation for her medical services from a third party. Id.

(16) See Propeller Monticello v. Mollison, 58 U.S. 152,155 (1854). The United States Supreme Court first applied the collateral source rule over 160 years ago in a case where two boats collided and the injured party's own insurer made an insurance payment to the injured party. Id. at 154-56. The Supreme Court held that a contract between an injured party and its insurer is independent, and a tortfeasor cannot reduce its amount of damages owed through what is already paid by the insurer. Id. at 155. A tortfeasor against whom a suit has been filed for a loss "is not presumed to know, or bound to inquire, as to the relative equities of parties claiming the damages." Id. See also Mitchell, 883 A.2d at 37-38 (explaining equitable theory of collateral source rule); 24 C.J.S. Damages [section] 189 (2015) (describing equitable doctrine of the collateral source rule and plaintiff recovery of damages); Olson, supra note 2, at 173 (providing background information on origins of collateral source rule); Jacob A. Stein, Stein on Personal injury Damages Treatise [section] 13.1 (3d ed. 2015) (explaining and providing example of collateral source rule in different contexts); Robert J. Stolt, The Collateral Source Rule; Its Purposes and Underlying Concept of Coordinating Benefits in 3 Litigating Tort Cases [section] 30:2 (2014) (defining collateral source rule and equitable doctrines); supra note 1 and accompanying text (defining collateral source rule).

(17) See Black's Law Dictionary 319 (10th ed. 2014). A windfall is "an unanticipated benefit, usually in the form of a profit and not caused by the recipient." Id. See also Stolt, supra note 16, [section] 30:2 (demonstrating purpose of collateral source rule). The collateral source rule is based upon the concept that an injured party is in a better position to reap the benefits of a windfall so that a wrongdoer does not escape liability. Id. An additional fundamental concept that supports the collateral source rule is that tortfeasors should be held accountable for the harm they inflict on innocent parties. Id. See also stein, supra note 16, [section] 13:1 (providing introduction to collateral source rule). In medical negligence cases, windfalls occur when the plaintiff in a tort receives double recovery. Id. However, in many cases the plaintiff will not actually be able to receive double recovery as the third party will most likely have a right to subrogation against the injured party or a lien on any recovery. Id. See also Halder, 883 A.2d at 38 (explaining plaintiff is entitled to compensation that is sufficient to make him whole); infra note 22 (explaining right to subrogation when third party is Medicare).

(18) Stayton, 117 A.3d 521 (Del. 2015). See supra note 3 and accompanying text (providing examples of how Delaware has applied collateral source rule). See also Onusko, 880 A.2d at 1024-25 (applying collateral source rule to a benefit incurred on an uninsured injured party). The Supreme Court of Delaware applied the collateral source rule to a provider write-off the same way as it would a third party payment by relying on the Restatement (Second) of Torts [section] 920A. Id. The court held that voluntarily reducing the plaintiffs financial obligation from $523 to $282 per visit conferred a benefit on the injured party which, compared to the amount the therapist normally charged, amounted to the reasonable value of medical services. Id. See also Mitchell, 883 A.2d at 39-40 (applying collateral source rule to payments made to health care provider through private insurance). The court held that the plaintiff was entitled to present evidence of the amount billed by his medical providers without having to reduce the amount that was written off by his private insurance. Id. See also Yarrington v. Thonrburg, 205 A.2d 1, 2 (Del. 1964). The Supreme Court of Delaware recognized that a tortfeasor does not have a right to reduce the amount of damages towards an injured party even if the injured party received compensation from the tortfeasor's own insurance policy. Id. at 2. See also Pardee v. Suburban Propane, No. Civ. A. 98C-12-206RRC, 2003 WL 21213413, at *2 (Del. Super. Ct. Oct. 4, 2002) (applying collateral source rule in context of Medicare). The Superior Court of Delaware held that the collateral source rule is applicable to Medicaid plans under a theory of the right to subrogation by the insurer, which would reduce double recovery by the injured party. Id. at *2. This right to subrogation prevents a plaintiff from receiving double recovery through the payments made by her insurer to the health care provider and the amount received as damages. Id. See also 42 U.S.C. [section] 1395c (2012) (providing statutory reference for Medicare). Medicare is a social insurance program administered by the U.S. federal government for people who have paid into the system through tax withholdings by their employers. Id. Medicare generally applies to individuals over sixty-five years of age, but can also apply to individuals who are under sixty-five and have certain disabilities, and individuals of any age with End Stage Renal Disease (ESRD). Id.

(19) See supra note 2 and accompanying text (explaining three general approaches states take in applying collateral source rule to write-offs). See also infra note 20 (demonstrating different state approaches in applying collateral source rule to Medicare write-offs).

(20) See Bynum v. Magno, 101 P.3d 1149, 1157 (Haw. 2004) (holding collateral source rule applies to Medicare payments); Bozeman v. State, 879 So. 2d 692, 698 (La. 2004) (holding consideration is paid by Medicare beneficiaries allowing collateral source rule to apply to write-offs). See also Wills v. Foster, 892 N.E.2d 1018,1030 (111. 2008) (holding "reasonable value" approach to collateral source rule allows Medicare write-offs to apply).

(21) See Fla. Stat. Ann. [section] 768.76 (West 2015) (prohibiting application of benefits received through Medicare as a collateral source in Florida); IOWA code ANN. [section] 147.136 (West 2011) (recognizing Medicare write-offs are not reasonable medical expenses recoverable in medical malpractice cases in Iowa). See also Rebecca Levenson, Allocating the Costs of Harm to Whom They are Due: Modifying the Collateral Source Rule After Health Care Reform, 160 U. Pa. L. Rev. 921, 925-26 (2012) (providing argument for both support and opposition to collateral source rule). Some states have abrogated the collateral source rule in full in order to prevent double recovery by plaintiffs. Id. at 926. See also Bozeman, 879 So. 2d at 692 (holding when a plaintiff provides no consideration for collateral source benefits they cannot recover write-offs). In this case, the court discussed the difference between Medicaid and Medicare, holding the collateral source rule is applicable to provider write-offs when the plaintiff has paid consideration for the benefit of the write-off. Id. at 704-05. The court reasoned that Medicare is not free health care, since a beneficiary is entitled to the program as a result of payroll deductions, and therefore the beneficiary has provided consideration. Id. at 704-05.

(22) See 42 U.S.C. [section] 1395y(b)(2)(B)(iv) (2012 & Supp. I 2013) (demonstrating statutory provisions for Medicare and its operation under federal law). See also supra notes 20-21 and accompanying text (explaining inconsistencies between states in applying collateral source rule to Medicare write-offs). "The United States shall be subrogated (to the extent of payment made under this [subchapter for such an item or service]) to any right ... of an individual." Id. See also Hadden v. U.S., No. 1:08-CV-10, 2009 U.S. Dist. LEXIS 69383, at *20 (W.D. Ky. Aug. 6, 2009) (rejecting an injured party's request to waive a subrogation claim). In Hadden, an individual was injured due to being struck by a truck. Id. at *1. Medicare conditioned a payment that was estimated to be $62,338.07 for the injured party's medical expenses. Id. The tortfeasor subsequently setded with the injured party for a claim of $125,000. Id. The injured individual requested that the automatic right to subrogation for Medicare payments be waived. Id. The court rejected the plaintiffs waiver request and refused to apply the made-whole doctrine. Id. at *7. See also 1 Harvey L. McCormick, Medicare and Medicaid Claims and Procedures [section] 1:72 (4th ed. 2005) (explaining automatic right to subrogation under Medicare). The U.S. can bring a subrogation action that allows the government to "stand in the place of a beneficiary in asserting rights to the third-party payment." Id. The automatic right to subrogation allows the federal government to reclaim any expenses paid by Medicare when a beneficiary receives recovery in a medical negligence suit. Id. See also Robert Berenson & Dean Harris, Using Managed Care Tools in Traditional Medicare-Should We? Could We? 65 Law & Contemp. Probs. 139,145 (2002) (explaining exercise of market power government has with Medicare). Some health care providers depend on patient utilization of Medicare as a source of revenue. Id. The patient volume and purchasing power of Medicare allows these health care providers to negotiate lower rates. Id.

(23) See supra note 22 and accompanying text (noting Medicare operates differendy from private insurers as it is administered by federal government). But see Yarrington, 205 A.2d at 154 (reasoning tortfeasors may not mitigate damages with paid medical expenses on behalf of plaintiff).

(24) See Ann S. Levin, Comment, The Fate of the Collateral Source Rule After Healthcare Reform, 60 UCLA L. Rev. 736, 742 (2013) (demonstrating vast changes in health care under Patient Protection and Affordable Care Act). Under the Patient Protection and Affordable Care Act, most individuals will have health insurance, and therefore, most billed rates will be negotiated with providers. Id. at 741. See also Press Release, Dep't of Health and Human Servs., Nationwide Nearly 11.7 Million Consumers Are Enrolled in 2015 Health Insurance Marketplace Coverage (Mar. 10, 2015), available at, http://www.hhs.gov/about/news/2015/03/10/nationwide-nearly -11-point-7-million-consumers-are-enrolled-in-2015-health-insurance-marketplace-coverage.html (demonstrating number of individuals enrolled in Health Insurance Marketplace). As of Feb. 22, 2015, close to 11.7 million individuals were enrolled in the Health Insurance Marketplace for insurance coverage under the Affordable Care Act. Id.

(25) See e.g., Haygood v. De Escabedo, 356 S.W.3d 390, 396 (Tex. 2012) (holding common law collateral source rule in Texas denies recovery of unentitled expenses). The states take varied approaches in determining the reasonable value of medical services. Id at 396-97. See also Stanley v. Walker, 906 N.E.2d 852, 856-57 (Ind. 2009) (explaining complex health care price structure and difficulty of determining reasonable value of medical services). The Supreme Court of Indiana held that a jury can determine the reasonable value of medical expenses even though the collateral source rule does not apply to write-offs. Id. at 858. See also Moorhead v. Crozer Chester Med. Ctr., 765 A.2d 786, 789-90 (Pa. 2001) (reasoning state statutory limitation to reasonable value evaluation corresponds with doctrine of compensatory damages). See e.g., Guillermo Gabriel Zorogastua, Improperly Divorced From Its Roots: The Rationales of the Collateral Source Rule and Their Implications for Medicare and Medicaid Write-offs, 55 U. Kan. L. Rev. 463, 471-81 (2007) (discussing legislative approach in modifying Kansas collateral source rule). See also infra note 26 and accompanying text (demonstrating various approaches states take in determining reasonable value of medical services).

(26) See Haygood, 356 S.W.3d at 396 (holding that amount paid is dispositive of reasonable value of medical expenses in Texas); Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130,1152-53 (Cal. 2011) (holding jury should determine reasonable value of medical services); Robinson v. Bates, 857 N.E.2d 1195, 1202 (Ohio 2006) (holding amount paid and original bill both admissible to a jury in determining reasonable value); Moorhead, 765 A.2d at 789-90 (holding recovery for past medical expenses limited to amount actually paid, not reasonable value). See also Zorogastua, supra note 25, at 471-74 (explaining different approaches to collateral source rule and implications to Medicare and Medicaid).

(27) See Stayton, 117 A.3d at 533. Delaware still follows the approach found in Restatement (Second) of Torts in applying the collateral source rule. Id. at 533-34. In Stayton, the Supreme Court of Delaware held that the amount paid by Medicare is dispositive of the reasonable value of medical services. Id. See also supra note 1 and accompanying text (explaining the Restatement (Second) of Torts and the collateral source rule).

(28) Stayton, 117 A.3d at 530. "Whether to apply the collateral source rule to Medicare write-offs is a question of first impression for this court." Id.

(29) See Stayton, 117 A.3d at 527-31 (demonstrating approach that Supreme Court of Delaware uses to address the issue). The Supreme Court of Delaware looked to how Indiana, Ohio, Texas, California, and Hawaii determine the reasonable value of medical services in a provider write-off context. Id. at 531-34. See also supra note 20-21 and accompanying text (indicating different approaches states take regarding collateral source rule in Medicare write-off context).

(30) See Stayton, 117 A.3d at 527-29 (demonstrating court's comparative analysis of applicability Medicare provider write-offs to collateral source rule). See also supra note 2 and accompanying text (explaining three main approaches to collateral source rule in Medicare write-off context).

(31) See Stayton, 117 A.3d at 531 (holding Medicare write-offs are neither payments made to, nor benefits bestowed on, injured party); supra note 2 and accompanying notes (explaining three approaches to collateral source rule in Medicare write-off context).

(32) See Stayton, 117 A.3d at 527-29 (illustrating court's analysis in addressing issue). The court compared the three general approaches other states take when determining if the collateral source rule is applicable to Medicare provider write-offs. Id. The court held that the collateral source rule does not apply to Medicare provider write-offs. Id. at 531. The court's reasoning was that there was not a payment made, nor a benefit conferred on, Stayton through the provider write-off. Id. The benefit of the write-off was conferred on the taxpayers, and the write-off was not a payment made to anyone. Id. See also supra note 1 (providing text of Restatement (Second) of Torts [section] 920A).

(33) Stayton, 117 A.3d at 530. "Because we find that the collateral source rule does not apply to Medicare write-offs, the question becomes how to determine the reasonable value of medical services where there are Medicare write-offs." Id.

(34) Stayton, 117 A.3d at 531-32. The Supreme Court of Delaware cited to a Supreme Court of Indiana decision, Stanley v. Walker, as a basis for refusing the jury approach. Id. at 537 n.44 (citing Stanley v. Walker, 906 N.E.2d 852, 858 (Ind. 2009)). In citing to the Indiana decision, the court demonstrated the framework and application of the jury approach. Stayton, 117 A.3d at 537 n.44. The court rejected the jury approach, stating, "[W]e believe the better course is to treat the amount paid by Medicare as dispositive of the reasonable value of health care provider services." Id. at 533. See also supra note 26 (providing examples of how states determine reasonable value of medical services).

(35) Stayton, 117 A.3d at 532-33. The court applied the Restatements approach to determining the reasonable value of medical expenses in that Medicare's purchasing power allowed taxpayers, not the plaintiff, to receive the same benefit from the write-off as providers. Id. at 531. As a result, the court found that the plaintiff could not claim this written-off portion as reasonable value of medical services. Id. at 533. The plaintiff could only claim up to the amount that was paid by Medicare as the reasonable value of medical expenses. Id. at 533-34. See also restatement (Second) of Torts [section] 911 cmt. h (1979). If an injured party is seeking to recover for expenses made or "liability incurred to third persons for services rendered, the amount that is recovered is normally the "reasonable value of the services rather than the amount paid or charged." Id. However, if "the injured person paid less than exchange rate," the agreed upon rate, that person cannot recover more than what was paid, unless that lowered rate was considered a gift to the injured party. Id. See also Stanley v. Walker, 906 N.E.2d 852, 854-855 (Ind. 2009). Indiana does not apply the common law collateral source rule; the state instead employs a collateral source statute that only allows proof of payment by a collateral source in certain situations. Id. A jury will then determine the reasonable value of medical services based on the evidence presented, regardless if there was a portion of the bill written off. Id. at 857.

(36) See Stayton, 117 A.3d at 531. The court declined to extend the collateral source rule to apply to Medicare provider write-offs, but acknowledged its application in other insurance contexts. Id. The court did not adhere to the broad approach of the rule, which allows all write-offs to be submitted as reasonable medical expenses, but instead narrowed the rule so that Medicare write-offs could not be introduced. Id.

(37) See Stayton, 117 A.3d at 530-31 (declining to extend application of collateral source rule to Medicare write-offs). By declining to extend the collateral source rule to Medicare write-offs, the court did not overrule both Onusko and Mitchell and still found that the collateral source rule applied to both private insurers and payments made by an individual. Id. See supra note 3 and accompanying text (explaining collateral source rule applicability to both Onusko and Mitchell). See also supra notes 18-25 and accompanying text (explaining three approaches states take in determining collateral source rule applicability to Medicare write-offs).

(38) Stayton, 117 A.3d at 530-31 (providing court's analysis in applying varying approaches to provider write-offs). See also restatement (second) of torts [section] 920A cmt. b. (1977). "If the benefit was a gift to the plaintiff from a third party or established for him by law, he should not be deprived of the advantage that it confers." Id.

(39) See Stayton, 117 A.3d at 527-28. States that apply Medicare provider write-offs the same as they would third party payments that benefit an injured party view these write-offs as benefits conferred on plaintiffs by providers at below standard rates. Id. The Stayton court rejected the idea that Medicare write-offs were a gift to the beneficiary because Medicare had already set the rate of reimbursement before Stayton entered the Crozer Burn Center. Id. at 531. The burn center did not agree to the rates gratuitously; they relied on Medicare's purchasing power and patient volume. Id. "The federal government acted out of consideration for the taxpayers." Id. at 531.

(40) See Stayton, 117 A.3d at 531. The court stated, "[P]rovider write-offs are not payments made to or benefits conferred on the injured party." Id. The court took this language directly from the Restatement (Second) of Torts. Id. at 528; Restatement (Second) of Torts [section] 920A cmt. b (1979).

(41) See Stayton, 117 A.3d at 528-29 (explaining why taxpayers gained advantage from write-offs). "Though the health care provider confers a benefit on the injured party by writing off a portion of its bill in the event the injured party is the payer, when the payer is Medicare, Medicaid, or private insurance, the benefit accrues to the taxpayers or the private insurer." Id. at 530.

(42) See Stayton, 117 A.3d at 536-37 (Strine, J., concurring) (noting potential harm to social welfare if collateral source rule allowed recovery of write-off). Justice Strine indicated in his concurrence that "[a]llowing a plaintiff like Stayton to recover the full value of the hospital services Crozer provided at a supposed discount would also do nothing to reduce the corresponding harm to social welfare that result[ed] from Crozer's increased costs that were incurred because of Harbor Health's alleged negligence." Id. at 537. It would be unfair for a provider to be left with a shortfall if they are subjected to the entire write-off as damages as a result of their own charity in heavily discounting medical expenses. Id. at 536.

(43) See id. at 537 (Strine, J., concurring). Justice Strine stated in his concurrence that "[e]nsuring that any tort recovery for the reasonable cost of treatment goes to the hospital that provided the medical care at a lower-than-market rate ameliorates the overall loss to social welfare due to the tortfeasor's negligence." Id. See also supra note 22 and accompanying text (explaining purchasing power of Medicare and provider's reliance on Medicare patient volume).

(44) Stayton, 117 A.3d at 531. The court relied on the language in Haygood in holding that the insurer obtains the benefit when there is a write-off. Id. The court also rejected the idea that individuals enter into insurance contracts as an incentive for double recovery when they become a tort victim. Id. See also Haygood, 356 S.W.3d 390 at 395 (demonstrating adjustment in billing required by insurer was not collateral benefit). The Supreme Court of Texas held that when a provider has to adjust the amount charged as required by the insurer, the insured does not receive a benefit from the transaction. Id. The Supreme Court of Texas stated the following:
   The benefit of insurance to the insured is the payment of charges
   owed to the health care provider. An adjustment in the amount of
   those charges to arrive at the amount owed is a benefit to the
   insurer, one it obtains from the provider for itself, not for the
   insured.


Id.

(45) See Stayton, 117 A.3d at 531. The court stated that with the mandatory insurance provisions under the Affordable Care Act, the amount of insured individuals has increased due to penalties imposed if insurance is not purchased. Id. These penalties force individuals to purchase insurance, thus undermining one of the premises of the "bargained for approach." Id. The bargained-for approach is premised off of the encouragement to purchase insurance. Id. at 528. Here, Stayton did not bargain with Crozer Burn center for the reduction in medical costs; instead, there was an agreement between Medicare and the burn center on the cost prior to her admission. Id. at 531. See also supra note 2 and accompanying text (explaining second bargained-for approach).

(46) See Stayton, 117 A.3d at 533. The court balanced the jury approach and the amount-paid approach and concluded that "the amount paid by Medicare [was] dispositive of the reasonable value of healthcare provider services." Id. The court further acknowledged its adherence to general tort principles when it stated, "[T]he approach we adopt today is not only administrable but fully consistent with the common law tort principles underlying Delaware's collateral source rule." Id. at 534.

(47) See id. at 533. The court stated that "[t]here are several shortcomings to the jury approach." Id.

(48) See supra note 34 and accompanying text (explaining jury approach in determining reasonable value of medical services). See Stayton, 117 A.3d at 533. The collateral source rule works to prevent a defendant from escaping liability when a payment has been made by a third party. Id. By giving a jury access to evidence that a plaintiffs medical expenses have already been paid for by a third party, the defendant may be absolved of liability and her damages may be reduced, thus undercutting the application of the collateral source rule. Id.

(49) Stayton, 117 A.3d at 532. The court recognized "there is a cost to the system of requiring multiple experts to testify about the reasonable value of medical services." Id. The court noted that other states that utilize the jury approach have been subjected to constitutional challenges due to the fact that Medicare beneficiaries may be subject to lower amounts of recovery. Id. See also Zorogastua, supra note 25, at 478-81 (explaining equal protection challenges to jury approach in Kansas). Under the jury approach, some plaintiffs argue that they would be prejudiced by a jury if the jury heard about the collateral source benefit, such as a Medicare payment, thus resulting in lower recoveries as compared to those with private insurance. Id. at 497-98.

(50) See Stayton, 117 A.3d at 533. The court noted the risk of using a jury to determine the reasonable value of medical services when the injured party had a portion of its bills written off by Medicare. Id. The court highlighted that there is a risk that defendants will be absolved of liability for amounts paid by a third party, a collateral source, if the jury knows that portion of the bill was already paid. Id.

(51) See supra note 35 and accompanying text (explaining use of compensatory damages to make plaintiff whole). See also Stayton, 117 A.3d at 526-27 (demonstrating underlying principle of collateral source rule). "The collateral source rule is designed to strike a balance between two competing principles of tort law: (1) a plaintiff is entitled to compensation sufficient to make him whole, but no more; and (2) a defendant is liable for all damages that proximately result from his wrong." Id.

(52) Stayton, 117 A.3d at 534. The court concluded "the collateral source rule does not apply to Medicare write-offs." Id. See also supra notes 41-45 and accompanying text (explaining court's reasoning for holding collateral source rule inapplicable to Medicare provider write-offs).

(53) Stayton, 117 A.3d at 531. "Any benefit that Stayton's healthcare providers conferred in writing off over ninety percent of their collective charges was conferred on federal taxpayers, as a consequence of Medicare's purchasing power." Id. See also supra notes 35, 41 and accompanying text (explaining benefit received by taxpayers when there is a Medicare write-off).

(54) See Stayton, 117 A.3d at 533-34 (acknowledging court's adherence to common law tort principles). See also supra note 35 (explaining Restatement (Second) of Torts [section] 911); supra note 51 and accompanying text (illustrating common law tort principles of compensatory damages).
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Author:Carpenter, Daniel L.
Publication:Journal of Health & Biomedical Law
Date:Sep 22, 2016
Words:6945
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