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Litigating Medical Costs: Necessity, Reasonableness & Collateral Source Payments

Medical costs are one of the determining factors in awards in personal injury matters. They also serve as evidence of the injuries. 

Sare Mills, J.D.

Written by
— Updated on January 5, 2023

Litigating Medical Costs: Necessity, Reasonableness & Collateral Source Payments

What medical expenses may be admitted into evidence, and the amount that should be covered by the defendant, may be heavily litigated. Plaintiffs must prove that the medical costs incurred were reasonable and necessary. Depending on the state, they may also need to show that the plaintiff actually paid the costs. This means the medical bills, details of treatment, and payment details are all subject to scrutiny.

Admitting Medical Bills as Evidence: Laying the Foundation

The process for admitting medical bills into evidence varies from state to state. Attorneys should obtain medical bills directly from providers by subpoena or requests for production. The parties may stipulate the authenticity of medical bills. If not stipulated, medical bills may be admissible as business records through proper certification in lieu of live testimony. In other states, the provider’s representative must be deposed or will need to testify at trial to the customary practices of the medical provider. If the plaintiff’s doctors can testify, the jury may see the treating physician as being less biased than expert witnesses. However, they may not be available and may be more expensive. In some states, the court may permit the plaintiff to testify if they can relate the treatment costs to the injuries they incurred.

When the attorney has established that the witness has the requisite knowledge to authenticate the bills, they will testify to the necessity and reasonableness of the treatment and costs.

What are “Necessary and Reasonable” Expenses?

The standard for “necessary and reasonable” medical expenses requires the plaintiff to show that they received necessary medical services, because of the defendant’s actions or negligence, and that the cost was reasonable for the services. The witness will testify to the extent of the injuries and the cause of the injuries. Additionally, the witness testifies to the appropriateness of the treatment.

If the bill has already been paid, the cost is more likely to be considered prima facie reasonable. If the bill is unpaid, the witness will need to establish the reasonableness of the cost. Medical billing experts can testify to customary rates in the area for specific procedures.

One issue that arises in proving the reasonableness of medical bills in a damages analysis is the existence of payments parties other than the plaintiff made, or “collateral sources.”

What is the Collateral Source Rule?

The Collateral Source Rule allows injured parties to recover costs that another party paid. The rule predates the modern health insurance system when the collateral source was typically family or friends. Today, some common sources of collateral payments are insurance coverage, Medicare or Medicaid, adjustments made by medical providers, union or veteran’s benefits, and charitable assistance.

The rule prevents defendants from raising evidence of collateral source payments in order to reduce the damages owed. The rationale is that tortfeasors should be liable for the full amount of damages, even if someone other than the plaintiff paid. This is an exception to the general rule that plaintiffs may only recover enough to make them whole. The rise of modern insurance coverage, and tort reform efforts, have impacted the modern-day application of the collateral source rule.

Differences per State

Because the rule arises from common law, state courts and legislatures can modify the rule. Most states have modified or abrogated the rule, allowing some evidence of collateral source payments to be admitted. Five states have completely abrogated the collateral source rule in all types of actions. Eighteen states have abrogated the rule in medical malpractice claims only. Some states may not consider write-offs or reductions to medical bills to be collateral source payments but otherwise do not modify the rule. In 22 states, the rule remains in nearly full effect.

Specifics in each state vary.  For example, Texas abrogated the rule. Furthermore, the plaintiff may only recover reasonable costs that “have been or must be paid by or for” themselves. In New Jersey, the court may modify the damages award based on payments by collateral sources post-verdict. However, in New York, the modified rule prohibits evidence of payments from sources with a statutory subrogation right. In Iowa, juries may hear evidence of billed and paid payments and their “reasonable value.” In Pennsylvania, plaintiffs may recover the “reasonable value” of medical costs, including the amounts paid to a provider or an amount found reasonable by a jury. This “reasonable value” standard is common in states with a modified collateral source rule.

Recent Litigation Trends

The use of medical and litigation funding presents challenges to the collateral source rule. There is a perception that medical providers may charge more when patients have filed personal injury claims. Where a medical funding company has paid the plaintiff’s medical bills in exchange for a share in any damages award, this is heightened. In collateral source rule jurisdictions, the jury cannot hear evidence of payments by medical funding companies. However, recent case law suggests that while this evidence is not admissible, it may be discoverable. Defense attorneys may then use the funding agreements to impeach the plaintiff’s witnesses or demonstrate bias or motive. In jurisdictions with modified or abrogated collateral source rules, the defense may use evidence related to medical funding more directly to attack the reasonableness of the plaintiff’s bills.

Will the No Surprises Act Impact Injury Litigation?

In January 2022, the No Surprises Act went into effect. The intention behind this consumer protection legislation is to cut down on surprise bills from medical providers such as out-of-network fees. It also requires medical providers to provide uninsured patients with a good faith estimate of the fees they may incur before treatment. This is expected to help control costs for individuals. By setting transparent standards for costs, it will also have an impact on a reasonableness analysis. However, it is too early to draw any conclusions about the overall impact on litigation.

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