Paid v. Incurred

This isn’t a post about a book, but rather about a Texas Supreme Court decision, Heygood v. Escabedo, and the reason I mention it is because here, just six months in, is what is likely to be the most significant Texas case that gets decided in 2011.  Most people are never going to hear about it or care very much, but any attorney who deals with civil litigation has been waiting for this to get resolved since at least 2004.

At issue is the question of how much damage you sustain when you’re injured in our bizarre multiple-tiered medical system.  If someone has a $100,000 medical bill, then one would think that the damages are $100,000.  But not so fast – if the person has medical insurance or other types of coverage, the insurance company negotiates a discounted rate for the service.  So maybe the insured person pays a $2,500 co-pay and then the insurer pays $30,000.  In this event there is a bill out there which says $100,000, but only $32,500 gets paid to settle the bill.  Indeed, this is what happened in this case, where Mr. Heygood got billed roughly $110,000 for various treatments, but was covered by Medicare Part B, which meant that Heygood only owed about $28,000 to settle the bill.

In 2004 the Legislature, as part of a major tort reform package, limited recovery for medical bills in civil cases to the amount “actually paid or incurred”.  Although this would obviously prohibit recovery of amounts which were entirely written off as bad debts or as charity, everyone’s been fighting over insurance discounts ever since.

On one side you had the expansive interpretation, which pointed out the disjunctive language in paid or incurred, meaning that the biggest one should be considered.  The “collateral source rule” might also apply, meaning in this context that someone who injures a plaintiff shouldn’t be able to benefit from the plaintiff’s prudent decision to get health insurance (which wouldn’t necessarily apply if the plaintiff was covered under Medicare or Medicaid).

On the other side there is the more limited interpretation, which pointed out that it was intrinsically unfair to award damages to the plaintiff which hadn’t been paid and weren’t owed, and suggested that it was clear the Legislature was attempting to scale back damages in general.

Various appeals courts have come down on both sides, and now the Supreme Court has ruled for the limited interpretation.  Only the amount of bills actually paid or outstanding are admissible for consideration as damages.  This is probably the result the Legislature intended, and I’m happy to finally know what the statute means.  It’s also favorable for my clients.

However, I don’t think there was a way to resolve this issue that doesn’t result in some unfairness to someone.  As a result of this decision, plaintiffs without health insurance are more attractive as personal injury clients than clients with health insurance, especially since the insurer usually has a subrogation interest.  The dissenting opinion pointed out another potential problem as well, which is that mental anguish and pain and suffering awards are based on the amount of actual damages.  When you have two identical plaintiffs with the same injuries but the uninsured one is able to present damages of three or four times the insured plaintiff can present, the uninsured one is either getting too much non-economic damages or the insured one too little.

Of course the alternative arrangement would have the insured plaintiff potentially getting a windfall judgment from a system that’s designed to merely make the plaintiff whole.  This is especially the case if the plaintiff is covered by a state or federal insurance program and was paying no or discounted premiums to begin with.

In short this whole business is an artifact of the messed-up health care system we’ve constructed where no one pays list price (if list price is even listed anywhere) and we have to spend tremendous effort just figuring out who is supposed to pay and how much.  I suppose it’s good we’ve finally got some guidance on this for the legal system, but there’s bound to be some injustice in any system which is so non-transparent.  I’m sure someone’s going to get right on fixing that, just after I get my unicorn.