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In Wildermuth, for example, the court recognized that "the collateral source rule, by its express terms, simply does not apply to write-offs of expenses that are never paid."
Summary of this case from Pipkins v. TA Operating Corp.Opinion
Civil Action No: 01-2418-CM
April 29, 2002
MEMORANDUM AND ORDER
This matter is before the Court on Defendant's First Motion in Limine (doc. 14). Defendant seeks an order excluding any evidence, reference, or mention of amounts of any medical expenses claimed by Plaintiffs that have been written-off by Medicare and never paid by Plaintiffs or any other persons or entities. In essence, Defendant asks the Court to rule that the true measure of Plaintiffs' damages for medical bills is the amount actually paid to Plaintiffs' medical providers, rather than the amount charged by them. For the reasons set forth below, the Court will grant Defendant's motion.
The parties have consented to the exercise of jurisdiction by the undersigned Magistrate Judge to rule upon this motion. See doc. 27.
I. Background Information
This is an action for personal injuries arising out of a motor vehicle accident. Plaintiffs claim they have sustained significant physical injuries as a result of the alleged negligence of Defendant. Some of Plaintiffs' medical expenses were paid by Medicare. Pursuant to contractual agreements between Medicare and Plaintiffs' health care providers, certain portions of those health care expenses were written-off by Medicare and no person or entity became liable for their payment.
Defendant contends that the proper measure of Plaintiffs' damages for medical expenses is the actual amounts paid by Medicare, as opposed to the total amounts charged by Plaintiffs' health care providers, and that Plaintiffs should not be allowed to present any evidence relating to the greater amounts charged. Plaintiffs, on the other hand, argue that under Kansas' collateral source rule, Plaintiffs have the right to present evidence of the value of all reasonable and necessary medical benefits they received. Plaintiffs contend that the collateral source rule precludes the Court from limiting the evidence of damages to amounts actually paid by Medicare after the write-offs.
II. Scope of this Order
Before proceeding to analyze the merits of Defendant's motion, the Court must address the scope of this Order. In its motion in limine, Defendant asks the Court to conclude that the proper measure of Plaintiffs' damages for medical expenses "is the amounts paid by Plaintiffs and any third-party insurance carriers, as opposed to the total amounts charged." Pltfs' First Motion in Limine, doc. 14, at p. 3 (emphasis added). Defendant then asks the Court to enter an order excluding all evidence "of amounts of medical expenses other than the amount paid after write-down or writeoffs." Id. In its reply brief, Defendant argues that Plaintiffs' recovery for medical expenses should be limited to the amount paid by Medicare or private health insurance after contractual adjustments." Def's Reply, doc. 20, at p. 8 (emphasis added).
Although not perfectly clear, it appears that Defendant may be asking the Court to exclude not only evidence of the Medicare write-offs but also evidence of any write-offs by private insurance carriers. Those types of write-offs, however, do not appear to be at issue here.
The parties' briefs do not indicate that any medical expenses have been paid or written-off by any private insurance companies or any third parties other than Medicare. In addition, the parties have limited their discussion and analysis to the issue of Medicare write-offs. Indeed, Defendant appears to limit the dispute to Medicare write-offs. The motion states:
Discovery in this matter has revealed that both Plaintiffs received benefits from medicare in regards to the payment of medical expenses in excess of the Personal Injury Protection (PIP benefits afforded . . . to Defendant Staton. The bills produced to date demonstrate significant adjustments and writeoffs under Medicare billing agreements with the healthcare providers for [Plaintiffs]. A dispute has arisen between the parties as to the proper measure of damages for [Plaintiffs'] medical expenses in this case.
Def's First Motion in Limine, doc. 14, at p. 1-2.
Furthermore, Defendant indicates that the issue in this case is "limited" to the payment and write-off of medical expenses by "a governmental insurance program," i.e., Medicare. Def's Reply, doc. 20, at p. 7. Finally, Defendant distinguishes this case from Strahley v. Mercy Health Center of Manhattan, Inc., No. 99-2439-KHV, 2000 WL 1745291 (D.Kan. Nov. 9, 2000), in which Judge Vratil addressed write-offs of medical expenses by a private health insurer. See Def's Reply, doc. 20, at pp. 6-7.
Because nothing in the record indicates that any of Plaintiffs' medical expenses have been paid, and any amounts written-off, by any private health insurers and because the parties have limited their discussion and analysis to Medicare write-offs, the Court finds no need to address write-offs made by private health insurers. Thus, to the extent Defendant may be seeking an order excluding evidence regarding any amounts that have been written-off by private insurance carriers, the motion in limine will be denied.
III. Analysis
A. Choice of Law
Generally speaking, the admissibility of evidence in diversity cases in federal court is governed by federal law. Blanke v. Alexander, 152 F.3d 1224, 1231 (10th Cir. 1998); Romine v. Parman, 831 F.2d 944, 945 (10th Cir. 1987). If, however, the evidentiary issue is intertwined with a state's substantive policy, state law governs. See Moe v. Avions Marcel Dassault-Breguet Aviation, 727 F.2d 917, 930-333 (10th Cir. 1984) (in diversity case, Kansas law controls admissibility of evidence of subsequent remedial measures); Davis v. Mgmt. Training Corp. Ctrs., No. 98-4175-RDR, 2001 WL 709380, at *2 (D.Kan. May 30, 2001) (in diversity case, Kansas law controls application of collateral source rule and admissibility of write-offs of plaintiffs' medical expenses); Strahley v. Mercy Health Center of Manhattan, Inc., No. 99-2439-KHV, 2000 WL 1745291, at *1 (D.Kan. Nov. 9, 2000) (same). See also Blanke, 152 F.3d at 1231 ("Congress did not intend the procedural rules to preempt the so-called `substantive' state rules of evidence, such as . . . the collateral source rule. . . ."). Accordingly, this Court will look to Kansas' substantive law to determine the admissibility of this evidence.
B. The Collateral Source Rule
As noted above, Plaintiffs contend that any limitation on their right to present evidence of the full value of the medical treatment they received and limiting them to presenting evidence of what Medicare actually paid on their behalf after the write-offs violates Kansas' collateral source rule. The Kansas Supreme Court has described the rule as follows:
The collateral source rule is a common-law rule preventing the introduction of payments made to or benefits conferred on the injured party from other sources which are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable. Stated another way, the collateral source rule provides that benefits received by the plaintiff from a source wholly independent of and collateral to the wrongdoer will not diminish the damages otherwise recoverable from the wrongdoer.Gregory v. Carey, 246 Kan. 504, 507, 791 P.2d 1329 (1990) (citing Farley v. Engelken, 241 Kan. 663, 665-66, 740 P.2d 1058 (1987)).
Thus, under the collateral source rule, an injured party is entitled to recover full compensatory damages from a tortfeasor irrespective of the payment of any portion of those damages by a source independent of the tortfeasor. Wendtling v. Medical Anesthesia Servs., 237 Kan., 503, 515, 701 P.2d 939 (1985). In addition, the collateral source rule "precludes admission of evidence of benefits paid by a collateral source." Id.
C. Issue Before this Court
The parties do not dispute that Medicare payments are a collateral source and that the collateral source rule applies so as to preclude the admission of evidence that Medicare paid Plaintiffs' medical expenses. What the parties do dispute, and what this Court must decide, is whether Plaintiffs may introduce evidence of the full amount of their medical expenses even though their health care providers wrote off a portion of the charges pursuant to their agreements with Medicare.
The Court could find no Kansas case law addressing whether Medicare payments are a collateral source. The Court, however, was able to locate numerous cases from other jurisdictions that have held Medicare payments to be a collateral source, as long as the plaintiff paid FICA taxes supporting the Medicare fund. See, e.g., Berg v. United States, 806 F.2d 978, 985-86 (10th Cir. 1986) (applying Colorado collateral source rule and characterizing Medicare benefits received by plaintiff in Federal Tort Claims Act as collateral source); Manko v. United States, 830 F.2d 831, 837-38 (8th Cir. 1987) (holding same, but applying Missouri's collateral source rule).
D. The Bates Decision and Application of the Collateral Source Rule to Write-Offs
Defendant relies on the Kansas Court of Appeals' decision in Bates v. Hogg, 22 Kan. App. 2d 702, 921 P.2d 249 (1996), superseded by statute on other grounds, as stated in Frans v. Gausman, 27 Kan. App. 2d518, 526, 6 P.3d 432 (2000), in support of its argument that Plaintiffs should not be allowed to introduce into evidence the full amount of their health care providers' charges. Bates involved an almost identical issue, but in the context of Medicaid rather than Medicare write-offs. In Bates, the trial court prohibited the plaintiff from presenting evidence regarding the full value of her medical expenses and limited the evidence at trial to the actual amounts paid by Medicaid after the write-offs. 22 Kan. App. 2d at 703. Bates appealed the trial court's ruling to the Kansas Court of Appeals, arguing that the court's action violated Kansas' collateral source rule. Id. at 703-704.
The Kansas Court of Appeals rejected Bates' argument and held that the collateral source rule was inapplicable to the write-offs. Id. at 705. In so ruling, the court of appeals first recognized that the Medicaid payments to the health care provider on behalf on the injured plaintiff were benefits from a collateral source. Id. The court then noted that the issue before it was whether the measure of the benefits should be limited to the amount actually paid by Medicaid. Id. The Court observed that the purpose in awarding damages is to make the plaintiff whole by restoring the plaintiff to the position he or she would have occupied before the injury. Id. at 704. The court reasoned that Bates would be made whole and restored to her prior position if she were to recover the amount that Medicaid had paid to her health care providers. Id. at 704-705.
In addition, the court noted the general principle that a plaintiff is entitled to recover only the reasonable value of medical care and expenses for the treatment of his or injuries. Id. Bates' medical providers were bound by their contract with Medicaid not to charge her for any amounts above the amount paid by Medicaid. Thus, the amount allowed by Medicaid became the only amount due, and was therefore the "customary charge," representing the reasonable value of the services. Id. Finally, the court observed that allowing Bates to recover medical expenses from a tortfeasor, when those expenses were never paid by Medicaid or Bates herself, would result in a windfall to Bates. Id. at 706. For these reasons, the appeals court concluded that the collateral source rule did not apply to the write-offs and held that the trial court did not err in limiting Bates' evidence to the amount of the medical expenses actually paid by Medicaid. Id. at 705-706.
E. Application of the Bates Decision to this Case
Plaintiffs argue that Bates should not be applied to this case for several reasons. Plaintiffs first argue that Bates applies only to Medicaid write-offs and not to Medicare write-offs. Even if Bates is applicable to Medicare write-offs, Plaintiffs argue that Bates is a decision of the Kansas Court of Appeals and not the Kansas Supreme Court, and, as such, is not binding on this Court.
Finally, Plaintiffs contend that even if Bates has precedential value, this Court should refuse to apply it because it simply is a wrong decision that is inconsistent with the public policies supporting the collateral source rule and the "reasonable value" standard set forth in K.S.A. 40-3117.
The Court will address each of Plaintiffs' arguments in turn.
1. Does Bates apply to Medicare write-offs?
Plaintiffs argue that Bates is inapplicable here because it dealt with Medicaid rather than Medicare write-offs. As Plaintiffs point out, Medicare and Medicaid are different programs. The Medicaid program is supported by taxpayers in general and is a social welfare program for persons with limited assets and low income, and is usually run by state welfare and social service agencies. Suhor v. Lagasse, 770 So.2d 422, 424 (La.App. 4 Cir. 2000) (quoting SSA Publication No. 05-10024 (January 2000)). In contrast, the Medicare program is the United States' basic health insurance program for people sixty-five years of age or older who are eligible for Social Security retirement benefits. See 42 U.S.C. § 1395c. The Medicare program is supported in great part through taxes paid by employers and employees, like Plaintiffs, under the Federal Insurance Contributions Act ("FICA"), 16 U.S.C. § 310(b). Berg v. United States, 806 F.2d 978, 985 (10th Cir. 1986).
Plaintiffs assert that, as with private insurance agreements where the insureds bargain for their coverage, everyone who pays FICA taxes and therefore contributes to the Medicare fund should be entitled to obtain the full benefit of their bargain. In essence, Plaintiffs contend that one of the benefits they bargained for and received was the health care providers' agreement to write-off certain charges. Plaintiffs argue that they should be entitled to the benefit of that bargain and that their recovery of the amounts written-off should not be considered a windfall.
For several reasons, the Court does not find Plaintiffs' arguments persuasive. First, the write-offs were not a benefit that Plaintiffs were personally responsible for obtaining or that they individually bargained for. Rather, the write-offs are required by operation of federal law, and Medicare providers are prohibited under Medicare law and regulations from seeking reimbursement of the written-off amounts from any source. See 42 U.S.C. § 1395cc; 42 C.F.R. § 489.21(a). "The healthcare debt is simply extinguished by operation of law when the healthcare provider elects to accept payment of assigned benefits directly from . . . Medicare." Suhor, 770 So.2d at 427.
Participating health care providers are required to enter into agreements which provide that they will not collect from the Medicare patient or any other source the difference between the charges billed and the amount paid by Medicare, with the exception of certain co-payments and deductibles. 42 U.S.C. § 1395cc(a)(1)(A); 42 U.S.C. § 1395cc(a)(1)(O); 42 U.S.C. § 1395cc(a)(2)(A); 42 C.F.R. § 489.21(a).
Second, the Court sees no reason to distinguish between the type of benefits received. What is it at issue is the write-off and not the Medicare payment itself. It does not matter whether the benefits received are from the Medicaid or Medicare program — the collateral source rule, by its express terms, simply does not apply to write-offs of expenses that are never paid. The collateral source rule only excludes "evidence of benefits paid by a collateral source." Wendtling v. Medical Anesthesia Servs., 237 Kan. 503, 515, 701 P.2d 939 (1985) (emphasis added). Because a write-off is never paid, it cannot possibly constitute payment of any benefit from a collateral source. See Moorhead v. Crozer Chester Med. Center, 564 Pa. 156, 765 A.2d 786, 791 (2001) (collateral source rules does not apply to amounts written-off by Medicare since those amounts are never paid by any collateral source).
Moreover, as the Kansas Court of Appeals noted in Bates, allowing a plaintiff to recover the amount of charges written-off would result in a windfall to the plaintiff. Permitting Plaintiffs in this case to enter into evidence medical bills for which neither Plaintiffs nor a collateral source had any responsibility to pay and allowing Plaintiffs to recover that amount does not further the purpose of the collateral source rule. The rule is intended to prevent a defendant tortfeasor from escaping from full liability for the consequences of his or her wrongdoing and to prevent a windfall to the tortfeasor, who would otherwise profit from the benefits provided by a third party to the injured party. It is not intended to provide a windfall to plaintiffs. As the Kansas Supreme Court has noted, "the basic principle of damages is to make a party whole by putting it back in the same position, not to grant a windfall." State ex rel. Stephan v. Wolfenbarger McCulley, P.A., 236 Kan. 183, 189, 690 P.2d 380 (1984) (quoting Service Iron Foundry, Inc. v. M.A. Bell Co., 2 Kan. App. 2d 662, 679, 588 P.2d 463 (1978)).
For all of these reasons, the Court finds that it makes no difference whether the written-off benefits are Medicaid or Medicare benefits. Thus, even though Bates involved Medicaid write-offs, it is equally applicable to the Medicare write-offs in this case.
2. Is the Bates rule binding on this Court?
Plaintiffs argue that even if Bates is deemed to apply to Medicare cases, Bates is not binding precedent. Plaintiffs contend that only rulings of the Kansas Supreme Court — and not those of the Kansas Court of Appeals — have any precedential value for this Court. In support of their argument, Plaintiffs cite Kansas Public Employees Retirement Systems v. Reimer Koger Association, Inc., 262 Kan. 635, 669, 941 P.2d 1321 (1997).
Plaintiffs misconstrue the Kansas Public Employees case. That case merely states that decisions of the Kansas Supreme Court are controlling upon federal and lower Kansas state courts a s to issues of Kansas law. See id., 262 Kan. at 669-70. It does not stand for the proposition that Kansas Court of Appeals opinions have no precedential value.
The Tenth Circuit recently addressed this very issue in Sports Unlimited, Inc. v. Lankford Enterprises, Inc., 275 F.3d 996 (10th Cir. 2002). There, the Tenth Circuit rejected a plaintiff's argument that the federal court should disregard a Kansas Court of Appeals decision on a point of Kansas law because the decision was "wrong" and because it was not decided by the highest state court in Kansas. Id. at 1000-1001. In rejecting the plaintiff's argument, the Tenth Circuit first noted that a federal court applying state law has a duty to ascertain "from all the available data what the state law is and apply it rather than to prescribe a different rule . . . [regardless of] how much the state rule may depart from prior decisions of the federal courts." Id. at 1000 (quoting West v. Am. Tel. Tel. Co, 311 U.S. 223, 236-37 (1940)). Although the Tenth Circuit was unable to find any "truly definitive statement from the Kansas Supreme Court on the precedential weight of opinions of the Kansas Court of Appeals," id. at 1001, it did locate Kansas Supreme Court Rule 7.04, which provides that unpublished opinions of the Kansas Court of Appeals "are deemed to be without value as precedent." Id. at 1001 (quoting Kan. Sup. Ct. Rule 7.04). The Tenth Circuit drew the "clear inference" from this provision that "the published opinions of the Kansas Court of Appeals . . . do have precedential value in Kansas." Id. (emphasis in original). It thus held that it was required to regard the Kansas Court of Appeals decision as "authoritative" even though not decided by the highest court of the state. Id. at 1000. In the absence of any "persuasive data" that the Kansas Supreme Court would decide otherwise, the Tenth Circuit followed and applied the Kansas Court of Appeals decision. Id. at 1002.
In light of the above, this Court holds that Bates is authoritative and binding on this Court, at least in the absence of any "persuasive data" demonstrating that the Kansas Supreme Court would decide the write-off issue contrary to Bates.
3. Would the Kansas Supreme Court follow Bates ?
The Court is not persuaded by Plaintiffs' arguments that Bates is inconsistent with the policies supporting the collateral source rule or that the Kansas Supreme Court would reject the Bates rule — in the context of either Medicaid or Medicare write-offs. The Bates rule is entirely consistent with the theories of fair compensation reflected in Kansas Supreme Court cases. Most importantly, it is consistent with the Kansas Supreme Court's pronouncement that "[t]he purpose of awarding damages is to make a party whole by restoring that party to the position he or she was in prior to the injury." Cerretti v. Flint Hills Rural Elec. Coop. Assoc., 251 Kan. 347, 360, 837 P.2d 330 (1992); Short v. Wise, 239 Kan. 171, 178, 718 P.2d 604 (1986). It is also consistent with the "basic principle of damages" espoused by the Kansas Supreme Court that the injured party should not be granted a windfall. See State ex rel. Stephan v. Wolfenbarger McCulley, P.A., 236 Kan. 183, 690 P.2d 380 (1984) (it is a "basic principle of damages" that a plaintiff is to be made whole and not receive a windfall) (quoting Service Iron Foundry, Inc. v. M.A. Bell Co., 2 Kan. App. 2d662, 679, 588 P.2d 463 (1978)).
The Court notes that both Judge Rogers and Judge Vratil have applied Bates to exclude evidence of medical expense write-offs. In Strahley v. Mercy Health Center of Manhattan, Inc., No. 99-2439-KHV, 2000 WL 1745291, at *2 (D.Kan. Nov. 9, 2000), Judge Vratil relied on Bates in holding that plaintiffs could not recover medical expenses written-off by private health care insurance companies. Similarly, in Davis v. Management Training Corporation Centers., No. 98-4175-RDR, 2001 WL 709380, at *2 (D.Kan. May 30, 2001), Judge Rogers applied Bates to exclude evidence of Medicaid write-offs.
Applying Bates to this case will further these goals and will restore Plaintiffs to the position they occupied before the alleged negligence. At the same time, it will prevent Plaintiffs from receiving a windfall.
4. Is Bates inconsistent with K.S.A. 40-3117?
The Court is also not persuaded by Plaintiffs' argument that the Court should disregard Bates because it ignores the "reasonable value"standard set forth in K.S.A. 40-3117. That statute, which applies to actions alleging tort claims against the owner, operator, or occupant of a motor vehicle for injuries caused by motor vehicle accidents, allows the plaintiff to recover non-pecuniary damages only in the event that (1) "the injury requires medical treatment . . . having a reasonable value of $2,000 or more," or (2) the plaintiff suffers certain types of injuries, such as a broken bone or permanent disfigurement. K.S.A. 40-3117. The statute also provides that "the charges actually made for medical treatment expenses shall not be conclusive as to their reasonable value. Evidence that the reasonable value thereof was an amount different from the amount actually charged shall be admissible in all actions to which this subsection applies." Id.
Plaintiffs argue that Bates ignores the mandate of this statute. Admittedly, the Kansas Court of Appeals did not expressly discuss the interplay between write-offs and the "reasonable value" standard of K.S.A. 40-3117. The appeals court did, however, uphold the trial court's ruling that Bates did not meet the $2,000 threshold of the statute and the trial court's underlying ruling that Bates was not allowed to place into evidence the full amount of the medical services he had received, i.e., the full amount charged before the Medicaid write-offs. Bates, 22 Kan. App. 2d at 703-706. Furthermore, as noted above, the appeals court recognized "the fundamental principle" that an injured plaintiff is entitled to recover the "reasonable value" of medical care and expenses for the treatment of his or her injuries. Id. at 704. Finally, the appeals court recognized that, pursuant to the provider's agreement with Medicaid, the provider was required to accept a reduced amount for his or her services and could not charge the Medicaid patient for the full amount. That amount became the "customary" and, therefore, "reasonable," charge. Id. at 705. Implicit in the appeals courts's decision is the holding that the reduced amount payable under the provider's agreement with Medicaid should be deemed the "reasonable value" of the services under K.S.A. 40-3117.
The Court finds that Bates is consistent with the "reasonable value" standard set forth in K.S.A. 40-3117. The Court also finds that the Kansas Court of Appeals' reasoning regarding the "reasonable value" standard applies equally to Medicare write-offs. As is the case with Medicaid, the reduced amount a provider is obligated to accept pursuant to his/her agreement with Medicare should be deemed the "reasonable value" of the services.
IV. Conclusion
The Bates decision dictates that the Court grant Defendant's First Motion in Limine, at least to the extent Defendant seeks to exclude at trial any evidence of medical expenses that represent Medicare write-offs or adjustments. At trial, the parties shall be precluded from mentioning, or introducing any evidence at trial of, the amount of medical expenses that represent Medicare write-offs or adjustments. The true measure of Plaintiffs' medical expenses shall be limited to the amount actually paid by Medicare and shall not include the amount of any write-offs or adjustments.
The Court denies Defendant's First Motion in Limine to the extent Defendant may be seeking to exclude at trial any evidence of medical expenses that represent write-offs made by any private insurers. Nothing in the record indicates that any private insurers have paid Plaintiffs' medical expenses or written-off any amounts from the expenses. Any issue relating to private insurance write-offs is not properly before the Court at this time.
IT IS THEREFORE ORDERED that Defendant's First Motion in Limine (doc. 14) is granted in part and denied in part as set forth herein. At trial, the parties shall be precluded from mentioning, or introducing any evidence at trial of, the amount of medical expenses that represent Medicare write-offs or adjustments.
IT IS SO ORDERED.