Several states have recently taken action to affirm that an injured plaintiff’s recovery for medical expense damages may be fixed at those sums actually paid to the health care providers and need not include write-offs or reductions made pursuant to health insurance contracts or the terms of government programs.  These discounts, sometimes called “phantom damages” because no one will ever pay these totals to the doctors or hospitals, would represent a windfall.  Michigan, Indiana, and Oklahoma have all indicated that the dollar amounts that change hands reflect the proper measure of damages for past medical expenses.     

First, in Michigan, Governor Snyder on January 6, 2017 signed Senate Bill 1104 into law and gave it immediate effect.  That legislation establishes that for medical malpractice claims, the damages recoverable for past health care expenses “shall not exceed the actual damages” and may include only sums paid for the treatment or rehabilitation services.  The new statute prohibits recovery for “any contractual discounts, price reductions, or write-offs by any person.”  Further, courts may not permit a medical malpractice plaintiff to introduce at trial any evidence regarding past medical expenses other than the dollar amounts paid or still owed for the health care services received.   

Next, the Indiana Supreme Court on October 21, 2016 held that defendants may introduce evidence that a plaintiff’s medical providers accepted as full and final payment reduced reimbursement pursuant to a government-sponsored health care program.  This ruling in Patchett v. Lee, 60 N.E.3d 1025 (Ind. 2016) reinforces a previous Indiana Supreme Court decision regarding privately insured plaintiffs and extends its rationale to all reduced amounts, regardless of the nature of the payer.  In that earlier case, Stanley v. Walker, the Court determined Indiana’s collateral source rule allowed a defendant to admit evidence of accepted reimbursements provided there was no mention of insurance.  Generally, the collateral source rule bars evidence of compensation plaintiffs receive from non-party sources, such as insurance, and the plaintiff sought to exclude any mention of write-offs required by the health insurance contract.  The Stanley Court, however, ruled that when a medical provider agrees to accept a discounted amount as full payment, the reduced amount is a relevant and probative measure of the reasonable value of a plaintiff’s medical services. 

In Patchett, the plaintiff was injured in a motor vehicle accident.  The defendant admitted liability but disputed the reasonable value of plaintiff’s medical treatment.  The plaintiff’s medical bills before discounting totaled $87,706.36, but her medical providers actually accepted $12,051.48 – a staggering 86% reduction – in full satisfaction for the treatment based on plaintiff’s enrollment in a government-sponsored healthcare program. The Court held that the rule announced in Stanley should apply to all discounts and accepted reimbursements, regardless of the payer’s identity or whether the reimbursement was negotiated or mandated.  The Court explained that admitting both the billed and paid amounts represented the “fairest” approach and honored its faith in the trier of fact. 

Finally, in Oklahoma, the Supreme Court on September 20, 2016 rejected a constitutional challenge to a statute that limits the evidence admissible to only “actual amounts paid for any services in the treatment of the injured party” and acceptable reimbursement rates for sums still owed to the providers.  With its ruling in Lee v. Bueno, the Court confirmed the Oklahoma Legislature’s ability to define the manner of valuing medical care provided to an injured plaintiff.  Specifically, the Court held that the Oklahoma Legislature properly “exercised its policymaking role and determined that injured parties in a personal injury action will not be able to admit evidence of, and therefore recover damages for, amounts they or their insurer were billed for treatment but are not required to pay.”  Taking this action did not create distinct rules applicable to insured and uninsured parties because neither group is entitled to claim as compensatory damages more than the health care providers receive.  

Limiting recoverable medical expense damages to the sums actually paid or owed to the health care providers recognizes the market value of the treatment and makes the injured plaintiff whole. Failure to adapt the measure of damages to account for current medical billing practices threatens to undermine fundamental principles of compensatory damages and inflate damage awards based on valuations that virtually no one really pays.  The actions in Michigan, Indiana, and Oklahoma reflect an emerging consensus that plaintiffs should not recover “phantom damages.”