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Does the Patchett v. Lee Decision Make Patchwork of Medical Specials in Indiana?

Health Law Alert Edward L. Holloran, III, Grant Krevda

Patchett v. Lee, Opinion 29A04-1501-CT-1 (Ind. Ct. App. Nov. 19, 2015)

On Thursday, November 19, 2015, the Indiana Court of Appeals affirmed a ruling in Patchett v. Lee which held that government healthcare reimbursement rates are not an accurate reflection of the value of healthcare services, and thus are inadmissible as evidence of the reasonable value of medical services in personal injury cases. The Patchett ruling signified a fairly major shift in Indiana personal injury law relative to the determination of medical specials damages.

Ms. Lee was injured in an admitted-fault auto accident in 2012. Her medical specials were billed at $87,706.36. At the time of her accident, she was insured under Indiana's Healthy Indiana Plan (HIP), a state-funded insurance program. Ms. Lee's HIP plan paid $12,051.48 as full and final satisfaction of her medical bills to her various healthcare providers. Patchett sought to introduce the fact that Lee's healthcare providers accepted this paid amount as evidence of the reasonable value of her medical specials damages. The Hamilton County trial court declined Patchett's efforts to introduce this paid amount as evidence at trial, agreeing with Lee that the paid amount did not accurately reflect the reasonable value of her medical services.

Determining Reasonable Value of Medical Specials in Indiana

It is well-established that in personal injury lawsuits the plaintiff is entitled to the reasonable value of their medical services. The often-debated question, then, is how should the reasonable value of medical services be determined? What cost, payment, and reimbursement numbers should be admitted into evidence to aid the fact finder in determining reasonable value?

Arriving at a reasonable value for medical services is more difficult than it may seem due to the nature of the healthcare payment system. Typically, there is the value charged by the provider which is quite high, and that is juxtaposed with the value actually paid in full satisfaction of the claim which is negotiated by a private insurance cFF459ompany. However, with nearly 1.4 million Hoosiers receiving some form of publicly funded health benefits, personal injury cases like Patchett v. Lee often involve government-set reimbursement rates rather than private market negotiated payments. The difference between the provider-billed and government-paid number is often large (about 86 percent in Patchett). However, according to Patchett, the difference between the provider-billed and private (usually insurer)-paid amount is about 60 percent, which is much closer to the government-paid number than it is the provider-billed number.

The great disparity between amounts charged by providers, accepted private payments, and accepted government reimbursement certainly leaves the fact finder with quite a bit of work to do to find the reasonable value of the medical services, and it is not any easier determining what evidence may be admitted to find the reasonable value.

Indiana’s collateral source statute, Ind. Code § 34-44-1-2, precludes the admission into evidence of payments made by any agency, instrumentality, or subdivision of the state or the United States, that have been made before trial to a plaintiff as compensation for the loss or injury for which the action is brought. It also states that insurance benefits paid for by the plaintiff or member of the plaintiff’s family are inadmissible.

Presumably, the collateral source statute will bar the introduction into evidence of the amount paid for healthcare services, whether through private insurance or public benefits. However, there is a well-established common law exception created in Stanley v. Walker, 906 N.E.2d 852 (Ind. 2009), which allows evidence that a healthcare provider agreed to accept less than the amount charged in full satisfaction of the claim. The Stanley exception, which has been the law of the land on medical specials, aided in resolving the confusion caused by the current state of the healthcare pricing system in which a medical provider’s billed charges do not equate to cost. It created a tool to help determine the reasonable value of medical expenses by allowing into evidence the amount accepted by the provider, thus establishing a basis to determine reasonableness somewhere between the accepted or paid amount and billed amount. Under Stanley, the plaintiff typically introduced the total amount of billed charges by his/her providers and the defendant introduced the total paid amount accepted by the plaintiff's insurer (of course, with careful attention not to reference an insurer under the collateral source rule).

The decision in Patchett appears clear on its face. Healthcare claims paid by the government are inadmissible to determine the reasonable value of medical services because they are not calculated based on arm’s-length negotiations. Furthermore, as an additional point, the Patchett court held that the admissibility of claims paid by the government is prohibited under Ind. Evidence Rule 403, because the probative value of the evidence is substantially outweighed by the confusion it causes.

Not So Fast My Friend: Are Government Rates Truly of No Value?

In Patchett, the court appropriately noted, in personal injury cases, one of the duties of the jury is to determine the reasonable value of the medical services provided. Is it appropriate then to conclude that all government healthcare reimbursements are of no help in determining the reasonable value of medical services solely because the rates were not established by arm’s-length negotiations?

It could be argued that certain government-set rates provide appropriate guidance in determining the reasonable value of medical expenses, despite the lack of an arm’s-length negotiation. In the Patchett decision, the court cites a Baylor Law Review article (George A. Nation, III, Determining the Fair and Reasonable Value of Medical Services: The Affordable Care Act, Government Insurers, Private Insurers and Uninsured Patients, Baylor L. Rev. 425 (2013)) which states:

There is a significant body of research suggesting that the reimbursement rates paid by government insurers such as Medicare and Medicaid are actually below fully allocated costs for most hospitals.

Id. at 459. However, just a few sentences after, and not mentioned in the Patchett opinion, the same article states:

Also, especially in the case of Medicare, not all reimbursement rates are unprofitable for hospitals. That is, for certain procedures or facilities the reimbursement rates may be reasonable.

Id. at 460. This raises an interesting question as to why a blanket prohibition on the admission of evidence of government-set reimbursement rates is appropriate. It seems as though, if the goal of the jury is to determine the reasonable value of the medical services, that value should depend upon the procedure and facility, and not just whether the final paid claim was the product of an arm’s-length negotiation.

Interestingly, the Patchett case is based on HIP rates which, admittedly, were lower than Medicare rates at the time that case was tried. However, in early 2015, Indiana rolled out HIP 2.0 to serve a portion of the Medicaid population. With that rollout, government rates were drastically increased for healthcare providers serving the HIP 2.0 population, and now align with Medicare rates. Therefore, it is quite likely that government-set rates in Indiana are reasonable for certain procedures and facilities, and thus would be quite helpful and appropriate to use when determining the reasonable value of medical services in personal injury cases despite not being a product of arm’s length negotiations.

When determining the reasonable value of medical services it is pertinent to set parameters to determine reasonableness. It seems wise to start at a value that is considered reasonable based on the procedure and the facility, not based on whether the payment came from the government.

Patchett's Applicability: Common Law Negligence Versus Statutory Tort Claim

The Patchett court made an important distinction between common law negligence claims and statutory claims. Following Butler v. Ind. Dep't of Ins., 904 N.E.2d 198 (Ind. 2009), the court noted that damages awardable under statutory claims, such as those brought under Indiana's Wrongful Death Act (Ind. Code § 34-23-1, et seq.), must be narrowly construed in accordance with the statutes. For example, under Indiana's Wrongful Death Act, the medical specials recoverable are "[r]easonable medical … expenses necessitated by the wrongful act." Id. at 202-203 (emphasis added). Thus, actual expenses as opposed to reasonable value is the measure for medical specials awarded under that statutory guidance. Expenses, the Patchett court noted, would be the paid/accepted amount, as opposed to the provider's total billed charges.

403 Confusion Should Go Both Ways

If the Stanley exception to the collateral source statute is determined to apply to government-set reimbursement rates, the defense must overcome another hurdle for admissibility of the evidence. The Patchett court held that HIP payments, while probative, are confusingly low and therefore inadmissible under Ind. Rule of Evidence 403. However, if Medicare rates, and thus the new HIP 2.0 rates, are reasonable then it is unclear as to why the probative value of all government-set rates would be outweighed by the confusion caused, especially considering that the rate paid by private insurers is typically closer to the HIP 2.0/Medicare rate than it is to the amount billed by the provider.

The Patchett decision states that on average, private insurers pay 40 percent of the total billed, and in Ms. Lee's specific case, her HIP plan rates amounted to about 14 percent of the total billed. The rollout of HIP 2.0 could change that equation. The drastic rate increase realized under HIP 2.0 means that providers are being reimbursed by up to 30 percent more for certain services. This begs the question: Which number is actually confusing when determining the reasonable value of medical services? Is it the amount paid out by government insurance, which is much closer to the negotiated cost paid by the private market? Or is it the total billed by the provider which, according to Patchett, is only paid out at about 40 percent by private insurers?

Moreover, speaking of confusion, it is conceivable that the average Indiana juror, utilizing his/her life's experiences, will know that the amount a healthcare provider actually bills for a patient's services is not representative of the true value of said services? In other words, the average juror may understandably scratch his/her head when presented with the expectation that they award a plaintiff 100 percent of total billed charges. This presents an equally confusing scenario under Rule 403. Presenting jurors with options, awarding the billed amount, the paid amount, or something in between, gives them confusion-relieving options.

Does a Legislative Solution Work?

With the Patchett decision, we now have multiple classes of plaintiffs in Indiana being treated differently in terms of what they may recover for medical specials damages because of how they are insured or what type of claim they file. Plaintiffs with private insurance are subject to the Stanley rule which permits the entry into evidence of the lower paid amount of their medical bills. As such, the Stanley case plaintiffs may see their medical specials awarded anywhere along the billed, something in between, or paid spectrum. Next, the Patchett plaintiffs insured under government programs, at least for now, are able to recover the much higher billed total of their medical specials with little or no room for anything less of medical specials award. Not to be left out, the Butler plaintiffs in wrongful death cases and other statutory claims may only recover the lower paid amount of their medical specials.

This begs the question: Is it time for the Indiana legislature to clear this up?

For questions, contact Edward Holloran at edward.holloran@quarles.com/(317) 399-2892, Grant Krevda at grant.krevda@quarles.com/(317) 399-2829, or your Quarles & Brady attorney.