11/17/2017
IN THE SUPREME COURT OF TENNESSEE
AT JACKSON
April 5, 2017 Session
JEAN DEDMON v. DEBBIE STEELMAN ET AL.
Appeal by Permission from the Court of Appeals
Circuit Court for Crockett County
No. 3228 Clayburn Peeples, Judge
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No. W2015-01462-SC-R11-CV
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We granted this appeal to address whether our holding in West v. Shelby County
Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014), applies in personal injury cases. We
hold that it does not. West held that “reasonable charges” for medical services under
Tennessee’s Hospital Lien Act, Tennessee Code Annotated sections 29-22-101 to –107
(2012), are the discounted amounts a hospital accepts as full payment from patients’
private insurers, not the full, undiscounted amounts billed to patients. West, 459 S.W.3d
at 46. West defined “reasonable charges” in the context of interpreting the Hospital Lien
Act, and its holding is limited to that Act. As an alternative argument, we are asked in
this appeal to consider applying the principles in West to the determination of reasonable
medical expenses in personal injury cases. Doing so involves the collateral source rule,
which excludes evidence of benefits to the plaintiff from sources collateral to the
tortfeasor and precludes the reduction of the plaintiff’s damage award by such collateral
payments. The rule is based on the principles that tortfeasors should be responsible for
all of the harm they cause and that payments from collateral sources intended to benefit
an injured party should not be used to reduce the liability of the party who inflicted the
injury. After a thorough review of court decisions in Tennessee and across the country
on the collateral source rule, we decline to alter existing law in Tennessee. We hold that
the collateral source rule applies in this personal injury case, in which the collateral
benefit at issue is private insurance. Consequently, the plaintiffs may submit evidence of
the injured party’s full, undiscounted medical bills as proof of reasonable medical
expenses. Furthermore, the defendants are precluded from submitting evidence of
discounted rates accepted by medical providers from the insurer to rebut the plaintiffs’
proof that the full, undiscounted charges are reasonable. The defendants remain free to
submit any other competent evidence to rebut the plaintiffs’ proof on the reasonableness
of the medical expenses, so long as that evidence does not contravene the collateral
source rule. The decision of the Court of Appeals is affirmed in part and reversed in part,
and the case is remanded to the trial court for further proceedings.
Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals
Affirmed in Part and Reversed in Part;
Case Remanded to the Trial Court
HOLLY KIRBY, J., delivered the opinion of the Court, in which JEFFREY S. BIVINS, C.J.,
and CORNELIA A. CLARK, SHARON G. LEE, and ROGER A. PAGE, JJ., joined.
Melanie M. Stewart, Memphis, Tennessee, for the appellants, Debbie Steelman, and
Danny T. Cates, Sr., as co-personal representatives of the Estate of John T. Cook,
deceased.
Glenn K. Vines, Mark N. Geller, Kevin N. Graham, and Jason J. Yasinsky, Memphis,
Tennessee, for the appellee, Jean Dedmon.
Bradford D. Box and Adam P. Nelson, Jackson, Tennessee, for the Amicus Curiae, the
Tennessee Defense Lawyers Association.
W. Bryan Smith, Memphis, Tennessee; John Vail, Washington, D.C.; and Brian G.
Brooks, Greenbrier, Arkansas, for the Amicus Curiae, Tennessee Trial Lawyers
Association.
OPINION
FACTUAL AND PROCEDURAL BACKGROUND
The relevant facts in this appeal are undisputed. In February 2010,
Plaintiff/Appellee Jean Dedmon was involved in an automobile accident with John T.
Cook. Mrs. Dedmon was seriously injured in the accident. Mrs. Dedmon and her
husband, Fred Dedmon (collectively, “Plaintiffs”), filed this lawsuit against Mr. Cook,
alleging that his negligence caused Mrs. Dedmon to suffer severe and permanent injuries
and to incur past and future medical expenses. The complaint itemized Mrs. Dedmon’s
medical bills from sixteen different medical providers, which totaled $52,482.87. The
bills were attached to the complaint.
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After the complaint was filed, Mr. Cook died. In September 2013, the Plaintiffs
filed an amended complaint substituting Mr. Cook’s personal representatives, Debbie
Steelman and Danny T. Cates (collectively, “Defendants”), for Mr. Cook.1
Meanwhile, in March 2013, the Plaintiffs deposed one of Mrs. Dedmon’s treating
physicians, neurosurgeon Vaughn Allen, M.D. Dr. Allen treated Mrs. Dedmon between
April 2010 and September 2012, and in September 2010, he performed neck surgery on
her.2 In his deposition, Dr. Allen testified that all of Mrs. Dedmon’s medical bills,
including those from his own clinic and those from Mrs. Dedmon’s other medical
providers (hospitals, physical therapists, radiologists, etc.), were reasonable and
necessary to a reasonable degree of medical certainty. Dr. Allen’s deposition was filed in
the trial court, and the medical bills were attached as exhibits.3
On December 19, 2014, this Court issued its decision in West v. Shelby County
Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014). West interpreted Tennessee’s Hospital
Lien Act (HLA), Tennessee Code Annotated sections 29-22-101 to –107 (2012). We will
discuss West in more detail below, but suffice it to say at this juncture that West held that
a hospital’s “reasonable charges” under Section 29-22-101(a) are the amount the hospital
accepts from the patient’s private insurer, not the amount in the medical bills sent to the
patient. West, 459 S.W.3d at 46. In the course of its analysis, the West Court commented
that the amount of the full, undiscounted charges billed to the patient is “unreasonable” as
compared to the amount of the discounted bills paid by the insurer. Id. at 44. The
undiscounted bills sent to the patient, the West opinion stated, do “not ‘reflect what is
[actually] being paid in the market place.’ Because ‘virtually no public or private insurer
actually pays the full charges[,] . . . [a] more realistic standard is what insurers actually
pay and what hospitals [are] willing to accept.’” Id. at 45 (quoting What’s the Cost?:
Proposals to Provide Consumers with Better Information about Healthcare Service
Costs: Hearing Before the Subcomm. on Health of the House Comm. on Energy and
Commerce, 109th Cong. 99 (2006) (statement of Dr. Gerard Anderson, Professor,
Bloomberg School of Public Health & School of Medicine at Johns Hopkins University;
Director, Johns Hopkins Center for Hospital Finance and Management)).
1
The amended complaint did not include an itemization of Mrs. Dedmon’s medical bills, nor did
it attach Mrs. Dedmon’s medical bills.
2
Mrs. Dedmon underwent a cervical laminectomy and foraminotomy, which are basically
decompression surgeries intended to take some of the pressure off the spinal nerves.
3
There is no challenge to Dr. Allen’s qualifications to testify as to the reasonableness and
necessity of Mrs. Dedmon’s medical bills.
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Prompted by the holding in West, the Defendants in the instant case filed a
“Motion in Limine to Exclude Evidence of Unreasonable Medical Charges.”4 Citing
West, they argued that evidence of Mrs. Dedmon’s full, undiscounted medical bills must
be excluded because the amounts of those bills are, as a matter of law, unreasonable. The
Defendants asserted that West’s pronouncements on hospital bills “set[ ] forth a new
standard in Tennessee, as a matter of law.” According to the Defendants’ calculations,
Mrs. Dedmon’s health insurer paid only $18,255.42 to satisfy Mrs. Dedmon’s medical
bills. As a result, they argued, the full charges reflected in Mrs. Dedmon’s medical bills
are irrelevant and should be excluded on that basis.
The Defendants also took the position in their motion that “[t]he collateral source
rule does not apply to [the] issue” of whether the discounted amounts paid by Mrs.
Dedmon’s insurance company are admissible. They insisted that “evidence of payment
of the medical expenses by medical insurance will not be used to show that the medical
expenses have been paid in an attempt to mitigate the damages. Rather, the evidence
would be used to show whether the charges are reasonable, as defined by the Supreme
Court.” We interpret the Defendants’ position in the motion in limine as arguing that the
amount paid by Mrs. Dedmon’s insurance company should be submitted into evidence
instead of the undiscounted medical bills sent to the patient. Under the Defendants’
reasoning, there is purportedly no need to mention the fact that the discounted amounts
resulted from Mrs. Dedmon’s insurance contract, so the collateral source rule would not
be violated.
In addition to the motion in limine, the Defendants filed a “Notice of Intent to
Rebut Presumption Pursuant to T.C.A. § 24-5-113.” See Tenn. Code Ann. § 24-5-
113(b)(2). The notice, like the motion in limine, was based solely on the Defendants’
interpretation of West. The Defendants argued that, if the full, undiscounted medical bills
are admitted into evidence, then the discounted amounts accepted by the medical
provider should be admissible to rebut the Plaintiffs’ expert testimony that the
undiscounted charges are reasonable. They argued that, in comparing the two bills, the
full, undiscounted medical bills are unreasonable “under the West standard.”
In March 2015, the trial court conducted a hearing on the Defendants’ motion in
limine. The trial court agreed with the Defendants that, based on West, Mrs. Dedmon’s
full, undiscounted medical bills are irrelevant to the question of her reasonable medical
expenses and that the discounted amounts paid by Mrs. Dedmon’s insurer constituted her
reasonable medical expenses as a matter of law. Accordingly, it granted the motion in
4
The Defendants did not challenge the necessity of Mrs. Dedmon’s medical bills.
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limine and excluded evidence of Mrs. Dedmon’s full, undiscounted medical bills. The
trial court commented that it interpreted West as having advanced a policy of not
allowing “the subterfuge that the medical community uses with regard to insurance and
expenses to sully the court system.” The trial court added that it could not “imagine that
[this Court] would use any other logic in this situation than they used in [the hospital lien
statute] situation.”
Mrs. Dedmon sought permission for an interlocutory appeal from the trial court’s
order. Permission was granted by both the trial court and the Court of Appeals. See
Tenn. R. App. P. 9.
The Court of Appeals reversed. See Dedmon v. Steelman, No. W2015-01462-
COA-R9-CV, 2016 WL 3219070, at *11 (Tenn. Ct. App. June 2, 2016), perm. app.
granted (Tenn. Oct. 21, 2016). Citing limiting language in West, the appellate court
concluded that West did not apply to personal injury cases. Id. at *9. The language in
West cited by the Court of Appeals included a comment that West was intended to define
“reasonable charges for the purpose of Tenn. Code Ann. § 29-22-101(a),” id. (citing
West, 459 S.W.3d at 44), and a footnote stating that the West holding was limited to
private insurance cases, id. (citing West, 459 S.W.3d at 39 n.2). The intermediate
appellate court reasoned: “If the [West] [C]ourt did not intend for its opinion to apply to
hospital liens in all circumstances, surely the court did not intend for its opinion to be
binding as to all determinations of reasonable medical expenses under Tennessee law.”
Id. Thus, the Court of Appeals rejected the Defendants’ argument that West required the
exclusion of Mrs. Dedmon’s full, undiscounted medical bills and reversed the trial court’s
grant of the Defendants’ motion in limine. Id. at *10.
The Court of Appeals then went further. It addressed the evidence that would be
permissible on remand to rebut the Plaintiffs’ expert testimony that the undiscounted
medical bills represented Mrs. Dedmon’s reasonable medical expenses. It held that
evidence of discounted amounts accepted by Mrs. Dedmon’s medical providers may be
admissible to rebut the Plaintiffs’ expert testimony on the reasonableness of the amount
of the full, undiscounted bills. The appellate court acknowledged the collateral source
rule, which generally provides that collateral-source benefits such as insurance must not
be used to “diminish the damages otherwise recoverable from the defendant.” Id. at *10
n.8 (quoting Nance ex rel. Nance v. Westside Hosp., 750 S.W.2d 740, 742 (Tenn. 1988)).
It then commented, however, that “existing law in this state also makes clear that
Defendants are permitted to offer proof contradicting the reasonableness of the medical
expenses,” id. at 11, citing cases from other jurisdictions holding that discounted amounts
accepted by medical providers are admissible to rebut the Plaintiffs’ proof of the
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reasonableness of the full, undiscounted medical bills, so long as insurance is not
mentioned. Id. (quoting Martinez v. Milburn Enters., Inc., 233 P.3d 205, 222-23 (Kan.
2010)) (citing Stanley v. Walker, 906 N.E.2d 852, 858 (Ind. 2009) (holding that the
collateral source rule does not bar evidence of discounted amounts so long as that
evidence is “introduced . . . without referencing insurance”). In a separate concurrence,
Judge Joe G. Riley took the position that the majority’s apparent approval of the “hybrid”
method—allowing evidence of both the full, undiscounted medical bills and also the
discounted amounts accepted by medical providers—“is dictated by existing case law” in
Tennessee.5 Id. (Riley, J., concurring).
In sum, the Court of Appeals reversed the trial court’s grant of the Defendants’
motion in limine and held that Mrs. Dedmon’s full, undiscounted medical bills were
admissible to prove her reasonable medical expenses resulting from the accident. It also
indicated that evidence of the discounted amounts accepted by Mrs. Dedmon’s medical
providers is admissible to rebut the Plaintiffs’ proof that the undiscounted medical bills
are reasonable, so long as insurance is not mentioned. Id. The Court of Appeals
concluded by asking this Court to accept review in this case to address these important
issues. Id. We granted the Defendants’ application for permission to appeal.
ISSUES ON APPEAL AND STANDARD OF REVIEW
On appeal to this Court, the Defendants make the same argument they made in the
lower courts, namely, that the holding in West applies in this case to exclude Mrs.
Dedmon’s full, undiscounted medical bills from the evidence regarding her reasonable
medical expenses. If West does not apply directly, the Defendants argue, the West
principles should nevertheless apply in personal injury cases to limit a plaintiff’s recovery
of “reasonable medical expenses” to the discounted amounts accepted by medical
providers.
All of the issues raised by the Defendants are questions of law, which we review
de novo, affording no deference to the decisions of the lower courts. Colonial Pipeline
Co. v. Morgan, 263 S.W.3d 827, 836 (Tenn. 2008).
ANALYSIS
5
Judge Riley’s separate concurrence also argued that this Court should extend the reasoning in
West to personal injury litigation. Id.
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To address the issues raised in this appeal, we first review Tennessee law on damages
in personal injury cases and the current status of the collateral source rule in Tennessee.
We next review our holding in West and address whether the definition of “reasonable
charges” under the HLA should be applied to the issue of the “reasonable medical
expenses” recoverable in personal injury cases. If the rule in West is not directly
applicable, we will consider whether any of the principles in West should be applied in
personal injury cases to exclude evidence of Mrs. Dedmon’s undiscounted medical bills.
If not, we will address the Court of Appeals’ language indicating that defendants may
submit evidence of discounted amounts accepted by medical providers in order to rebut
evidence that the undiscounted medical bills constitute reasonable medical expenses.
A. Existing Tennessee Law
1. Damages
“A person who is injured by another’s negligence may recover damages from the
other person for all past, present, and prospective harm.” Rye v. Women’s Care Ctr. of
Memphis, MPLLC, 477 S.W.3d 235, 267 (Tenn. 2015) (quoting Singh v. Larry Fowler
Trucking, Inc., 390 S.W.3d 280, 287-88 (Tenn. Ct. App. 2012)). “An award of damages,
which is intended to make a plaintiff whole, compensates the plaintiff for damage or
injury caused by a defendant’s wrongful conduct.” Meals ex rel. Meals v. Ford Motor
Co., 417 S.W.3d 414, 419 (Tenn. 2013) (citing Inland Container Corp. v. March, 529
S.W.2d 43, 44 (Tenn. 1975)). “The party seeking damages has the burden of proving
them.” Overstreet v. Shoney’s, Inc., 4 S.W.3d 694, 703 (Tenn. Ct. App. 1999).
A plaintiff who is injured by another’s negligence is entitled to recover two types of
damages: economic (or pecuniary) damages and non-economic (or personal) damages.
Meals, 417 S.W.3d at 419-20. Economic damages include past medical expenses, future
medical expenses, lost wages, and lost earning potential.6 Id. at 419. A plaintiff may
seek recovery for all “economic losses that naturally result from the defendant’s wrongful
conduct.” Id.
6
Past medical expenses have sometimes been referred to as “out-of-pocket” medical expenses.
The Meals Court said that, in this context, the term “out-of-pocket” medical expenses merely means past
medical expenses as contrasted with future medical expenses. See Meals, 417 S.W.3d at 421 (noting that
the trial judge must consider “past and future medical bills” in assessing the reasonableness of the jury
verdict); id. at 425 (evaluating the plaintiff’s “economic damages, including past medical bills, future
medical bills, and lost earning capacity”).
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“Non-economic damages include pain and suffering, permanent impairment
and/or disfigurement, and loss of enjoyment of life.” Id. at 420 (quoting Elliot v. Cobb,
320 S.W.3d 246, 247 (Tenn. 2010)). Non-economic damages are often highly subjective
and are not susceptible to proof by a specific dollar amount. While there must be some
evidence to justify the amount awarded, plaintiffs are not required to prove the monetary
value of non-economic damages because such injuries are not easily quantified in
economic terms. For this reason, the trier of fact is given broad latitude in fixing the
monetary amount of non-economic damages. Id.; Coakley v. Daniels, 840 S.W.2d 367,
372 (Tenn. Ct. App. 1992) (emphasizing that damages for personal injuries are not based
on fixed rules of law and are generally left to the trier of fact). In practice, “the
traditional lawyer’s rule-of-thumb” is often to value the non-economic damages based on
a multiple of the amount of the plaintiff’s economic damages. See Meals ex rel Meals v.
Ford Motor Co., No. W2010-01493-COA-R3-CV, 2012 WL 1264454, at *27 (Tenn. Ct.
App. Apr. 13, 2012) (Kirby, J., dissenting), rev’d on other grounds, 417 S.W.3d 414
(Tenn. 2013).
In this case, the economic damages at issue are past medical expenses. For this
type of award, a plaintiff must prove that the medical bills paid or accrued because of the
defendant’s negligence were both “necessary and reasonable.” Borner v. Autry, 284
S.W.3d 216, 218 (Tenn. 2009) (citing 22 Am. Jur. 2d Damages § 166 (2003 & Westlaw
2008); 25 C.J.S. Damages § 259 (2002 & Westlaw 2008)); see West, 459 S.W.3d at 44
(“[R]ecoveries for medical expenses in personal injury cases are limited to those
expenses that are ‘reasonable and necessary.’”). “In all but the most obvious and routine
cases, plaintiffs must present competent expert testimony to meet this burden of proof.”
Borner, 284 S.W.3d at 218. “A physician who is familiar with the extent and nature of
the medical treatment a party has received may give an opinion concerning the necessity
of another physician’s services and the reasonableness of the charges.” Long v.
Mattingly, 797 S.W.2d 889, 893 (Tenn. Ct. App. 1990) (citing Emp’rs Ins. of Wausau v.
Carter, 522 S.W.2d 175, 176 (Tenn. 1975)). “To be qualified to render these opinions,
the physician must first demonstrate (1) knowledge of the party’s condition, (2)
knowledge of the treatment the party received, (3) knowledge of the customary treatment
options for the condition in the medical community where the treatment was rendered,
and (4) knowledge of the customary charges for the treatment.” Id.
Our Court of Appeals has explained that, in Tennessee, the focus is on “the
‘reasonable’ value of ‘necessary’ services rendered.” Fye v. Kennedy, 991 S.W.2d 754,
764 (Tenn. Ct. App. 1998) (emphasis in original). In other words, even if it is undisputed
that the medical services were necessary, the plaintiff must prove “that the charges in
question were ‘reasonable.’” Id. To rebut the plaintiff’s proof on medical expenses, the
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“defendant is permitted to introduce relevant evidence regarding necessity,
reasonableness, and whether a claimed service was actually rendered.” Id.
For small claims, Tennessee Code Annotated section 24-5-113(a) provides for a
rebuttable presumption that medical bills of $4,000 or less that are itemized and attached
to the complaint create a prima facie presumption that the bills are both necessary and
reasonable:
(a)(1) Proof in any civil action that medical, hospital[,] or doctor
bills were paid or incurred because of any illness, disease, or injury may be
itemized in the complaint or civil warrant with a copy of bills paid or
incurred attached as an exhibit to the complaint or civil warrant. The bills
itemized and attached as an exhibit shall be prima facie evidence that the
bills so paid or incurred were necessary and reasonable.
(2) This section shall apply only in personal injury actions brought in
any court by injured parties against the persons responsible for causing
such injuries.
(3) This prima facie presumption shall apply to the medical,
hospital[,] and doctor bills itemized with copies of bills attached to the
complaint or civil warrant; provided, that the total amount of such bills
does not exceed the sum of four thousand dollars ($4,000).
Tenn. Code Ann. § 24-5-113(a). The subsection (a) small-claims presumption “assists
claimants for whom the expense of deposing an expert may exceed the value of the
medical services for which recovery is sought.” Borner, 284 S.W.3d at 218. This
presumption may be rebutted “by proof contradicting either the necessity or
reasonableness of the medical expenses.” Id.
Subsection (b) of the same statute sets forth another procedure to create a
rebuttable presumption of the reasonableness (but not the necessity) of the plaintiff’s
medical bills:
(b)(1) In addition to the procedure described in subsection (a), in any
civil action for personal injury brought by an injured party against the
person or persons alleged to be responsible for causing the injury, if an
itemization of or copies of the medical, hospital[,] or doctor bills which
were paid or incurred because of such personal injury are served upon the
other parties at least ninety (90) days prior to the date set for trial, there
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shall be a rebuttable presumption that such medical, hospital[,] or doctor
bills are reasonable.
(2) Any party desiring to offer evidence at trial to rebut the
presumption shall serve upon the other parties, at least forty-five (45) days
prior to the date set for trial, a statement of that party’s intention to rebut
the presumption. Such statement shall specify which bill or bills the party
believes to be unreasonable.
Tenn. Code Ann. § 24-5-113(b). The presumption of reasonableness in subsection (b)
can apply to medical expense claims of any size. See Boettcher v. Shelter Mut. Ins. Co.,
No. 2:14-cv-02796-JPM-dkv, 2016 WL 3212184, at *2 (W.D. Tenn. 2016) (citing Hogan
v. Reese, No. 01-A-01-9801-CV-00023, 1998 WL 430627, at *7 (Tenn. Ct. App. July 21,
1998) (noting that subsection (b), added in 1989, “is not limited as to the amount of such
medical bills”)).
As is apparent from the statutory language, the presumption statute establishes two
different presumptions. Compliance with subsection (a) of Section 24-5-113 creates a
presumption of both necessity and reasonableness. In contrast, compliance with
subsection (b) of Section 24-5-113 creates a presumption only that the medical bills are
reasonable. Id. at *2 n.2 (citing Laird v. Doyle, No. 02A01-9707-CV-00153, 1998 WL
74258, at *2-3 (Tenn. Ct. App. Feb. 24, 1998)). At trial, defendants may present
evidence to rebut the presumption of reasonableness in subsection (b)(1) by following the
procedures set out in subsection (b)(2). Id. (citing Tenn. Code Ann. § 24-5-113(b)(2)).
Regardless of any presumption of necessity and/or reasonableness of medical
expenses under subsections (a) or (b) of Section 24-5-113, plaintiffs must always
establish causation, i.e., “that the injuries or condition for which the medical treatment
was sought was caused by the conduct of the defendant.” Iloube v. Cain, 397 S.W.3d
597, 603 (Tenn. Ct. App. 2012).
2. Collateral Source Rule
The collateral source rule originated from the common law in England as early as
1823. See Dag E. Ytreberg, Annotation, Collateral Source Rule: Injured Person’s
Hospitalization or Medical Insurance as Affecting Damages Recoverable, 77 A.L.R.3d
415, § 2[a] (1977). It was adopted in the United States in 1854 by the United States
Supreme Court in The Propeller Monticello v. Mollison, 58 U.S. (17 How.) 152 (1854).
Id.; see also Mitchell v. Haldar, 883 A.2d 32, 37 & n.4; Baptist Healthcare Sys., Inc. v.
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Miller, 177 S.W.3d 676, 687 (Ky. 2005); Bozeman v. State, 879 So. 2d 692, 700 (La.
2004); Perreira v. Rediger, 778 A.2d 429, 433 (N.J. 2001); Kenney v. Liston, 760 S.E.2d
434, 440 & n.9 (W. Va. 2014). Mollison involved a collision between a steamship (The
Propeller Monticello) and a schooner (the Northwestern) carrying a cargo of salt. The
collision caused the schooner to sink. Mollison, 58 U.S. at 153. The schooner’s owner,
Mollison, recovered for the loss under his insurance policy. When Mollison sued the
owner of the steamship for damages, the steamship owner denied liability based on
Mollison’s recovery under his insurance policy. Id. at 155. The United States Supreme
Court rejected that argument, holding that the steamship owner could not benefit from
Mollison’s receipt of proceeds from his insurance policy. It explained that Mollison’s
insurance contract was “in the nature of a wager between third parties, with which the
[steamship owner] has no concern. The insurer does not stand in the relation of a joint
[tortfeasor], so that satisfaction accepted from [it] shall be a release of others.” Id. The
Court noted that its holding relied upon a doctrine that was “well established at common
law and received in courts of admiralty.” Id. The Court emphasized that the tortfeasor
“is bound to make satisfaction for the injury he has done.” Id.
By 1876, it was “well settled that the reception of the amount of the loss from the
insurers is no bar to an action subsequently commenced against the wrong-doer to
recover compensation for [an] injury occasioned by [a] collision.” The Atlas, 93 U.S.
302, 310 (1876). Atlas recognized that “[n]one can recover twice for the same injury.”
Id. Nevertheless, the United States Supreme Court reasoned: “Compensation by the
wrong-doer after payment by the insurers is not double compensation, for the plain
reason that insurance is an indemnity; and it is clear that the wrong-doers are first liable,
and that the insurers, if they pay first, are entitled to be subrogated to the rights of the
insured against the insurers.” Id. at 310-11; see id. at 310 (indicating the rule is based on
the principle “that a wrong-doer in such a case cannot claim the benefit of the contract of
insurance if effected by the person whose property he has injured”).
The term “collateral source” derived from language used in a Vermont decision,
Harding v. Town of Townshend, 43 Vt. 536 (1871). See Charles R. Mendez, The Impact
of the Affordable Care Act on the Colorado Collateral Source Rule, 94 Denv. L. Rev.
Online 1, 2 n.7 (2017); see also Miller, 177 S.W.3d at 687; Kenney, 760 S.E.2d at 440
n.9. The Vermont Supreme Court in Harding described the rule in terms similar to those
used by the United States Supreme Court in Mollison, but the Vermont Court
characterized insurance proceeds received by the plaintiff as “collateral” to any recovery
from the wrongdoer:
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The policy of insurance is collateral to the remedy against the defendant[]
and was procured solely by the plaintiff and at his expense, and to the
procurement of which the defendant was in no way contributory. It is in
the nature of a wager between the plaintiff and the third person, the insurer,
to which the defendant was in no measure privy, either by relation to the
parties, or by contract, or otherwise. It cannot be said that the plaintiff took
out the policy in the interest or behalf of the defendant, nor is there any
legal principle which seems to require that it be ultimately appropriated to
the defendant’s use and benefit.
Harding, 43 Vt. at 538. After Harding, the principle eventually came to be known as the
“collateral source rule.”
Similar to the United States Supreme Court’s rationale in Mollison, the Vermont
Supreme Court in Harding rejected the defendant’s argument that the collateral source
rule would permit double recovery for plaintiffs, reasoning that the insurer would likely
have subrogation rights. It explained that any recovery against the tortfeasor for amounts
paid by insurance would “create[] an equity between the plaintiff and the insurer, to be
ultimately adjusted between them, in which the defendant has no interest, and with which
he has no concern.” Id. at 539. Thus, the rationale for the rule was that insurance
proceeds emanate from an agreement between the plaintiff and the insurer, wholly
“collateral” to the defendant, so the defendant should not benefit from the plaintiff’s
receipt of proceeds “with which he has no concern.” Id.
Over time, all fifty states, except perhaps Alabama, adopted some form of the
collateral source rule. James L. Branton, The Collateral Source Rule, 18 St. Mary’s L.J.
883, 883-84 (1987) (noting that, until legislative “abolitions of the [collateral source]
rule, it was a part of the jurisprudence in every state”); Kevin S. Marshall, The Collateral
Source Rule and its Abolition: An Economic Perspective, 15-FALL Kan. J.L. & Pub.
Policy 57, 59 & n.28 (Fall 2005) (citing David Fellman, Unreason in the Law of
Damages: The Collateral Source Rule, 77 Harv. L. Rev. 741, 742 (1964), and Alabama
cases to demonstrate the exception in Alabama).
The Tennessee Supreme Court applied the rule espoused in both Mollison and
Harding as early as 1896, though at that time it was not yet called the “collateral source
rule.” Anderson v. Miller, 33 S.W. 615, 617 (Tenn. 1896), cited in Benson v. Tenn.
Valley Elec. Coop., 868 S.W.2d 630, 640 (Tenn. Ct. App. 1993) (recognizing Anderson’s
application of the collateral source rule); see also Ill. Cent. R.R. Co. v. Porter, 94 S.W.
666, 669-70 (Tenn. 1906), cited in Hearn v. Boswell, 1987 WL 5751, at *5 (Tenn. Ct.
- 12 -
App. Jan. 27, 1987) (recognizing Porter’s application of the collateral source). In
Anderson, the plaintiffs sued the defendant in negligence for property damage from a fire;
the plaintiffs had fully recovered for their property damage under their insurance policy.
Anderson, 33 S.W. at 616. The defendant argued that the insurance company that
covered the loss was actually the aggrieved party. The Anderson Court rejected this
argument and held that the plaintiffs were the proper parties to bring the lawsuit. The
Court described the plaintiffs’ contract with their insurance company as unrelated to the
defendant’s obligation to the plaintiffs: “[The defendant] has no concern with any
contract the plaintiff may have with any other party in regard to the goods, and his rights
or liabilities can neither be increased nor be diminished by the fact that such a contract
exists. He has no equities, as against the plaintiff, which can entitle him, under any
circumstances, to an assignment of the plaintiff’s policies of insurance.” Id. (emphasis
added) (quoting Perrott v. Shearer, 17 Mich. 48, 56 (1868)).
Ten years later, the Tennessee Supreme Court in Porter excluded evidence of
gratuitous salary payments received by the plaintiff mail carrier when he missed work
because of the defendant’s negligence. Porter, 94 S.W. at 667-68. The defendant in
Porter argued that evidence of the gratuitous payments was relevant to show that, in
effect, the mail carrier did not “miss” work because he received his salary during his
disability. The defendant contended: “[T]he object of the law is to make the plaintiff
whole, and if he has lost nothing in a pecuniary sense, from his disability, he is not
entitled to damages for loss of time [from work].” Id. at 668. The Court in Porter
rejected this contention; it held that evidence of the gratuitous payments to the mail
carrier was not admissible and should not reduce the railroad’s liability. Id. at 669-70.
The Court cited “the well-settled rule that money received on accident insurance policies
by the injured persons does not diminish the amount of recovery against the wrongdoer.”
Id. at 670.
Since Anderson and Porter, the collateral source rule has become a familiar part of
Tennessee jurisprudence. See, e.g., Nance, 750 S.W.2d at 742; Donnell v. Donnell, 415
S.W.2d 127, 134 (Tenn. 1967), abrogated on other grounds by Dupuis v. Hand, 814
S.W.2d 340 (Tenn. 1991); J&M, Inc. v. Cupples, No. E2004-01328-COA-R3-CV, 2005
WL 1190704, at *3 (Tenn. Ct. App. May 20, 2005) (observing that the collateral source
rule “has long been adopted in Tennessee”); Fye, 991 S.W.2d at 763 (noting that “[a]n
injured party’s right to recover his or her ‘reasonable and necessary expenses’ must be
viewed in connection with the collateral source rule”); Steele v. Ft. Sanders Anesthesia
Grp., P.C., 897 S.W.2d 270, 282 (Tenn. Ct. App. 1994) (“The collateral source rule
permits plaintiffs to prove and recover medical expenses, whether paid by insurance or
not.”); Cherry v. McCullough, No. 02A01-9201-CV-00005, 1992 WL 379074, at *6
- 13 -
(Tenn. Ct. App. Dec. 21, 1992) (noting that any payment the plaintiff receives from a
collateral source is not normally “admissible in evidence and does not reduce or mitigate
the defendant’s liability” in tort cases).
The collateral source rule as applied in Tennessee and elsewhere is succinctly
articulated in the widely-cited Section 920A of the Restatement (Second) of Torts:
(1) A payment made by a tortfeasor or by a person acting for him to a
person whom he has injured is credited against his tort liability, as are
payments made by another who is, or believes he is, subject to the same tort
liability.
(2) Payments made to or benefits conferred on the injured party from other
sources are not credited against the tortfeasor’s liability, although they
cover all or a part of the harm for which the tortfeasor is liable.
Restatement (Second) of Torts Restatement (Second) of Torts § 920A (1977) (entitled
“Effect of Payments Made to Injured Party”); see Nance, 750 S.W.2d at 742 (“[B]enefits
received by a plaintiff from a source wholly independent of and collateral to the
tortfeasor, as a result of the injury inflicted, will not diminish the damages otherwise
recoverable from the defendant”); Donnell, 415 S.W.2d at 134 (“Normally, of course, in
an action for damages in tort, the fact that the plaintiff has received payments from a
collateral source, other than the defendant, is not admissible in evidence and does not
reduce or mitigate the defendant’s liability.”); Fye, 991 S.W.2d at 763-64 (specifically
adopting Section 920A as consistent with Tennessee law); see also Holliday v. State,
W2014-02188-COA-R3-CV, 2015 WL 9255343, at *4-5 (Tenn. Ct. App. Dec. 16, 2015)
(applying Section 920A, as adopted in Fye).
As can be seen in Section 920A, the collateral source rule has evolved as both a
substantive rule of law and an evidentiary rule. Substantively, it affects the amount of
damages that may be awarded against a defendant by prohibiting reduction of a plaintiff’s
recovery by benefits from sources unrelated to the tortfeasor. Comment b to section
920A (“Benefits from collateral sources”) explains the policy reasons for the substantive
aspect of the rule:
b. Benefits from collateral sources. Payments made or benefits conferred
by other sources are known as collateral-source benefits. They do not have
the effect of reducing the recovery against the defendant. The injured
party’s net loss may have been reduced correspondingly, and to the extent
that the defendant is required to pay the total amount there may be a double
- 14 -
compensation for a part of the plaintiff’s injury. But it is the position of the
law that a benefit that is directed to the injured party should not be shifted
so as to become a windfall for the tortfeasor. If the plaintiff was himself
responsible for the benefit, as by maintaining his own insurance or by
making advantageous employment arrangements, the law allows him to
keep it for himself. If the benefit was a gift to the plaintiff from a third
party or established for him by law, he should not be deprived of the
advantage that it confers. The law does not differentiate between the nature
of the benefits, so long as they did not come from the defendant or a person
acting for him. One way of stating this conclusion is to say that it is the
tortfeasor’s responsibility to compensate for all harm that he causes, not
confined to the net loss that the injured party receives. Compare § 924,
Comment c (recovery for harm to earning capacity though plaintiff was on
vacation), § 914A (recovery for damage to earning capacity ordinarily not
reduced by amount of income tax that was not imposed).
Restatement (Second) Torts § 920A cmt. b. Thus, while application of the rule may at
times result in compensation for the plaintiff that exceeds what he spent, collateral
sources intended to benefit the injured party should not be shifted so as to become a
benefit for the tortfeasor. The tortfeasor is held responsible for the harm he caused,
regardless of the “net loss” of the injured party. Id.; see Leitinger v. DBart, Inc., 736
N.W.2d 1, 10 (Wis. 2007) (noting that the purpose of the collateral source rule “is not to
provide the injured person with a windfall, but rather to prevent the tortfeasor from
escaping liability because a collateral source has compensated the injured person”); Id.at
8 (“‘The tortfeasor . . . is not relieved of his obligation to the victim simply because the
victim had the foresight to arrange, or good fortune to receive, benefits from a collateral
source for injuries and expenses.’” (quoting Ellsworth v. Schelbrock, 611 N.W.2d at 764,
767 (Wisc. 2000))). The rule of law is also intended to promote tort deterrence. See
Bozeman, 879 So. 2d at 699. According to the Bozeman Court, “tort deterrence has been
an inherent, inseparable, aspect of the collateral source rule since its inception over one
hundred years ago.” Id.
The evidentiary component of the collateral source rule flows from the rule of law.
If a plaintiff’s recovery may not be reduced by collateral benefits, then “evidence that a
plaintiff has received benefits or payments from a collateral source independent of the
tortfeasor’s procuration or contribution” must be excluded. Bozeman, 879 So. 2d at 699
(noting that “[t]he issue typically arises at trial following the submission of a Motion in
Limine”).
- 15 -
Comment c to Section 920A relates to the evidentiary component of the collateral
source rule. This comment lists the type of benefits precluded by the collateral source
rule: (1) insurance policies, whether maintained by the plaintiff or a third party, (2)
employment benefits, either gratuitous or arising out of contract, (3) gratuities, and (4)
social legislation benefits, such as social security benefits, welfare, and pensions. Id. §
920A cmt. c.7
As most commonly applied, the evidentiary rule bars “any evidence that all or part
of a plaintiff’s losses have been covered by insurance.” Wills, 892 N.E.2d at 1022. One
court has explained that evidence of insurance should not be presented to the jury
“[b]ecause the likelihood of misuse by the jury clearly outweighs the probative value of
evidence of collateral benefits.” Kenney, 760 S.E.2d at 441. “The theory is ‘that the jury
may well reduce the damages based on the amounts that the plaintiff has been shown to
have received from collateral sources.’” Id. (quoting Ratlief v. Yokum, 280 S.E.2d 584,
590 (W. Va. 1981)); Loncar v. Gray, 28 P.3d 928, 933 (Alaska 2001) (“The collateral
source rule exclud[es] evidence of other compensation on the theory that such evidence
7
Comment c to Section 920A states:
c. The rule that collateral benefits are not subtracted from the plaintiff’s recovery applies to the
following types of benefits:
(1). Insurance policies, whether maintained by the plaintiff or a third party. Sometimes,
as in fire insurance or collision automobile insurance, the insurance company is
subrogated to the rights of the third party. This additional reason for keeping the
tortfeasor’s liability alive is not necessary, however, as the rule applies to insurance not
involving subrogation, such as life or health policies.
(2). Employment benefits. These may be gratuitous, as in the case in which the
employer, although not legally required to do so, continues to pay the employee’s wages
during his incapacity. They may also be benefits arising out of the employment contract
or a union contract. They may be benefits arising by statute, as in worker’s compensation
acts or the Federal Employers’ Liability Act. Statutes may subrogate the employer to the
right of the employee, or create a cause of action other than by subrogation.
(3). Gratuities. This applies to cash gratuities and to the rendering of services. Thus the
fact that the doctor did not charge for his services or the plaintiff was treated in a veterans
hospital does not prevent his recovery for the reasonable value of the services.
(4). Social legislation benefits. Social security benefits, welfare payments, pensions
under special retirement acts, all are subject to the collateral-source rule.
Restatement (Second) of Torts § 920A cmt. c.
- 16 -
would affect the jury’s judgment unfavorably to the plaintiff on the issues of liability and
damages.” (internal quotations omitted)); Proctor v. Castelletti, 911 P.2d 853, 854 (Nev.
1996) (adopting per se rule barring admission of evidence of a collateral source of
payment for any purpose because “[t]here is an ever-present danger that the jury will
misuse the evidence to diminish the damage award”); Jurgensen v. Smith, 611 N.W.2d
439, 442 (S.D. 2000) (excluding collateral-source evidence “because of the danger that
the jury may be inclined to . . . reduce a damage award, when it learns that plaintiff’s loss
is entirely or partially covered” (internal quotations omitted)).
From its early applications in Tennessee, the collateral source rule has been
applied as both a substantive rule of law and a procedural rule of evidence.8 Porter, 94
S.W. at 668 (applying the rule of evidence in addressing whether the trial court correctly
admitted evidence of the gratuities); Anderson, 33 S.W. at 616 (applying the rule of law
in deciding whether the plaintiff or the insurance company is the proper party to bring
suit); see also Donnell, 415 S.W.2d at 134 (“Normally, of course, in an action for
damages in tort, the fact that the plaintiff has received payments from a collateral source,
other than the defendant, is not admissible in evidence and does not reduce or mitigate
the defendant’s liability.”); J&M, 2005 WL 1190704, at *3 (noting that the collateral
source rule is “a substantive rule of law that bars a tortfeasor from reducing damages
owed to plaintiff by an amount the plaintiff received from sources that are collateral to
the tortfeasor”); Benson, 868 S.W.2d at 640 (“Our courts have held that collateral source
recoveries should not be the subject of a reduction for the defendants in a lawsuit.” (citing
Simpson v. Allied Van Lines, Inc., 612 S.W.2d 172, 177 (Tenn. Ct. App. 1980)).
Although the collateral source rule is firmly embedded as part of American
jurisprudence, a number of states have abrogated the rule to varying degrees. See Bryce
Benjet, A Review of State Law Modifying the Collateral Source Rule: Seeking Greater
Fairness in Economic Damages Awards, 76 Def. Couns. J. 210, 211 (Apr. 2009) (“Of the
fifty States and the District of Columbia, forty-two jurisdictions have enacted and
retained some form of statute that restricts the collateral source rule.”); Paula Hearn
Moore, et al., Applying the Collateral Source Rule to Government Mandated Programs,
15 J. Legal Econ. 31, 45 (April 2009) (“Out of the fifty (50) states, forty-four (44) states
have taken legislative steps to minimize the effects of the collateral source rule.”);
Guillermo Gabriel Zorogastua, Improperly Divorced From its Roots: The Rationales of
the Collateral Source Rule and Their Implications for Medicare and Medicaid Write-
8
Other states have done the same. See, e.g., Wills v. Foster, 892 N.E.2d 1018, 1022 (Ill. 2008);
Bozeman v. State, 879 So. 2d 692, 699 (La. 2004); Leitinger v. DBart, Inc., 736 N.W.2d 1, 7-8 (Wis.
2007); Kenney v. Liston, 760 S.E.2d 434, 441 (W. Va. 2014).
- 17 -
Offs, U. Kan. L. Rev. 463, 463 (Jan. 2007) (“Currently, only twelve states retain the
rule’s immaculate common[-]law form.”).
Tennessee is among the states that have partially abrogated the collateral source
rule in limited circumstances. In 1975, Tennessee’s legislature enacted health care
legislation that partially abrogated the collateral source rule in health care liability
lawsuits. Newton v. Cox, 878 S.W.2d 105, 107 (Tenn. 1998); see Tenn. Code Ann. § 29-
26-119 (2012).9 The purpose of the overall legislation was to contain the cost of medical
malpractice litigation and control the cost of health care. Newton, 878 S.W.2d at 107-08;
see Allied Waste N. Am., Inc. v. Lewis, King, Krieg & Waldrop, P.C., No. 3:13-00254,
2015 WL 1279579, at *12 (M.D. Tenn. Mar. 20, 2015) (noting that Tennessee has made
a statutory exception to the collateral source rule only for medical malpractice cases);
Baker v. Vanderbilt Univ., 616 F. Supp. 330, 332-33 (M.D. Tenn. 1985) (upholding the
constitutionality of Section 29-26-119); Tenn. Op. Atty. Gen. No. 12-58, 2012 WL
2153495, at *1 (“Damages in medical malpractice actions have been limited since 1975
by Tenn. Code Ann. § 29-26-119 which abrogates the collateral source rule.”).
Tennessee courts have also held that the collateral source rule does not apply to workers’
compensation benefits, because applying the rule in such cases “would conflict with
Tenn. Code Ann. § 50-6-204(a)(1) and would require legislative action to implement.”
State Auto. Mut. Ins. Co. v. Hurley, 31 S.W.3d 562, 566 (Tenn. Sp. Workers’ Comp. App.
Panel 2000). The collateral source rule has remained applicable in Tennessee in other
personal injury cases.
Against this backdrop, we review our decision in West and consider its
applicability in personal injury cases.
9
That section of the health care liability statutes provides:
In a health care liability action in which liability is admitted or established, the
damages awarded may include (in addition to other elements of damages authorized by
law) actual economic losses suffered by the claimant by reason of the personal injury,
including, but not limited to, cost of reasonable and necessary medical care, rehabilitation
services, and custodial care, loss of services and loss of earned income, but only to the
extent that such costs are not paid or payable and such losses are not replaced, or
indemnified in whole or in part, by insurance provided by an employer either
governmental or private, by social security benefits, service benefit programs,
unemployment benefits, or any other source except the assets of the claimant or of the
members of the claimant’s immediate family and insurance purchased in whole or in part,
privately and individually.
Tenn. Code Ann. § 29-26-119 (2012).
- 18 -
B. West v. Shelby County Healthcare Corporation
As they did in the lower courts, the Defendants argue that the holding in West
regarding the definition of “reasonable” medical charges was intended to apply directly in
personal injury litigation. This intent was signaled, they contend, by the West Court’s
choice of words, its observation that recovery for medical expenses in personal injury
cases is also limited to expenses that are “reasonable and necessary,” and West’s
approving citation of cases from other jurisdictions holding that a medical provider’s
billing price is not necessarily representative of either the cost of the services or their
value. See West, 459 S.W.3d at 45 (citing cases). For these reasons, the Defendants
maintain that we should apply the West holding to the question of what medical charges
are “reasonable” in personal injury tort litigation.
We begin our discussion of West by briefly describing the general billing practices
of the defendant hospital in that case. The hospital in West, like many (but not all)
medical providers,10 engaged in the common practice of billing patients for medical
services at full, undiscounted rates and then accepting a discounted amount from the
patient’s private insurance company.11 West, 459 S.W.3d at 37; see id. (noting that the
hospital has “two versions of its costs,” one for the patient and one for the patient’s
insurance company). The difference between the full bill and the discounted amount is
generally referred to as the “negotiated rate differential,” or sometimes informally as a
“write-off.” See Lori A. Roberts, Rhetoric, Reality, and the Wrongful Abrogation of the
Collateral Source Rule in Personal Injury Cases, 31 Rev. Litig. 99, passim (Winter 2012)
(referring to the difference variously as either “negotiated rate differential” or “write-
off”); compare Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1140 (Cal.
2011) (refusing to call the “negotiated rate differential” a “write-off” because the amount
is not gratuitous), with Kenney, 760 S.E.2d at 438 (referring to the difference as
“discounts or write-offs”).
10
As discussed below, any generalization about our health care system must be accompanied by
disclaimers regarding the numerous exceptions. Here, we recognize that many medical providers accept
only certain insurance carriers and that some choose not to accept insurance at all. In West, the defendant
hospital accepted the insurance of both of the plaintiff patients and received payment from those
insurance companies at negotiated, discounted rates. West, 459 S.W.3d at 38-39.
11
The West Court specified that “[n]othing in [the] opinion should be construed to apply to
hospital liens filed against patients who are TennCare enrollees.” West, 459 S.W.3d at 39 n.2.
- 19 -
West arose under the Tennessee Hospital Lien Act (HLA), Tennessee Code
Annotated section 29-22-101 to –107 (2012). West, 459 S.W.3d at 37. The HLA is
implicated when a hospital provides treatment to a patient who was injured by someone
else’s negligence. In that situation, the HLA provides that the hospital “shall have a lien”
on the patient’s tort claim in the amount of “all reasonable and necessary charges for
hospital care, treatment[,] and maintenance” of the patient.12 Tenn. Code Ann. § 29-22-
101(a). As a matter of practice, the hospital in West pursued recovery of a patient’s full,
undiscounted hospital bill from the third-party tortfeasor, even if insurance covered its
bills at a discounted rate. West, 459 S.W.3d at 37. After the patient’s insurer paid the
hospital at the discounted rate, the hospital did not release its lien; it continued its efforts
to recover the full bill from the third-party tortfeasor. Id. at 37-38. If the hospital
recovered the amount of the full, undiscounted bill from the tortfeasor, it would
reimburse the discounted amount to the insurance company and retain the negotiated rate
differential. Only then would the hospital release its statutory lien. Id. at 38.
The plaintiffs in West were two hospital patients whose injuries were caused by
someone else’s negligence. In accordance with the above-described practice, the hospital
asserted a lien under the HLA for the full, undiscounted amount of the plaintiffs’ hospital
bills. Id. at 38-39. The plaintiffs sued the hospital, seeking to quash the lien and recover
damages. They argued that the hospital’s standard practice amounted to unlawful
12
Tennessee Code Annotated section 29-22-101 provides in relevant part:
(a) Every person, firm, association, corporation, institution, or any governmental
unit, including the state of Tennessee, any county or municipalities operating and
maintaining a hospital in this state, shall have a lien for all reasonable and necessary
charges for hospital care, treatment and maintenance of ill or injured persons upon any
and all causes of action, suits, claims, counterclaims or demands accruing to the person to
whom such care, treatment or maintenance was furnished, or accruing to the legal
representatives of such person in the case of such person’s death, on account of illness or
injuries giving rise to such causes of action or claims and which necessitated such
hospital care, treatment and maintenance.
(b) The hospital lien, however, shall not apply to any amount in excess of one
third (⅓) of the damages obtained or recovered by such person by judgment, settlement
or compromise rendered or entered into by such person or such person’s legal
representative by virtue of the cause of action accruing thereto.
Tenn. Code Ann. § 29-22-101(a), (b) (emphasis added).
- 20 -
“balance billing”13 in that the hospital was “receiving payment from its patients’
insurance companies while, at the same time, perfecting a hospital lien for the full,
unadjusted amount of the cost of the medical services provided.” Id. at 39.
At the outset of its analysis, the Court stated: “This appeal requires us to interpret
and apply the statutes governing hospital liens.” Id. at 41. To resolve the issue on
appeal, the Court said, it would address three matters: “First, . . . the general nature of
statutory liens. Second, . . . the . . . purpose of the liens authorized by the HLA. Finally,
we will construe the provisions of the HLA that are relevant to this dispute, and then
apply these provisions to the facts of this case.” Id. at 42. Thus, West clearly described
its analysis as an interpretation of the HLA.
After reviewing the nature of statutory liens and the background of the HLA, West
stated the premise for its interpretation of the HLA. Although “the HLA serves the same
purpose as health insurance,” the Court observed, “a debt owed by a patient to a hospital
is the foundation of a lien under the HLA. Thus, the lien can exist only as long as the
patient owes a debt to the hospital.” Id. at 43 (emphasis added). In other words, the
Court held that the “reasonable charges” under the HLA could not exceed what the
patient was required to actually pay the hospital. Id.
Based on this premise, West characterized the issue before it. Under Section 29-
22-101(a), an HLA lien is for the hospital’s “reasonable and necessary charges.” In light
of its discussion of liens and the purpose of the HLA, the West Court framed the issue on
appeal as whether “reasonable charges” under Section 29-22-101(a) are (1) the hospital’s
full, undiscounted bills, or (2) the discounted amount paid by the patients’ private
insurance. Id. at 43-44. Choosing between the two, West ultimately held that
“reasonable charges” for purposes of the HLA are the discounted amounts that a hospital
agrees to accept from the patient’s private insurer. Id. at 45-46.
13
The Court in West explained that “‘[b]alance billing’ commonly refers to the practice by which
a health care provider bills a patient for the balance of its charges or fees over and above the amount that
the insurance company has agreed to pay as a reasonable charge.” West, 459 S.W.3d at 39 n.4 (citing
Carolyn R. Cody, Professional Licenses and Substantive Due Process: Can States Compel Physicians to
Provide Their Service?, 22 Wm. & Mary Bill Rts. J. 941, 954 (2014)); see also River Park Hosp., Inc. v.
BlueCross BlueShield of Tenn., Inc., 173 S.W.3d 43, 55-56 (Tenn. Ct. App. 2002) (referring to balance
billing as “the practice of the [medical] provider billing the [TennCare managed care organization]
enrollee for any amount charged by the provider but not paid by” the managed care organization and
noting that Tenn.Code Ann. § 56-32-205(c) “requires that TennCare provider contracts include a clause
prohibiting billing the [TennCare managed care organization] enrollee for anything except ‘reasonable
copayment and uncovered expenses.’”).
- 21 -
The Court in West gave two reasons for its conclusion. First, the Court observed,
the amount of the hospital’s full, undiscounted “charges is unreasonable because it does
not ‘reflect what is [actually] being paid in the market place.’ Because ‘virtually no
public or private insurer actually pays full charges[,] . . . [a] more realistic standard is
what insurers actually pay and what the hospitals [are] willing to accept.’” Id. at 44-45
(quoting What’s the Cost?: Proposals to Provide Consumers with Better Information
about Healthcare Service Costs: Hearing Before the Subcomm. on Health of the House
Comm. on Energy and Commerce, 109th Cong. 99 (2006) (statement of Dr. Gerard
Anderson, Professor, Bloomberg School of Public Health & School of Medicine at Johns
Hopkins University; Director, Johns Hopkins Center for Hospital Finance and
Management)). The Court also cited the hospital’s agreement with the patients’ private
insurers to accept the discounted charges as full payment. For these reasons, the Court
held, “with regard to an insurance company’s customers, ‘reasonable charges’ [under the
HLA] are the charges agreed to by the insurance company and the hospital,” i.e., the
discounted amounts actually accepted by the hospital as defined in its contract with the
patient’s private insurance company. Id. at 44-46.
In sum, West began with the postulate that the HLA lien “can exist only as long as
the patient owes a debt to the hospital.” Id. at 43. West then stated the question of
statutory interpretation as a choice between two options, the full, undiscounted bill sent to
the patient or the discounted bill paid by the insurer. Once the question was framed in
this manner, given the hospital’s agreement not to pursue the patient for the negotiated
rate differential, the choice between the two options became inevitable. Thus, West held
that the hospital had no authority “to maintain its lien after the patients’ insurance
company paid the adjusted bill.” Id. at 37.
As noted by the Court of Appeals below, West specifically limited its holding to
application of the HLA. See Dedmon, 2016 WL 3219070, at *9 (noting that West was
specifically limited in application “for the purpose of Tenn. Code Ann. § 29-22-101(a)”
(quoting West, 459 S.W.3d at 44)); see also West, 459 S.W.3d at 39 n.2 (“Nothing in
[the] opinion should be construed to apply to hospital liens filed against patients who are
TennCare enrollees.”). The collateral source rule was not argued or even mentioned in
West.
Despite these disclaimers, overly broad language in West—to the effect that full,
undiscounted medical bills are not “reasonable charges” for purposes of the HLA—
spawned some confusion. Some courts surmised that this Court would hold the same
with respect to “reasonable medical expenses” recoverable in generic personal injury
- 22 -
cases.14 These courts held that the discounted medical bills accepted by the plaintiffs’
medical providers were, as a matter of law, the reasonable medical expenses, and they
excluded evidence of the patients’ full, undiscounted medical bills.15 Noting that West
cited the California Supreme Court’s decision in Howell v. Hamilton Meats & Provisions,
Inc., 257 P.3d 1130, 1133 (Cal. 2011), many of those courts followed the reasoning in
Howell, in which the California Court held that, although “[t]he collateral-source rule
precludes certain deductions against otherwise recoverable damages,” it “does not expand
the scope of economic damages to include expenses the plaintiff never incurred.”16
Howell, 257 P.3d at 1133.
Other courts recognized that the West holding was limited to application of the
HLA and held that the collateral source rule prevents the admission into evidence of
insurance benefits in personal injury cases.17 Like the Court of Appeals below, those
courts identified differences between HLA cases and personal injury cases, and they held
that the collateral source rule applied to prevent the admission into evidence of insurance
benefits in personal injury cases.18
14
At least six Tennessee federal district courts—and the trial court in this case—came to this
conclusion. Pacheco v. Johnson, No. 3:11-cv-00221; 2017 WL 3188429, at *3 (M.D. Tenn. July 27,
2017); Cone v. Hankook Tire Co., No. 14-1122, 2017 WL 401795, at *5-6 (W.D. Tenn. Jan. 25, 2017);
Johnson v. Trans-Carriers, Inc., No. 2:15-cv-2533-STA-dkv, 2017 WL 28004, at *2 (W.D. Tenn. Jan. 3,
2017); Smith v. Lopez-Miranda, 165 F. Supp. 3d 689, 691 (W.D. Tenn. 2016); Hall v. USF Holland, Inc.,
152 F. Supp. 3d 1037, 1040 (W.D. Tenn. Jan. 12, 2016); Keltner v. United States, No. 2:13-cv-2840-
STA-dkv, 2015 WL 3688461, at *4 (W.D. Tenn. June 12, 2015).
15
See Pacheco, 2017 WL 3188429, at *3 (relying on West and rejecting the Court of Appeals
decision below); Cone, 2017 WL 401795, at *6 (same); Johnson, 2017 WL 28004, at *2-3 (same); Smith,
165 F. Supp. 3d at 692 (reasoning that the decision does not conflict with the collateral source rule); Hall,
152 F. Supp. 3d at 1040 (same); Keltner, 2015 WL 3688461, at *4 (same).
16
See Johnson, 2017 WL 28004, at *2 & nn.14, 15 (quoting Keltner, 2015 WL 3688461, at *4,
which quoted Howell, 257 P.3d at 1133); Smith, 165 F. Supp. 3d at 693 (same); Hall, 152 F. Supp. 3d at
1040 & n.4 (same, and finding significant that the West Court cited Howell in its analysis, 459 S.W.3d at
45); Keltner, 2015 WL 3688461, at *4 (finding the reasoning in Howell persuasive).
17
See Barnes v. Malinak, No. 3:15-cv-556, 2017 WL 3687320, at *2 (E.D. Tenn. Aug. 25, 2017)
(relying on the Court of Appeals decision below); Boettcher v. Shelter Mutual, No. 2:14-cv-02796-JPM-
dkv, 2016 WL 3212184, at *3 (W.D. Tenn. June 8, 2016) (same); Ryans v. Koch Foods, LLC, No. 1:13-
cv-234-SKL, 2015 WL 11108908, at *1-2 (E.D. Tenn. Aug. 5, 2015).
18
Barnes, 2017 WL 3687320, at *1 (“Evidence that some medical charges were written off, then,
is squarely barred by the collateral-source rule.”); Boettcher, 2016 WL 3212184, at *3 (noting that “[t]he
Keltner, Hall, and Smith decisions did not consider, however, the presumption of reasonableness that
- 23 -
We now clarify that our holding in West was not intended to apply in personal
injury cases. West was intended only to construe the phrase “reasonable charges” in the
context of determining the maximum amount of a hospital’s HLA lien. Certainly there is
some overlap in that the word “reasonable” is used in connection with the valuation of
medical expenses in many types of cases, such as those based on work-related injuries,
medical malpractice injuries, and generic personal injuries. West, 459 S.W.3d at 44.
However, those types of claims involve different public policies than the policies
underlying the HLA, and they are governed by different statutory schemes and common-
law rules. See, e.g., id. (noting that the presumption in Section 24-5-113(a) does not
apply in the HLA case because the statute applies only to personal injury actions);
Hurley, 31 S.W.3d at 566 (noting the “inherent differences between a tort claim for
personal injury and a claim for workers’ compensation benefits”). West interpreted the
HLA in a manner consistent with the Legislature’s intent and purpose for that statute.
West, 459 S.W.3d at 41 (noting that the HLA must be construed in a manner that would
not “frustrate the General Assembly’s purpose in creating the lien”). Application of the
West holding to personal injury cases would transform what would be a factual finding on
damages into a legal holding by the court. See Dedmon, 2016 WL 3219070, at *10
(“Defendants’ proposed expansion of West would create a new system that allows the
amount accepted by medical providers in satisfaction of the bills to be deemed reasonable
as a matter of law.”). West posed the question under the HLA as deciding between two
choices—either the full bills or the discounted amounts accepted by the hospital—and
ultimately decided that the discounted amounts paid by the insurance company were the
maximum “reasonable charges” under Section 29-22-101(a) as a matter of law. West,
459 S.W.3d at 44 (“[W]e must decide which version of the [hospital’s] costs is the
reasonable cost for the purpose of Tenn. Code Ann. § 29-22-101(a).”). In contrast, in
personal injury cases, the value of a plaintiff’s “reasonable medical expenses” is a fact
question to be decided by the trier of fact, based on the evidence submitted by both
parties. See Meals, 417 S.W.3d at 419 (“We entrust the responsibility of resolving
questions of disputed fact, including the assessment of damages, to the jury.”); Coakley v.
Daniels, 840 S.W.2d 367, 372 (Tenn. Ct. App. 1992) (“The amount allowable as
compensation for personal injuries are not measured by fixed rules of law, but rest largely
in the discretion of the trier of fact . . . .”).
arises under the procedure of [S]ection 24-5-113(b)”); Ryans, 2015 WL 11108908, at *1-2 (“The Court is
not persuaded that the Tennessee Supreme Court intended its decision in West to alter or abolish
Tennessee’s longstanding collateral source rule as articulated in Fye [v. Kennedy, 991 S.W.2d 754 (Tenn.
Ct. App. 1998)].”).
- 24 -
Importantly, as noted by the Court of Appeals below, the collateral source rule and
the presumption statute (Section 24-5-113) are both applicable in personal injury cases.
Neither was implicated in our analysis in West.
For all of these reasons, our holding in West is not directly applicable in personal
injury cases. We reject the Defendants’ argument that West created a new legal standard
for defining “reasonable medical charges” in personal injury cases.
C. Full Bills vs. Discounted Insurance Payments
In the alternative, even if West is not directly applicable in personal injury cases,
the Defendants argue that concepts from West should nevertheless be applied here. The
Defendants and Amicus Tennessee Defense Lawyers Association ask this Court to take
the opportunity to recognize the realities of our current health care system, particularly
the growing disparity between what medical providers charge for their services and what
they will accept. In light of this changed environment, they urge the Court to adopt the
law in jurisdictions that have chosen to limit the recovery of personal injury plaintiffs to
the discounted amounts medical providers accept from insurers in payment for medical
services. See Dedmon, 2016 WL 3219070, at *10 (recognizing the breadth of the
Defendants’ argument). That is, the Defendants argue that plaintiffs’ recovery of
“reasonable medical expenses” in personal injury cases should be limited to the
discounted amounts accepted by medical providers. They contend that the collateral
source rule does not apply and so it does not preclude such a holding.
As outlined above, the collateral source rule has been the law in Tennessee since
1896. See Anderson, 33 S.W. at 617. The rule has served important public policies,
namely, that a tortfeasor’s responsibility is to compensate for all the harm he causes, not
limited to the net loss that the injured party receives, and that a benefit directed to the
injured party should not become a windfall for the tortfeasor. Nevertheless, we recognize
that the law must change “when necessary to serve the needs of the people.” Powell v.
Hartford Accident & Indem. Co., 398 S.W.2d 727, 732 (Tenn. 1966). “Where the reason
fails the rule should not apply.” Brown v. Selby, 332 S.W.2d 166, 169 (Tenn. 1960). We
will consider the Defendants’ arguments in light of these principles.
We agree with the Defendants and the Amicus Tennessee Defense Lawyers
Association that health care has undergone tremendous changes since Tennessee adopted
the collateral source rule. During that time, the types of collateral benefits potentially
- 25 -
available to plaintiffs have multiplied. In addition to the insurance and gratuitous
payments that were the subject of Anderson and Porter, in the current environment,
plaintiffs in personal injury cases may have received benefits from unions, Social
Security, TennCare, Medicaid, Medicare or other social legislation. They may have
received treatment free at a veterans’ facility or at a reduced rate at a charity-affiliated
provider. See Restatement (Second) of Torts § 920A cmt. c. All of these sources would
qualify as collateral benefits potentially subject to the collateral source rule.
During this same period since adoption of the rule, the pricing, payment, and
reimbursement system for health care providers has become exponentially more complex.
“The rise of managed care organizations” has distorted pricing for health care services, as
the deep discounts demanded by the MCOs require providers to offset those discounts by
charging higher prices to other patients. Howell v. Hamilton Meats & Provisions, Inc.,
257 P.3d 1130, 1141 (Cal. 2011). Some social legislation benefits eschew the traditional
fee-for-service model in favor of pool payments or a set “capitation” amount for all
treatment of a single patient. River Park Hosp., Inc. v. BlueCross BlueShield of Tenn.,
Inc., 173 S.W.3d 43, 48 (Tenn. Ct. App. 2002). Hospitals are often legally required to
provide treatment for patients who either are insured by companies with whom the
hospital has no contractual relationship or who have no insurance at all. See
Chattanooga-Hamilton Cty. Hosp. Auth. v. United Healthcare Plan of the River Valley,
Inc., 475 S.W.3d 746, 750 (Tenn. 2015) (referencing federal statutes prohibiting “patient
dumping”); River Park Hosp., 173 S.W.3d at 48 (referencing same federal statute). In
all, providers are “faced with competing objectives of balancing budgets, remaining
competitive, complying with health care and regulatory standards, and continuing to offer
needed services to the community.” Howell, 257 P.3d at 1141 (quoting a 2005 study of
hospital cost setting conducted for the Medicare Payment Advisory Commission). In this
complicated environment, charges by hospitals have come to be “set within the context of
hospitals’ broader communities, including their competitors, payers, regulators, and
customers.” Id.; see also River Park Hosp., 173 S.W.3d at 48. Funding the required
treatment of patients without the means to fully pay for care “depends on the ability of
providers to disproportionately charge various patient categories.” Christopher W.
Blaylock, The Vital Role of the Collateral Source Rule in United States Healthcare
Financing, 36 U. La Verne L. Rev. 1, 14 (2014).
Of significance in this appeal, one result of the increasing complexity of health
care has been a widening of the gap between a medical provider’s standard rate charged
to uninsured patients and the amounts accepted from insurance or social legislation
benefits. See e.g., West, 459 S.W.3d at 37 (noting that medical providers have “two
versions of [their] costs”); River Park Hosp., 173 S.W.3d at 49 (out-of-network provider
- 26 -
insisted on insurance company paying “standard” rates for patients it was required to treat
while insurance company insisted on paying much lower “in-network” rates); Fye, 991
S.W.2d at 762 (medical providers accepted approximately 10% of undiscounted hospital
bill from Medicaid as full payment).
As observed by the Court of Appeals below, all of these developments have
caused “the issue of what constitutes a reasonable medical charge or expense [to become]
the subject of increased litigation due to the increased involvement of government
payors, the complexity of health care reimbursement provisions, financial pressures on
hospitals, and the significance of medical expense recovery in personal injury litigation.”
Dedmon, 2016 WL 3219070, at *5 (citing Michael K. Beard & Dylan H. Marsh,
Arbitrary Healthcare Pricing & the Misuse of Hospital Lien Statutes by Healthcare
Providers, 38 Am. J. Trial Advoc. 255, 272-73 (2014)). Courts across the country have
struggled to understand health care systems and to facilitate personal injury damage
awards that are fair to both plaintiff and defendant.19 See, e.g., Stanley v. Walker, 906
N.E.2d 852, 857 (Ind. 2009) (noting that the complexities of health care make it difficult
to determine the reasonable value of medical services).
Even though “the collateral source rule has been firmly entrenched in the
American jurisprudence of the law of damages for over a century,” see Nora J. Pasman-
Green & Ronald D. Richards, Jr., Who Is Winning the Collateral Source War? The
Battleground in the Sixth Circuit States, 31 U. Tol. L. Rev. at 425 (Spring 2000), the
changed circumstances in health care have prompted reconsideration of the rule in many
jurisdictions. As background for our analysis, we will review the approaches taken in
other jurisdictions. The decisions in other jurisdictions are sometimes dictated by statute,
sometimes developed through a combination of statute and the common law, and
sometimes developed solely through the common law. Some jurisdictions do not have a
clear view, and others have taken inconsistent approaches depending on the facts
involved or the court rendering the decision. In any event, a review of the national
landscape will lend perspective to our analysis of the issues presented in this appeal.
19
Much of the information upon which courts have relied to describe the complexities of our
health care system and the disparity between full bills and discounted payments has come from
commentators. See Stanley, 906 N.E.2d at 863 n.3 (Dickson, J., dissenting) (noting that the majority, the
concurrence, and the dissent all relied on sources outside the record in their analysis). From our review,
most commentary appears written to further an agenda, on both ends of the spectrum, and it is a challenge
for courts to find neutral information.
- 27 -
We first recognize the impact of legislation in this arena. From our review, state
statutes regarding the collateral source rule lack any uniformity whatsoever. As noted
above, a number of states have abrogated the collateral source rule to some degree by
statute,20 usually as a part of broader tort reform legislation.21 Some statutes specify that
the rule is to remain intact for some purposes but not for other purposes.22 Other statutes
allow plaintiffs to submit full, undiscounted bills to prove their reasonable medical
expenses but permit the trial court to reduce the jury’s verdict after trial based on
amounts the plaintiff received from collateral sources.23 Some statutes are interpreted as
20
Courts in at least two of those states have held statutes abrogating the collateral source rule to
be unconstitutional, a violation of the separation of powers doctrine. See, e.g., Johnson v. Rockwell
Automation, Inc., 308 S.W.3d 135, 142 (Ark. 2009) (holding an Arkansas statute unconstitutional when it
restricted evidence of damages to discounted amounts because rules of evidence are within the province
of the courts); O’Bryan v. Hedgespeth, 892 S.W.2d 571, 576 (Ky. 1995) (“Responsibility for deciding
when evidence is relevant to an issue of fact which must be judicially determined, such as the medical
expenses incurred for treatment of personal injuries, falls squarely within the parameters of “practice and
procedure” assigned to the judicial branch by the separation of powers doctrine and [the Kentucky
Constitution].”); see also Denton v. Con-Way S. Exp., Inc., 402 S.E.2d 269, 272 (Ga. 1991) (holding
Georgia’s collateral-source statute violated various provisions of the Georgia Constitution), abrogated on
other grounds by Grissom v. Gleason, 418 S.E.2d 27 (Ga. 1992).
21
Texas enacted its collateral-source statute “as part of a wide-ranging package of tort-reform
measures.” Haygood v. DeEscabedo, 356 S.W.3d 390, 391 (Tex. 2011) (citing Tex. Civ. Prac. & Rem.
Code § 41.0105). It limits a plaintiff’s recovery to the discounted amounts paid by insurance as a matter
of law. Id. at 396 (“[W]e hold that the common-law collateral source rule does not allow recovery as
damages of medical expenses a health care provider is not entitled to charge.”); see also Mo. Rev. Stat. §
490.715 (2016) (stating that the plaintiff may only introduce evidence of “actual cost” paid for services);
Okla. Stat. tit. 12 § 3009.1 (2011 & Supp. 2016) (limiting recovering to actual amount paid for medical
services).
22
North Dakota has abrogated the collateral source rule for some collateral-source benefits, but it
applies a “private insurance” exception in order “to encourage people to secure personal insurance.”
Dewitz v. Emery, 508 N.W.2d 334, 340 (N.D. 1993) (discussing N.D. Cent. Code § 32-03.2-06); see also
White v. Jubitz Corp., 219 P.3d 566, 579-80 (Or. 2009) (applying Or. Rev. Stat. § 31.580, which
generally adheres to the collateral source rule as stated in the Restatement (Second) of Torts § 920A, but
allows a post-trial reduction of damages in some situations). Like Tennessee, some states have abrogated
the collateral source rule to some extent in health care liability legislation. See, e.g., Ariz. Rev. Stat. Ann.
§ 12-565 (2016); Me. Rev. Stat. tit. 24 § 2906 (2016); Md. Code Ann. Cts. & Jud. Proc. § 10-104
(LexisNexis 2013 & Supp. 2017); Wis. Stat. § 893.55(7) (2015-16); W. Va. Code Ann. § 55-7B-9a
(LexisNexis 2016); Utah Code Ann. § 78B-3-405 (2012).
23
Colorado and Idaho permit the trial court to reduce the plaintiff’s verdict after trial. See Colo.
Rev. Stat. § 13-21-111.6 (2017); Idaho Code Ann. § 6-1606 (2010 & Supp. 2017). Other state statutes do
the same, but they also permit the plaintiff to submit proof of amounts they may have paid for the
- 28 -
supporting a so-called “hybrid” method; they allow the jury to consider evidence of both
the plaintiff’s full, undiscounted bills and also the discounted amounts in order to assess
the reasonableness of the plaintiff’s medical expenses.24
In this appeal, we are asked to modify Tennessee’s common law regarding the
collateral source rule.25 Consequently, we focus our review on courts that have addressed
the collateral source rule based on the common law.
Under the common law, courts in other jurisdictions have developed a variety of
approaches to the role of the collateral source rule in awarding damages in personal
injury lawsuits. These approaches have been grouped into three categories: (1) actual
amount paid, (2) benefit of the bargain, and (3) reasonable value. See, e.g., Stayton v.
Del. Health Corp., 117 A.3d 521, 527 (Del. 2015); Wills, 892 N.E.2d at 1025; Bozeman,
879 So. 2d at 701. We will discuss each approach.
A minority of courts follow the “actual amount paid” approach urged by the
Defendants in this appeal. The “actual amount paid” approach limits a plaintiff’s
recovery to the amount actually paid to the medical provider, either by insurance or
otherwise. See Wills, 892 N.E.2d 1018, 1025-26. Courts following this approach
generally seek to avoid allowing plaintiffs any so-called “windfall” from tortfeasors. Id.
They take the position that limiting plaintiffs’ recovery to the amount paid to the medical
insurance, i.e., premiums. Alaska Stat. § 09.17.070 (2016); Conn. Gen. Stat. § 52-225a (2017); Fla. Stat.
§ 768.76 (2017), Mich. Comp. Laws Ann. § 600.6303 (West 2000 & Supp. 2017); Minn. Stat. § 548.251
(2016); Neb. Rev. Stat. § 44-2819 (2010); N.J. Stat. Ann. § 2A:15-97 (2000), abrogated on other
grounds, Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir. 2005); N.Y. C.P.L.R. 4545
(McKinney 2007 & Supp. 2017).
24
Indiana statutes support the “hybrid” method. See Stanley v. Walker, 906 N.E.2d 852, 856-57
(Ind. 2009) (interpreting Ind. Code § 34-44-1-2); see also Crocker v. Grammer, 87 So. 3d 1190 (Ala.
2011) (interpreting Ala. Code. 1975 § 12-21-45); Jaques v. Manton, 928 N.E.2d 434, 438 (Ohio 2010)
(interpreting Ohio Rev. Code Ann. § 2315.20). Iowa’s statute allows a plaintiff to seek recovery of his
full, undiscounted medical bills, provided that they are supported by expert testimony, but it also allows
evidence of discounted amounts to rebut the plaintiff’s expert testimony on the reasonableness of those
bills. See Pexa v. Auto Owners Ins. Co., 686 N.W.2d 150, 156 (Iowa 2004) (interpreting Iowa Code §
668.14 (1999)).
25
As we have indicated, Tennessee has abrogated the collateral source rule through legislation
only in health care liability cases and workers’ compensation cases, neither of which is at issue in this
appeal. See Tenn. Code Ann. § 29-26-119 (health care liability); Hurley, 31 S.W.3d at 566 (workers’
compensation).
- 29 -
provider is not contrary to the collateral source rule because the rule is not implicated.
When insurance payments are used to compensate the plaintiff’s medical providers, they
reason, limiting the plaintiff’s recovery to only the amount actually paid by the insurance
company to the medical provider simply permits the plaintiff to recover no more than he
has expended.
The leading case on the “actual amount paid” approach is Howell v. Hamilton
Meats & Provisions, Inc., 257 P.3d 1130 (Cal. 2011), which was cited in West.
According to the view expressed in Howell, the negotiated rate differential is not an
expense “incurred” by the plaintiff, because neither the plaintiff nor the plaintiff’s insurer
will be expected to pay it. The differential is not an insurance benefit to the plaintiff; it is
instead a benefit to the insurer that results from the insurer’s negotiations with medical
providers:
[P]laintiff did not incur liability for her providers’ full bills, because at the
time the charges were incurred the providers had already agreed on a
different price schedule . . . . Having never incurred the full bill, plaintiff
could not recover it in damages for economic loss. For this reason alone,
the collateral source rule would be inapplicable. The rule provides that “if
an injured party receives some compensation for his injuries from a source
wholly independent of the tortfeasor, such payment should not be deducted
from the damages which the plaintiff would otherwise collect from the
tortfeasor.” The rule does not speak to losses or liabilities the plaintiff did
not incur and would not otherwise be entitled to recover. . . .
The negotiated rate differential lies outside the operation of the collateral
source rule also because it is not primarily a benefit to the plaintiff and, to
the extent that it does benefit the plaintiff, it is not provided as
“compensation for [the plaintiff’s] injuries.” Insurers and medical
providers negotiate rates in pursuit of their own business interests, and the
benefits of the bargains made accrue directly to the negotiating parties. The
primary benefit of discounted rates for medical care goes to the payer of
those rates—that is, in largest part, to the insurer.
Id. at 1143-44 (citations omitted). Howell indicated, with little explanation, that the
Court would not follow the same approach in cases where a plaintiff received donated
medical services or the benefit of charitable aid. Id. at 1140. It did not address cases
involving other benefits, such as social legislation benefits (e.g., veterans’ benefits), or
those in which the medical debt was written off because the uninsured plaintiff was
- 30 -
unable to pay. The Howell Court shrugged off the fact that, under its ruling, “[a]
tortfeasor who injures a member of a managed care organization may pay less in
compensation for medical expenses than one who inflicts the same injury on an uninsured
person treated at a hospital,” commenting only that “[f]ortuity is a fact in life and
litigation.” Id. at 1145 (quoting the defendant’s position).
Few other courts have chosen to follow this approach. Where they have, the result
is often dictated to some extent by statute. See Dyet v. McKinley, 81 P.3d 1236 (Idaho
2003) (holding that Medicare write-offs are not a collateral source and cannot be
recovered), abrogated on other grounds by Verska v. Saint Alphonsus Reg’l Med. Ctr., 81
P.3d 1236, 1238-39 (Idaho 2011); Haygood v. DeEscabedo, 356 S.W.3d 390, 395 (Tex.
2011) (same, and holding “that the common-law collateral source rule does not allow
recovery as damages of medical expenses a health care provider is not entitled to
charge”); Moorhead v. Crozer Chester Med. Ctr., 765 A.2d 786, 791 (Pa. 2001) (same,
and holding that the collateral source rule does not apply to the “illusory” part of the
medical bill), abrogated on other grounds in Northbrook Life Ins. Co. v. Commonwealth,
949 A.2d 333, 337 (Pa. 2008).
The “actual amount paid” approach as articulated in Howell has been the subject
of criticism. The Howell reasoning—that the collateral source rule is inapplicable to
third-party payment of the plaintiff’s medical debts but is still in force for third-party
forgiveness of the same debt—has been called “schizophrenic” and “incoherent.”
McConnell v. Wal-Mart Stores, Inc., 995 F. Supp. 2d 1164, 1170-71 (D. Nev. 2014). It is
also criticized because of the disparity that results in cases where the victim is insured as
opposed to those where the victim is uninsured. As acknowledged by the Court in
Howell, the tortfeasor’s liability is reduced when the victim is prudent and buys
insurance, but it is increased when the victim has no insurance. See Bozeman, 879 So. 2d
at 703. As one court noted, reducing an insured plaintiff’s recovery by the negotiated
rate differential “overlooks the fundamental purpose of the [collateral source] rule, . . . to
prevent a tortfeasor from deriving any benefit from compensation or indemnity that an
injured party has received from a collateral source.” Acuar v. Letourneau, 531 S.E.2d
316, 322 (Va. 2000).
The next approach, the “benefit-of-the-bargain” approach, permits recovery of
full, undiscounted medical bills, including the negotiated rate differential, only where the
plaintiff paid consideration for the insurance benefits. Id. at 322-23. Under this
approach, when the plaintiff is privately insured, the negotiated rate differential is
considered to be “as much of a benefit for which [the plaintiff] paid consideration as are
the actual cash payments made by his health insurance carrier to the health care
- 31 -
providers.” Id. at 322. However, courts that follow this approach do not allow plaintiffs
to recover the amount of their full bills if they did not pay for the benefit of discounted
rates and write-offs. Id.; see Bozeman, 879 So. 2d at 705 (allowing a plaintiff to recover
only what Medicaid paid “because no consideration [was] provided for the benefit”);
Stayton v. Del. Health Corp., 117 A.3d 521, 531 (Del. 2015) (holding that the collateral
source rule does not apply to write-offs for Medicare patients, although it does in other
cases). The “benefit of the bargain” approach seeks to encourage the purchase of
insurance and reward those who exercise prudence and pay for an insurance policy. See
Helfend v. S. Cal. Rapid Transit Dist., 465 P.2d 61, 66 (Cal. 1970).
The “benefit of the bargain” approach has been criticized as protecting the rich
and hurting the poor, since persons who have the ability to pay for insurance are the only
personal injury plaintiffs who may recover the negotiated rate differential. Stated another
way, this approach promotes “inherent discrimination among beneficiaries from different
programs and insurance companies.” Zorogastua, 55 U. Kan. L. Rev. at 492. Another
criticism of the “benefit of the bargain” approach is that it “undermines the collateral
source rule by using the plaintiff’s relationship with a third party to measure the
tortfeasor’s liability.”26 Wills, 892 N.E.2d at 1027; see also Leitinger, 736 N.W.2d at 10
(“The collateral source rule ensures that the liability of similarly situated defendants is
not dependent on the relative fortuity of the manner in which each plaintiff’s medical
expenses are financed.”).
The third general approach may be called the “reasonable value” approach, with a
proviso that courts have defined “reasonable value” in different ways. Under the
reasonable value approach, plaintiffs may recover the “reasonable value” of their medical
expenses, regardless of whether the plaintiff is privately insured. As explained below, of
the courts that use the “reasonable value” approach, a minority defines “reasonable
value” as the actual amount paid, while a majority holds that the “reasonable value” can
be the plaintiff’s full, undiscounted medical bills. A few courts use a “hybrid” method,
allowing the trier of fact to consider both the actual amount paid and the full bill in
determining the “reasonable value” of medical services provided to the plaintiff. Id. at
1027-28.
26
The “benefit of the bargain” approach is contrary to language in Section 920A of the
Restatement (Second) of Torts stating that “there is no reason to differentiate between a payment from a
collateral source and a gratuity from a collateral source.”
- 32 -
The few courts that define “reasonable value” as the amount accepted by medical
providers have generally used reasoning based on comment h to Section 911 of the
Restatement (Second) of Torts, which focuses on the exchange value of property or
services,27 instead of Section 920A (collateral source rule). Id. at 1027; see Bynum v.
Magno, 101 P.3d 1149, 1159 (Haw. 2004) (discussing the difference between sections
911 and 920A). This version of the “reasonable value” approach is similar to the “actual
amount paid” approach, and in fact Howell also relied on comment h to Section 911 of
the Restatement (Second) of Torts. Howell, 257 P.3d at 1138.
Critics of the “reasonable value/actual-amount-paid” approach point out that
section 911 of the Restatement (Second) of Torts was never intended to apply to cases
involving physical harm. Instead, it is intended to apply in cases where a plaintiff sues to
recover the value of property or services the plaintiff rendered to the defendant. In
contrast, section 920A applies to “Harm to the Person,” that is, personal injury cases.
Wills, 892 N.E.2d at 1027 (citing Bynum, 101 P.3d at 1159-60).
Most courts using the reasonable value approach do not limit recovery to the
actual amount paid to the medical provider. “A majority of the courts that have
considered the issue have concluded ‘that plaintiffs are entitled to claim and recover the
full amount of reasonable medical expenses charged, based on the reasonable value of
medical services rendered, including amounts written off from the bills pursuant to
contractual rate reductions.’” Scott v. Garfield, 912 N.E.2d 1000, 1011-12 (Mass. 2009)
(quoting Lopez v. Safeway Stores, Inc., 129 P.3d 487 (Ariz. Ct. App.2006)); see
Montgomery Ward & Co. v. Anderson, 976 S.W.2d 382, 385 (Ark. 1998); Wal-Mart
Stores, Inc., v. Crossgrove, 276 P.3d 562, 565 (Colo. 2012); Bynum, 101 P.3d at 1159-60;
Miller, 177 S.W.3d at 683-64; Werner v. Lane, 393 A.2d 1329, 1335-36 (Me. 1978);
Brethren Mut. Ins. v. Suchoza, 66 A.3d 1073, 1081-82 (Md. 2013); Papke v. Harbert, 738
N.W.2d 510, 535-36 (S.D. 2007); Kenney, 760 S.E.2d at 446-47; Leitinger, 736 N.W.2d
at 7-8; Roberts, 31 Rev. Litig. at 117 (“Most state courts . . . hold that the negotiated rate
differential is a collateral source benefit and allow injured plaintiffs to recover the full
amount of reasonable medical expenses billed . . . .”); see also Melo v. Allstate Ins. Co.,
800 F. Supp. 2d 596, 599-600 (D. Vt. 2011) (predicting that Vermont would apply the
“reasonable value” rationale in Leitinger). These courts adhere to the traditional
collateral source rule, as outlined in Section 920A of the Restatement, that tortfeasors
27
Comment h to Section 911 addresses how to measure the value of services rendered to another,
stating that “[t]he measure of recovery of a person who sues for the value of his services tortiously
obtained by the defendant’s fraud or duress, or for the value of services rendered in an attempt to mitigate
damages, is the reasonable exchange value of the services at the time and place.”
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should be responsible for all the damage they cause and that plaintiffs, not tortfeasors,
should benefit from any negotiated discount. Wills, 829 N.E.2d at 1028-29.
Critics of the “reasonable value/full-bill” approach assert that it can lead to a
“windfall” for the plaintiff, in that the plaintiff may recover the negotiated rate
differential as a medical expense even though he did not actually pay that amount. See
Hanif v. Hous. Auth. of Yolo Cnty., 200 Cal. App. 3d 635, 641 (1988). Some argue that
the full, undiscounted rate does not represent the reasonable value of the medical
expenses, and others point out that permitting the plaintiff to recover the negotiated rate
differential may be viewed as punitive toward the defendant in a situation in which
punitive damages are not warranted.
A few courts that permit plaintiffs to recover their full, undiscounted medical bills
use a “hybrid” method of presenting evidence of “reasonable value” to the jury. Using
this method, plaintiffs may submit their full, undiscounted medical bills to establish the
“reasonable value” of the medical services received. The defendants, however, may
submit evidence that the plaintiff’s medical providers accepted less than the full bills to
rebut the reasonableness of the full bills, so long as insurance is not mentioned. Alicia
Curtis, The Reasonable Value of Medical Services: A Hospital Bill, The Insurer’s
Payment, or the Jury’s Choice?, 23 Me. B.J. 78, 79 (Spring 2008); see Martinez, 233
P.3d at 222-23, Stanley, 906 N.E.3d at 858; see also Robinson v. Bates, 857 N.E.2d 1195,
1200 (Ohio 2006) (applying Ohio statute). These courts claim to adhere to the collateral
source rule as a substantive rule of law. In the view of these courts, permitting the jury to
consider the discounted amounts accepted by medical providers does not violate the
collateral source rule so long as the proof does not reveal the plaintiff’s insurance policy.
As detailed below, this approach, too, has engendered considerable criticism.
Like the majority of jurisdictions, Tennessee courts have generally used the
“reasonable value/full bill” approach, as described by our Court of Appeals in Fye v.
Kennedy, 991 S.W.2d 754, 763-64 (Tenn. Ct. App. 1998). Fye is a wrongful death case
arising out of a car accident. The decedent’s hospital bill was $748,384.08, but her
medical providers accepted $75,264 from Medicaid in full payment of those bills. Fye,
991 S.W.2d at 762. The defendants in Fye made an argument similar to the argument
made in the instant case, that the trial court erred in allowing the plaintiffs to recover “the
fair value of the services rendered as opposed to the actual amount paid by Medicaid.”
Id. While they did not argue that the undiscounted hospital bill was unreasonable, the
defendants in Fye contended that the plaintiffs should not be able to recover the amount
of a bill they were never required to pay since it was “legally forgiven” by the hospital.
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Id. at 764 (“There is no suggestion that the hospital bill for $748,384.08 is other than
‘reasonable.’”).
The Court of Appeals in Fye held that evidence of the $75,164 payment was
inadmissible based on the collateral source rule, adding that the jury “was not entitled to
know that the [decedent’s hospital] bill had been partially forgiven.” Id. at 763-64. The
court explained:
In Tennessee, the focus has always been on the “reasonable” value of
“necessary” services rendered. A plaintiff must prove that the services
rendered were “necessary” to treat the injury or condition in question; and,
even if the services were necessary, that the charges in question were
“reasonable.” The collateral source rule precludes a defendant from
attempting to prove that a “reasonable” charge for a “necessary” service
actually rendered, has been, or will be, paid by another—not the defendant
or someone acting on his or her behalf—or has been forgiven, or that the
service has been gratuitously rendered. However, a defendant is permitted
to introduce relevant evidence regarding necessity, reasonableness, and
whether a claimed service was actually rendered.
Id. at 764. The Court of Appeals reasoned, “The theory underlying the collateral source
rule is that a tortfeasor should be responsible for ‘all harm that he [or she] causes.’” Id.
(quoting Section 920A, comment b). “In applying the collateral source rule and the
theory underlying it, there is no reason to differentiate between a payment from a
collateral source and a gratuity from a collateral source. In either event, there is a benefit
to the injured party that ‘should not be shifted so as to become a windfall for the
tortfeasor.’” Id. (quoting Section 920A, comment b).
The Defendants in the instant case argue that it is time for this Court to depart
from our current method of allowing plaintiffs to put on proof of their full, undiscounted
medical bills in personal injury cases because the amount of those bills is unreasonable as
a matter of law. They urge us to adopt the “actual amount paid” approach in Howell and
hold that plaintiffs in personal injury lawsuits are limited to recovering the discounted
amounts accepted by the providers and actually paid by the plaintiff’s private insurer.
They contend primarily that the “actual amount paid” approach does not implicate the
collateral source rule, but regardless, they maintain that plaintiffs should not be permitted
to recover more than the amount accepted by medical providers.
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Echoing the reasoning in Howell, the Defendants argue that the actual amount paid
approach is not contrary to the collateral source rule because it does not involve evidence
of payments from a collateral source. They note that, under this approach, plaintiffs are
still permitted to introduce evidence of all medical expenses actually incurred by them or
paid on their behalf, without indicating who made the payments. The negotiated rate
differential is not a collateral-source benefit to the plaintiff, they insist, because it benefits
only the plaintiff’s insurance company. We disagree.
From its inception, the most basic application of the collateral source rule has been
to prevent the plaintiff’s recovery from being reduced by benefits that are collateral to the
defendant, such as insurance benefits. Mollison, 58 U.S. at 155; Anderson, 33 S.W. at
616. The negotiated rate differential would not exist but for an insurer who “negotiated”
the “rate differential” from the plaintiff’s full, undiscounted bills. As one court put it, the
negotiated rate differential is “as much of a benefit for which [the plaintiff] paid
consideration as are the actual cash payments made by his health insurance carrier to the
health care providers.” Acuar, 531 S.E.2d at 322; see Chionchio v. Correia, C.A. No. 13-
678-M, 2015 WL 13038439, at *2-3 (D.R.I. Aug. 7, 2015) (holding that, in light of the
fact that “[t]he collateral source rule is deeply rooted in Rhode Island jurisprudence,” the
plaintiff “incurred” her medical charges when she received treatment and she remained
liable for the full bills until they were paid or forgiven); Papke, 738 N.W.2d at 535-36;
Roberts, 31 Rev. Litig. at 137 (citing Michael K. Beard, The Impact of Changes in Health
Care Provider Reimbursement Systems on the Recovery of Damages for Medical
Expenses in Personal Injury Suits, 21 Am. J. Trial Advoc. 453, 467 (1988)); see also
Boettcher, 2016 WL 3212184, at *3 n.4 (“Although Plaintiffs’ insurance company may
have ultimately received a discount on Plaintiffs’ medical bills, Plaintiffs did, at one point
in time, ‘incur’ the total amount of the bills.”). One court has described Howell’s
analysis as “squarely at odds” with the collateral source rule:
The Court rejects the Howell Court’s rationale that a write-down is not
equivalent to forgiveness of debt because write-downs are prearranged
between insurers and providers. A prearranged, yet conditional,
forgiveness of debt is still forgiveness of debt, and write-downs are
conditional upon payment by a particular third-party payor. If an insurer
ultimately rejects coverage for any reason, or if payment by the insurer is
otherwise frustrated after treatment, the provider can, and presumably will,
still charge the full rate to the patient. Even if there is a preexisting
arrangement for a write-down, the write-down does not actually take effect
until payment by the insurer is accepted by the provider, i.e., after treatment
has been rendered, which is when the patient’s duty to pay for it is incurred.
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Providers will not typically provide treatment until a patient signs a
“financial responsibility” document whereby the patient agrees to pay the
full price himself if the insurer ultimately rejects coverage.
McConnell, 995 F. Supp. 2d at 1170-71 (citation to Howell omitted). One commentator
asserted: “[B]ills sent by medical care providers are not a sham for gouging liability
carriers. They are real obligations that, but for a plaintiff’s private health care insurance,
the patient would be responsible for satisfying.” Roberts, 31 Rev. Litig. at 140. “[A]
privately insured patient actually incurs the medical provider’s full charges and only by
virtue of this private contract that he entered into in advance is he spared from paying the
full amount.” Id. The enforceability of the full, undiscounted medical bills, absent the
intervention of insurance, “is illustrated by the number of personal bankruptcy filings in
the United States due to debt resulting from medical bills.” Id. at 141. For these reasons,
we reject the Defendants’ argument that adopting the “actual amounts paid” approach
does not contravene the collateral source rule. The collateral source rule would apply to
preclude evidence of the adjusted price paid by the plaintiff’s insurance carrier for the
medical services received.
Consequently, to adopt the “actual amount paid” approach urged by the
Defendants, we would be required to reject or abrogate the collateral source rule. We
note that, in adopting the “actual amount paid” approach, Howell relied primarily on the
fiction that doing so did not contravene the collateral source rule. We have rejected that
reasoning as specious. However, Howell used other reasoning as well. The Howell
Court indicated that it viewed the amount paid by plaintiffs’ medical insurance as the
most accurate gauge of the reasonable value of medical expenses. In doing so, Howell
appeared to equate “reasonable value” in this context with “market value.” Howell, 257
P.3d at 1142 (“the insured plaintiff is permitted to recover the reasonable value or
‘market value’ of the medical services”). Indeed, even after describing in some detail the
competing demands that impact medical providers’ pricing of services, Howell rather
surprisingly reduced it all down to the following: “Given this state of medical
economics, how a market value other than that produced by negotiation between the
insurer and the provider could be identified is unclear.” Id. It then held that “the plaintiff
may recover no more than the medical providers accepted in full payment for their
services.” Id. at 1143.
In urging adoption of the “actual amount paid” approach, the Defendants pick up
on this thread in Howell by describing the full, undiscounted medical bills as “elevated
above market value.” Going further, the Defendants argue: “The term ‘reasonable
medical expense’ is analogous to ‘fair market value.’ Just as someone who sells a vehicle
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or a home accepts and establishes a fair market value, so do medical providers when they
accept reasonable medical expenses.” Citing a Court of Appeals case on the valuation of
a piece of commercial real property, the Defendants conclude, “Simply stated, there can
be no better way to establish the reasonableness of medical expenses than to show that
amount which was accepted as payment in full.” (Citing Cutshaw v. Hensley, No.
E2014-01561-COA-R3-CV, 2015 WL 4557490, at *1 (Tenn. Ct. App. July 29, 2015)).
We do not pretend to fully understand medical economics or the pricing of
medical services in today’s environment. Even without a full understanding, however, it
is evident that medical expenses cannot be valued in the same way one would value a
house or a car, pegging the “reasonable value” at the fair market value, that is, the
amount a buyer is willing to pay. Health care services are highly regulated and rates are
skewed by countless factors, only one of which is insurance. See Seely v. Archuleta, No.
08-cv-02293-LTB-MKT, 2011 WL 2883625, at *5 (D. Colo. July 18, 2011) (“The
discounted amount of medical services does not necessarily, and in fact probably does
not, reflect the true value of services rendered. . . . A discounted rate. . . generally
reflects the third-party payor’s negotiating power and the fact that providers enjoy prompt
payment, assured collectability.”), quoted in Mathis v. Huff & Puff Trucking, Inc., Case
No. 12-CV-29-F, 2013 WL 11317952, at *2 (D. Wyo. June 7, 2013); Radvany v. Davis,
551 S.E.2d 347, 348 (Va. 2001) (observing that the amounts accepted by the plaintiff’s
medical providers are negotiated amounts that “do not reflect the ‘prevailing cost’ of
those [medical] services to other patients”). Under these circumstances, equating the
value of medical services to the amount the medical provider accepts from an insurance
company is simplistic at best and misleading at worst.
Moreover, in advocating the “actual amount paid” approach, the Defendants and
the Amicus Defense Lawyers’ Association address only the facts presented in this case—
personal injury plaintiffs covered by private insurance. Neither addresses how this
approach would play out under different facts, such as where the plaintiff is covered by
TennCare or by Medicare, or where the plaintiff receives medical care at a veterans’
facility, or where the plaintiff receives care at a charitable facility that accepts payment
on a sliding-scale, or where the plaintiff’s medical care is paid through gift from a parent
or other family member. If the “actual amount paid” approach were applied to all of
these scenarios, even if the plaintiffs had all received exactly the same medical services,
it would cause the awards for their reasonable medical expenses to vary greatly as a
matter of law. If, on the other hand, we were to distinguish among the various types of
collateral benefits and use the “actual amount paid” approach for some collateral benefits
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but not for others, that choice could create an entirely different set of problems.28 For
example, one state has noted that an approach to the collateral source rule that
“effectively creat[es] categories of plaintiffs” based on whether they had private
insurance or received charitable benefits would result in a “possible violation of the equal
protection provisions of the state and federal Constitutions.” Martinez, 233 P.3d at 221
(citing Wentling v. Med. Anesthesia Servs., P.A., 701 P.2d 939, 951 (Kan. 1985) (holding
that legislature’s limitation on collateral source rule was unconstitutional because it
violated the equal protection provisions of the state and federal constitutions by
discriminating between indigent and insured plaintiffs).
As a further concern regarding the “actual amounts paid” approach, Tennessee
Code Annotated section 24-5-113 indicates that introduction into evidence of a personal
injury plaintiff’s full, undiscounted medical bills can create a presumption of the
reasonableness of those amounts when certain criteria are met.29 Tenn. Code Ann. § 24-
28
With little explanation, Howell held that the collateral source rule has “no application to
commercially negotiated price agreements like those between medical providers and health insurers” but
stated that “donated services are considered to fall within the collateral source rule.” Howell, 257 P.3d at
1140. The Howell Court saw “no anomaly” in “recogniz[ing] the gratuitous[-]services exception to the
rule limiting recovery to the plaintiff’s economic loss” because the exception was intended as “an
incentive to charitable aid.” Id. This reasoning is unsatisfactory. The collateral source rule was not
intended to incentivize “charitable aid.” As explained in comment b to section 920A of the Restatement
(Second) of Torts, the collateral source rule “does not differentiate between the nature of the benefits.”
Restatement (Second) of Torts §920A cmt. b. The comment explains that “the tortfeasor’s responsibility
to compensate for all harm that he causes,” and “a benefit that is directed to the injured party should not
be shifted” so as to become a benefit for the tortfeasor. Id. Thus, there is no basis for the Howell Court’s
reasoning that the collateral source rule applies to “donated services” but not to insurance benefits. The
collateral source rule would apply to both.
29
Since this statute was enacted in 1978, Tennessee courts have routinely applied the statutory
presumption to the amount of medical providers’ full, undiscounted bills. See Borner, 284 S.W.3d at
218-19 (discussing the legislative history of the statute); see also West, 459 S.W.3d at 44 (noting that the
presumption in Section 24-5-113 applies to “itemized medical bills” which referred to the full bill, rather
than the discounted bill); Long v. Mattingly, 797 S.W.2d 889, 893 (Tenn. Ct. App. 1990) (discussing
qualities of the expert who can testify to another provider’s medical bills). The lack of any discussion in
these cases regarding whether the amounts “paid or incurred” constitute the discounted amounts accepted
by medical providers is undoubtedly because the collateral source rule precluded the admission of
evidence regarding a plaintiff’s insurance benefits. Given this long-standing judicial application of the
statute, we can presume that the Legislature agrees with this application, and there is no authority to
suggest otherwise. See Hardy v. Tournament Players Club at Southwind, Inc., 513 S.W.3d 427, 444
(Tenn. 2016) (discussing the doctrine of legislative inaction) (quoting Hamby v. McDaniel, 559 S.W.2d
774, 776 (Tenn. 1977)). For this reason, we reject the Defendants’ argument that the language used in
Section 24-5-113 supports their position on appeal.
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5-113. To now hold that the full, undiscounted medical bills are inadmissible because
they are unreasonable as a matter of law would conflict with the statutory process for
obtaining a legal presumption of reasonableness under Section 24-5-113.
For all of these reasons, we must respectfully reject the argument by the
Defendants and the Amicus Tennessee Defense Lawyers’ Association urging us to adopt
the “actual amount paid” approach as articulated in Howell.30
Although the Defendants primarily advocate the “actual amount paid” approach,
the Court of Appeals below indicated its approval of another approach, namely, the
“hybrid” method of proving the “reasonable value” of medical services. Under this
method of proving “reasonable value,” plaintiffs are allowed to submit the full,
undiscounted medical bills into evidence, and defendants are allowed to submit evidence
of discounted amounts accepted by medical providers to rebut the plaintiff’s proof of
reasonableness, so long as insurance is not mentioned. Dedmon, 2016 WL 3219070, at
11 (citing Martinez, 233 P.3d at 222-23, and Stanley, 906 N.E.3d at 858); see also
Patchett v. Lee, 60 N.E.3d 1025, 1032-33 (Ind. 2016); Robinson, 857 N.E.2d at 1200.
Although this “hybrid” method is not specifically promoted by the Defendants in their
appellate briefs, we will address it since the Court of Appeals lifted it up to us.
Though the hybrid approach may sound like an equitable option, it has not been
met with favor. The criticism centers on practical problems that ensue from use of this
approach, as well as its effect of undermining the collateral source rule. The
concurring/dissenting Justices in Martinez, one of the cases cited by the Court of
Appeals, pointed out that twenty-two courts had considered the hybrid method and then
rejected it. Martinez, 233 P.3d at 243 (Davis, C.J., and Rosen and Biles, JJ., concurring
in part and dissenting in part) (citing cases). They warned that the hybrid method,
adopted in Martinez by a slim 4 to 3 majority, “will most surely allow a jury to infer the
existence of a plaintiff’s insurance, which is forbidden by the collateral source rule; inject
jury confusion into what are already complex deliberations at trial; and ultimately lead to
the demise of the collateral source rule itself.” Id. at 237; see also Ty A. Patton, Common
Sense and the Common Law, They’re Not As Common As They Used to Be: A Critique of
30
The Amicus Tennessee Defense Lawyers’ Association also argues that the mandatory
provisions of the Affordable Care Act undermine the necessity of the collateral source rule. Given the
continuing uncertain status of the Affordable Care Act, we decline to base our decision on it. See
Mendez, 94 Denv. L. Rev. Online at *2 & n.8. We also note that, regardless of the Affordable Care Act
or any federal insurance program, some plaintiffs will be uninsured.
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the Kansas Supreme Court’s New Application of The Collateral Source Rule, 50
Washburn L.J. 537, 558 (Winter 2011) (“[I]ntroduction into evidence of the lesser
amount paid creates a significant risk of jury prejudice, overlooks the dubious correlation
that exists between the lesser amount paid and the reasonable cost, and fails to
acknowledge that avenues already exist that permit a defendant to challenge the
reasonableness of a plaintiff’s hospital bill.”).
An Ohio intermediate appellate court expressed frustration with the hybrid
approach adopted by the Ohio Supreme Court in Robinson. Ross v. Nappier, 924 N.E.2d
916, 924 (Ohio Ct. App. 2009). The Ross court described the hybrid approach as
“perplexing,” id. at 919, and observed that it forces litigants “to navigate an uncertain and
complex procedure when presented with a case where the injured party received
collateral benefits from a third party.” Id. at 924. The intermediate appellate court
indicated that the hybrid approach had caused confusion in the verdict rendered in that
case: “[T]he apparent confusion between the distinct concepts addressed in [Robinson]
and [Ohio Revised Code section] 2315.20 resulted in the jury being presented with a
conundrum, and the resultant confusion is apparent from the record and the verdict.” Id.
at 925.
Other courts have explained that, while advocates of the hybrid approach take the
position that it does not contravene the collateral source rule, it is clearly inconsistent
with the rule. The Wisconsin Supreme Court has flatly rejected the suggestion that
discounted amounts should be allowed to rebut the reasonableness of full, undiscounted
bills. Leitinger, 736 N.W.2d at 14. Leitinger reasoned that allowing such evidence
would permit a defendant “to do indirectly what it cannot do directly, that is, it is seeking
to limit [the plaintiff’s] award by introducing evidence that payment was made by a
collateral source.” Id. The Leitinger Court also recognized that unexplained evidence of
“accepted payments” would tend to confuse the jury; any attempt by the plaintiff to
explain the payments “would lead to the existence of a collateral source.” Id. (citing
Covington v. George, 597 S.E.2d 142, 144 (S.C. 2004)); see also Radvany, 551 S.E.2d at
348 (holding that amounts paid by insurance are not admissible on issue of
reasonableness of full bills).
Similarly, the Supreme Court of Illinois has rejected the hybrid method, stating
that evidence of discounted amounts, without mentioning insurance, is improper,
confusing, and would essentially force the plaintiff to introduce counter-evidence that
would either directly or indirectly reveal the existence of insurance. Wills, 892 N.E.2d at
1032-33. As the Wills Court explained:
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[T]he collateral source rule “operates to prevent the jury from learning
anything about collateral income” and . . . the evidentiary component
prevents “defendants from introducing evidence that a plaintiff’s losses
have been compensated for, even in part, by insurance.” Arthur[ v.
Catour], 833 N.E.2d 847[, 852 (Ill. 2005)]. Thus, defendants are free to
cross-examine any witnesses that a plaintiff might call to establish
reasonableness, and the defense is also free to call its own witnesses to
testify that the billed amounts do not reflect the reasonable value of the
services. Defendants may not, however, introduce evidence that the
plaintiff’s bills were settled for a lesser amount because to do so would
undermine the collateral source rule.
Id. at 1033; see also Aumand v. Dartmouth Hitchcock Med. Cntr., 611 F. Supp. 2d 78, 91
(D.N.H. 2009) (evidence of discounted medical bills, even if proffered only to rebut the
reasonableness of the undiscounted bills, “strikes the court as an end-run around the
collateral source rule.”).
The weight of authority criticizing the hybrid method is compelling. We agree
with the courts that have concluded that the hybrid approach undermines and contradicts
the collateral source rule. At best it would cause confusion by inserting into the evidence
discounted payments with no explanation; at worst it would lead the jury to infer the
existence of insurance. Moreover, we do not know how such a “hybrid” approach would
be applied in cases involving collateral sources other than private insurance. It is unclear
what the jury would be told in a case where, for example, the plaintiff paid only a
discounted “sliding scale” amount for medical services at a charitable health care facility,
or one in which the medical provider accepted a heavily discounted settlement with an
uninsured, indigent, “judgment-proof” plaintiff. It is unclear how such an approach
would be used for social legislation benefits such as TennCare, where medical providers
accept pool payments or set capitation amounts for a single patient. These situations
must be considered to evaluate any proposed alternative to the collateral source rule.
As noted above, the majority of courts still apply the collateral source rule to
collateral benefits of all types. Moreover, the collateral source rule continues to further
substantial public policies. The rule permits plaintiffs, rather than tortfeasors, to receive
the benefits of insurance that they had the foresight to purchase. See O’Bryan, 892
S.W.2d at 576 (“There is no legal reason why the tortfeasor or his liability insurance
company should receive a ‘windfall’ for benefits to which the plaintiff may be entitled by
reason of his own foresight in paying the premium or as part of what he has earned in his
employment . . . .”). For collateral benefits other than private insurance, such as
- 42 -
TennCare or Medicare, the same policy reasons apply: the collateral benefits were
intended to benefit the injured party, not the tortfeasor who inflicted the injuries. The
collateral source rule keeps the focus on tortfeasors’ responsibility for paying for all of
the harm they cause, not just plaintiffs’ net loss.
The Defendants and the Amicus Tennessee Defense Lawyers Association have
ably pointed out the shortcomings of the collateral source rule in the current health care
environment. They are substantial and we do not minimize them. However, neither the
Defendants nor the Amicus has pointed us to a better alternative.
All of the alternative common-law approaches have the effect of undermining the
collateral source rule and the significant public policies it continues to serve. A decision
to depart from the established precedent of the collateral source rule would have to be
supported by the firm belief that justice dictates a different path. None of the common-
law alternatives to the collateral source rule give us such a firm belief.
Importantly, we have no assurance that adoption of any of the alternative
approaches would result in a more just and accurate assessment of the reasonable value of
medical services received by plaintiffs in personal injury cases. See Seely, 2011 WL
2883625, at *5 (“The discounted amount of medical services does not necessarily, and in
fact probably does not, reflect the true value of services rendered. . . . A discounted rate,
however, generally reflects the third-party payor’s negotiating power and the fact that
providers enjoy prompt payment, assured collectability.”), quoted in Mathis v. Huff &
Puff Trucking, Inc., Case No. 12-CV-29-F, 2013 WL 11317952, at *2 (D. Wyo. June 7,
2013); Radvany 551 S.E.2d at 348 (observing that the amounts accepted by the plaintiff’s
medical providers are negotiated amounts that “do not reflect the ‘prevailing cost’ of
those [medical] services to other patients”); Stanley, 906 N.E.2d at 857 (expressing doubt
“that the reasonable value of medical services is necessarily represented by either the
amount actually paid or the amount stated in the original medical bill”); see also
Haygood, 356 S.W.3d at 393.
Moreover, instead of simply fixing problems associated with the collateral source
rule, each of the alternative approaches appears to create a whole different set of
problems. Under these circumstances, adoption of any of the alternative common-law
approaches would amount to opening the proverbial “can of worms,” that is, in the course
of trying to remedy problems associated with the collateral source rule, we would end up
creating a litany of other problems.
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The essential criticism of the collateral source rule from the Defendants and the
Amicus Tennessee Defense Lawyers Association is that, absent evidence of the
discounted medical bills, the jury is free to award the amount of the full, undiscounted
medical bills, which does not represent the reasonable value of the medical services.
Excluding evidence of the discounted medical bills, they argue, may result in
overcompensation to a plaintiff who did not have to pay the full amounts.
Indeed, potential overcompensation of plaintiffs has been a recognized drawback
of the collateral source rule since its inception. See Restatement (Second) of Torts §
920A cmt. b (“The injured party’s net loss may have been reduced [by collateral
benefits], and to the extent that the defendant is required to pay the total amount there
may be a double compensation for a part of the plaintiff’s injury.”). However, as
recognized by the United States Supreme Court: “The law contains no rigid rule against
overcompensation. Several doctrines, such as the collateral benefits rule, recognize that
making tortfeasors pay for the damage they cause can be more important than preventing
overcompensation.” McDermott, Inc. v. AmClyde, 511 U.S. 202, 219 (1994) (footnote
omitted).
Under the present law in Tennessee, plaintiffs in personal injury cases may use
their full, undiscounted medical bills to satisfy the burden of proving the reasonable value
of medical expenses. To rebut the plaintiffs’ proof that those charges are reasonable,
defendants are free to submit any competent evidence in rebuttal that does not run afoul
of the collateral source rule. See Fye, 991 S.W.2d at 764 (noting that “a defendant is
permitted to introduce relevant evidence regarding necessity, reasonableness, and
whether a claimed service was actually rendered”). The jury then determines the
“reasonable value” of the medical services in light of all of the evidence.
On balance, we must conclude that the Defendants have presented insufficient
bases for us to depart from Tennessee’s long-standing adherence to the collateral source
rule in personal injury cases. See In re Estate of McFarland, 167 S.W.3d 299, 306 (Tenn.
2005) (“The power of this Court to overrule former decisions ‘is very sparingly exercised
and only when the reason is compelling.’” (quoting Edingbourgh v. Sears, Roebuck &
Co., 337 S.W.2d 13, 14 (Tenn. 1960))). “Recent reports of the impending death of the
collateral source rule are greatly exaggerated.” Mendez, 94 Denv. L. Rev. Online at *9
(quoting Adam G. Todd, An Enduring Oddity: The Collateral Source Rule in the Face of
Tort Reform, the Affordable Care Act, and Increased Subrogation, 43 McGeorge L. Rev.
965, 965 (2012)). We choose not to alter existing law in Tennessee regarding the
collateral source rule.
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In light of our holding, we affirm the Court of Appeals’ reversal of the trial court’s
grant of the Defendants’ motion in limine. To the extent that the Court of Appeals
indicated that the Defendants would, on remand, be able to introduce evidence of lesser
amounts accepted by Mrs. Dedmon’s medical providers in order to rebut the Plaintiffs’
proof on reasonableness, we reverse that holding.
CONCLUSION
In sum, we hold that the definition of “reasonable charges” under the Hospital
Lien Act set forth in West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn.
2014), does not apply directly to determinations of “reasonable medical expenses” in
personal injury cases; the West definition of “reasonable charges” is limited in application
to interpretation of the Hospital Lien Act. We also decline to alter existing law in
Tennessee regarding the collateral source rule. Consequently, the Plaintiffs may submit
evidence of Mrs. Dedmon’s full, undiscounted medical bills as proof of her “reasonable
medical expenses,” and the Defendants are precluded from submitting evidence of
discounted rates for medical services accepted by medical providers as a result of Mrs.
Dedmon’s insurance. The Defendants remain free to submit any other competent
evidence to rebut the Plaintiffs’ proof on the reasonableness of Mrs. Dedmon’s medical
expenses, so long as the Defendants’ proof does not contravene the collateral source rule.
Thus, we affirm the Court of Appeals’ decision to reverse the trial court’s grant of the
Defendants’ motion in limine, but we reverse the Court of Appeals to the extent that it
held that the Defendants could introduce evidence of lesser amounts accepted by Mrs.
Dedmon’s medical providers in order to rebut the Plaintiffs’ proof on reasonableness.
Accordingly, the decision of the Court of Appeals is affirmed in part and reversed
in part, and the case is remanded to the trial court for further proceedings consistent with
this Opinion. Costs on appeal are to be taxed to the Appellants/Defendants, Debbie
Steelman and Danny T. Cates, Sr., as co-personal representatives of the Estate of John T.
Cook, deceased, and their surety, for which execution may issue, if necessary.
_________________________________
HOLLY KIRBY, JUSTICE
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