Mary K. Patchett v. Ashley N. Lee ( 2015 )

Nov 19 2015, 9:08 am
ATTORNEYS FOR APPELLANT ATTORNEY FOR APPELLEE
Robert F. Ahlgrim, Jr. Daniel G. Foote
State Farm Litigation Counsel Tabor Law Firm, LLP
Indianapolis, Indiana Indianapolis, Indiana
Karl L. Mulvaney
Jessica Whelan
Bingham Greenebaum Doll LLP
Indianapolis, Indiana
ATTORNEY FOR AMICUS CURIAE
INDIANA TRIAL LAWYERS
ASSOCIATION
Joseph N. Williams
Price Waicukauski & Riley, LLC
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Mary K. Patchett, November 19, 2015
Appellant-Defendant, Court of Appeals Case No.
29A04-1501-CT-1
v. Appeal from the Hamilton
Superior Court
Ashley N. Lee, The Honorable Steven R. Nation,
Appellee-Plaintiff. Judge
Trial Court Cause No.
29D01-1305-CT-4116
Brown, Judge.
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 1 of 26
[1] In this interlocutory appeal, Mary K. Patchett appeals the trial court’s order
granting a motion in limine filed by Ashley N. Lee, and ordering that evidence
of payments made by the Healthy Indiana Plan (“HIP”) to reimburse Lee’s
medical providers in full satisfaction of Lee’s hospital bills, was barred by the
collateral source statute, Ind. Code § 34-44-1-2, and is not admissible under
Indiana caselaw. Patchett raises one issue, which we revise and restate as
whether the court abused its discretion in ruling that such evidence was
inadmissible. We affirm.1
Facts and Procedural History
[2] On July 5, 2012, Lee was operating her motor vehicle in Noblesville, Indiana,
when Patchett negligently operated her vehicle into the opposing lane and
crashed into Lee. Lee sustained “disfiguring and permanent injuries, including,
but not limited to, multiple orthopedic injuries, fractures, including a fracture of
the right calcaneus, and contusions.” Appellant’s Appendix at 18. Lee was
billed a total of $87,706.36 for the treatment of her injuries by medical
providers. At the time of the accident, Lee was a member of HIP, which was a
“program sponsored by the state of Indiana that provided a more affordable
healthcare choice to thousands of otherwise uninsured individuals throughout
Indiana” in which “[p]articipants are required to make monthly contributions
1
On October 13, 2015, we held oral argument in Indianapolis. We thank counsel for their well-prepared
advocacy.
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 2 of 26
toward coverage.” Id. at 55. HIP paid Lee’s medical providers a total of
$12,051.48 in full satisfaction of her medical bills.
[3] On May 2, 2013, Lee filed a complaint for damages against Patchett, Patchett
admitted negligence and conceded that most of the medical services provided to
Lee were necessary, and the court scheduled the matter for a jury trial on
damages. On September 11, 2014, Lee filed a motion in limine regarding the
HIP payments, seeking to prevent Patchett from “eliciting testimony
concerning or introducing evidence regarding” those payments. Id. at 40.
Patchett filed her objection to the motion on September 22, 2014, and the court
held a pretrial conference on September 24, 2014, and addressed Lee’s motion.
[4] On October 16, 2014, the court issued the order from which this appeal arises
and which made findings consistent with the foregoing, stating in relevant part:
4. That the legal issues to be determined by the Court concerning
the Motion in Limine are: 1) does the Collateral Source Rule
apply; and 2) if the Rule applies, is the amount reimbursed by
HIP admissible under the holding of Stanley[v. Walker, 906
N.E.2d 852 (Ind. 2009), reh’g denied].
5. [] established at common law, the Collateral Source Rule
prohibited defendants from introducing evidence of
compensation received by Plaintiffs from collateral sources.
6. [] Justice Sullivan found the common law Collateral Source
Rule was abrogated by enacting the Collateral Source Statute,
Ind. Code § 34-44-1-2. Shirley v. Russell, 663 N.E.2d 532, 534
(Ind. 1996)[.] This precedent was followed in Stanley. Justice
Dickson, although concurring in the result in Shirley, vehemently
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 3 of 26
dissented in Stanely [sic] finding that the legislature did not intend
to abrogate the Common Law Rule concerning collateral source.
Stanley v. Walker at 862. Justice Dickson found that the statute
only created a “limited exception to the common law rule, which
is otherwise left intact.” Id. Unless revisited by the Indiana
Supreme Court, this Court must follow the majority opinions of
both cases that found that the common law rule was abrogated.
Therefore, this Court will determine the above stated legal issues
based on a statutory analysis and not on a common law analysis.
7. [] [I]n review of the first legal issue concerning whether the
Collateral Source Statute should apply, the Court must first look
to the clear language of the Statute. The Supreme Court found
concerning the issue in Stanley, “. . . evidence of collateral source
payments may not be prohibited except for specified exceptions.”
Id. at 855. One of the specified exceptions is the Statute does not
allow evidence of collateral source payments made by:
Any agency, instrumentality, or subdivision of the state or
the United States; that have been made before trial to a
Plaintiff as compensation for the loss or injury for which
the action is brought . . .
Ind. Code §34-44-1-2(1)(c)(ii). There was nothing in the
pleadings or in the arguments that contended that this exception
does not apply to our factual situation in this case. Therefore, the
Statute applies and the reimbursements made by HIP are
excluded and are not to be presented to the jury.
*****
13. [] [T]here was nothing in the pleadings or in the arguments
which contended that the payments made under HIP are based
on the “reasonable value” of the medical services but that such
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 4 of 26
payments are based upon political and budget concerns as set
forth in the statutes.
14. [] Stanley was based upon the underlying principle that the
focus of the jury is to determine the “reasonable value” of the
medical services that were provided. Based upon this principle,
the Supreme Court found that the jury should be allowed to see
the full amount billed and the amount paid after a negotiated
discount by the insurance.
15. [] [T]his Court cannot find that the Supreme Court ever
intended Stanley to be interpreted to include situations presented
by this case where the reimbursement rate has no relation to the
“reasonable value” of the services provided. This Court finds
[the] reimbursed rate would provide no value and/or guidance to
the jury in the determination of the “reasonable value” of the
medical service provided.
16. The Court further finds, under Ind. Rules of Evidence 403,
that the introduction of such evidence would only cause
confusion to the jury on how such amounts should be used or
considered.
17. The Court finds that reimbursements made by HIP are
subject to the Collateral Source Statue [sic] and are not permitted
by Stanley. Therefore, such evidence should not be presented to
the Jury, and the Motion in Limine should be and is hereby
GRANTED.
Id. at 10, 13-14.
[5] On November 14, 2014, Patchett filed a Motion for Reconsideration or
Alternative Request for Certification of Order in Limine for Interlocutory
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 5 of 26
Appeal, and on December 5, 2014, the court issued an order certifying its
October 15 Order for interlocutory appeal. On January 30, 2015, this court
granted Patchett’s request to accept jurisdiction under Ind. Appellate Rule
14(B)(1).
Discussion
[6] The issue is whether the trial court abused its discretion in ruling that evidence
of the amount HIP paid to reimburse Lee’s medical providers was inadmissible
under the collateral source statute and caselaw. Evidentiary rulings such as in
this case lie within the discretion of the trial court, and we may reverse such
decisions only if a trial court abuses its discretion. State Auto. Ins. Co. v. DMY
Realty Co., LLP, 977 N.E.2d 411, 422 (Ind. Ct. App. 2012). “A trial court
abuses its discretion if its decision clearly contravenes the logic and effect of the
facts and circumstances or if the trial court has misinterpreted the law.” Wagler
v. West Boggs Sewer Dist., Inc., 980 N.E.2d 363, 383 (Ind. Ct. App. 2012), reh’g
denied, trans. denied, cert. denied, 134 S. Ct. 952 (2014).
[7] The parties agree that both the collateral source statute and the Indiana
Supreme Court’s 2009 decision in Stanley v. Walker, 906 N.E.2d 852 (Ind. 2009)
largely govern the outcome of this case. Accordingly, we begin by discussing
them.
[8] The collateral source statute, codified at Ind. Code § 34-44-1-2, provides:
In a personal injury or wrongful death action, the court shall
allow the admission into evidence of:
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 6 of 26
(1) proof of collateral source payments other than:
(A) payments of life insurance or other death
benefits;
(B) insurance benefits that[2] the plaintiff or members
of the plaintiff’s family have paid for directly; or
(C) payments made by:
(i) the state or the United States; or
(ii) any agency, instrumentality, or
subdivision of the state or the United States;
that have been made before trial to a plaintiff as
compensation for the loss or injury for which the action is
brought;
(2) proof of the amount of money that the plaintiff is
required to repay, including worker’s compensation
benefits, as a result of the collateral benefits received; and
(3) proof of the cost to the plaintiff or to members of the
plaintiff’s family of collateral benefits received by the
plaintiff or the plaintiff’s family.
2
The version of the collateral source statute in Stanley contained wording which was slightly different, in
which the words “for which” were substituted for the word “that” appearing in the current version. I.C. § 34-
44-1-2 (subsequently amended by Pub. L. No. 1-2010, § 139 (eff. March 12, 2010)).
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 7 of 26
[9] In Stanley, Danny Walker sustained injuries in an automobile accident when he
collided with a vehicle operated by Brandon Stanley, in which Stanley was at
fault for the accident. 906 N.E.2d at 853-854. Walker’s medical providers
billed him a total of $11,570, but his health insurer negotiated a discount with
his providers totaling $4,750, and the medical providers accepted payment from
the insurer of $6,820 in satisfaction of Walker’s medical bills. Id. at 854.
Walker filed a complaint against Stanley for his injuries, Stanley admitted
negligence for the accident, and the case proceeded on the issue of damages. Id.
at 853-854. At trial, Walker introduced his bills showing the amounts medical
service providers originally billed him totaling $11,570, and, at the close of
Walker’s testimony, Stanley sought to admit Walker’s discounted medical bills
and made an offer of proof. Id. at 854. Walker objected on grounds that
evidence of the discounted bills violated the collateral source statute, and the
trial court sustained the objection, ruling that the discounts constituted
insurance benefits paid for by Walker and “insurance and ‘anything flowing
from the insurance benefit purchased by the plaintiff . . . .’ would thus be
prohibited under the collateral source statute.” Id. (footnote omitted). The jury
returned a $70,000 general verdict in favor of Walker. Id.
[10] The Court first considered the collateral source statute “and its common law
predecessor, the ‘collateral source’ rule.” Id. It observed that:
At common law, the collateral source rule prohibited defendants
from introducing evidence of compensation received by plaintiffs
from collateral sources, that is, sources other than the defendant,
to reduce damage awards. This rule held tortfeasors accountable
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 8 of 26
for the full extent of the consequences of their conduct,
“regardless of any aid or compensation acquired by plaintiffs
through first-party insurance, employment agreements, or
gratuitous assistance.”
Id. (quoting Shirley v. Russell, 663 N.E.2d 532, 534 (Ind. 1996) (quoting Shirley v.
Russell, 69 F.3d 839, 842 (7th Cir. 1995))). It noted that “[t]he Legislature
abrogated the common law collateral source rule by enacting the collateral
source statute,” which allows for “evidence of collateral source payments . . .
except for specified exceptions.” Id. at 855. The Court stated that
[t]he purpose of the collateral source statute is to determine the
actual amount of the prevailing party’s pecuniary loss and to
preclude that party from recovering more than once from all
applicable sources for each item of loss sustained in a personal
injury or wrongful death action. I.C. § 34-44-1-1(1)-(2). At the
same time, it retains the common law principle that collateral
source payments should not reduce a damage award if they
resulted from the victim’s own foresight—both insurance
purchased by the victim and also government benefits—
presumably because the victim has paid for those benefits
through taxes.
Id.
[11] With this in mind, the Court turned to the issue presented, observing that an
injured plaintiff “is entitled to recover damages for medical expenses that were
both necessary and reasonable” and that the question presented was “how to
determine the reasonable value of medical services when an injured plaintiff’s
medical treatment is paid from a collateral source at a discounted rate.” Id.
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 9 of 26
(citing Cook v. Whitsell-Sherman, 796 N.E.2d 271, 277 (Ind. 2003)). It identified
three different approaches other jurisdictions have used to analyze whether to
allow such evidence. Some states “apply the collateral source rule to negotiated
discounts on the plaintiff’s medical care for which the plaintiff paid
consideration.” Id. Two states have held that such medical discounts were a
collateral source “but that they were compelled to set off the collateral source
amount against an award of compensatory damages under their respective state
statutes.” Id. Finally, “[i]n another approach, the Ohio Supreme Court has
allowed both the amount paid and the amount billed into evidence to prove the
reasonable value of medical services.” Id. at 855-856 (citing Robinson v. Bates,
857 N.E.2d 1195, 1200 (Ohio 2006) (holding that the jury may determine that
the reasonable value of medical services is the amount originally billed, the
amount accepted as payment, or some amount in between)).
[12] The Court next turned to Ind. Evidence Rule 413, which provides one method
for proving the reasonable value of medical expenses and states: “[s]tatements
of charges for medical, hospital or other health care expenses for diagnosis or
treatment occasioned by an injury are admissible into evidence. Such
statements shall constitute prima facie evidence that the charges are
reasonable.” Id. at 856 (quoting Evid.R 413). The Court then discussed its
previous statements in Cook and observed that although “medical bills can be
introduced to prove the amount of medical expenses when there is no
substantial issue that the medical expenses are reasonable. . . . in cases where
the reasonable value of medical services is disputed, the method outlined in
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 10 of 26
Rule 413 is not the end of the story.” Id. (citing Cook, 796 N.E.2d at 277-278).
After examining statements from prior cases, the Court declared:
In sum, the proper measure of medical expenses in Indiana is the
reasonable value of such expenses. This measure of damages
cannot be read as permitting only full recovery of medical
expenses billed to a plaintiff. Nor can the proper measure of
medical expenses be read as permitting only the recovery of the
amount actually paid. The focus is on the reasonable value, not
the actual charge. This is especially true given the current state
of health care pricing.
Id. at 856-857 (internal citations omitted).
[13] The Court also discussed the policy issues involved, in which “[t]he
complexities of health care pricing structures make it difficult to determine
whether the amount paid, the amount billed, or an amount in between
represents the reasonable value of medical services.” Id. at 857. Citing to a law
review article, the Court observed that although “hospitals historically billed
insured and uninsured patients similarly,” after “the advent of managed care,
some insurers began demanding deep discounts, and hospitals shifted costs to
less influential patients.” Id. (citing Mark A. Hall & Carl E. Schneider, Patients
As Consumers: Courts, Contracts, and the New Medical Marketplace, 106 MICH. L.
REV. 643, 663 (2008)). The Court further observed that “insurers generally pay
about forty cents per dollar of billed charges and that hospitals accept such
amounts in full satisfaction of the billed charges.” Id. (citing Hall & Schneider,
supra, at 663). Citing to another authority, the Court also noted that “the
relationship between charges and costs is ‘tenuous at best,’” and accordingly,
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 11 of 26
“based on the realities of health care finance, we are unconvinced 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.” Id.
[14] Following its policy discussion, the Court returned to the question of how to
determine the reasonable value of medical services at a damages hearing in a
personal injury lawsuit, and it adopted the Ohio “hybrid” approach, specifically
the declaration from the Ohio Supreme Court that, “[t]he jury may decide that
the reasonable value of medical care is the amount originally billed, the amount
the medical provider accepted as payment, or some amount in between . . . .”
Id. (quoting Robinson, 857 N.E.2d at 1200-1201). According to the Ohio court,
“[b]ecause no one pays the negotiated reduction, admitting evidence of
[discounts] does not violate the purpose behind the collateral-source rule,” and
accordingly “both values were relevant evidence that should be submitted to a
jury to determine the reasonable value of medical services.” Id. (quoting
Robinson 857 N.E.2d at 1200). The Court, while recognizing “that the discount
of a particular provider generally arises out of a contractual relationship with
health insurers or government agencies and reflects a number of factors—not
just the reasonable value of the medical services,” held that nevertheless “this
evidence is of value in the fact-finding process leading to the determination of
the reasonable value of medical services,” that “[t]he collateral source statute
does not bar evidence of discounted amounts in order to determine the
reasonable value of medical services,” and that “[t]o the extent the adjustments
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 12 of 26
or accepted charges for medical services may be introduced into evidence
without referencing insurance, they are allowed.” Id. at 858.
[15] Justice Dickson authored a dissent in Stanley which began by stating that “this
new rule contravenes the express requirements of the collateral source statute . .
. and is also unfair and undesirable judicial policy.” Id. at 860.3 He wrote that
the collateral source statute “explicitly declines to extend” admissibility of
collateral source payments which are “in the form of ‘insurance benefits for
which the plaintiff or members of the plaintiff’s family have paid for directly,’”
that that the majority’s rule “seems diametrically opposed to the statute’s clear
and unequivocal language,” and that “[s]tatutory modification or nullification
is best left to the General Assembly.” Id. at 861. He also disagreed with the
majority’s conclusion that the collateral source statute abrogated the common
law collateral source rule and stated that “the statute’s precise language appears
to create a limited exception to the common law rule, which is otherwise left
intact,” and accordingly the statute should be strictly construed. Id. at 862.
Justice Dickson also expressed his opposition to the rule “because it is
incomplete, misleading, and unfair, and will add layers of complexity, time,
and expense to personal injury litigation, impairing the efficient administration
of justice.” Id. at 862-863.
3
Justice Dickson’s dissent in Stanley was joined by Justice Rucker. 906 N.E.2d at 860. The majority
consisted of Justices Sullivan, Boehm, and Chief Justice Shepard. Id. at 853, 859.
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 13 of 26
[16] Turning to the parties’ arguments, Patchett’s position is that “although Stanley
involved contractual discounts imposed by a private insurer, its reasoning and
its language apply with equal force to all types of discounted payments which
fully satisfy a medical provider’s charges, including discounted payments from
a state or other governmental authority,” and “[i]t is not the source of the
discount which determines the admissibility or relevancy of this evidence, but
the fact that the medical provider was willing to accept the discounted payment
in full satisfaction of its charges.” Appellant’s Brief at 8. Patchett points out
that Stanley specifically stated “that the discount of a particular provider
generally arises out of a contractual relationship with health insurers or
government agencies, and reflects a number of factors—not just the
reasonable value of the medical services.” Id. (quoting Stanley, 906 N.E.2d at
858). She asserts that the trial court’s conclusion that “a governmental
reimbursement rate was not relevant to determining the reasonable value of a
provider’s services. . . . is flatly inconsistent with Stanley’s language, and its
rationale.” Id. She contends that the Indiana Supreme Court indicated that
Stanley should be interpreted “so as to make all discounted payments
admissible, irrespective of their source,” as in the case of Butler v. Ind. Dep’t of
Ins., 904 N.E.2d 198 (Ind. 2009). Id. at 9.
[17] Lee begins her argument by noting that “it is undisputed that for well over a
century . . . the measure of damages for medical services in a common law tort
action is the ‘reasonable value’ of those services.” Appellee’s Brief at 8. She
argues that “[t]he instant case is distinguished from Stanley in that HIP is not a
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 14 of 26
private, individual, or group health insurance plan, and [] there is no evidence
that Lee’s medical providers accepted payments that were ‘discounted’ or that
resulted from negotiation as contemplated by Stanley.” Id. at 9. She states that
HIP “was a publicly-funded plan that paid providers based on Medicare and
Medicaid rates” as established by an act of the General Assembly. Id. (citing
Ind. Code § 12-15-44.2-14(a)). She points out that payments under HIP are not
negotiated and rather are “dictated by the State of Indiana, based on federal
Medicare reimbursement guidelines,” which are “established under
Congressional authority.” Id. at 10.
[18] Lee’s brief discusses Medicare, observing that although when it “was instituted,
it paid providers based on their ‘usual and customary’ charges, so long as the
charges were ‘reasonable,’” due to “escalating Medicare expenditures, Congress
in 1983 revised Medicare’s reimbursement scheme,” in which “Medicare no
longer pays based on ‘usual and customary’ charges, and importantly, no longer
applies a ‘reasonableness’ standard.” Id. She notes that “[p]roviders now
receive notice of the reimbursement rates, regardless of costs actually incurred,”
and that the “payment schedule is based on various factors, one of which is
‘budget neutrality.’” Id. She asserts that, accordingly, such payments do not
constitute “evidence of the ‘reasonable value’ of medical care.” Id. at 10-11.
Lee also argues that Stanley’s reference to payments made by “government
agencies” should be interpreted as being limited to “arms-length negotiation[s]
between a private or governmental insurer and a health care provider,” noting
that “Federal, State and local government entities routinely provide self-funded
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 15 of 26
or insurance coverage to their employees and beneficiaries.” Id. at 11. She
notes that Patchett’s argument to interpret Stanley’s reference to government
agencies “overlooks the fact that” the rule “applies only where there is evidence
of 1) a ‘contractual relationship’ . . . 2) negotiation, and 3) a ‘discounted’
payment.” Id.
[19] Lee also argues that Patchett’s reliance on Butler is misplaced because that case
concerned a wrongful death action and thus “was decided not in a common law
dispute, such as the instant case, but instead in the framework of two statutory
schemes – the Indiana Medical Malpractice Act and the Indiana Adult
Wrongful Death Act,” for which damage calculation is different and is
concerned with the “estate’s ‘reasonable expenses.’” Id. at 12-14. She argues
that the trial court correctly ruled that “Stanley stands for the proposition that
evidence of negotiated discounts between providers and insurers may be helpful in
determining the ‘reasonable value’ of medical services.” Id. at 15. Her position
is that the court also acted within its discretion when it ruled, independently,
that evidence of the HIP payments be excluded under Ind. Evidence Rule 403
because such evidence would confuse the jury as to how the amounts should be
considered.
[20] The Indiana Trial Lawyers Association (“ITLA”) filed an amicus brief arguing
that Medicaid reimbursement rates used by HIP are not relevant to the issue of
“reasonable value” because they are not negotiated “and medical providers are
required by law to accept them as payment in full,” and “it is well recognized
that government programs reimburse at rates below marginal cost.” Amicus
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 16 of 26
Brief at 3-4. ITLA acknowledges that “[i]f a provider does not like the
Medicaid reimbursement rate, then she can choose not to see Medicaid
patients; but she cannot negotiate a higher reimbursement rate.” Id. at 5. It
states that this fact distinguishes Stanley, which involved “sophisticated parties
(a healthcare provider and a commercial insurance plan)” who participated in
an “arms’ length negotiation” to settle on the final reimbursement rate, noting
that the holding in that case “was nothing more than a reaffirmation of the
basic economic principle that fair (or reasonable) value can be found at the price
a buyer is willing to pay and a seller willing to accept when neither is under any
compulsion to consummate the transaction.” Id. ITLA argues that government
insurance reimbursement rates are understood to be below cost and that they
are “often so much below cost that healthcare providers attempt to make up the
shortfall through increased receipts from other payers.” Id. at 6. ITLA finally
asserts that “[a]llowing the admission of government reimbursement rates will
change our tort system into one that necessarily values the suffering and injuries
to those served by Medicaid and Medicare—our needy, disabled, and elderly—
less than those who can afford private insurance.” Id. at 10.
Decision
[21] We first turn to the text of the collateral source statute. As noted, the trial court
found that the HIP payments are inadmissible under Ind. Code § 34-44-1-
2(1)(C), which precludes the admission into evidence of “payments made by: . .
. (ii) any agency, instrumentality, or subdivision of the state or the United
States; that have been made before trial to a plaintiff as compensation for the
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 17 of 26
loss or injury for which the action is brought.” The trial court observed that
neither the pleadings nor the arguments contended that this exception does not
apply, and moreover, Patchett does not directly challenge its application on
appeal. Indeed, the lone reference Patchett makes to this subparagraph is in her
reply brief where she states that “[a]s Stanley permits the defendant to challenge
the reasonableness of the plaintiff’s medical charges by showing that those bills
were fully satisfied by a discounted payment, it necessarily resolves Lee’s
related arguments that the trial court had discretion to exclude this evidence”
under Ind. Code § 34-44-1-2(1)(C)(ii). Appellant’s Reply Brief at 10-11. Thus,
Patchett does not challenge the applicability of Ind. Code § 34-44-1-2(1)(C)(ii)
but instead suggests that Stanley is equally applicable to that subparagraph.
[22] Also, the parties do not dispute that Lee was a member of HIP, which
functioned as her health insurer, and that she made monthly contributions
towards coverage. See also Ind. Code § 12-15-44.2-11 (Supp. 2011) (governing
an enrollee’s payment amounts, which started at $160 per year). Ind. Code §
34-44-1-2(1)(B) provides that evidence of “insurance benefits that the plaintiff or
members of the plaintiff’s family have paid for directly” are inadmissible under
the collateral source statute.
[23] Regardless of whether Subparagraph (B) or (C) is the relevant provision of the
collateral source statute applicable here matters not, however, because we find
that the rule in Stanley does not apply to these facts. Again, Stanley essentially
ruled that “[g]iven the current state of the health care pricing system” in which
“a medical provider’s billed charges do not equate to cost,” evidence of
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 18 of 26
“discounted amounts” may be introduced in order to assist in determining the
reasonable value of medical services so long as no reference to insurance is
made in admitting those discounted amounts, and that such evidence does not
violate the collateral source statute. 906 N.E.2d at 858. Accordingly, to the
extent that Ind. Code § 34-44-1-2(1)(B) provides that evidence of “insurance
benefits that the plaintiff or members of the plaintiff’s family have paid for
directly” are inadmissible, merely admitting the discounted amount does not
violate the statute. Id.
[24] The policy underlying the rule in Stanley breaks down, though, when the
amounts actually paid are not the result of arms-length negotiation. The trial
court made this observation in its order, noting that here, the reimbursement
rate provides no guidance to the jury in determining “the ‘reasonable value’ of
the medical service provided.” Appellant’s Appendix at 13. Counsel for ITLA
at oral argument articulated the assumption in Stanley that the “discounted
amounts” are a result of negotiation as follows:
. . . it is a required premise for the conclusion that they reached.
For any evidence to be admissible, it has to be probative. It has
to make, or have the tendency to make, some issue of fact more
or less probable. There is a basic economic principle that the
amount of money that a buyer is willing to pay and that a seller is
willing to accept in an open market demonstrates a fair or
reasonable value. You see that throughout cases in Indiana in all
sorts of subjects. The only way that a discounted payment is
probative – has some tendency to make the concept of reasonable
value apparent to the jury, is if it is negotiated. If it is a willing
buyer and a willing seller meeting in the middle, which
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 19 of 26
demonstrates fair and reasonable value. . . . It is a required
premise.
Oral Arg. at 32:45- 33:38, available at https://mycourts.in.gov/arguments/
default.aspx?&id=1852&view=detail&yr=&when=&page=1&court=app&searc
h=&direction=%20ASC&future=False&sort=&judge=&county=&admin=Fals
e&pageSize=20.
[25] After considering the relevant language in Stanley, we arrive at the same
conclusion as the trial court. The Stanley Court began its discussion of whether
to admit collateral source evidence by identifying different approaches
jurisdictions have used, and at the outset observed that some states “apply the
collateral source rule to negotiated discounts on the plaintiff’s medical care for
which the plaintiff paid consideration” and that “[t]wo state courts have held
that the medical discounts were a collateral source, but that they were compelled
to set off the collateral source amount . . . under their respective state statutes.”
906 N.E.2d at 855 (emphases added). The emphasized language demonstrates
that, indeed, the rule in Stanley is premised on the principle that the discounted
amounts must be the product of negotiation. Further, the Court later quoted
from Robinson, which discussed the “hybrid” approach adopted by the Court
and similarly contemplated negotiated discounts where it stated that “[b]ecause
no one pays the negotiated reduction, admitting evidence of [discounts] does not
violate the purpose behind the collateral-source rule.” Id. at 857 (quoting
Robinson 857 N.E.2d at 1200) (emphasis added). The Court stated that, based
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 20 of 26
thereon, “both values were relevant evidence that should be submitted to a jury
to determine the reasonable value of medical services.” Id.
[26] There are other statements in Stanley that support this conclusion. The policy
discussion focused on private insurers that “began demanding deep discounts,”
noting that “insurers generally pay about forty cents per dollar of billed charges
and that hospitals accept such amounts in full satisfaction of the billed charges.”
Id. The HIP payments, by contrast, constituted 13.7 percent of the original
amount billed to Lee for her medical treatment. Justice Boehm in his
concurrence wrote that he believed the discounted amounts are relevant
“because they reflect the amounts that the providers are willing to accept for their
services.” Id. at 859 (emphasis added). We further find that even the
description of the lower amount as “discounted amounts” contemplates arms-
length negotiations. We therefore determine that the rule of Stanley applies
only to lower paid amounts when those amounts are the result of negotiated
discounts and therefore are probative of a medical service’s reasonable value.
[27] Lee and ITLA both cite to authority in their briefs for the proposition that the
HIP payments are premised on political decisions and are not the product of
arms-length negotiations – an argument that Patchett does not directly
challenge in her briefs. For instance, ITLA notes that “[w]hen a provider treats
a Medicaid patient, that provider must accept as payment in full the
reimbursement amount set by regulation.” Amicus Brief at 4 (citing 42 C.F.R.
§ 447.15). The Appellant’s Appendix contains documentation from the
“Healthy Indiana Plan Reimbursement Manual,” which states that “[p]roviders
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 21 of 26
bill claims for the HIP program on the Centers for Medicare & Medicaid Services
(CMS) 1450 form (UB-04),” and “[u]se the Medicare Inpatient Prospective
Payment System (IPPS) to calculate payment based on diagnosis-related groups
(DRGs).” Appellant’s Appendix at 57; see also Ind. Code § 12-15-44.2-14
(Supp. 2011), and 405 Ind. Admin. Code 9-2-23 (2012) (setting the
reimbursement rate paid to providers); 405 Ind. Admin. Code 9-9-7 (2012)
(governing the reimbursement process). ITLA further notes that “[t]here is a
significant body of research suggesting that the reimbursement rates paid by
government insurers such as Medicare and Medicaid are actually below fully
allocated cost for most hospitals.” Amicus Brief at 6 (quoting George A.
Nation, III, Determining the Fair and Reasonable Value of Medical Services: The
Affordable Care Act, Government Insurers, Private Insurers and Uninsured Patients, 65
BAYLOR L. REV. 425, 459 (2013)). The article discussed by ITLA further notes
that “Why more hospitals don’t simply refuse to accept government insured
patients is an important and complex question” and that “such a refusal carries
the risk of important negative consequences.” Nation, III, supra, at 459. It
states that refusal “in certain contexts is simply illegal” and that “very serious
political consequences, which could include the loss of tax exempt status, could
result if charitable hospitals attempted to stand up to government intimidation.”
Id. at 460.
[28] The Court in Stanley reaffirmed that a successful plaintiff in a personal injury
suit is entitled to the reasonable value of that person’s medical expenses, and it
held that evidence of “discounted amounts” arrived at as the result of
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 22 of 26
negotiation between the provider and an insurer are probative in determining
reasonable value and should be admitted. Here, because the HIP payments
were not calculated based upon market negotiation but instead were set by
government regulation, such amounts are not probative of the reasonable value
of the medical expenses. Thus, we conclude that the trial court properly
excluded the evidence of the HIP payment amounts.4
[29] To the extent that Patchett argues that Butler v. Ind. Dep’t of Ins. demonstrated
the Indiana Supreme Court’s intent to make all discounted payments admissible
regardless of source, we note that the Court in that case held that “under the
statute governing actions for the wrongful death of unmarried persons with no
dependents . . . the amount recoverable for reasonable medical and hospital
expenses necessitated by the alleged wrongful conduct is the total amount
ultimately accepted after such contractual adjustments, not the total of charges
billed.” 904 N.E.2d at 199. The plaintiff estate presented two issues on appeal:
whether “recovery for reasonable and necessary medical expenses under the
applicable wrongful death statute was erroneously limited to the amounts paid
and should instead include the total amounts billed,” and second, whether “the
4
To the extent that Patchett suggests the Court in Stanley contemplated that amounts such as the HIP
payments would be admissible where it references “both insurance purchased by the victim and also
government benefits,” 906 N.E.2d at 855, we disagree. That statement in Stanley specifically referenced that
the collateral source statute “retains the common law principle that collateral source payments should not
reduce a damage award if they resulted from the victim’s own foresight—both insurance purchased by the
victim and also government benefits . . . .” Id. Nothing in this statement contradicts our holding today that,
absent arms-length negotiation, discounted amounts are not probative of reasonable value and are therefore
not admissible.
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 23 of 26
trial court erred in admitting evidence of amounts paid by the decedent’s private
insurance coverage, Medicare, and Medicaid, contrary to the Indiana Collateral
Source Statute.” Id. at 201. Regarding the second issue, the Court found that
issue “moot . . . in light of the parties’ Partial Settlement Agreement declaring
the parties’ agreement on issues ‘except for any claims for additional medical
expenses that were not paid but were billed to the decedent and/or Estate,’ . . .
.” Id. The Court declared that “[t]he Estate’s claim that the trial court
incorrectly admitted evidence showing the amounts actually paid and accepted
for the decedent’s medical expenses is therefore irrelevant, and we address only
the first contention in the Estate’s appeal.” Id. The Court included a footnote
after this sentence observing that “[i]ssues related to the Collateral Source
Statute are before this Court in Stanley v. Walker, 888 N.E.2d 222 (Ind. Ct. App.
2008), in which transfer has been granted.” Id. at 201 n.6.
[30] The estate in Butler emphasized “the statutory language referring to ‘reasonable’
expenses and the open-ended phrase ‘but are not limited to,’” and the Court
observed caselaw holding “that in common law tort actions Indiana has long
recognized that a plaintiff may recover the reasonable value of medical services,
regardless of whether the plaintiff is personally liable for them or whether they
were rendered gratuitously” and that “the extent of recovery by an injured
plaintiff for medical expenses depends not upon what the plaintiff paid for such
services but rather their reasonable value.” Id. at 201-202. The Court
proceeded to note that the facts in that case do “not present a common law
claim but rather arise[] as a statutory cause of action that the common law did
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 24 of 26
not recognize” and that it must construe such statutory provisions narrowly,
holding that under Indiana’s Adult Wrongful Death Act,
when medical providers provide statements of charges for health
care services to the decedent but thereafter accept a reduced
amount adjusted due to contractual arrangements with the
insurers or government benefit providers, in full satisfaction [of]
the charges, the amount recoverable under the statute for the
“[r]easonable medical . . . expenses necessitated” by the wrongful
act is the portion of the billed charges ultimately accepted
pursuant to such contractual adjustments.
Id. at 202-203.
[31] We find the facts and reasoning in Butler to be distinguishable, and we do not
believe that the Court’s mere reference to the collateral source statute in a
footnote and the pending Stanley decision has an impact on the outcome of this
case.
[32] Finally, even if evidence of the HIP payment amounts are admissible under the
collateral source statute and Stanley, such would not preclude the court, in its
discretion, from excluding said amounts under Ind. Evidence Rule 403, which
states that “[t]he court may exclude relevant evidence if its probative value is
substantially outweighed by a danger of one or more of the following: unfair
prejudice, confusing the issues, misleading the jury, undue delay, or needlessly
presenting cumulative evidence.” “A trial court decision regarding whether any
particular evidence violates Evidence Rule 403 will be accorded a great deal of
deference on appeal; we review only for an abuse of discretion.” Tompkins v.
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 25 of 26
State, 669 N.E.2d 394, 398 (Ind. 1996). Here, the court examined the dollar
figure associated with the HIP payments and ruled that such amount “would
only cause confusion to the jury on how such amounts should be used or
considered.” Appellant’s Appendix at 14. To the extent Patchett suggests that
the court abused its discretion because it misinterpreted the law in Stanley, we
disagree. The court invoked Rule 403 in the alternative when it “further” found
that evidence of the HIP payments would cause confusion, and we cannot say
that the court abused its discretion in that regard. Id.
Conclusion
[33] For the foregoing reasons, we affirm the trial court’s order granting Lee’s
motion in limine.
[34] Affirmed.
Riley, J., and Altice, J., concur.
Court of Appeals of Indiana | Opinion 29A04-1501-CT-1 | November 19, 2015 Page 26 of 26