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Collateral Source Rule Today

by | Aug 10, 2013 | Firm News |

Hospital bills after an accident

For most people who are injured in an accident, fretting over the medical bills is the furthest thing from their minds. But eventually, it becomes something that the injured must confront. It is common knowledge that medical bills are expensive and that there are often ways to reduce the amounts actually paid on those bills. For example, private insurance companies and government entities such as Medi-Cal routinely pay less than a hospital originally billed; either as a result of a previously negotiated discount contract or because of legislation that dictates maximum payments for certain procedures. Furthermore, many medical providers, particularly larger charitable hospitals, often offer need based discounts to individuals in certain income brackets. As a result, the amounts a provider bills out often bear little relationship either to the amount they will ultimately collect or to the actual hard cost of providing the included services.

Because of this widely known discrepancy, there exists an extremely complex medical services market in which different categories of patients pay different rate levels under different circumstances with insurance providers, lien holders, medical financiers, and government entities muddying the waters even further. Thus it is that when many accident victims are faced with choices about how to receive medical services, sometimes under the added stress of an emergency setting, the first thought on most patient’s minds is how to avoid as much of the potential expense as possible. It is important to understand that some kinds of payment can impact the amount and sources of any later legal recovery to which you may be entitled as a result of your injury.

Unfortunately, the world of hospital economics has become so convoluted in the United States that the advice of a qualified personal injury attorney is now recommended right from the beginning, if possible even before medical services are rendered, though not to the exclusion of emergency treatment. While the legal landscape surrounding medical payment recoveries is rough and currently in flux, a basic understanding of some of the key concepts at work can help.

What is tort liability?

Whenever a person does something carelessly which leads to another person’s injury, the first person – known in legalize as the tortfeaser – may be legally responsible for the injury. Usually by way of paying for medical costs associated with the injury. This basic concept underpins all of personal injury law, but it is limited or modified by several corollary rules which can apply in different combinations in different settings and by obscure rules of court which dictate the procedural aspects of a personal injury trial or settlement.

The collateral source rule

With the rise in private insurance many years ago came a concordant rise in the number of injured people who did not have to pay their full medical bills out of pocket because those bills were paid by a health insurance provider. To avoid allowing the party responsible for the injury to benefit from the injured party’s prudent choice to obtain health insurance, courts developed the collateral source rule to ensure that the defendant – the person responsible for an injury or accident – paid the full amount of the injury, not just that part the injured person had to pay out of pocket. Without the collateral source rule a defendant would reap the ultimate benefit of an insurance policy paid for by someone else. Moreover, the health insurance provider had to bear the costs of the defendant’s negligence.

For example, let’s say that two people are involved in a car accident. Driver A ran a red light hitting Driver B and broke his leg. Driver B goes to the hospital and is treated for the break. The hospital bills Driver B incurs is $1000 for treatment. However, Driver B is covered by an insurance plan that pays 80% of the bill meaning that Driver B only has to pay $200 out of pocket. In court, Driver A might argue that he should only have to pay for the $200 that Driver B actually paid out of pocket, contending that this amount is the real value of the injury. The collateral source rule steps in to prevent this injustice by requiring Driver A to pay for the entire hospital bill, unless other circumstances exist, even though part of the bill was paid off by Driver B’s insurance provider.

In a similar way, gifts made to Driver B from other third parties like generous hospitals or kind hearted doctors will similarly not be deducted from the amount demanded of Driver A under the law.

Previously negotiated rate discounts

While the collateral source rule is still very much in effect today, its application has been somewhat limited by recent court decisions; particularly with respect to the discounted rates many insurance carriers negotiate with medical providers as part of their in-network coverage agreements. Under these agreements, an insurance company and a hospital, for example, might agree that any patient covered under a policy written by the insurance company, who seeks treatment at the hospital, will only be liable for 50% of the billed rates. In other words, if Driver B were to visit this in-network hospital he would be charged only $500, instead of the usual $1,000, for the same broken leg, with the insurance company paying $400 and Driver B left with an only $100 out of pocket expense.

In several recent cases, the parties have argued that this type of discount should be treated the same as the earlier collateral source example we gave and therefore that Driver A should still be liable for the full $1000 the hospital would “normally” charge. However, California courts have not seen things this way. Several courts have decided that because the negotiated discount was arranged prior to the injury in question, and is not specifically related to the provision of care to Driver B, neither Driver B nor anyone else would, ever have to pay the full $1000 and therefore that the real value of treatment was at most the $500 negotiated rate. In short, because Driver B’s insurance company had the foresight to negotiate a lower rate for patients it insured, Driver A now gets to pay less for causing the same injury.

What does all this mean?

While the details are complex and filled with legalize and healthcare economics math, the outcome has real consequences for everyday patients. The bottom line is that if you are injured in an accident, your best bet is to seek immediate legal help; we understand the law in regards to evaluating the real damages that you have incurred.

An experienced personal injury attorney can help you to understand specifically how the various laws are likely to impact your particular case which might impact your later legal strategy. Ultimately, a good attorney can help to make sure that you are fully compensated for your injury whatever the circumstance under which your medical bills are paid.