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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Lorena Weston v AKHappytime, LLC, d/b/a Alex Hotel & Suites (8/2/2019) sp-7391
Notice: This opinion is subject to correction before publication in the P ACIFIC REPORTER.
Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
corrections@akcourts.us.
THE SUPREME COURT OF THE STATE OF ALASKA
LORENA WESTON, )
) Supreme Court No. S-16529
Petitioner, )
) Superior Court No. 3AN-16-04995 CI
v. )
) O P I N I O N
AKHAPPYTIME, LLC, d/b/a ALEX )
HOTEL & SUITES, ) No. 7391 - August 2, 2019
)
Respondent. )
)
Petition for Review from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage, Andrew Guidi,
Judge.
Appearances: Anthony N. Banker, Banker Law Group, P.C.,
Anchorage, for Petitioner. Gregory R. Henrikson, Walker &
Eakes, Anchorage, for Respondent. Kenneth M. Gutsch,
Richmond & Quinn, Anchorage, for Amicus Curiae Property
Casualty Insurers' Association of America.
Before: Stowers, Chief Justice, Winfree, Maassen, Bolger,
and Carney, Justices.
MAASSEN, Justice.
BOLGER, Justice, concurring in part and dissenting in part.
STOWERS, Chief Justice, dissenting.
----------------------- Page 2-----------------------
I. INTRODUCTION
A woman was seriously injured when she slipped and fell on ice in a hotel
parking lot. Medicare covered her medical expenses, settling the providers' bills by
paying less than one-fifth of the amounts billed. When the woman later sued the hotel
for negligence, the hotel sought to bar her from introducing her original medical bills as
evidence of her damages, arguing that only the amount Medicare actually paid was
relevant and admissible. The superior court agreed and excluded the evidence.
We granted the woman's petition for review, which asked us to decide the
following questions: (1) whether evidence of medical expenses is properly limited to the
amounts actually paid, or whether the amounts billed by the providers - even if later
discounted - are relevant evidence of damages; and (2) whether the difference between
the amounts billed by the providers and the amounts actually paid is a benefit from a
collateral source, subject to the collateral source rule.
We conclude that the amounts billed by the providers are relevant evidence
of the medical services' reasonable value. We further conclude that the difference
between the amounts billed and the amounts paid is a benefit to the injured party that is
subject to the collateral source rule; as such, evidence of the amounts paid is excluded
from the jury's consideration but is subject to post-trial proceedings under AS 09.17.070
for possible reduction of the damages award. We therefore reverse the superior court's
decision to exclude evidence of the undiscounted medical bills.
II. FACTS AND PROCEEDINGS
Lorena Weston was injured when she slipped and fell on ice in the parking
lot of a hotel owned by AKHappytime, LLC. She fractured her right wrist and her right
leg and was taken to the Alaska Native Medical Center, where she underwent a
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complicated surgery. The hospital billed her over $135,000, but Medicare settled the
bills in full by the payment of $24,247.45.
WestonlatersuedAKHappytimefor negligence. AKHappytimemoved for
a pretrial ruling excluding evidence of Weston's medical bills other than "the adjusted,
preferred rates accepted by her providers as full and final payment for medical services
rendered." AKHappytime argued that the medical bills should be excluded from
evidence because they were "inflated" and did "not reflect the 'reasonable value' of the
services rendered, nor was this amount ever incurred or owed by [Weston]." The
superior court granted the motion, ruling that Weston could "only recover the adjusted
medical rates accepted by her providers as full and final payment for medical services
rendered, and only such adjusted medical rates may be admitted at trial."
Weston filed a petition for review, which we granted.
III. STANDARD OF REvIEW
1 We "will
We review the superior court's conclusions of law de novo.
adopt the rule of law that is most persuasive in light of precedent, reason, and policy."2
Iv. DISCUSSION
Weston's petition for review presents essentially two issues. First, was it
error to exclude evidence of her full, undiscounted medical bills after her medical care
providers accepted less from Medicare as payment in full? Second, if Weston's medical
bills are admissible, should the difference between those bills and what Medicare paid
be viewed as a benefit to Weston from a collateral source - meaning that evidence of
it should be kept from the jury and presented only after trial, when the court determines
pursuant to AS 09.17.070 whether some or all of the collateral source benefits should
1 Loncar v. Gray , 28 P.3d 928, 930 (Alaska 2001).
2 State v. United Cook Inlet Drift Ass'n, 895 P.2d 947, 950 (Alaska 1995).
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reduce the damages award? Our superior courts have reached conflicting decisions on
3 4
these questions,
as have the courts of other jurisdictions.
3 Compare McCleod v. Spenard Builders Supply, LLC , No. 3PA-14-01198
CI (Alaska Super., June 16, 2016) ("Plaintiffs are only entitled to recover what they
actually spent."), Domer v. Bre Select Hotels Properties, LLC , No. 3AN-15-06668 CI,
(AlaskaSuper., May 17, 2016) (limiting recoveryto "theMedicaidand/or Medicarerates
accepted by . . . providers"), Suyarkov v. Lutton , No. 3AN-13-06084 CI (Alaska Super.,
May 19, 2016) (adopting evidentiary rule for "adjusted medical rates"), and Wagner v.
Royal Hyway Tours, Inc., No. 3AN-13-09055 CI, (Alaska Super., Feb. 11, 2015)
(granting partial summary judgment on amount of treatment paid by insurance "[u]nder
those contracts"), with Rodgers v. Bistro It, LLC , No. 3AN-16-04158 CI, (Alaska Super.,
Sept. 28, 2016) (denying defendant's motion for order that plaintiff "may not recover
medical expenses in excess of rates paid by Medicare to medical providers on his
behalf"), and Norman v. Plaza Inn Hotels, Inc. , No. 3AN-15-08838 CI, (Alaska Super.,
Aug. 23, 2016) (denying defendant's "Motion for Rule of Law that Plaintiff May Not
Recover Medical Expenses in Excess of Those Rates Paid by Medicare and Medicaid").
4 Compare Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130,
1145 (Cal. 2011) ("[A]n injured plaintiff whose medical expenses are paid through
private insurance may recover as economic damages no more than the amounts paid by
the plaintiff or his or her insurer for the medical services received or still owing at the
time of trial."), and Dyet v. McKinley, 81 P.3d 1236, 1239 (Idaho 2003), abrogated on
other grounds by verska v. Saint Alphonsus Reg'l Med. Ctr., 265 P.3d 502, 508 (Idaho
2011) (holding that plaintiff could not recover expenses covered by Medicare write-off
under Idaho law because plaintiff was never obligated to pay that amount and allowing
recovery could result in "double payment"), with Bynum v. Magno, 101 P.3d 1149, 1160
(Haw. 2004), as amended (Dec. 2, 2004) ("[A] plaintiff, injured by the tortious conduct
of a defendant, is entitled to recover the reasonable value of medical services and is not
limited to the expenditures actually paid by Medicaid/Medicare."), and Dedmon v.
Steelman, 535 S.W.3d 431, 467 (Tenn. 2017) ("[T]he 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.").
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A. Background: Tort Damages, The Collateral Source Rule, And Alaska
Case Law
1. Tort damages
The general rule in tort cases is that "the injured party is entitled to be
placed as nearly as possible in the position he [or she] would have occupied had it not
5 The injured party may recover both economic and non-
been for the tortious conduct."
economic damages. "Economic damages include past medical expenses, future medical
expenses, lost wages, and lost earning potential."6 Non-economic damages provide
compensation for "pain, suffering, inconvenience, physical impairment, disfigurement,
loss of enjoyment of life, loss of consortium, and other nonpecuniary damage."7
Weston's damages claims included a claim for her past medical expenses.
To recover on this claimshe had to show that the medical care was reasonably necessary8
and that it was necessary because of AKHappytime's negligence.9 She also had "the
burden of providing 'some reasonable basis upon which a jury [could] estimate with a
fair degree of certainty the probable loss which [she sustained] in order to enable it to
make an intelligent determination of the extent of this loss.' "10
5 ERA Helicopters, Inc. v. Digicon Alaska, Inc., 518 P.2d 1057, 1059-60
(Alaska 1974).
6 Dedmon, 535 S.W.3d at 437.
7 AS 09.17.010(a).
8 Turner v. Municipality of Anchorage, 171 P.3d 180, 185 (Alaska 2007).
9 Pugliese v. Perdue, 988 P.2d 577, 580 (Alaska 1999) (discussing causation
in the context of medical bills).
10 Alexander v. State, Dep't of Corr., 221 P.3d 321, 324 (Alaska 2009)
(quoting City of Fairbanks v. Nesbett, 432 P.2d 607, 616 (Alaska 1967)).
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2. The collateral source rule
Damagesfor personalinjury aresubject tothecollateral sourcerule, "which
provides that damages may not be diminished or mitigated on account of payments
11
received by plaintiff from a source other than the defendant." The rule "is based on the
principle that a tort-feasor is not entitled to have his [or her] liability reduced merely
because plaintiff was fortunate enough to have received compensation for his [or her]
injuries or expenses from a collateral source." 12
Evidence of payments from collateral
13
exclusion
sources is thus generally excluded at trial as more prejudicial than probative;
is based on the assumption that if the jury knows that the plaintiff has been or will be
compensated for the injuries by someone other than the defendant, this information "will
more likely than not influence the jury against the plaintiff on the issues of liability and
damages."14
15
AlaskaStatute09.17.070modifiesthecommon-lawcollateral sourcerule.
It creates a post-verdict procedure for reducing a damage award if the plaintiff has
received amounts "as compensation for the same injury from collateral sources that do
11 Beaulieu v. Elliott , 434 P.2d 665, 673 (Alaska 1967).
12 Ridgeway v. N. Star Terminal & Stevedoring Co., 378 P.2d 647, 650
(Alaska 1963). A collateral source is one that is independent of the tortfeasor - such
as the "victim's own insurance or a charity" - as distinguished from the tortfeasor or
the tortfeasor's insurer. Chenega Corp. v. Exxon Corp. , 991 P.2d 769, 790 (Alaska
1999).
13 Jones v. Bowie Indus., Inc., 282 P.3d 316, 326 (Alaska 2012); see also
Tolan v. ERA Helicopters, Inc., 699 P.2d 1265, 1267 (Alaska 1985).
14 Ridgeway, 378 P.2d at 650.
15 Chenega Corp., 991 P.2d at 791.
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16
not have a right of subrogation by law or contract." "After the fact finder has rendered
an award," the defendant is allowed to introduce evidence of collateral source benefits; 17
the plaintiff may respond with "evidence of (1) the amount that the actual attorney fees
incurred . . . in obtaining the award exceed the amount of attorney fees awarded . . . by
the court; and (2) the amount that the claimant has paid or contributed to secure the right
to an insurance benefit introduced by the defendant as evidence."18 "If the total amount
of collateral benefits introduced as evidence [by the defendant] exceeds the total amount
that the [plaintiff] introduced as evidence" of the attorney's fees and the costs of securing
the benefits, the court is required to deduct the difference from the damages award.19
This process "limits the circumstances in which a victim can receive double recovery,
16 AS 09.17.070(a). We have explained what subrogation means in this
context:
When an insurer pays expenses on behalf of an insured it is
subrogated to the insured's claim. The insurer effectively
receives an assignment of its expenditure by operation of law
and contract. If the insurer does not object, the insured may
include the subrogated claim in its claim against a third-party
tortfeasor. Any proceeds recovered must be paid to the
insurer, less pro rata costs and fees incurred by the insured in
prosecuting and collecting the claim. But the subrogated
claim belongs to the insurer. The insurer may pursue a direct
action against the tortfeasor, discount and settle its claim, or
determine that the claim should not be pursued.
Dixon v. Blackwell , 298 P.3d 185, 193 n.38 (Alaska 2013) (quoting Ruggles ex rel.
Estate of Mayer v. Grow , 984 P.2d 509, 512 (Alaska 1999)).
17 AS 09.17.070(a).
18 AS 09.17.070(b).
19 AS 09.17.070(c).
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while enhancing the chances that a tortfeasor may not be held fully accountable." 20
In Loncar v. Gray we recognized that the collateral source rule applied to
evidence of the plaintiff's Medicaid coverage, which "the superior court appropriately
21 After one of the plaintiff's doctors
excluded . . . at the beginning of the trial."
mentionedMedicaid on cross-examination,thesuperior court gaveacurativeinstruction:
it advised the jury to "award the full amount of necessary medical expenses . . .
regardless of whether they have been paid or who actually paid the bill. Following the
trial, the law provides procedures to ensure that this issue is properly addressed."22 We
saw"no abuse ofdiscretion inthe superior court's treatment of the Medicaid evidence."23
3. Luther v. Lander and the dissent in Lucier v. Steiner Corporation
Weston relies on our recent decision in Luther v. Lander24 to argue that we
have already decided the issue of whether her "full medical billings are admissible at
trial." Luther was injured in a car accident and sued Lander for negligence.25 At trial
Luther sought to introduce evidence of the medical expenses paid by her insurer,
GEICO, as proof of her damages, but the superior court granted Lander's request that the
evidence be excluded.26 Although the superior court did not explain its ruling, we
presumed that it was based on the rule that a plaintiff cannot present a subrogated claim
20 Chenega Corp. , 991 P.2d at 791.
21 28 P.3d 928, 933 (Alaska 2001).
22 Id. at 934.
23 Id.
24 373 P.3d 495 (Alaska 2016).
25
Id. at 497-98.
26 Id. at 498.
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27
for medical expenses if the insurer has asserted its right to pursue the claim itself. We
reversed the superior court's ruling, holding that the medical expenses paid by GEICO
were relevant to the severity of Luther's injury even if she could not recover them as
28 We reasoned that "[j]ust as photographic evidence and testimony
economic damages.
about the lack of serious damage to Luther's and Lander's vehicles [were] relevant as
potentially reflecting the severity of the accident, so too is the amount of medical
payments," and it is "for the jury to determine the weight to be given that evidence."29
We also noted the "anomalous result" if different plaintiffs' ability to present such
evidenceturned on whether their insurers had elected to pursue their subrogatedclaims.30
Weston asserts that Luther is controlling authority because, when holding
that the plaintiff's evidence should have been admitted, we did not distinguish "between
amounts billed and amounts paid ." But the issue in Luther was framed as involving only
medical costs paid by GEICO;31 we did not expressly consider the significance of any
difference between undiscounted medical bills and the amounts paid. Nonetheless, in
holding that evidence of the amounts charged was admissible, we recognized medical
27 Id. at 500-01 (citing Ruggles ex rel. Estate of Mayer v. Grow , 984 P.2d 509,
512 (Alaska 1999)).
28 Id. at 501-02.
29 Id . at 501.
30 Id. at 502.
31 See id. at 498 (describing superior court's order as excluding evidence
revealing that GEICO "paid some of Luther's medical expenses after the accident" and
"all evidence of the costs of the various treatment charges paid for by GEICO"); id. at
499 (framing claim of error as court's exclusion of "evidence of $10,000 in medical
expenses paid by . . . GEICO"); id. at 503 (summarizing holding as concluding "that the
superior court erred by excluding the evidence of the cost of Luther's medical treatment
covered by GEICO").
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bills' relevance to the nature and severity of a plaintiff's injuries. 32
The issue presented now was before us on another petition for review,
33 Justice
which we denied as improvidently granted in Lucier v. Steiner Corporation.
34 Lucier's
Fabe, joined by Justice Carpeneti, dissented from the order denying review.
injuries were covered by Medicaid, which "paid her medical providers only a small
fraction of the amount they billed."35 She sued in tort, and at trial the court "ruled that
in proving the value of her past medical expenses, Lucier [would] be limited to the actual
amount paid by Medicaid, rather than the value that her providers placed on their
services."36
According to the dissent, it was legal error to exclude from evidence the
undiscounted amounts billed by Lucier's providers: "The medical care that Lucier
received at Medicaid's expense was a collateral source benefit and its value [could] not
be used to reduce her damages award, except under the conditions and procedures laid
37 The dissent noted the decisions of other courts that "when a
out in AS 09.17.070."
medical provider accepts payment of less than the value of the care and writes off the
rest, thecollateral source rule covers the entire value, includingtheamount written off."38
32 Id. at 501-02.
33 93 P.3d 1052 (Alaska 2004).
34 Id. at 1052-55 (Fabe, J., dissenting).
35 Id. at 1053.
36 Id.
37 Id.
38 Id. (citing Olariu v. Marrero, 549 S.E.2d 121, 123 (Ga. App. 2001); Acuar
v. Letourneau, 531 S.E.2d 316, 322 (va. 2000)).
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It proposed that there was "no reason to distinguish between cases where the provider
writes off part of the care's value out of charity, because it has no hope of collecting, and
cases where the payment is coming from an insurer - governmental or private - with
39 In either case, "[t]he amount discounted out of a medical bill is part
bargaining power."
of the value of that collateral benefit and should not accrue to the defendant."40
The Lucier dissent also argued that the trial court's exclusion of the
evidence violated AS 09.17.070, the statutory collateral source rule.41 Under the rule,
it is only "[a]fter the fact finder has rendered an award to a claimant" that the defendant
may present evidence of amounts the plaintiff received "from collateral sources that do
not have a right of subrogation by law or contract."42 The dissent argued that if the
statutory post-verdict procedure is not followed - and billings for medical care are
already reduced as collateral source benefits when presented to the jury - the jury will
receive "an artificially low value" of the medical expenses, which could impact its view
not only of past medical damages but also of the seriousness of the plaintiff's claims for
43 And if the plaintiff explains to the jury why the medical
non-economic damages.
expenses appear low - because they were covered in whole or in part by a collateral
source - this risks "irreparably prejudic[ing]" the plaintiff's case.44
39 Id. at 1053-54.
40 Id. at 1054.
41 Id.
42 AS 09.17.070(a).
43
Lucier, 93 P.3d at 1054.
44 Id.
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B. Other Jurisdictions' Case Law
Other state courts have taken essentially three approaches to the issue of
whether to admit undiscounted medical bills into evidence when the bills have been
satisfied for less. These are (1) the "actual amount paid" approach, which allows into
evidence only the actual amount paid for medical care; (2) the "benefit of the bargain"
approach, which allows the undiscounted medical bills into evidence if the plaintiff paid
meaningful consideration for the insurance or other collateral source from which
payment was made; and (3) the "reasonable value" approach, which allows admission
of undiscounted medical bills without restriction as at least some evidence of the medical
services' value. 45
1. The "actual amount paid" approach
Ahandfulofstates followthe"actual amount paid"approach, which "limits
a plaintiff's recovery to the amount actually paid to the medical provider, either by
46
insurance or otherwise." The rationale for this rule is that the plaintiff would receive
45 See Dedmon v. Steelman , 535 S.W.3d 431, 454-58 (Tenn. 2017). Our own
analysis has been greatly aided by the Tennessee Supreme Court's recent and thorough
discussion of the various approaches to this issue.
46 Id. at 454; see, e.g., Howell v. Hamilton Meats &Provisions, Inc., 257 P.3d
1130, 1135-46 (Cal. 2011) (holding that "a plaintiff may recover as economic damages
no more than the reasonable value of the medical services received and is not entitled to
recover the reasonable value if his or her actual loss was less" (emphasis in original));
Dyet v. McKinley, 81 P.3d 1236, 1239 (Idaho 2003), abrogated on other grounds by
verska v. Saint Alphonsus Reg'l Med. Ctr., 265 P.3d 502, 508 (Idaho 2011) (concluding
that the write-off amount "is not an item of damages for which plaintiff may recover
because plaintiff has incurred no liability therefor" (quoting Kastick v. U-Haul Co. of W.
Mich., 740 N.Y.S.2d 167, 169 (N.Y. App. Div. 2002))); Moorhead v. Crozer Chester
Med. Ctr., 765 A.2d 786, 789 (Pa. 2001), abrogated on other grounds by Northbrook
Life Ins. Co. v. Commonwealth, 949 A.2d 333 (Pa. 2008) (holding that "the amount paid
and accepted by [the provider] as payment in full for the medical services is the amount
(continued...)
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a windfall if allowed to recover the total amount billed "because the plaintiff did not
incur the 'write-off' amount." 47
Today's dissent advocates for this approach. AKHappytime also urges us
to follow this rule, arguing that it follows from the Restatement of Torts, which we often
cite when clarifying the common law.48 Section 924 of the Restatement (Second) of
Torts provides that "[o]ne whose interests of personality [sic] have been tortiously
invaded is entitled to recover damages for past or prospective . . . reasonable medical and
other expenses."49 Comment f to section 924 explains that an "injured person is entitled
to damages for all expenses and for the value of services reasonably made necessary by
the harm."50 AKHappytime points out that "value" is defined in section 911 as
"exchange value or the value to the owner if this is greater than the exchange value";51
and comment h to that section provides that "[i]f . . . the injured person paid less than the
46 (...continued)
[a victim] is entitled to recover as compensatory damages"); Haygood v. De Escabedo,
356 S.W.3d 390, 395-96 (Tex. 2011) (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").
47 Bozeman v. State, 879 So. 2d 692, 702 (La. 2004); see Dedmon, 535
S.W.3d at 454-55.
48 See, e.g., Schack v. Schack, 414 P.3d 639, 643 (Alaska 2018) (discussing
limits on recovery for negligent infliction ofemotional distress); Burton v. Fountainhead
Dev., Inc., 393 P.3d 387, 398-99 (Alaska 2017) (discussing damages available in
defamation cases); Burnett v. Gov't Emps. Ins. Co., 389 P.3d 27, 32 (Alaska 2017)
(discussing circumstances under which duty arises to protect another's property).
49 RESTATEMENT (SECOND) OF TORTS § 924 (AM. LAW INST . 1979).
50 Id. cmt. f (emphasis added).
51 Id. § 911(1).
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exchange rate, he [or she] can recover no more than the amount paid, except when the
low rate was intended as a gift to him [or her]." 52
The California Supreme Court has adopted this approach, ruling "that a
plaintiff's expenses, to be recoverable, must be both incurred and reasonable" and
relying in part on Restatement section 911, comment h.53 But the Tennessee Supreme
Court has questioned whether comment h was ever "intended to apply to cases involving
physical harm."54 "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," while
"[i]n contrast, section 920A applies to 'Harm to the Person,' that is, personal injury
cases."55 Section 920A addresses the collateral source rule explicitly, stating that
"[p]ayments 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."56 And a comment explains that "[t]he 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 [or her]."57
The Supreme Judicial Court of Massachusetts explained the inherent
weakness in relying on the amounts paid as presumptive proof of reasonableness:
52 Id. cmt. h.
53 Howell v. Hamilton Meats & Provisions, Inc. , 257 P.3d 1130, 1138 (Cal.
2011) (emphasis in original).
54 Dedmon v. Steelman, 535 S.W.3d 431, 457 (Tenn. 2017).
55 Id. (emphasis in original) (citing Wills v. Foster, 892 N.E.2d 1018, 1027
(Ill. 2008)).
56 RESTATEMENT (SECOND) OF TORTS § 920A.
57 Id. cmt. b.
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[T]he actual amounts paid by an insurer to the provider may
confound rather than mitigate the problems posed by medical
bills, because the amounts paid, like the bills or charges
themselves, may not have more than a tenuous relationship to
the reasonable value of the provider's medical services. This
is so because the discount from charges that the provider
accepts is likely a function of a variety of factors, including
the bargaining power of the insurer, or, as here, limited by
Federal or State law - factors that relate to the injured
plaintiff's relationship with a collateral third-party payor and
[58]
have nothing to do with the tortfeasor.
Courts have also rejected the "actual amount paid" approach on grounds that it makes
irrational distinctions among plaintiffs depending on whether they have insurance and
how much it covers. In effect, a "tortfeasor's liability is reduced when the victim is
prudent and buys insurance, but it is increased when the victim has no insurance."59
This
not only creates a disparity in damages, it also allows a tortfeasor to derive a benefit from
"compensation or indemnity that an injured party has received from a collateral source,"
seemingly in direct contravention of the collateral source rule.60
58 Law v. Griffith, 930 N.E.2d 126, 133-34 (Mass. 2010).
59 Dedmon, 535 S.W.3d at 456.
60 Id. (quoting Acuar v. Letourneau, 531 S.E.2d 316, 322 (va. 2000))
(criticizing Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130 (Cal. 2011));
see also McConnell v. Wal-Mart Stores, Inc., 995 F. Supp. 2d 1164, 1171 (D. Nev. 2014)
("The Howell case is . . . squarely at odds with the collateral source rule, which utterly
disregards the amount of money a tort victim is actually made to pay to remedy his
injuries, in favor of awarding the reasonable cost of ameliorating the injuries,
notwithstanding any potential 'double recovery' by the tort victim."). It is for these
reasons that one federal district court judge, predicting Alaska law, decided that we
would reject Howell and follow instead the dissent in Lucier v. Steiner Corp., 93 P.3d
1052, 1053-55 (Alaska 2004) (Fabe, J., dissenting from dismissal of petition for review).
Rupp v. Wal-Mart Stores, Inc., No. 3:11-cv-00052 JWS, 2012 WL 1951829, at *1-3 (D.
(continued...)
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2. The "benefit of the bargain" approach
A few states have adopted an alternative sometimes called the "benefit of
the bargain" approach, which "permits recovery of full, undiscounted medical bills,
including the negotiated rate differential, only where the plaintiff paid consideration for
61
the insurance benefits."
The plaintiff who has purchased insurance is assumed to have
paid consideration for the "negotiated rate differential" as much as for "the actual cash
62
payments" made by the insurer to the medical care providers. But plaintiffs who "did
not pay for the benefit of discounted rates and write-offs" - such as beneficiaries of
63
Medicare and Medicaid - may not introduce their undiscounted billings; in such cases
the court "treat[s] the amount paid by Medicare [or Medicaid] as dispositive of the
64
reasonable value of healthcare provider services."
Criticisms ofthe"benefitofthebargain"approach includethat it "protect[s]
the rich and hurt[s] the poor, since persons who have the ability to pay for insurance are
60 (...continued)
Alaska May 30, 2012); Dunkin v. Dorel Asia SRL, No. 5:10-cv-00004 JWS, 2012 WL
896270, at *1-3 (D. Alaska Mar. 15, 2012).
61 Dedmon, 535 S.W.3d at 456. As examples of courts following the "benefit
of the bargain" approach, Dedmon cites Stayton v. Delaware Health Corp., 117 A.3d
521, 531 (Del. 2015) (noting that the collateral source rule applies to "provider write-
offs" but declining to extend it to Medicare write-offs, which are not "gratuities" to
injured parties but rather bargains made "out of consideration for the taxpayers"), and
Bozeman v. State, 879 So. 2d 692, 705 (La. 2004) ("[W]here the plaintiff pays no
enrollment fee, has no wages deducted, and otherwise provides no consideration for the
collateral source benefits he receives, we hold that the plaintiff is unable to recover the
'write-off' amount.").
62 Dedmon, 535 S.W.3d at 456.
63 Id.
64 Stayton, 117 A.3d at 533.
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the only personal injury plaintiffs who may recover the negotiated rate differential"; and
"that it 'undermines the collateral source rule by using the plaintiff's relationship with
a third party to measure the tortfeasor's liability.' " 65
3. The "reasonable value" approach
The final approach, the "reasonable value" approach, is used by the
majority of courts to have addressed this issue; it allows the admission of undiscounted
66
medical bills at trial, without restriction, as evidence of medical services' value. Courts
following this approach "adhere to the traditional collateral source rule, as outlined in
Section 920A of the Restatement, that tortfeasors should be responsible for all the
damage they cause and that plaintiffs, not tortfeasors, should benefit fromany negotiated
67
discount." Some of these courts also emphasize that because the value of medical
servicesis afact-intensivequestion, juriesshould receiveallrelevant evidence,including
65 Dedmon, 535 S.W.3d at 456-57 (quoting Wills v. Foster , 892 N.E.2d 1018,
1027 (Ill. 2008)); see Wills , 892 N.E.2d at 1030 ("Courts employing [the benefit of the
bargain] approach discriminate amongst plaintiffs, holding that only the sick or disabled
plaintiff whose expenses are covered by Medicaid may not seek to recover the full billed
amount of medical expenses.").
66 See Bynum v. Magno, 101 P.3d 1149, 1160 (Haw. 2004), as amended (Dec.
2, 2004); Arthur v. Catour , 833 N.E.2d 847, 849 (Ill. 2005); Stanley v. Walker, 906
N.E.2d 852, 858 (Ind. 2009); Rose v. via Christi Health Sys., Inc., 78 P.3d 798, 806
(Kan. 2003), opinion modified on reh'g sub nom. Rose v. via Christi Health Sys., Inc./St.
Francis Campus, 113 P.3d 241 (Kan. 2005); Baptist Healthcare Sys., Inc. v. Miller, 177
S.W.3d 676, 682-83 (Ky. 2005); Meek v. Montana Eighth Judicial Dist. Court, 349 P.3d
493, 496 (Mont. 2015); Robinson v. Bates, 857 N.E.2d 1195, 1197 (Ohio 2006); White
v. Jubitz Corp., 219 P.3d 566, 579 (Or. 2009); Haselden v. Davis, 579 S.E.2d 293, 295
(S.C. 2003); Papke v. Harbert, 738 N.W.2d 510, 535-36 (S.D. 2007); Dedmon, 535
S.W.3d at 466; Kenney v. Liston, 760 S.E.2d 434, 444-46 (W. va. 2014); Koffman v.
Leichtfuss, 630 N.W.2d 201, 210 (Wis. 2001).
67 Dedmon, 535 S.W.3d at 458.
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undiscounted medical bills. 68 Some courts are reluctant to hold as a matter of law that
providers' medical bills - even if rarely paid in full - are not evidence of the actual
value of the services. 69
The reasonable value approach, like the others, has its critics. The critics'
main focus is on the "windfall" to the plaintiff, who may recover the negotiated rate
differential even though neither the plaintiff nor the insurer is out of pocket for that
70 Such a result "may be viewed as punitive toward the defendant."71
sum.
C. We Follow The "Reasonable value" Approach, Which Is Consistent
With The Collateral Source Rule.
1. The negotiated rate differential is a collateral source benefit.
The first step in deciding how to treat evidence of the negotiated rate
differential at trial is to decide what the differential represents: Is it a part of the benefit
the injured party receives from the collateral source? The dissent in Lucier concluded
that it was: "The amount discounted out of a medical bill is part of the value of that
68 See Robinson , 857 N.E.2d at 1200; Meek, 349 P.3d at 497; Haselden, 579
S.E.2d at 295.
69 See Papke, 738 N.W.2d at 535-36 ("We think it unwise for us to make a
broad declaration that the reasonable value of medical services equals the amount paid,
not the amount billed. Such decision would create an inference that the actual amount
billed to patients by medical care providers is, as a matter of law, unreasonable."
(emphasis in original) (citations omitted)); see also Wills, 892 N.E.2d at 1025 ("In
Illinois, a paid bill constitutes prima facie evidence of reasonableness. In a case in which
the plaintiff seeks to admit a bill that has not been paid in whole or in part, he or she must
establish reasonableness by other means . . . .").
70 Dedmon, 535 S.W.3d at 458; see also Wills, 892 N.E.2d at 1029.
71 Dedmon, 535 S.W.3d at 458.
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72
collateral benefit and should not accrue to the defendant." We agree with this
reasoning and that of the majority of courts to have considered the issue.
Courts rely on a variety of rationales, all of which have some weight.
Courts reason that an injured party benefits as much from the write-off of medical bills
73 The injured party would remain responsible
as frompayment; both reduce the liability.
for any uncovered amount; a negotiated write-off eliminates that prospect.74 A federal
court reasoned that the negotiated rate differential is simply "[a] creditor's forgiveness
of debt" that should be "considered equivalent to payment in other contexts, e.g., income
tax, credit bids at foreclosure, etc."; therefore, "a creditor's partial forgiveness of a tort
victim's medical bills via a write-down is properly considered a third-party 'payment,'
evidence of which is barred by the collateral source rule."75 And finally, courts reason
that failing to recognize the benefit of the negotiated rate differential to the injured party
would violate "the very purpose of the collateral source rule: to prevent a defendant
72 Lucier v. Steiner Corp., 93 P.3d 1052, 1054 (Alaska 2004) (Fabe, J.,
dissenting from dismissal of petition for review).
73 Dedmon, 535 S.W.3d at 459-60; Acuar v. Letourneau , 531 S.E.2d 316, 322
(va. 2000); Kenney v. Liston, 760 S.E.2d 434, 446 (W. va. 2014).
74 McConnell v. Wal-Mart Stores, Inc., 995 F. Supp. 2d 1164, 1170 (D. Nev.
2014) ("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."); Rupp v. Wal-Mart Stores, Inc., No. 3:11-cv-00052
JWS, 2012 WL 1951829, at *3 (D. Alaska May 30, 2012) (concluding that because the
"[p]laintiff would have been responsible for the higher rates but for Medicaid's contract
with the provider[,] . . . the difference between the negotiated rate and the higher rate
constitutes an amount received").
75 McConnell, 995 F. Supp. 2d at 1170.
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from reaping the benefits of a plaintiff's preparation and protection." 76
2. Undiscounted medical bills are generally admissible; trial
evidence rebutting their reasonableness must respect the
collateral source rule.
We also follow the majority of courts by adopting the "reasonable value"
approach, in which an injured party is allowed to introduce the full, undiscounted
medical bills into evidence at trial. This follows from our conclusion that the negotiated
rate differential represents part of the benefit to the injured party. Both the actual
amounts paid and any amounts the provider wrote off are relevant to the medical
services' reasonable value.
This holding requires us to consider what evidence a defendant may raise
to rebut the reasonableness of the dollar amounts in the plaintiff's undiscounted medical
bills. Some states have tried a "hybrid approach" to determining reasonable value, in
which the tortfeasor is allowed to respond to the injured party's reliance on undiscounted
77
medical bills by showing the amount actually paid. In a nod to the collateral source
78
rule, mention of insurance is still avoided as much as possible. But this approach has
76 Kenney, 760 S.E.2d at 446; see also Acuar, 531 S.E.2d at 323 ("The
wrongdoer cannot reap the benefit of a contract for which the wrongdoer paid no
compensation.").
77 Dedmon, 535 S.W.3d at 454, 463.
78 See id. at 458; Stanley v. Walker, 906 N.E.2d 852, 858 (Ind. 2009) ("The
collateral source statute does not bar evidence of discounted amounts in order to
determine the reasonable value of medical services. To the extent the adjustments or
accepted charges for medical services may be introduced into evidence without
referencing insurance, they are allowed."); Martinez v. Milburn Enters., Inc., 233 P.3d
205, 207 (Kan. 2010) ("[W]hen a finder of fact is determining the reasonable value of
medical services, the collateral source rule bars admission of evidence stating that the
expenses were paid by a collateral source. However, the rule does not . . . bar . . . the
(continued...)
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79
been criticized as likely to confuse the jury and as permitting the defendant "to do
indirectly what it cannot do directly, that is, . . . seeking to limit [the plaintiff's]
80 We
award . . . by introducing evidence that payment was made by a collateral source."
agree that this "hybrid approach" is highly likely to undermine the collateral source rule;
therefore, evidence of what was actually paid should not be admitted if offered to rebut
the reasonableness of the undiscounted bills.
We recognize that defendants' remaining evidentiary options for rebuttal
are limited. But they are limited by the collateral source rule - which we continue to
observe - and they do exist. Defendants may "submit any competent evidence in
rebuttal that does not run afoul of the collateral source rule."81 They "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
78 (...continued)
admission of evidence indicating that something less than the charged amount has
satisfied . . . the amount billed.").
79 Leitinger v. Dbart, Inc., 736 N.W.2d 1, 14 (Wis. 2007); see also Wills v.
Foster, 892 N.E.2d 1018, 1032-33 (Ill. 2008).
80 Leitinger, 736 N.W.2d at 14; see also Aumand v. Dartmouth Hitchcock
Med. Ctr., 611 F. Supp. 2d 78, 91 (D.N.H. 2009) (observing that evidence of amounts
paid, even if offered only to rebut reasonableness of undiscounted bills, "strikes the court
as an end-run around the collateral sourcerule"); Wills, 892 N.E.2d at 1033 ("Defendants
may not . . . introduce evidence that the plaintiff's bills were settled for a lesser amount
because to do so would undermine the collateral source rule.").
81 Dedmon, 535 S.W.3d at 466; see also Leitinger v. van Buren Mgmt., Inc.,
720 N.W.2d 152, 158 (Wis. App. 2006) (holding that "a defendant must produce some
competent evidence other than what the insurance company paid upon which to base its
argument that the amount billed was not the reasonable value of the services" (emphasis
in original)).
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82
reflect the reasonable value of the services." Such evidence may include, for example,
testimony about the range of charges the provider has for the same services or what other
83
providers in the relevant area charge for the same services.
Finally, to the extent the negotiated rate differential represents a collateral
benefit for which the collateral source has no "right of subrogation by law or contract,"
84
it is subject to the post-verdict procedure set out in AS 09.17.070.
v. CONCLUSION
WeREvERSEthesuperiorcourt'sorderexcludingWeston's undiscounted
medical bills from evidence at trial and REMAND for further proceedings consistent
with this opinion.
82 Wills, 892 N.E.2d at 1033; see also Leitinger, 720 N.W.2d at 158
(explaining that defendant "could have offered expert testimony as to the reasonable
value of the medical services provided in support of its argument that the amount billed
for the medical services was not the reasonable value of the services").
83 See, e.g., Melo v. Allstate Ins. Co., 800 F. Supp. 2d 596, 602 (D. vt. 2011)
(allowing defense to "introduce any relevant evidence of the reasonable value of medical
services that is not barred bythecollateralsourcerule[, including],for example, evidence
as to what the provider usually charges for the services provided, or what other providers
usually charge"); Nomat v. Mota, No. OP 140102-U, 2015 WL 5257886, at *8 (Ill. App.
2015) (holding that defense expert should be allowed to testify about "reasonableness
of medical bills for office visits, treatment, and markups for the hardware used in
plaintiff's surgery" based on database of cost information in relevant geographic area).
84 Under federal law, Medicare has a right to subrogation for the actual
amounts paid for medical care. 42 C.F.R. § 411.26 (2018). But Medicare does not have
a right to subrogation for the negotiated difference between the amounts billed and the
amounts paid. See 42 U.S.C. § 1395y(b)(2)(B)(iv) (2018) ("The United States shall be
subrogated (to the extent of payment made under this subchapter for such an item or
service) to any right under this subsection of an individual or any other entity to payment
with respect to such item or service under a primary plan.").
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BOLGER, Justice, concurring in part and dissenting in part.
I agree with the court's opinion that an injured party should be allowed to
introduce medical bills as evidence of the value of medical services, even when the party
is covered by Medicare. But I also agree with the dissenting opinion that a tort defendant
should be able to introduce the actual payments accepted for those services.
My opinion is influenced by theIndianaSupremeCourt'sdecisionallowing
1 Like
the admission of similar payments made by the Indiana Health Insurance Program.
the Indiana program, Medicare is a voluntary program: healthcare providers need not
participate, and they can leave the program at any time.2 Providers that remain in the
program agree to the terms of participation, including the reimbursement rates.3
Therefore, the reimbursement rates are probative evidence of the value of the medical
services provided.4
I also agree with the court that the defendant should not be allowed to
introduce the amount of the payment differential or otherwise refer to the fact that the
payment is made by a collateral source. But there should be no need to refer to the
source of the payment in order to show the payments that were actually accepted.5 I do
1 Patchett v. Lee, 60 N.E.3d 1025 (Ind. 2016).
2 Compare id. at 1031 with 42 U.S.C. § 1395cc(a)(1), (b) (2018).
3 Patchett, 60 N.E.3d at 1031.
4 Id.
5 See id. at 1029 (" '[T]he collateral source statute does not bar evidence of
discounted amounts in order to determine the reasonable value of medical services', if
insurance is not referenced." (quoting Stanley v. Walker, 906 N.E.2d 852, 858 (Ind.
2009)); see also Martinez v. Milburn Enters., Inc., 233 P.3d 205, 222-23 (Kan. 2009)
("[T]he collateral source rule bars admission of evidence stating that the expenses were
(continued...)
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not share the court's concerns that this approach will confuse juries or undermine the
6
collateral source rule.
The trial court can address both of these concerns by limiting the
scope of this evidence to remove any reference to a collateral source and by instructing
the jury that this evidence is only to be considered for the limited purpose of determining
7
the reasonable value of the medical services provided.
So I would reverse the superior court's order restricting Weston from
offering proof of the hospital's billings. On the other hand, I do not agree that
AKHappytime should be prevented from showing the payments actually accepted.
5 (...continued)
paid by a collateral source. However, the rule does not address, much less bar, the
admission of evidence indicating that something less than the charged amount has
satisfied . . . the amount billed."); Scott v. Garfield, 912 N.E.2d 1000, 1014 (Mass. 2009)
(Cordy, J., concurring) ("[T]he plaintiff is only entitled to the reasonable value of his
medical expenses, and the price that a medical provider is prepared to accept for the
medical services rendered is highly relevant to that determination."); Robinson v. Bates,
857 N.E.2d 1195, 1200 (Ohio 2006) ("[T]he reasonable value of medical services is a
matter for the jury to determine fromall relevant evidence. Both the original medical bill
rendered and the amount accepted as full payment are admissible to prove the
reasonableness . . . of charges rendered for medical and hospital care.").
6 See Op. at 20-21.
7 See Alaska R. Evid. 105 ("When evidence which is admissible . . . for one
purpose but not admissible . . . for another purpose is admitted, the court, upon request,
shall restrict the evidence to its proper scope and instruct the jury accordingly."); see also
Martinez, 233 P.3d at 225-27.
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STOWERS, Chief Justice, dissenting.
I cannot join the court's decision because I disagree both with the court's
premise and its answer to its analytical first step: "to decide what the [negotiated rate]
1 The court's premise assumes (petitio principii ) the answer to
differential represents."
the question it seeks to resolve: "Is [the differential] part of the benefit that an injured
party receives from the collateral source?"2 Specifically, the question assumes that there
is a benefit to the plaintiff and that it is from a collateral source. But this is not so. "The
benefit of insurance to the insured is the payment of charges owed to the health care
provider. An adjustment in the amount of those charges to arrive at the amount owed
3
is a benefit to the insurer, one it obtains from the provider for itself, not for the insured."
Notwithstanding, the court answers its question: "[t]he amount discounted out of a
medical bill is part of the value of that collateral benefit and should not accrue to the
defendant."4 In light of the foregoing, it is evident this answer misses the mark.
I also disagree with the court's proposition that Medicare "settled"
5 there was no true "settlement" because both
Weston's hospital bills for a lower amount;
sides had to know that the originally billed amounts bore no relation to the fair market
value of the treatment Weston received. Finally, the court "conclude[s] that the amounts
1 Op. at 19.
2 Id .
3 Haygood v. De Escabedo, 356 S.W.3d 390, 395-96 (Tex. 2011) (emphasis
added).
4 Op. at 19 (quoting Lucier v. Steiner Corp., 93 P.3d 1052, 1054 (Alaska
2004) (Fabe, J., dissenting)).
5 Id . at 1.
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billed by the providers are relevant evidence of the medical services' reasonable value." 6
As shown below, there is nothing reasonable about the intentionally inflated and
knowingly fictitious prices charged by the healthcare providers, and these inflated
billings are not relevant to any issue in Weston's personal injury case.
Fair market value is the price that a willing buyer and a willing seller would
7 In healthcare, prices are set in a different way. Each
exchange for a good or service.
hospital maintains a massive price list known as a "chargemaster."8 "[T]hese
chargemaster list prices are exorbitant. They are not set by the hospital to be paid; rather,
they are set to be discounted in negotiations with insurance companies and to game the
Medicare reimbursement system."9 As a mammoth government insurer, Medicare is a
"price setter" that can press its payments down toward a hospital's breakeven point.10
Thus, from the start the hospital was only going to receive what Medicare
determined it would pay for Weston's treatment. The hospital "billed" over $135,000
for this treatment, but it likely never intended or expected to collect that amount from
6 Id . at 2.
7 Tomal v. Anderson, 426 P.3d 915, 926 n.31 (Alaska 2018) (citing value,
Fair Market value , B LACK 'S LAW DICTIONARY (10th ed. 2014)).
8 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 B AYLOR L. R Ev. 425, 427 (2013).
9 George A. Nation III, Hospitals Use the Pernicious Chargemaster Pricing
System to Take Advantage of Accident victims: Stopping Abusive Hospital Billing, 66
DRAKE L. R Ev. 645, 652-53 (2018) [hereinafter Hospitals].
10 Id. at 655, 661.
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11
Medicare, Weston, or anyone else. For example: the record contains an itemized list
of every good and service Weston consumed during her hospitalization, including
medications such as enoxaparin (40 mg), morphine (30 mg), and ondansetron (2 mg/ml).
For a single dose of these medications the hospital billed Weston $240.95, $1104.00, and
$65.40, respectively. As AKHappytime demonstrated to the superior court, these prices
are orders of magnitude higher than the median wholesale prices of these drugs on the
12 Medicare paid less than one-
international market. And as historical practice predicted,
fifth of what the hospital billed for Weston's medical care.13
Weston is entitled to pursue compensation for the medical treatment she
received, but she must establish "some reasonable basis" for valuing that care.14 Her
claims for medical treatment must be based on some reasonable semblance of a fair
market value of the goods and services she received - a market value evidenced by
what is typically paid by Medicare, one of the largest insurers in the healthcare market15
- not on some grossly inflated, fictitious amount billed.
11 See id. at 651-52 ("On average, hospitals receive only 33 percent of their
chargemaster prices from all payers."); Mark A. Hall & Carl E. Schneider, Patients As
Consumers: Courts, Contracts, and the New Medical Marketplace , 106 M ICH. L. R Ev.
643, 664 (2008) ("Undiscounted charges are often three or four times the rates given
insurers, and there are 'contracts where the discount from list price was over [ninety]
percent.' ").
12 Hospitals, supra note 9, at 652-53.
13 The hospital billed Weston over $135,000; Medicare paid those bills in full
for $24,247.45, approximately 18% of the billed amount.
14 Alexander v. State, Dep't of Corr. , 221 P.3d 321, 324 (Alaska 2009)
(quoting City of Fairbanks v. Nesbett, 432 P.2d 607, 616 (Alaska 1967)).
15 Hospitals, supra note 9, at 655, 661.
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Finally, the collateral source rule does not come into play at all with respect
to the negotiated rate differential, because there is no collateral source payment .
Weston's damages are not being reduced or mitigated on account of payments from a
source other than the defendant; Weston's medical bills were paid at the Medicare rate
and, most importantly, she did not incur any liability for the difference between the rates
actually paid and the fictitious, inflated rates initially charged. To repeat what was stated
at the outset, "The benefit of insurance to the insured is the payment of charges owed to
the health care provider. An adjustment in the amount of those charges to arrive at the
amount owed is a benefit to the insurer , one it obtains from the provider for itself, not for
16
the insured ."
I cannot endorse the court's adoption of a known fiction. The amount
originally billed by the healthcare providers has no rational relationship to the economic
realities of modern healthcare payment practices. I would affirm the superior court's
order limiting Weston to showing "the adjusted medical rates accepted by her providers
as full and final payment for medical services rendered," and therefore I dissent.
16 Haygood v. De Escabedo, 356 S.W.3d 390, 395-96 (Tex. 2011) (emphasis
added).
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