Stayton v. Delaware Health Corporation

4214(b). judgment Superior Court is AFFIRMED. STAYTON,

Diane L. Plaintiff Below-Appellant,

v. DELAWARE HEALTH CORPORA

TION, Corporation; a Delaware Har Company,

bor Healthcare Center L.L.C., Liability Company; a Limited Mary Drandorff, RN, Francis Individ

ually; Jacobs, RN, Ruthanne Roberts

Individually; and L. Renee Woznicki Edge, RN, Individually, Defendants

Below-Appellees.

No. Supreme Court of Delaware. 6,May

Submitted: Decided: June Jr., Fletcher, Esquire, D.

William P.A., Dover, Schmittinger Rodriguez, Delaware, Appellant Stayton. Diane L. Brooks, Jr., Marks, Esquire, H. Norman O’Neill, O’Brien, P.C., Doherty Kelly, & Delaware, Wilmington, Appellees.

Justice, STRINE, Before Chief

HOLLAND, VALIHURA, VAUGHN Justices; SEITZ, constituting the Court en Banc.

SEITZ, Justice:

I. INTRODUCTION plaintiff, Stayton, Diane sustained injuries serious burn while a resident at Harbor Healthcare and Rehabilitation (“Harbor Healthcare”), a skilled Center Lewes, nursing center in Delaware. She negligence against brought a medical suit responsible those for her care at Harbor general Healthcare. addition to dam- ages, Stayton sought special damages for the cost of her medical care after she was coverage, burned. Absent Medicare providers hospital burn and other who injuries would have treated her her $3,683,797.11. Stayton Because billed Medicare, qualifies for Cen- ters for Medicare and Medicaid Services (“CMS”) paid Stayton’s provid- healthcare $262,550.17 in full required ers satisfaction of the be written off Medicare. expense Stayton’s hospital stay and oth- Where a has treated a regulations required er care. Medicare covered $3,421,246.94, Stay- the write-off of paid for medical services is the amount ton’s healthcare could not “bal- recoverable the plaintiff as medical ex- ance her for the amount bill” written off. pense damages. judgment

The defendants for moved on pleadings seeking judgment aas mat- II. FACTUAL BACKGROUND AND Stayton’s ter of law that expense medical PROCEDURAL HISTORY damages were limited to the amount actu- According to the CMS, allegations of the com- ally paid by rather than the amount plaint, accident, at Stayton might the time of the Stayton have been billed for her motion, year-old was a 76 Stayton opposed care. resident of relying the Harbor on the collateral gen- source rule. Stated Healthcare and Rehabilitation Center. erally, the provides bound, collateral source rule She was wheelchair paralyzed in that if an compensated is one of her arms and legs, one her and injuries independent from a source had also suffered from a stroke. While tortfeasor, payment is not admissible unsupervised, attempted she light cig- damages to limit the paid by the tortfea- caught arette and clothing her on fire. Application sor. rule in this case to Stayton was burned twenty per- over three Stayton’s the amount providers healthcare cent of body, requiring her treatment Stayton wrote off would mean could intro- thirty physicians over and other healthcare into potential duce evidence as special providers during nearly her six month hos- damages the amount her pro- healthcare pital stay at Burn Crozer Center in Ches- might ($3,683,797.11), viders have billed ter, Pennsylvania. ($262,- actually instead paid Stayton alleges that defendants’ medical 550.17). negligence injuries. caused her hospi- The Superior granted The the defen- tal and her other providers healthcare motion, dants’ Stayton’s limited medi- $3,683,797.11, billed a total of representing expense cal claim to the amount the amount that Stayton would be billed to CMS. The court decided the collateral coverage.1 absent Medicare The same bill source rule did not apply to amounts re- summary shows that Medicare through quired by federal law to be written off $262,550.17 paid providers CMS in full providers. healthcare accepted We certifi- satisfaction of all healthcare interlocutory cation of an appeal under charges.2 Supreme Court Rule 42 from Superior Court’s decision. Medicare is a government-sponsored program health insurance appeal, Stayton

On argues that the Su- people years perior old or applied eligible Court should have older who are the col- lateral source Security rule to the Medicare Social retirement write- benefits.3 The offs. program We conclude that largely through funded taxes rule does not paid by employers amounts employees under App. Opening (Complaint Br. at 43-54 3. 42 U.S.C. 1395c. A). Exhibit Id. at 54. judgment moved for on Act.4 defendants Insurance Contributions

the Federal Superior Court pleadings under Civil involuntary.5 Beneficiary participation 12(c) past Stayton’s Rule to limit medical receive benefits Many eligible beneficiaries $262,550.17 expense government, the federal but directly from Stayton’s providers CMS. receive their benefits some elect They argued that the written-off companies insurance through private the claim not recoverable because nei- was provide the Government to contract with Stayton ther Medicare nor would be re- plans.6 + Choice” “Medicare Burn quired pay it and Crozer Center a healthcare like Crozer When Stayton’s other would never to a Burn delivers Center it. contended response, collect pro- patient covered under the entire that she was entitled to amount its bill to the Medicare vider must submit billed Burn Center and her Crozer provider The agency providers, for reimbursement.7 the including other written-off bills, for its medical because the portions cannot seek reimbursement of her under injured party Medi- an is anyone from other than source services permitted the full to recover reasonable pays, average, on less care.8 Medicare cost of services from the tortfea- patient’s medical ex- than one-third of sor, may and a tortfeasor benefit from provider penses.9 The healthcare is re- payments the victim from receives balance, quired remaining to write off the parties. third any payments it cannot collect further on that amount.10 Under the Medicare Although recognized col this Court the Act, the Secondary Payer Medicare Trust “firmly lateral rule as a embedded” place recovery a lien on tort Fund can principle of Delaware law Mitchell v. Haldar,12 in the amount of the bene- patient the Superior distinguished the Court actually consequence minus paid, fits benefits received as of a private contract with a insurer from bene- litigation costs.11 3111(b). 310(b), Quality Lowering by Fixing §§ 4. Costs Our 26 U.S.C. Liability System, Dep’t Medical U.S. of Health part pro- Participation 5. the care Services, 24, 2002). on health July and Human by agreement. 42 U.S.C. is See viders 1395cc(a)(l) "any provider § (providing that 1395cc(a)(l)-(2); § 42 42 10. C.F.R. U.S.C. qualified participate ... be shall 489.21(a). § pay- eligible and shall be [in Medicare] Secretary ... if it files with the an ments 1395y(b)(2)(B)(iii); § Id. at C.F.R. agreement” specifying the terms of the 411.37(c) ("If § Medicare are less agreement). amount, judgment the than or settlement the (1) recovery computed as follows: Deter- 1395w-21(a)(l). § 6. 42 U.S.C. procurement the mine ratio of the costs to the (2) judgment payment. total or settlement 1395cc(a)(l)-(2). may 7. 42 USC Providers payment. the ratio to the Medicare Apply patients applicable charge deduct- Medicare product procure- The Medicare share of is the ibles and coinsurance. (3) ment costs. Subtract Medicare share procurement pay- costs from the Medicare 8. Id. ments. is the The remainder Medicare recov- amount.”). ery Wasson, & Pat Stephen L. Olson Is Applicable Rule to Medicare Collateral Source Haldar, (Del. A.2d Write-Offs, 12. Mitchell v. J. and Medicaid Def. Couns. 2006) (2004) (quoting Yarrington Thornburg, v. (citing Confronting New 1964)). (Del. Improving Care A.2d 2 Health Care Crisis: Health operation paid by fits received under of federal Superior Court rea- Superior law. The Court relied on our soned that the collateral source rule did In- decision State Farm Mutual Auto not apply expenses paid. are never Nalbone, Company surance v. which held It concluded that “healthcare debt is sim- that the was not allowed to seek a ply extinguished by operation of law when damage compensation award that included elects accept wages for lost when she receiving was payment of assigned benefits directly from reimbursement for those losses from her Medicare.”17 employer’s disability plan.13 Superior The Superior Stay- Court concluded that qualified Court found that Nalbone only $262,550.17 ton could recover as com- by requiring collateral source rule pensation for expenses, her medical court to examine the consideration that only amount that Crozer Burn Center and had been before Stayton’s other would receive as awarding a recovery. double a Plain- “[I]f payment, and the maximum amount that tiff has recovery consideration for Medicare could recover from Stayton. It source,” from a collateral the Superior concluded that preventing reasoned, “then the double recovering “inflated and fictitious permissible.”14 But because damages” possibility reduced the of overly- “did not contract with her health special awards, inflated damage which are accept payments to reduced from Medi- often based on damages, awards for actual care for her expenses,” medical the court and ameliorated the increasing cost of lia- the found collateral source rule did not bility coverage insurance for healthcare apply.15 providers.18 examining After several cases address- ing question the of whether full III. ANALYSIS amount of expenses, including medical an Where seeks paid by sources, amounts services, to recover for medical action, plain could be in recovered tiff prove must two distinct Superior issues—first Court decided to follow a case, that Chimes, the value claimed for medical Superior Court Rice v. The Rice, reasonable, Inc.16 In and second that sustained burn the need for injuries that medical proximately were also treated at services was caused Crozer. $883,000 by charges Crozer submitted the tortfeasor’s negligence.19 Here we $59,000, paid Medicare re- focus on whether the amount claimed quiring Crozer to write-off remaining Stayton full amount hospital of her —the $824,000. In finding that reasonably approximates the value of bill— only $59,000, could recover the amount her medical services. Nalbone, Staton, 13. State Farm Mut. Auto (quoting Ins. Co. v. 17. Id. at 4 Wildermuth v. (Del. 1989). 569 A.2d 71 (D. April 2002 WL at *5 Kan. 2002)). Stayton 14. Corp., v. Delaware Health 2014 WL 24, 2014) (Del.Super. Sept. at *2 Stayton Corp., v. Delaware Health 2014 WL (internal omitted). quotations 4782997, at *2. 15. Id. at *1. Mitchell, 883 A.2d at 37. Chimes, Inc., 16. Rice v. The C.A. No. 01-03- 4, 2002). (Del.Super.Oct. 260 CLS Stayton possible posi- this Court to tim as close as to the same asks appeal,

On judgment, ar- Superior injury. reverse Court’s tion as the victim was in before of Medicare that it shifts the benefit guing The Chamber of of the Unit- Commerce tortfeasor, contrary from the victim the amicus curiae brief in an filed ed States the Re- source rule and to the collateral that support argues It we defendants. Stayton also of Torts. statement affirm the Court’s Superior ruling should rule limiting her contends allowing recover medi- Stayton because amount Medicare expenses paid never cal were would similarly situ- differentiate between would merely generate windfalls injury vic- claimants because personal ated lawyers. gap and their Because the be- receive Medicare would tims covered Medicare tween par- in than a tort suit compensation less quite large, the actual bill is often cover- private medical insurance ties with damage for the requiring payment full age. amount billed to a would lead substantial in response The defendants contend in premiums, increase harming insurance correctly found that Superior businesses consumers. the collateral source rule does review Superior We Court’s le Stayton’s medical the written-off determination de novo.20 gal not contract with bills because did providers Burn Center or her other Crozer Rule A. Delaware’s Collateral Source discount, contract accept nor did she The defendants for Medicare benefits. The collateral source rule is of common that Medicare is different argue also origin21 deep law and has roots Ameri- specifical- collateral sources: private other jurisprudence law. can and Delaware Its Stayton’s oth- ly, Burn Center and Crozer application first the United States “was legal obligation have a er apparently more than hundred fifty one accept payment, a lower determined in a years ago ultimately by case decided services, for its medical Supreme the United Court.”22 States right subrogation has no Medicare half century ago, More than a this Court Stayton’s medical

the written-off recognized the rule collateral source as the total They bills. also contend that “firmly embedded in our law.”23 based charges submitted Medicare were The collateral source rule is “de than value on factors other the reasonable to strike a signed balance between two and as provided, the medical services (1) competing principles law: of tort a such, per- cannot the collateral source rule plaintiff compensation is entitled suffi inflated, recovery illusory mit those more; whole, him cient to make but no Finally, argue charges. the defendants (2) damages a for all contrary conflicts with tort defendant liable ruling a vic- principles, attempt put proximately wrong.”24 which result from his law 1, County, 205 A.2d 2 Yarrington Thornburg, v. Corp. 20. Motors v. New Castle 23. General 819, (Del. 1997). 1964). (Del. 701 A.2d 920A, 21. Restatement Mitchell, A.2d at 38. 24. cmt. d.

22. Mitchell, (discussing 883 A.2d at 37 Mollison, 58 U.S. Propeller Monticello v. (1854)). 17 How. 15 L.Ed. 68 payments receives or from sources Where unconnected with the defen- source, from a third dant.” compensation net loss will be less than the B. The Collateral Source Rule and damages proximately full caused Healthcare Provider Write-Offs wrongdoing. pay- tortfeasor’s When such compensation provided by ments or are Even though the collateral source rule tortfeasor, independent of the states,29 recognized by has been most it quasi- collateral source “based on the has not uniformly applied been to health- punitive liability,”25 op- nature of tort law provider care write-offs. States gen- have erates, resulting to allocate the erally windfall to taken one of three approaches. than Some apply rather the defendant. states the rule to healthcare provider write-offs in “A who receives a double the same manner as they apply it to windfall; third-party payments, single enjoys for a tort such a defen- payments by insurers. Other states escapes, dant who in whole or in part, provider write-offs, the rule to but liability wrong enjoys his a windfall. if only injured party can be said to Because the law must sanction one wind- bargained have for the write-off. A third other, fall deny it favors the victim group of states refuses to apply the rule to wrong wrong- rather than the provider altogether. write-offs doer.” that apply States the collateral source applies, When the rule a tortfea rule to they write-offs as do to sor cannot reduce its because of party payments third view write- compensation received offs as plaintiffs by benefits conferred on person independent an providers, gratu- the form of services “predicated source.27 The rule is itously price rendered at a below the stan- theory in, that a tortfeasor no has interest emphasize dard rate.30 These states from, right and therefore no to benefit collateral source rule’s purpose traditional injured person monies received of ensuring that benefits conferred on in- Mitchell, 25. Id. 28. 883 A.2d at 37-38 though right Even Id. to recover the Yarrington, 205 A.2d at 2. might written off amount be termed a wind- fall, the amount of the windfall is affected Bynum Magno, 30. See v. P.3d subrogation rights. private Most insurance ("Because (Haw.2004) plaintiff Joseph a like policies provide subrogation right a to the required pay is not to the difference between covering payments. insurer its Guillermo Ga- the standard rate and the Medicare/Medicaid Zorogastua, Improperly briel Divorced From payment, part that of such medical services Its Roots: The the Rationales Collateral of attributable to such difference could be Implications Source Rule and Their Medi- for conceptually gratuitous viewed as service to Write-Offs, care and Medicaid 55 U. Kan. L. plaintiff, so as to come within the the collater 463, (2007) (quoting 470 n. 56 Eric Mills Rev. Foster, rule.”); al source v. Ill.2d Wills 229 Holmes, Appleman Holmes' on Insurance 2d 393, 26, 1018, 323 Ill.Dec. 892 1024 N.E.2d 141.2(c)(2)). earlier, § As noted Medicare (2008) c(3) (citing comment to the Restate subject and Medicaid beneficiaries are to a (Second) regarding gra § ment of Torts 920A covering government payments lien on tuities, which states "the fact the doctor did personal injury recovery. 42 U.S.C. .., charge pre not for his not does 411.37(c). § 1395y(b)(2)(B)(iii); § 42 C.F.R. plaintiff’s] recovery vent the full [the for value (Second) services”). § 27. Restatement of Torts 920A. of the 528 costs, rising but on balance parties third not end insurance be-

jured by do parties injured bargained- up the defendants who that the rule to going applying to lieve them, legiti- the defendants can unless for honors the insurance ar- write-offs for the As mately claim credit benefit.31 have rangement plaintiffs that the in comment b the Restate- expressed for, encourages pur- the consideration (Second) § Torts 920A: ment of Respecting chase of insur- insurance.33 may net loss have injured party’s bargained ance are for stands benefits that [by a source reduced collateral been in contrast to the traditional Restatement benefit], and to the extent that the de- justification for the collateral rule. total required pay the fendant Restatement, the Under the may compen- be a amount there double any windfall to plain- source rule allocates plaintiffs injury. part for a sation tiffs do not have a because tortfeasors position But it is the the law and, windfalls legitimate claim to such as injured the that is directed to benefit two, get should between the the not be shifted so as to party should Benefit-of-the-bargain al- windfall. states for the If become a windfall tortfeasor. bargained-for plain- locate “windfalls” responsible was himself for the theory plaintiffs tiffs on that do have benefit, by maintaining as his own in legitimate to them. If bargain- claims making advantageous insurance or insurance, ing bargain insureds al- arrangements, the law employment write-offs, then allow- If keep him to it for himself. lows ing them to recover write-offs gift to the from a benefit was allows them to defendants benefit him party or established for third turn, This, from that bargain. makes law, deprived he should be purchasing more attractive. insurance advantage that it confers. The law does between the nature of not differentiate disagrees, The last of states group as a benefits, long they did not so matter, threshold that the collateral source person defendant come from the terms, express applies pro- its acting for him.32 vider These states reason write-offs. not, in the provider write-offs are words of collateral source States Restatement, “[p]ayments made to or “bargained for” rule to write-offs injured grant- par- concern benefits conferred injured party express about ty....”34 portions off given recoveries The written ing double ("Comment presses judgment Bynum, policy P.3d at 31. See favor of en couraging purchase citizens to Torts] b to 920A maintain [Restatement that, although compensa- personal injuries insurance explains other ... double eventualities.”) (quoting may plaintiff, v. tion result to the such a benefit California Helfend 1, District, Rapid 2 Cal.3d rather Transit Cal. should redound 61, 173, (1970)); Rptr. party causing 465 P.2d Acuar v. than ‘become a windfall’ Wills, Letourneau, Va. 531 S.E.2d injury.”) 323 Ill.Dec. (2000) ("Those (“A amounts written off are N.E.2d at 1030 benefit that is directed to plaintiff] as much for which injured party [the should not be so as of a benefit shifted tortfeasor.”) (in- paid as are the actual cash become a windfall for the consideration to omitted). payments by quotation made his health insurance car ternal providers.”). to the care rier health 920A, § 32. of Torts cmt. b. Restatement (Second) 920A(2). § 34. Restatement of Torts State, 692, Provisions, 879 & 33. See v. So.2d 704 See Howell v. Hamilton Meats Bozeman Inc., 541, 325, (La.2004) ("The Cal.Rptr.3d 129 257 collateral source rule ex- Cal.4th by paid Though medical bills are no one. of the harm for which the tortfeasor is provider a the healthcare confers benefit applies liable.... This gratui- cash injured party by writing por- on the off a rendering ties and to the of services. tion of its bill in the event the Thus the fact that the doctor did not party payer, payer is the when the charge for his services ... does not Medicare, Medicaid, insurance, private or prevent his for the reasonable taxpayers the benefit accrues to the or the value of the services.36 private insurer. Mitchell, In sought the defendant to limit has applied This Court the collateral plaintiffs recovery paid provider source rule to write-offs as it has insurer, Cross, his private health Blue Onusko, party to third payments. a arguing that the could not recover physical therapist voluntarily reduced the the full amounts of his medical bills unless of treatment price sessions from $534 those actually paid amounts were by Blue per plaintiff. visit for the uninsured $282 disagreed, Cross. We observing, applied This Court the collateral source recently Kerr, in [W]e held Onusko v. rule to the amounts written off portions expenses of medical therapist upheld judge’s the trial deci- health care providers write off constitute present sion to allow the “compensation indemnity jury therapist normally with the received $534 a charged as tort victim from a evidence the reasonable val- source collateral to therapy ue of the sessions.35 The the tortfeasor.” The result is the same (Second) relied on the Restatement generated by whether the write-off is explains: Torts which or, cash payment such as Kerr’s inas ease, this of a reduction Payments made to or because attrib- benefits conferred injured party utable to a health from other sources insurance contract for not against paid are credited the tortfeasor’s which the tortfeasor no compensa- liability, they although part cover all or tion.37 1130, (2011) source”); (finding any P.3d Haygood the collateral v. De Esca bedo, inapplicable 390, source rule (Tex.2011) ("The write-offs 356 S.W.3d "[t]hey paid provid- because are neither to the benefit of insurance to the insured is the plaintiff's ers on the behalf nor to the payment charges to owed to the health care indemnity expenses”); of his or her provider. adjustment An in the amount of Walker, 852, Stanley v. 906 N.E.2d 857-58 charges those to arrive at the amount owed is (Ind.2009) ("[B]ecause pays nego- one no insurer, to the benefit one it obtains from reduction, admitting tiated [write- evidence of itself, insured.”). purpose offs] does not violate the behind the collateral-source rule. The tortfeasor does Onusko, 880 A.2d at 1024-25. not obtain credit because of made plaintiff.”) a third on behalf of the 920A(2); 36. Restatement Bates, (quoting v. Robinson 112 Ohio St.3d c.(3). comment 17, (2006)); 857 N.E.2d Robinson ("The 857 N.E.2d at 1200 collateral source Mitchell, Acuar, (quoting 883 A.2d at 40 expenses rule does not to write-offs of 320). disagree 531 S.E.2d at We with the paid.... pays that are never Because no one Superior Court’s view that write-off, Delaware -has possibly it cannot constitute adopted benefit-of-the-bargain approach

payment of a benefit from a collateral source.”) Superior the collateral source rule. (emphasis original); Moorhead v. Ctr., Court relies on State Farm Med. Mut. Auto Ins. Co. Chester 564 Pa. Crozer Nalbone, (2001) (Del.1989), (finding sug- v. 569 A.2d 71 A.2d the collateral gests inapplicable provider’s source rule our later decision in Mitchell "fol- write-off, "since that inspired principle” amount was not lowed a contract law today’s economy diverge from pres- entitled to healthcare held the was We of the collat- underpinnings full amount of his the traditional of the ent evidence rule. any reduction for the eral source medical bills without providers his be- amounts written off rather than the Discounting is the rule with Blue Cross. cause of their contracts today. “[Ojnly a exception in healthcare persons receiving fraction of small Write-offs C. Medicare actually pay originaL amounts Mitchell, off In written Onusko for those services.”38 The small billed medical bills were portions plaintiffs’ of the typically share that do are uninsured in relation to the amounts far more modest means, yet population not without a that is case. The fact actually paid than this a result of the insur- expected to decline as Stayton’s off of the written ance mandate of the Patient Protection thirteen times the amount medical bills is and Affordable Care Act.39 pur- It reflects the paid gives pause. us to the collateral source chasing power given of the size Whether of beneficiary question It is also rule to Medicare write-offs is population. of its for this In our way impression in which the realities of first Court. reflects the 4782997, Stayton, WL at *2. from the amounts the Mitchells’ health care that case. plaintiff sought pursuant to extend the con- Nalbone wrote off those observed, source rule to contract tort law collateral vast ma- ”[t]he tracts. This under Delaware’s no-fault automobile cases jority have held that the collateral of'courts rejected This Court insurance statute. prohibits reap- rule source tortfeasor effort, policy goals that "the of no- held ing the benefit of a health insurance contract by applica- be served fault insurance can best paid compen- has no for which tortfeasor principles tion of of contract rather than tort Mitchell, (emphasis sation.” 883 A.2d at 38 Nalbone, Superi- 569 A.2d at 75. The law.” added). emphasis denying Our on the tort- that, upon holding or Court drew Nalbone 's windfall, even if it in a feasor resulted gra- payments collateral are received ”[i]f the recovery plaintiffs, was based not double tis, receipt recovery then their should bar expectations plain- on the contractual Stayton, policy.” See under the no-fault tiffs, quasi-punitive but "on the nature of tort ("According [Nal- WL at *2 liability.” law Id. Our case law does not ], paid bone if a has consideration and, benefit-of-the-bargain approach reflect recovery ‘for from a collateral source’ than infra, for the reasons discussed in Part III.C it If, recovery permissible. the double is how- approach adopt. an we are inclined to is not ever, are 're- gratis’ ceived then such double Ireland, Concept R. 38. Thomas Reason- Nalbone, barred.”) (quoting should be Recovery Expenses able Value in Medical context, 75). Applied A.2d at in the tort Legal Torts, Injury Personal 14 J. Econ. though, holding directly contrary this (2008). years sixteen later in this Court’s decision Onusko and the comment from the Restate- 111-148, (2010). No. 124 Stat. Pub.L. Onusko, upon by ment relied us in that case. Levin, See Ann S. The Fate the Collateral (allowing 880 A.2d at 1024 Reform, 60 Source Rule Healthcare After plaintiff's written off recover amounts (2013) ("Because UCLA L. Rev. c(3) citing provider, comment Patient Protection and Affordable Care [the 920A, the Restatement (effec- requirement individual mandate Act’s] regarding gratuities). It true that this 1, 2014), January everyone will tive almost be Mitchell, contracts in but the Court discussed ever, rarely, insured. Thus defendants will if contracts reviewed in Mitchell were the con- medical bills are encounter whose health insurance tracts between the Mitchells’ at the in full at the billed rate rather than provid- carrier and the Mitchells’ health care negotiated lower rate insurance com- were relied on to find ers. Those contracts panies.”). that the had no claim to benefit tortfeasor view, failing purchase it is hard to characterize the dis- insurance un- have doubtedly played that providers agree counts healthcare role as well. party payers

with third as benefits con- Though applied we the collateral source by providers parties. ferred on provider rule to write-offs in Mitchell and gratuities. These are not Before Onusko, we today decline to extend that hospital, govern- entered the the federal application to amounts that a healthcare ment had set Medicare’s reimbursement provider required to write off for Medi- rates for the services she would receive care patients. Instead we follow the view agreed and Crozer Burn Center had to that provider write-offs are not accept those rates for the treatment made to or benefits conferred on the in- patients. govern- Medicare The federal jured $3,421,246.94 party. Stay- that ment acted out of consideration for the ton’s providers healthcare wrote off was Burn taxpayers. presum- Crozer Center Any no one. benefit Stayton’s ably patient acted with volume in mind. healthcare in writing conferred off over ninety percent of their collective It similarly hard to view these 'dis charges was conferred on federal taxpay- bargained counts as benefits for ers, consequence as a pur- of Medicare’s in patient. Haygood As stated v. De Esca Thus, chasing power. the collateral source bedo: apply rule does not to the amounts written The benefit of insurance to the insured by Stayton’s off providers. payment charges is the owed to the provider. adjustment health care An D. Reasonable Value Medical Ser- charges the amount of those to arrive at vices the amount owed is a benefit Because we find that the collateral insurer, one it obtains source rule does apply to Medicare not. itself, not for the insured.40 write-offs, question becomes how to Treating provider if they write-offs as determine the reasonable value of medical bargained were benefits insureds where there are Medicare write- theoretically encourages pur- individuals to application offs. Like the of the collateral chase health reality, though, write-offs, insurance. source rule to states diverge on suspect pur- we few individuals decide to how to measure reasonable value when the chase health they insurance because ex- amount differs from the amount that pect to be tort might victims and want to assure be billed for medical services. themselves a recovery. Among double It is far states that apply do not the collat likely purchase write-offs, more that decisions to or eral source rule to purchase not insurance are motivated some treat the determination of the rea premiums consideration of the cost of the jury sonable value medical services as a coverage and the health to be gained question, as is done where the collateral premiums. return for those the pas- applies. Since source rule Other states that do sage of the Patient Care Affordable the collateral source rule to pro Act, penalties to be Care incurred for vider write-offs treat the amount paid as Haygood, might required 356 S.W.3d at 395. See also cal services which be Inc., Enterprises, reason, v. Milburn illnesses, Martinez including as well as acci- (2010) (John Kan. 233 P.3d 232-33 dents,” that, "an insured is unconcerned son, J., concurring) (explaining pur about how much it will cost the insurer to for, bargains chaser of health insurance “the ”). policy obligation.... fulfill its payment reimbursement for needed medi- providers, poor persons value of of the reasonable the with and disabled dispositive a of law. by government services as matter will re- programs covered litigation. ceive the lowest in To to leave the reason- that continue States concerns, these in these address courts jury, to the de- able value determination jury states allow the to the rea- determine 'finding the source rule in- spite sonable value of services rendered medical write-offs, believe that to the applicable by plaintiff considering expert testi- finance”41 today “realities of health care evidence, mony and all other in- as relevant defy categorical rules. Just the providers charge to- cluding amounts healthcare the billed amount and the amount sense, not, in stan- day any are realistic actually paid for the medical services.44 rates, are going or neither the dard paid disposi- States that find the amount by payers. paid particular amounts tive of the reasonable value as a matter of patient the paid depend rates on volumes that suggest law the collateral source rule exchange payers the can offer exception to of general is an the rule dam- Thus, discounts. courts these states for the ages. apply, Where rule does not the reason, charged neither amount nor the of damages ought pro- determination paid dispositive the amount are rea- plaintiff ceed under the is principle provided.42 of sonable value the services compensation to make entitled sufficient Furthermore, worry in these states courts whole, her but no It contravenes more.45 treating paid disposi- that the amount as principle this count amounts which effectively different classes of tive creates liability no one made or incurred of their plaintiffs based on the sources particu- damages.46 the as Comment h to the Restate- coverage.43 Given larly bargain government addressing hard drives ment Stanley, may 41. at 857. establish reasonableness. The defendant N.E.2d testify also introduce its own witnesses ("The represent the billed amounts do not the rea- complexities id. of health See care Additionally, sonable value of the services. pricing it difficult to structures make deter- may the defendant introduce the discounted paid, the mine whether the amount billed, amount amounts into evidence rebut the reason- represents or an in between amount charges plain- services.”). ableness of introduced the reasonable value of medical tiff.”) Robinson, ("To N.E.2d at 1200 See ("As Haygood, separate categories 45. See 356 S.W.3d at 394 a avoid the creation of of general principle, damages, compensatory plaintiffs based on individual insurance cover expenses, age, categorical like medical are intended to make adopt we decline to plaintiff resulting today's any whole Due to of losses rule.... the realities insur any given system, in defendant's with the and reimbursement interference ance case, plaintiff’s rights. The rule is determination collateral source [the value] reasonable (internal omitted). original exception.”) necessarily an citations the amount of the bill paid.”). amount or the Howell, Cal.Rptr.3d 46. See 257 P.3d ("Given ("To Stanley, expenses, 44. See 906 N.E.2d at 858 at 1138 be mo- recoverable as pricing system generally expended, care current state the health nies must have been or at may ”) (internal jury quotation ... well need the amount least incurred .... omitted); Moorhead, ("The payments, billed medical service amounts 765 A.2d at 789 providers, expenses may and other relevant and admissible for which recover actually paid, to be evidence able to determine amount must be such have been as, jury, expenses. judgment of reasonable To assist the in the are such incurred.”) (inter- jury regard, may reasonably necessary in this a defendant cross- to be omitted). quotation examine witness called nal pur- paid the determination value for the billed and the amount are both rele- poses damages, supports posi- of tort question vant to the of the reasonable val- tion, paid dispositive that the amount as ue of medical services. But introducing a matter of law.47 into ju- evidence informs rors that the plaintiffs medical expenses

When the seeks to recover for have partially paid been at least liability made or expenditures incurred collateral source. This creates a risk that rendered, parties to third for services jurors will absolve the defendant of liabili- normally the amount recovered is the ty for that amount paid by the collateral reasonable value of the services rather source. This reduction in the If, plaintiffs paid charged. than the amount however, recovery, for a payment from a third person paid the less rate, payer, than exchange the he can recover is disallowed the collateral paid, except no more than the amount source even if a pro- reduction for a gift when the low rate was intended as a Indeed, vider write-off is not. preventing to him.48 reduction in plaintiffs the recovery for a collateral payment source is the prototypi- Stayton’s The fact that pro- healthcare Thus, cal application of the rule. in an collectively accepted viders less than a effort to strike a balance in connection tenth of they might have n with write-offs to which the collateral billed, and not a gratuitous did so as ex- source rule apply, jury does not ap- of an ception part agreement but as with a proach undercuts the rule in connection high-volume payer, makes it difficult to with third party payments to which the conclude that the billed represent amounts rule indisputably apply. Finally does value reasonable of the medical ser- there system is the cost to the of requiring hand, vices. On the other the fact that multiple experts testify about the rea- Stayton’s providers agreed up pro- front to sonable value of the medical services. patients vide their services to Medicare exchange for the amount Medicare pays balance, On we believe the better course those suggests is to treat the amount Medicare as paid might amount be in the range what dispositive of the reasonable value of should be considered reasonable. provider services. Delaware (Second) shortcomings There are several has followed the to the Restatement jury approach. Evidence of the application amount Torts in its of the collateral challenged 47. A agree number of courts have plain- rule to write-offs relevance to these cases of comment h to tiff is entitled to recover as if such collateral § applies 911 because its terms it “when made, payments source had not been in which expenditures seeks recover for case the would have incurred a liabil- liability parties made or to third for services case, ity providers. a collateral plaintiffs seeking recovery rendered” and payer subrogation right, source often has a damages seeking medical services are not "to shoes, standing plaintiffs in the to recover for expenditures liability recover for made or payments it made to the parties Bynum, third for services rendered.” case, plaintiff's behalf. In either is 1159; Wills, 101 P.3d at 323 Ill.Dec. liability had as if were made or a N.E.2d at 1027-28. To the extent incurred. seeking to recover medical services expenditures have not made or incurred lia- § 48. Restatement cmt. bility providers, to their medical services it is h. only payments. due to collateral source Even apply courts do not source collateral claim for the written-off her treating fact that rule.49 The source compensa- is consistent medical bill seeks dispositive of her paid amount occur, gives us of the Restatement will never which with tion for harm that adopt we to- approach that the speculative confidence than is less substantial even fully but only administrable day is not harm. prin- common law tort with the

consistent Delaware’s underlying ciples CONCLUSION IV. rule. reasons, we affirm the foregoing For the rule is an The collateral source that the judgment Superior govern general principles exception to the apply not collateral source rule does damages. excep That ing compensatory Stayton’s healthcare Medicare write-offs. here, if it recovery, so tion does expenses are limited had, in accordance with should be had for her medical care. amount CMS In Dela ordinarily damage principles. compensa entitled to “a ware STRINE, Justice, concurring: Chief whole, him but no to make tion sufficient words, remedy the In other more.”50 Court, join opinion I the excellent plaintiff as close put tort should only to note that this separately and write as she was in position possible to same taking decision illustrates the wisdom Stayton’s claim for injury. before approach applying long- Hippocratic claim for economic expenses is a medical standing that have been extend- doctrines as “a financial loss, is defined which necessary beyond what was to accom- ed will undisputed It is loss.”51 words, In plish original goal. their other pay for medical ex obligated be far, approach no further” by taking a “this amount Medi penses above the rule, source the Court to the collateral $262,550.17 thus, care, an award of and principle, to the “first do no adheres any her for eco fully compensate would harm.” her medical treatment. nomic loss from reality that Har- respects plaintiff that a has also held This Court has not asked us to narrow bor Healthcare conjectural speculative cannot recover the collateral source but the reach of law “refuses to allow damages because the context. only to refuse to extend it to this damages relating to the future plaintiff question us calls into But the case before injury unless of a tortious consequences applying the collateral the wisdom proba reasonable establish with proofs conseq gen- exception rule —itself an to the of those bility the nature and extent damages plaintiff eral rule of Here, Stayton has because uences.”52 nothing and entitled to be made whole required pay and will not be not paid form, in its current an era more53—in expenses above medical Wallis, Mitchell, (citing 52. Laskowski v. 205 A.2d A.2d at 38-39 49. See (Second) (Del. 1964). § and of Torts 920A Restatement Onusko, 920A, b); § A.2d at 1024- cmt. (citing of Torts the Restatement (2015) (“The Damages § 53. See 25 CJ.S. 920A, c(3)). § § and cmt. 920A exception rule is an collateral-source damages preventing general a double rule Mitchell, (internal quota- 883 A.2d at 38 recovery by party, or in other an omitted). tions words, general exception to the rule it is an (Third) 1 TD No. 1 51. Restatement action, damages the measure of that in a tort (2012). (2) achieving where we are closer to universal a defendant is liable for all healthcare, rising and where proximately wrong.”55 result from his reducing are access to care and costs Thus, properly applied, when the rule en- harming our nation’s economic health. sures that negligence whose reasons, For other courts have re- these injury caused the all bears of the resulting and stricted even eliminated the costs, which provides a useful financial in- source rule.54 both a situation like the centive for the exercise of due care write-offs, involving current case Medicare defendants like Harbor Healthcare.56 It is hospi- and also a related situation where a especially important put the cost of care provider voluntarily gives tal or other free preventable injuries care, any recovery or discounted medical tortfeasor, not because of a desire to be theory from the tortfeasor on the that the generous insurers, to health govern- even provider accepted than less the reasonable mental ones. The reason is that when of the plaintiffs value medical services health insurers bear excess costs because go provider, should to that and not to the they pay must resulting costs of care who not pay out-of-pocket did preventable injuries, they will charge costs, only if the itself desires rates, higher increasing societal healthcare supposed recover the shortfall. costs, potentially inhibiting receipt notes, As the Court the collateral source necessary care the economically vul- emerged rule to “balance between two nerable. (1) competing principles of tort law: Historically, applied courts have compensation entitled to suffi- the col- whole, more; cient to make him but no lateral source rule to allow a ("Several compensate that is that will and make the 30:5 states have abolished or whole.”). plaintiff modified the collateral source rule in medical cases.”); malpractice Fleming, John G. cf 54. E.g., Bryce Benjet, A Review State Law of The Collateral Source Rule and Loss Alloca- Modifying Seeking the Collateral Source Rule: Law, 1478, tion in Tort 54 Calif. L. Rev. 1478- Damages Greater Fairness Economic (1966) (noting that the rationale for the Awards, (2009) (noting 76 Def. Couns. J. 210 adopted shifting collateral source rule when — "although that the [collateral source] rule is parties losses to more affluent become —has law, entrenched in the common there is a compelling society prioritizes less in a restrict, abolish, growing trend to if not programs recovery social over tort as a mech- rule,” Schwartz, cases); citing Gary T. A Levenson, shifting); anism for loss Rebecca Program: Care National Elealth What Its Ef Comment, Allocating the Costs Harm to of Would Be on American Tort Law and fect Malpractice They Modifying Where Are Due: the Collateral Law, 79 Cornell L. Rev. Reform, Source Rule Healthcare 160 U. After (1994) (“[T]he collateral source rule has (2012) (arguing Pa. L. Rev. that the collat- states.”); by now been abolished in several eral source rule should be limited in the wake Beard, Impact Changes Michael K. of of the individual mandate under Afforda- Systems Health Care Provider Reimbursement Act). ble Care Recovery Damages Medical Ex for Suits, penses Injury in Personal 21 Am. J. Trial Haldar, (Del. 55. Mitchell v. 883 A.2d (1998) ("The 476-77 Advoc. 2005). policy justifications source rule and its were widely accepted before health insurance be (2015) ("The Therefore, Damages § 56. See 25 C.J.S. prevalent. came it was foreor to, princi- applied collateral-source like other tort dained that the rule would be all ples, deterring neg- aims át Only forms of health insurance.... also tortfeasor’s with conduct, ligent accordingly, legislation twenty years tort reform it makes the of the last any fully responsible has there been substantial modifications tortfeasor for ”); conduct.”). Litigating to the rule ... Tort Cases caused as a result of tortious that actual- expenses to the award of full cost of her medical bill recover when her insur- ly even incurred them. from the tortfeasor all or a paid for company ance a matter of only It sense not as makes cases, subrogation rights it.57 In such incentives, but of fundamental fair- good any to eliminate “dou- operated have often ness, provider gives that a to ensure and thus plaintiff, for the recovery” ble a tort help discounted care to charitable or short-changing problem avoided the care is able pay victim who cannot insurer. up to market when the tort- topped to be contrast, case, if we were to In this tort. held for the feasor is accountable allow source rule to the collateral why get pocket But should full amount of her Stayton to recover part for herself as of her the difference bill, the real help it not would who did the recovery, leaving provider short- Stayton contends was party that shortfall, good pre- deed with a measured Stayton’s Burn Center. changed: Crozer cisely by the extent of the own champion of a lawyer acting not windfall, That is harder to understand.58 fair alleges did receive hospital that he repayment to the poor seems a critical care providing reimbursement charity. for its client, seeking to have is instead to his but course, might law deter- Of the common hospital pocket compensation client his who acts as an en- mine obligated to never charges that she was her agent forcement for herself and great- times charges that are thirteen pay, receive an should actually the amount that Medicare er than attorneys’ award of fees and costs to en- Likewise, if the behalf. paid on his client’s recovery her health- sure that the net to al- employed rule was collateral source by any enforce- care costs is not reduced such as to recover low approach, ment costs. Even under that treatment she re- the full cost nf medical avoided, windfalls should be and there free, requiring than her ceived for rather recovery of enforce- should be no double hospital, the rule go to run ment costs or incentives created for the provide a windfall perversely would this, up.59 considering an them issues like fairly than allocate plaintiff, rather See, Mitchell, charge the fact that the doctor did not e.g., A.2d at 38. Thus prevent ... [the for his services does not Kerr, recovery example, physical plaintiff’s] for the reasonable value a In Onusko v. for services.”). uninsured therapist lowered his rates for an injured motorcycle patient who_ in a was recovery where a double patient allowed to re- 59. The rare case crash. The was then permitted per should be is where an insured rate from the tortfeasor cover the full market ap- specifically. In that with no son has contracted for it under the collateral source case, really a physical does not receive parent obligation to make the thera- recovery the insured has pist that he should have double because whole for the amount 1022, Kerr, right to recover. A.2d contracted and for the received. See Onusko v. (Del.2005) of us who to school some decades (quoting the Restatement Those went 1024-25 920A(2) ago might were often of comment recall that students c.(3) provided ''[pjayments buy policies that proposition fered the chance for the body part if a suffered conferred on the for certain made to or benefits sources, (for specified damage any example, reason party from other are not-credited $10,000 pinkie). liability, although they event of a loss of a If against in the the tortfeasor’s parent bought separate policies of that part a two cover all or of the harm for which child-student, and the student applies to cash kind for their tortfeasor is liable.... This policies pay. rendering pinkie, both would have to gratuities of services. lost and to negligence. Moreover, it must be remembered that like tortfeasor’s requir- may Stayton bring also claims for non- ing the tortfeasor to bear the full cost of damages, damages economic such as victim, imposed the harm the vic- suffering, and for economic dam- pain insurer, tim’s and the victim’s healthcare costs, to healthcare such ages unrelated more, providers, no right sets the lost income.60 But to incentive for deterrence.61 permitting recover more than her financial loss as Because the opin- Court’s well-reasoned expenses for theoretical that she ion is directionally sensitive to these con- obligated or her insurer will never be cerns, join I gladly it in full. pay purpose* serves no useful and instead lawyers, creates rents for raises costs for in the form of

employers higher liability premiums, insurance and bestows windfalls plaintiffs, on certain not for rational rea- sons, happenstance. but Allowing like to re- CORPORATION, TEREX Terex d/b/a full hospital cover the value Americas, Construction Defendant- provided at a supposed Crozer discount Appellant, nothing would also do to reduce the corre- sponding harm to social welfare that re- v. costs, in- sults Crozer’s increased PUMP, SOUTHERN TRACK & alleged curred because Harbor Health’s INC., Plaintiff-Appellee. negligence. hospital When a has to treat patients additional because a tortfeasor 704, No. care,

failed to exercise due capacity its Supreme Court Delaware. treat other patients becomes more limited. hospital If the generously also discounts Submitted: April provides the cost of the services it be- Decided: June cause, for example, patient was unin- Revised: June pay sured and unable to the full cost of treatment, greater it will incur even costs.

Ensuring tort for the goes reasonable cost of treatment hospital that provided the medical care at

a lower-than-market rate ameliorates the

overall loss to social welfare due to the See, recovery; e.g., That Polinsky, would not involve a double it A. Mitchell Steven Sha- vell, would be the exact that the insured Damages: Analy- Punitive An Economic See, e.g., had for. v. S. Cal. sis, (1998) ("The 111 Harv. L. Rev. central Helfend Dist., Rapid Cal.Rptr. 2 Cal.3d Transit that, point explain that we want to here is if a (1970) (noting ap- 465 P.2d definitely defendant will be found liable for plying the collateral source rule "that ensures responsible, the harm for which he is person years who has invested of insurance proper magnitude damages equal premiums to assure his medical care ... re- harm the defendant has caused. If thrift"). ceives the benefits of his harm, higher are either lower or than the socially consequences various undesirable Injury Damages 60. See 3 Stein on Personal ”). will result.... (3d ed.). Treatise 22:7

Case Details

Case Name: Stayton v. Delaware Health Corporation

Court Name: Supreme Court of Delaware

Date Published: Jun 12, 2015

Citation: 117 A.3d 521

Docket Number: 601, 2014

Court Abbreviation: Del.