Overcharged: Why Medical Insurance Write-Offs Are Not Collateral Sources and Should Not Be Recoverable as Medical Expenses in Tort

Cori Ast
Volume 30
,  Issue 1


The bedrock of tort law is that when an injured plaintiff successfully sues her tortfeasor, she shall recover past medical expenses resulting from the tortious injury. Tort’s long-standing collateral source rule enables this recovery independent of her insurance status. However, this seemingly straightforward legal principle struggles to accurately identify her recoverable medical expenses today, having been thwarted by the notorious complexity of the health care system.

In health care today, charges have little relevance to either the cost of providing care or the price paid for health care services. However, while these “chargemasters” have minimal relevance in today’s health industry, chargemaster rates continue to have an outsized influence on tort damages in some states.1George A. Nation III, The Valuation of Medical Expense Damages in Tort: Debunking the Myth that Chargemaster-Based “Billed Charges” Are Relevant to Determining the Reasonable Value of Medical Care, 95 Tul. L. Rev. 937, 943–45 (2021). Chargemasters—lists of every billable service or item and its associated price—frequently list a billing rate between 1.8–28.5 times greater than the Medicare payment for each service.2Medicare payments are often used in health care to peg cost, even though some providers suggest that Medicare reimburses below cost for some services. Ge Bai & Gerard F. Anderson, US Hospitals Are Still Using Chargemaster Markups to Maximize Revenues, 35 Health Affs. 1658, 1662 (2016).The difference between the billed amount and the price that fully satisfies the health provider for the services performed is often called a “write-off.”3Understanding Health Insurance Terms, CDPHP, https://perma.cc/9U67-S49G. These may also be called “discounts” or “write downs,” but this Comment uses “write-off” for consistency. In health care, write-offs occur commonly for almost every billed service and are required by any private or public insurer.4“Insurer” is used throughout this Comment for consistency with the language in the collateral source rule. However, today’s third-party health care payers are not usually insurance in the traditional sense (e.g., underwriting). See Michael A. Morrisey, Health Insurance 16–17 (2d ed. 2014). With 90.8% of Americans insured5Health Insurance Coverage of the Total Population, Kaiser Fam.  Found., https://perma.cc/G6ZH-83JL. and a new federal law barring out-of-network surprise bills,6Out-of-network providers could previously balance bill insured patients up to the full chargemaster price of the care provided, but such balance billing is barred in most circumstances under the new law starting January 1, 2022. See 42 U.S.C. § 300gg-132; 45 C.F.R § 149.110(a)–(b) (2021). a health provider today rarely expects to receive the chargemaster rate. Even though health insurers have severely cabined the influence of charges on health care costs with negotiated (or mandated) write-offs, these chargemaster rates nonetheless play an outsized role in inflating tort damages in jurisdictions where charges serve as a basis for, or evidence of, past medical expenses. The legal system should remedy this.

Many have recognized the challenges that the evolution of the modern health care system presents for calculating tort damages, and state courts and legislatures have adopted a variety of approaches for handling write-offs in connection with their jurisdiction’s collateral source rule.7Infra Part III. Although each jurisdiction has added unique contours, often as the result of related medical malpractice and tort reforms, the approaches to valuing past medical expenses fit into three general categories: an “amount billed” approach, which uses the full chargemaster rate by reasoning that write-offs are collateral sources; an “amount paid” approach, which excludes write-offs from recovery because write-offs are not benefits of a plaintiff’s bargain; and a “reasonable value” approach, whereby a trier of fact examines the evidence to determine the reasonable value of medical services provided.8Medical Expenses, Insurance Write-Offs, and the Collateral Source Rule, Matthiesen, Wickert & Lehrer, S.C. 3–4 (Feb. 14, 2022), https://perma.cc/G2QK-42BR.

Courts should adopt the amount paid approach because it harmonizes the legal interpretation of write-offs with the health industry’s interpretation: write-offs are economic amounts never incurred, neither paid nor gratuitously given. Accordingly, write-offs are not collateral sources and therefore do not implicate a state’s collateral source rule.9SeeHaygood v. De Escabedo, 356 S.W.3d 390, 395 (Tex. 2011). State courts and their legislatures should also pursue modifications to the amount paid approach to address challenges posed by litigation costs and uninsured plaintiffs.10See discussion infra Part IV.

In explaining why states should adopt a modified amount paid approach to valuing past medical expenses, this Comment briefly describes the evolution of the modern health care system, including pricing, insurance, and the function of chargemasters in Part I. Part II describes the collateral source rule, including its origins and philosophical justifications. Part III describes modern applications of the collateral source rule to health insurance write-offs. This Comment concludes in Part IV by explaining why adopting a modified amount paid rule harmonizes tort principles with the modern health care system while maximizing societal wealth.

I.     Health Care Economics: The Role of Insurance and Chargemasters

Government and private health insurers dominate the United States health care system as the primary purchasers of all health services.11Approximately 55% of Americans are insured through their employer or other private coverage, while 35% of Americans are covered by a federal program (Medicare, Medicaid, or military). Just 9% of Americans are uninsured. Health Insurance Coverage of the Total Population, supra note 5. Today’s third-party payer health care system evolved rapidly from one that began as a more traditional market where consumers (patients) were the primary buyers (payers). Throughout health care’s evolution, structural elements like chargemasters declined in relevance but were not entirely abandoned. Today, the industry is structured so that a provider’s billed charge has almost no relation to the cost of providing the service or the price paid for that service.12See Uwe E. Reinhardt, The Pricing of U.S. Hospital Services: Chaos Behind a Veil of Secrecy, 25 Health Affs. 57, 57 (2006). A brief explanation of how this third-party-dominated health care system developed and where it stands today lays the foundation for why write-offs are not liabilities incurred or paid by collateral sources.

A.     A Brief History of Health Insurance in the United States

When courts established the collateral source rule in the mid-1800s, Americans typically paid for health care directly if they received any care at all.13Nineteenth century physicians and “hospitals” bore little resemblance to what we think of as health care today. There is evidence that “sickness funds” existed at least from the time of the Civil War and covered at least 20% of industrial workers by the early twentieth century. These funds were not insurance in the form of paying sickness expenses, but rather paid cash for lost wages (like today’s indemnity coverage). Morrisey, supra note 4, at 5; see also Paul Starr, The Social Transformation of American Medicine 237–42 (1982). In the early twentieth century, as industrialization took hold and the frequency of workplace accidents increased, workers’ compensation emerged, and industry began employing physicians to care for its employees.14See Morrisey, supranote 4, at 4. While hospital insurance and physician group plans developed during the Great Depression,15Id. at 3, 6–7. private health insurance proliferated in the 1940s following several decades of company-owned and company-driven medicine.16Private health insurance coverage in 1940 was approximately 9% of the U.S. population; by 1960, 68.3% had some form of private health insurance coverage. Id. at 11–12; see also Starr, supra note 13, at 201–04, 290. These early health insurance policies did not cover run-of-the-mill health expenses but focused on insuring policyholders against major injuries like those resulting in hospital stays.17Christopher P. Tompkins, Stuart H. Altman & Efrat Eilat, The Precarious Pricing System for Hospital Services, 25 Health Affs. 45, 46 (2006).

Several significant federal laws ushered in the modern health care system by contributing to the rapid increase in Americans with health insurance coverage. During World War II, the National War Labor Board determined that employer-sponsored health insurance was not a wage, and Congress later exempted insurance benefits from federal income tax.18Morrisey, supra note 4, at 12. In 1965, Congress enacted landmark legislation to establish health insurance for the elderly and lowest-income Americans—Medicare and Medicaid, respectively.19Id. at 14–15. In 1974, Congress acted again with the Employee Retirement Income Security Act (“ERISA”), which exempted self-insured employer health plans from state regulation.20These plans are subject only to federal regulation. Id. at 15–16. ERISA created a powerful incentive for employers to self-insure and fueled the growth of third-party administrators.21Id. at 16.

Health insurers generally operated on cost-based reimbursement until 1983, when Medicare adopted a prospective payment system fixing prices based on diagnosis and other adjustment factors to quell skyrocketing health care costs.22Eric Lopez, Tricia Neuman, Gretchen Jacobson & Larry Levitt, How Much More than Medicare Do Private Insurers Pay? A Review of the Literature, Kaiser Fam. Found. (Apr. 15, 2020), https://perma.cc/P7FT-QK25/. Simultaneously, private insurers adopted managed care models,23Many managed care plans are not insurance because they do not bear an underwriting risk, but this Comment uses “insurer” in the colloquial sense because the focus here is on the write-off, which has been greatly influenced by managed care. which constrained costs by restricting which providers a patient could see (in-network) and negotiating more favorable rates with those providers.24Morrisey, supra note 4, at 17–20. The health care industry also recognized that it might be cheaper to keep people healthy rather than merely treating patients once they were sick, so health insurance benefits also expanded to cover a variety of preventive care services.25See David Novikov, Zlatan Cizmic, James E. Feng, Richard Iorio & Morteza Meftah, The Historical Development of Value-Based Care: How We Got Here, 100 Am. J. Bone & Joint Surgery e144(1), e144(3) (2018). These and other regulatory and economic factors enabled insurers to gain market power, thus empowering insurers to negotiate prices below providers’ chargemaster rates.26Morrisey, supra note 4, at 20–21. As a result, chargemasters took on significantly less importance.27Research suggests that chargemasters may still play a role in negotiations between providers and health insurers, and that there is still a relationship between chargemaster and revenue. Bai & Anderson, supra note 2, at 1658–59. As one commentator succinctly summarized: “[A]lthough every hospital has a chargemaster, officials treat it as if it were an eccentric uncle living in the attic.”28Steven Brill, Bitter Pill: Why Medical Bills Are Killing Us, Time (Apr. 4, 2013), https://perma.cc/L3L9-2NSH.

B.     Modern Health Insurance and Write-Offs in the United States

Today, nine in ten Americans have some form of health insurance.29In 2019, 90.8% of Americans had health insurance. About half were covered by employer-sponsored plans, 35.4% were covered by a government plan, and 5.9% purchased a plan on their own through the marketplace. Health Insurance Coverage of the Total Population, supra note 5. Health providers who care for these insured Americans are not paid the chargemaster rate but rather a set price by government payers or a negotiated price by private insurers.30See Frank G. Forchione, The Quagmire of Medical Write-Offs and Bills, Ohio Law., Sept.–Oct. 2012, at 24, 25. Today, most private insurers pay approximately double the Medicare price.31Lopez et al., supra note 22. Rather than having different price sheets for different payers, providers simply “write off” the excess difference between the chargemaster rate and their negotiated prices with insurers.32See Forchione, supra note 30.

The chargemaster, however, can loom large for uninsured patients33The No Surprises Act should eliminate much of the burden of chargemasters on insured patients receiving out-of-network emergency care because the law shifts the burden of the amount billed in excess of the patient’s in-network share to the patient’s insurer. See 45 C.F.R. § 149.110 (2021). because they lack the power to negotiate.34Tompkins et al., supra note 17, at 52; see also Bai & Anderson, supra note 2, at 1659. But see Sarah Kliff & Josh Katz, Hospitals and Insurers Didn’t Want You to See These Prices. Here’s Why, N.Y. Times (Aug. 22, 2021), https://perma.cc/A559-PD4V (noting that provider compliance with recently promulgated hospital and insurer price transparency rules by the Centers for Medicare and Medicaid Services reveals data that some hospitals charge uninsured patients less than privately insured patients). The magnitude of the difference in economic liability between insured and uninsured patients is vast, as hospitals’ billed charges are more than four times higher on average than what Medicare pays the hospital for the service.35One study found the average charge-to-cost ratio for all hospitals was 4.32. The study also observed variation in charge-to-cost ratios for type of hospital and service line, which further punctuates this Comment’s assertion that chargemaster prices should not be relied upon as representative of cost or reasonable value of services. However, the study also found that higher chargemaster prices were associated with higher hospital revenue, which suggests that the chargemaster is not wholly irrelevant in modern health care finance. Bai & Anderson, supra note 2, at 1661. Yet, the discounted rates of insurers fully satisfy medical debts for nine out of ten Americans.36See Health Insurance Coverage of the Total Population, supra note 5. The fact that write-offs occur for 90.8% of customers thus suggests that the reasonable value of medical care is not the chargemaster rate but something much less.

II.     The Collateral Source Rule and Its Justifications

The collateral source rule is a common-law rule that provides that payments made by non-tortfeasor third parties on behalf of the plaintiff should not reduce the tortfeasor’s economic liability.37Restatement (Second) of Torts § 920A (Am. L. Inst. 1979) (“Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor’s liability, although they cover all or a part of the harm for which the tortfeasor is liable.”). In modern American courts, the collateral source rule is both a rule of damages and evidence.38E.g.,Rebecca Levenson, Comment, Allocating the Costs of Harm to Whom They Are Due: Modifying the Collateral Source Rule After Health Care Reform, 160 U. Pa. L. Rev. 921, 940–42 (2012). As a rule of damages, a trier of fact may not reduce the plaintiff’s recovery by any amount paid on her behalf by a non-liable third party.39Several states have statutorily abrogated the collateral source rule as a rule of damages, requiring post-verdict set offs. See Fla. Stat.§ 768.76 (2021); Idaho Code § 6-1606 (2021); Mich. Comp. Laws § 600.6303 (2021); Or. Rev. Stat. § 31.580 (2022). As a rule of evidence, a defendant may not introduce evidence or information that a non-liable third party paid or conferred a benefit on behalf of the plaintiff.40E.g., Leitinger v. DBart, Inc., 736 N.W.2d 1, 9 (Wis. 2007). With respect to insurance, this means that a trier of fact is not allowed to know whether the plaintiff is insured.41See, e.g., Pexa v. Auto Owners Ins. Co., 686 N.W.2d 150, 159–61 (Iowa 2004). This Comment is chiefly concerned with the effects of the collateral source rule on recoverable damages, but in many states, the collateral source rule as a rule of evidence is inextricably intertwined with the amount of recoverable damages.42Infra Section III.

A.     A Brief History of the Collateral Source Rule

The collateral source rule predated modern medical insurance by several decades and has been long established in American jurisprudence. The collateral source rule was transplanted from Great Britain to the United States in 1854 in Propeller Monticello v. Mollison.4358 U.S. 152 (1855). There, the Court laid the foundation for the collateral source rule: “The contract with the insurer is in the nature of a wager between third parties, with which the [tortfeasor] has no concern.”44Id. at 155. Thus, because the insurer is not a party to the tort, any payment the insurer provides on behalf of the plaintiff is irrelevant to the damage assessment owed by the tortfeasor.45See id. The Court also underscored the insurer’s right to intervene to recover any benefits paid, today known as subrogation.46Id. at 156.

The language of a “collateral” source was first used in 1871 by the Vermont Supreme Court in Harding v. Town of Townshend,4743 Vt. 536 (1871). further underscoring the principle for the rule that the tortfeasor, and not the insurer, should be liable for the whole injury.48Id. at 538 (“The policy of insurance is collateral to the remedy against the defendant, and was procured solely by the plaintiff and at his expense, and to the procurement of which the defendant was in no way contributory.”). The Harding court justified that the collateral source rule prevents the tortfeasor from benefitting from the plaintiff’s insurance bargain, suggesting there was no “legal principle which seems to require that [insurance] be ultimately appropriated to the defendant’s use and benefit.”49Id. The Harding court also noted that insurers commonly assume the tortious suit on behalf of the victim,50Id. at 539. implying that if the tortfeasor could benefit from the insurance bargain, the insurer would have nothing to collect in the lawsuit.

As society has progressively moved from uninsured to insured in various walks of life—health, auto, liability—the collateral source rule increasingly determines whose insurer pays a claim.51See Banks McDowell, The Collateral Source Rule—The American Medical Association and Tort Reform, 24 Washburn L.J. 205, 211 (1985). The days where a tort victim’s insurer intervened and sued in place of the victim have become subrogation rights in many jurisdictions.52See Adam G. Todd, An Enduring Oddity: The Collateral Source Rule in the Face of Tort Reform, the Affordable Care Act, and Increased Subrogation, 43 McGeorge L. Rev. 965, 987–94 (2012). Subrogation still enables collateral sources to seek repayment, albeit often from the tort victim’s award rather than the tortfeasor directly, which spawns additional litigation and legal negotiation costs rather than the more efficient substituted plaintiff scenario mentioned by the Harding court.53See id.

About 100 years after Harding, the collateral source rule underwent dramatic changes in many states in response to increases in medical malpractice litigation.54McDowell, supra note 51, at 215. In the 1970s, health care costs were mounting,55See Starr, supra note 13, at 444. but so too were medical malpractice judgments.56McDowell, supra note 51, at 215. Against this backdrop, the American Medical Association (“AMA”) succeeded in achieving medical malpractice tort reforms in many states, with some of these reforms abolishing the collateral source rule.57The AMA also advocated for additional reforms which many states established, including requirements that medical malpractice claims be certified as meritorious before filing, arbitration agreements between patients and providers, and capping total recovery amounts. The AMA also advocated for national policies, including a no-fault compensation scheme for malpractice, which were not successful. Id. at 216. “[T]he relative political clout of various special interests in different times and places,” including many other business and insurance advocates aligned with the AMA’s tort reform goals, explains both the success of these reform efforts and the variation in the collateral source rule across states.58David Schap & Andrew Feeley, The Collateral Source Rule: Statutory Reform and Special Interests, 28 Cato J. 83, 86-87 (2008). Thirty-nine states have statutes that modify or abrogate the collateral source rule, with the most common modification being abrogation for medical malpractice claims.59Todd,supra note 52, at 978–79.

B.     Classic Justifications for the Collateral Source Rule

The early history of the collateral source rule reveals a desire to reconcile the conflicting purposes of tort law in favor of an innocent plaintiff rather than a tortious wrongdoer.60See Michael I. Krauss & Jeremy Kidd, Collateral Source and Tort’s Soul, 48 U. Louisville L. Rev. 1, 6–9 (2009) (contending the collateral source rule is a sound rule “consistent with the basic assumptions of tort law”). Thus, the collateral source rule enables two foundational principles of tort law to co-exist: making a plaintiff whole and punishing the tortfeasor.61See, e.g., Stayton v. Del. Health Corp., 117 A.3d 521, 526–27 (Del. 2015).

      1.   Making A Plaintiff Whole

This foundational theory for tort law suggests that the function of awarding damages is to make the plaintiff whole by restoring the victim to the position she was in before the tortious conduct.62Arthur Ripstein, As If It Never Happened, 48 Wm. & Mary L. Rev. 1957, 1959–60 (2007). The goal is not to provide the plaintiff with a windfall but to compensate the plaintiff fairly for the loss the tort has caused.63Id. at 1993 n.84. This theory is rooted in principles of fairness and corrective justice.64Catharine Pierce Wells, Tort Law as Corrective Justice: A Pragmatic Justification for Jury Adjudication, 88 Mich. L. Rev. 2348, 2358–61 (1990).

The tension between making a plaintiff whole and the collateral source rule, however, is that the collateral source rule, in the absence of subrogation, can function to allow a plaintiff to be made more than whole at the expense of the tortfeasor.65Todd, supra note 52, at 972. A system that regularly allows the prospect of recovering more than incurred expenses generates windfalls and incentivizes litigation. This incentive is particularly strong with write-offs because write-offs are not debts incurred and are typically quite large because chargemaster rates are on average four times the amount paid to satisfy the debt.66See supra note 35 and accompanying text. Because economic damages heavily influence punitive damages, inflated past medical expenses might be even more magnified in the damages awarded against an intentional tortfeasor.67Theodore Eisenberg, John Goerdt, Brian Ostrom, David Rottman & Martin T. Wells, The Predictability of Punitive Damages, 26 J. Legal Stud. 623, 637–39 (1997).

Thus, the theory of making a plaintiff whole is necessary but insufficient to explain the function of the collateral source rule fully,68Todd, supra note 52 at 972. providing a natural segue to the other equally foundational theory for tort law and the collateral source rule: punishing the tortfeasor.

2.     Punishing the Tortfeasor

The other foundational theory undergirding tort damages is that the award to the plaintiff should punish the tortfeasor by ensuring the tortfeasor bears the full cost of his tortious act.69See, e.g., Stayton v. Del. Health Corp., 117 A.3d 521, 526–27 (Del. 2015). The punishment theory satisfies the moral notions of retribution and fairness and may also have deterrent effects by incentivizing a potential tortfeasor to take more care.70Catherine M. Sharkey, Punitive Damages as Societal Damages, 113 Yale L.J. 347, 365–67 (2003). However, the extent of such deterrent effects is a source of debate given that an overwhelming number of tort suits are negligence-based, which presumes that the act was not intentional and potentially unavoidable.71See Mark A. Geistfeld, The Coherence of Compensation-Deterrence Theory in Tort Law, 61 DePaul L. Rev. 383, 385 (2012).

Nonetheless, the collateral source rule fits the punishment paradigm by ensuring that the tortfeasor cannot reduce the cost of his actions by the amount of the plaintiff’s insurance. This principle is rooted in fairness and contract law rationales that the tortfeasor should not “benefit from the bargain” made between the plaintiff and her insurer.72Todd, supra note 52, at 975. However, the benefit-from-the-bargain rationale falters a bit in the context of modern health insurance because an insured plaintiff today seldom makes such a bargain—she simply evaluates plans available in her market or through her employer and selects accordingly.73Guillermo Gabriel Zorogastua, Comment, Improperly Divorced from Its Roots: The Rationales of the Collateral Source Rule and Their Implications for Medicare and Medicaid Write-Offs, 55 U. Kan. L. Rev. 463, 492–93, 492 n.239 (2007).

Moreover, the full cost of the tortious act is difficult to assess in the context of modern medical bills. Many commentators argue that a damages award which includes insurance write-offs punishes a tortfeasor well beyond the full cost of his actions because the overwhelming majority of medical bills are satisfied in full for a sum below the chargemaster rate.74Most patients have insurance, and all insurers pay less than the chargemaster price. Nation, supra note 1, at 942–43. Thus, forcing the tortfeasor (or his liability insurer) to pay the full chargemaster rate makes the tortfeasor pay a highly inflated charge which is rarely paid in the free market—sometimes yielding the functional equivalent of punitive damages masquerading as past medical expenses.75See id. at 943.

The collateral source rule has been “justified and attacked on the grounds of corrective justice, deterrence, retribution, economic efficiency, instrumentalism, distributive justice, and administrative efficiency.”76Todd, supra note 52, at 971. Not surprisingly, these different viewpoints have also spawned inconsistent approaches to the collateral source rule and medical insurance write-offs in jurisdictions across the country.77Id.

III.     Current Approaches to Medical Insurance Write-Offs in the Context of the Collateral Source Rule

Many jurisdictions have struggled with the complexity of medical expenses in the context of damage recovery.78Timothy Field, Cloie B. Johnson, Anthony J. Choppa & John D. Fountaine, The Collateral Source Rule and the Affordable Care Act: Implications for Life Care Planning and Economic Damages, 13 J. Life Care Planning 3, 5 (2015). Drawing from the theoretical underpinnings of tort law, state legislatures and courts developed various approaches for recoverable medical expenses and how write-offs should be treated, either during trial or in post-verdict set-offs.79See Medical Expenses, Insurance Write-Offs, and the Collateral Source Rule, supra note 8. These approaches fit into three general categories: (1) the plaintiff may recover the amount billed based on the chargemaster rate; (2) the plaintiff may only recover the amount paid to satisfy the bill fully and may not recover the write-off; and (3) the plaintiff may recover the reasonable value of medical expenses according to triers of fact.80Id. Adding further complexity, some state courts apply different approaches for medical write-offs for public versus private insurance, with some courts even distinguishing between Medicare and Medicaid.81For example, Louisiana does not allow Medicaid recipients to recover the write-off because they did not pay for the insurance benefit, Bozeman v. State, 879 So. 2d 692, 694 (La. 2004), but privately insured plaintiffs may recover the amount of the write-off because they ought to receive the benefit of their bargain, Griffin v. La. Sheriff’s Auto Risk Ass’n, 802 So. 2d 691, 715 (La. App. 2001).

A.     Amount Billed Approach

Most jurisdictions that have considered whether medical write-offs ought to be recoverable as damages allow a plaintiff to recover the total amount of medical expenses billed (the chargemaster rate) because they hold that write-offs are collateral sources that implicate their state’s collateral source rule and thus may not be introduced into evidence.82Weston v. AKHappytime, LLC, 445 P.3d 1015, 1027 (Alaska 2019); Lopez v. Safeway Stores, Inc., 129 P.3d 487, 496–97 (Ariz. App. 2006); Olariu v. Marrero, 549 S.E.2d 121, 122–23 (Ga. App. 2001); Bynum v. Magno, 101 P.3d 1149 (Haw. 2004); Baptist Healthcare Sys., Inc. v. Miller, 177 S.W.3d 676, 682–84 (Ky. 2005); Griffin v. Louisiana Sheriff’s Auto Risk Ass’n, 802 So. 2d 691 (La. App. 1st Cir. 2001); Wal-Mart Stores, Inc. v. Frierson, 818 So. 2d 1135, 1139–40 (Miss. 2002); Khoury v. Seastrand, 377 P.3d 81, 93 (Nev. 2016); Covington v. George, 597 S.E.2d 142, 143–44 (S.C. 2004); Papke v. Harbert, 738 N.W.2d 510, 530–36 (S.D. 2007); Dedmon v. Steelman, 535 S.W.3d 431, 444–46 (Tenn. 2017); Acuar v. Letourneau, 531 S.E.2d 316, 322–23 (Va. 2000); Leitinger v. DBart, Inc., 736 N.W.2d 1, 13 (Wis. 2007). These state courts often reason that write-offs are collateral sources because write-offs are akin to amounts paid by third parties on behalf of the plaintiff, and thus write-offs are benefits of the plaintiff’s insurance bargain.83E.g., Weston, 445 P.3d at 1027 (reasoning “the negotiated rate differential represents part of the benefit to the injured party”). The West Virginia Supreme Court explained in Kenney v. Liston84760 S.E.2d 434 (W. Va. 2014).: “‘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.’”85Id. at 444 (quoting McConnell v. Wal-Mart Stores, Inc., 995 F. Supp. 2d 1164, 1170 (D. Nev. 2014)). These states ground the amount billed approach in the collateral source rule’s long-standing rationale that only the plaintiff, not the tortfeasor, ought to recover from the benefit of their bargain of carrying insurance.86Baptist Healthcare Sys., Inc. v. Miller, 177 S.W.3d 676, 682–84 (Ky. 2005) (reasoning “it is absurd to suggest that the tortfeasor should receive a benefit from a contractual arrangement between Medicare and the health care provider”). As the Virginia Supreme Court explained in Acuar v. Letourneau87531 S.E.2d 316 (Va. 2000).:

Those amounts written off are as much of a benefit for which [the plaintiff] paid consideration as are the actual cash payments made by his health insurance carrier to the health care providers. The portions of medical expenses that health care providers write off constitute “compensation or indemnity received by a tort victim from a source collateral to the tortfeasor”.88Id. at 322–23 (quoting Schickling v. Aspinall, 369 S.E.2d 172, 174 (Va. 1988)).

At least one jurisdiction adopting the benefit-of-the-bargain rationale for the amount billed approach accurately extends the justification to bar plaintiffs covered by Medicaid from recovering write-offs because these plaintiffs do not pay for their insurance.89Bozeman v. State, 87 So.2d 692 (La. 2004). However, most jurisdictions adopting the amount billed approach do not differentiate between public and private insurance status.90E.g., Bynum v. Magno, 101 P.3d 1149 (Haw. 2004).

The benefit-of-the-bargain rationale for the amount billed approach is a logical outgrowth of the collateral source rule reasoning articulated in Propeller Monticello.91See supra Section II.A. However, the benefit-of-the-bargain rationale falters with respect to medical write-offs. Today, an individual beneficiary rarely, if ever, bargains with their health insurer to create a plan for their needs.92See Todd, supra note 52, at 984. In fact, once-common forms of health insurance bargaining like medical underwriting and excluding beneficiaries for pre-existing conditions are now unlawful under the Affordable Care Act (“ACA”).93Lucinda E. Jesson, Health Insurance Reforms: Once in a Lifetime Change or Same as It Ever Was?, 7 NAELA J. 125, 133 (2011). Furthermore, many beneficiaries receive health insurance through their employers, often paying no premium or a reduced premium as a tax-free fringe benefit.94In 2020, employers paid 86% of premiums for single-coverage plans and 71% of premiums for family-coverage plans. Press Release, U.S. Bureau of Lab. Stat., Emp. Benefits in the U.S. News Release (Sept. 24, 2020, 10:00 AM), https://perma.cc/DLN3-Y5KK. In 2020, 14% of employees did not pay premiums for their employer-provided health insurance coverage. Medical Care Premiums in the United States, March 2020, U.S. Bureau of Lab. Stat. (Oct. 5, 2020), https://perma.cc/Y8JM-D9SC. Moreover, the health insurance premiums a beneficiary pays are ex ante reduced to account for the insurer’s predetermined write-offs.95See Uwe Reinhardt, Where Does the Health Insurance Premium Dollar Go?, 317 J. Am. Med. Ass’n 2269, 2269 (2017). Thus it is more appropriate to view write-offs as something the health insurer negotiates for its own benefit, not for the benefit of the insured, since the bargain occurs before the individual beneficiary plaintiff signs up and without respect to the plaintiff’s unique needs or situation.96Haygood v. De Escabedo, 356 S.W.3d 390, 395 (Tex. 2011) (explaining “[t]he 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 the insured.”).

Because the amount billed approach deems write-offs collateral sources, jurisdictions that follow the amount billed approach exclude write-offs from admissible evidence.97Martinez v. Milburn Enters., Inc., 233 P.3d 205, 229 (Kan. 2010) (citing Leitinger v. DBart, Inc., 736 N.W.2d 1, 15–17, 18 n.66 (2007)) (discussing majority rule regarding admissibility of medical write-offs into evidence). Though faithful to the collateral source rule, the amount billed approach is less faithful to the principle of damages valuation articulated in the Restatement (Second) of Torts:

When the plaintiff seeks to recover for expenditures made or liability incurred to third persons for services rendered, normally the amount recovered is the reasonable value of the services rather than the amount paid or charged. If, however, the injured person paid less than the exchange rate, he can recover no more than the amount paid, except when the low rate was intended as a gift to him.98Restatement (Second) of Torts§ 911 cmt. h (Am. L. Inst. 1979).

The commercial nature of health care transactions suggests that write-offs are not properly considered a gift to the plaintiff.99See Moorhead v. Crozer Chester Med. Ctr., 765 A.2d 786, 791 n.4 (Pa. 2001). Thus, enabling recovery beyond the amount paid seems to violate the general principle of damages valuation.100Id. at 795.

Some jurisdictions try to harmonize the damages valuation principle and collateral source rule with respect to write-offs by reasoning that the amount charged is the “reasonable value” of services provided and that write-offs are excluded as evidence of collateral source payment.101Bynum v. Magno, 101 P.3d 1149, 1162 (Haw. 2004); seeMitchell v. Haldar, 883 A.2d 32, 39–40 (Del. 2005). Such reasoning may be a misleading use of the phrase “reasonable value” because these courts may bar evidence of either the write-off or the amount paid so that a trier of fact cannot use these figures in determining “reasonable value.”102Covington v. George, 597 S.E.2d 142, 144–45 (S.C. 2004). As explained in Section I.B, chargemaster rates are hardly the reasonable value of medical services since these rates are rarely paid.103See supra Section I.B. Thus, this Comment categorizes reasonable value jurisdictions as only those which allow a trier of fact to weigh the evidence of write-offs (or of amounts paid to satisfy the debt in full) in addition to the full amounts billed.104See infra Section III.C.

The amount billed approach is viewed as fair because the approach allows the same recovery regardless of whether a plaintiff is insured or uninsured. Such indifference to a plaintiff’s insurance status is an underlying principle of the collateral source rule.105Ann S. Levin, Comment, The Fate of the Collateral Source Rule After Healthcare Reform, 60 UCLA L. Rev. 736, 752–53 (2013). However, while the amount recovered might be equivalent for insured and uninsured plaintiffs, the practice is hardly indifferent. The amount billed approach provides a windfall to insured plaintiffs, who can pocket the difference between amount paid and amount billed or recover double if their insurance does not subrogate.106Stephen L. Olson & Pat Wasson, Is the Collateral Source Rule Applicable to Medicare and Medicaid Write-Offs?, 71 Def. Couns. J. 172, 175–76 (2004). In contrast, an uninsured patient will be obligated to repay most, if not all, of the billed amount.107Id. In practice, an uninsured plaintiff’s attorney may attempt to negotiate a reduction from the chargemaster price with the healthcare provider. See Scott J. Sheltra, A Common Conflict: Common Fund Doctrine and Medical Provider Liens in Tort Settlements, 62 B.C. L. Rev. 2619, 2622–25, 2624 n.24 (2021). Thus, the amount billed approach provides a windfall to most plaintiffs.108See supra notes 5, 29 and accompanying text.

Even though a windfall ought to accrue to a plaintiff rather than a tortfeasor,109See Acuar v. Letourneau, 531 S.E.2d 316, 322–23 (Va. 2000). the amount billed approach creates this windfall by punishing tortfeasors well beyond the costs they inflicted on the plaintiff because these states value the medical expense damages at amounts which were never paid nor economically incurred.110See Nation, supra note 1. The amount billed approach thereby increases medical expense economic damages by an average of 2.6 times what was actually required to satisfy the bill.111Tompkins et al., supra note 17, at 45, 48. These inflated economic damages often serve as the basis for any non-economic damages awarded, thereby enabling even more excessive recovery.112Nation, supra note 1, at 953–54. The magnitude of the amount billed in excess of the actual cost to satisfy the bill suggests that amount billed states enable medical expense recovery to serve as the de facto equivalent of punitive damages in negligence cases.113See Maximilian Atchity, Comment, Is Universal Healthcare Really the Death of Medical Expense Awards? The Current and Future State of the Collateral Source Rule, 73 Baylor L. Rev. 642, 651–52 (2021). See generally Exxon Shipping Co. v. Baker, 554 U.S. 471, 492–93 (2008) (discussing how the prevailing rule limits punitive damages to cases of gross negligence where conduct is willful, wanton, and demonstrates a reckless indifference to others).

These inflated sums cost more than simply increased recovery for the plaintiff and her attorney. Today, tortfeasors don’t pay—their insurers do.114Robert A. Baruch Bush, Between Two Worlds: The Shift from Individual to Group Responsibility in the Law of Causation of Injury, 33 UCLA L. Rev. 1473, 1512 n.123 (1986). With no basis in debts incurred, these higher damage awards for the amount billed are then borne by every potential tortfeasor purchasing liability insurance.115See McDowell, supra note 51, at 210. Accordingly, jurisdictions that take an antiquated view of write-offs as a benefit of the bargain or a debt paid by the insurer fully recoverable by the plaintiff burden more than the tortfeasor—they burden all of society with the inflated costs for a plaintiff’s recovery.

B.     Amount Paid Approach

Several states limit the amount of past medical expenses recoverable to the actual amount paid or accepted by the provider in complete fulfillment of the incurred debt116While total recovery for past medical expenses is limited to amount paid, states vary in whether the amount paid is allowed to be introduced as evidence at trial or the reduction is made by post-verdict. See Mont. Code Ann. § 27-1-308 (2021); Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1133 (Cal. 2011); Goble v. Frohman, 901 So. 2d 830, 832 (Fla. 2005); Dyet v. McKinley, 81 P.3d 1236, 1238–39 (Idaho 2003); Kastick v. U-Haul Co. of W. Mich., 740 N.Y.S.2d 167, 169 (App. Div. 2002); Moorhead v. Crozer Chester Med. Ctr., 765 A.2d 786, 789–90 (Pa. 2001); Haygood v. De Escabedo, 356 S.W.3d 390, 399 (Tex. 2011).—that is, a plaintiff’s recovery is limited to the economic liability actually incurred.117It is worth noting, although beyond the scope of this Comment, that many states which limit past medical damages to amount paid do not similarly limit the lien amount a provider can seek to recover. See Bryce Talbot & William Sjostrom,“Disingenuous and Somewhat Deplorable” A Look at Hospitals’ Use of Healthcare-Provider Liens to Reap a Windfall, 47 Fla. St. U. L. Rev. 827, 835–39 (2020). Some of these state courts reason that because the write-off was neither paid nor a gratuitous benefit to the insured, the write-off cannot be a collateral source118See Haygood, 356 S.W.3d at 395 (suggesting that the write-off is a benefit to the insurer, not the insured); Howell, 257 P.3d at 1139–41, 1143–46 (reasoning that the negotiated rate minus the write-off is in fact the price and the reasonable value of services which a plaintiff may recover); see also Dyet, 81 P.3d at 1239 (reasoning that although write-offs are not a collateral source because write-offs are not paid, write-offs are a collateral source pursuant to the purpose of Idaho Code § 6-1606, which requires a post-verdict reduction of damages by the amount of collateral sources not subject to a right of subrogation). so introducing the amount paid does not trigger the state’s collateral source rule.119Evidence of the payer’s identity, however, is still a collateral source. See Howell, 257 P.3d at 1143, 1146. These courts also adhere to the limiting principle of damages recovery that the amount paid is the reasonable value of services incurred.120Restatement (Second) of Torts § 911 cmt. h (Am. L. Inst. 1979); see also supra text accompanying notes 98–100. Accordingly, evidence of the amount billed is irrelevant in determining past medical expenses.121Haygood, 356 S.W.3d at 396–400; Howell, 257 P.3d at 1146. The California Supreme Court underscored that the amount billed was never an “economic loss” for the plaintiff and thus not recoverable because the provider “accepted a lesser amount as full payment.”122Howell, 257 P.3d at 1133.

This rationale for write-offs harmonizes with the modern realities of health care finance by reflecting that the amount billed is essentially a fictional price because providers almost always fully discharge the debt at a lesser amount.123See discussion supra Section I.B. Hence, the market price for which the tortfeasor is fairly liable is much lower than the chargemaster rate suggests.124Howell, 257 P.3d at 1139–40, 1143–46. The amount paid approach also rebuts the theory that write-offs are benefits to the plaintiff by recognizing write-offs as agreements between insurers and providers that are utterly independent of any individual beneficiary125This is a generalization as insurers may, on rare occasions, negotiate a rate for a specific service or novel treatment to be provided to a specific beneficiary. See id. at 1143–46. and that the plaintiff’s premiums are based on the insurer’s negotiated prices, not chargemaster rates.126See Howell, 257 P.3d at 1144. The Affordable Care Act established a minimum medical loss ratio of 80% for insurance policies sold in the small group market and individual group market, and 85% for insurance policies in the large group market. This means insurers are required to spend at least 80% of premium dollars in payouts to providers for care provided to beneficiaries. 45 C.F.R. § 158.210 (2021); see also 42 U.S.C. § 300cc–18 (authorizing the creation of the minimum medical loss ratio).

Some courts accept the reasoning that write-offs are not technically collateral sources because the write-offs are bargains independent of the plaintiff, yet they still hold that write-offs are collateral sources within the meaning of their state statutes.127Goble v. Frohman, 901 So. 2d 830 (Fla. 2005); Dyet v. McKinley, 81 P.3d 1236 (Idaho 2003); Swanson v. Brewster, 784 N.W.2d 264, 275–76 (Minn. 2010); Kastick v. U-Haul Co. of W. Mich., 740 N.Y.S.2d 167 (App. Div. 2002); White v. Jubitz Corp., 182 P.3d 215 (Or. Ct. App. 2008), aff’d, 219 P.3d 566 (Or. 2009). This reasoning effectively yields an amount paid approach because the write-off is subject to post-verdict damages reduction.128Goble, 901 So. 2d at 833; Dyet, 81 P.3d at 1239; Swanson, 784 N.W.2d at 275–76; Kastick, 740 N.Y.S.2d at 169–70; White, 182 P.3d at 221. In Minnesota and Oregon, this results in differing recoveries between plaintiffs with private insurance and public insurance because the statutes bar post-verdict damages reduction for “federal Social Security benefits.” Thus, publicly insured in these states may recover the amount billed while those with private insurance may only recover the amount paid.129Or. Rev. Stat. § 31.580 (2021); see Minn. Stat. § 548.251 (2021); Swanson, 784 N.W.2d at 279; Renswick v. Wenzel, 819 N.W.2d 198, 210 (Minn. Ct. App. 2012); White, 182 P.3d at 219.

The amount paid approach has been criticized as creating fortuitous benefits to the tortfeasor who injures a person who is, by chance, insured rather than uninsured.130See McConnell v. Wal-Mart Stores, Inc., 995 F. Supp. 2d 1164, 1170–71 (D. Nev. 2014). In such a situation, the claim is that the tortfeasor does not bear the total costs of his actions because the negotiated write-off reduces the cost of medical expenses,131See Acuar v. Letourneau, 531 S.E.2d 316, 322–23 (Va. 2000). thereby mitigating the collateral source rule’s deterrent and punitive effects.132See discussion supra Section II.B.

This would be a fair criticism if the chargemaster rate were, in fact, the total cost of the tortfeasor’s actions. However, as described in Section I.B, the chargemaster rates have little relationship to the actual cost or price of health care in the marketplace.133See discussion supra Section I.B. Moreover, “fortuity is a fact in life and litigation.”134Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1145 (Cal. 2011). For example, a plaintiff’s occupation and employment status directly affect her recoverable economic damages,135Restatement of Torts § 924 (Am. L. Inst. 1939). as a tortfeasor who injures the hand of a young surgeon will owe more in economic damages than a tortfeasor who injures the hand of a retired person. The amount paid rule approaches fortuity in the same manner as the eggshell skull doctrine.136See Gary M. Langlois, Jr., Comment, Louisiana’s Collateral Source Rule: Eliminating the “Windfall” Arising from Medical Expense Write-Offs, 63 Loy. L. Rev. 291, 316–18 (2017). The eggshell skull doctrine generally assumes that a plaintiff will not develop a rare condition because of the tortfeasor’s conduct, but in the odd chance that a rare complication develops because of the injury, the tortfeasor is liable for it in damages.137Restatement (Third) of Torts: Liability for Physical & Emotional Harm § 31 (Am. L. Inst. 2010). So too with the amount paid approach. Today, more than 90% of the population has health insurance, so the default is that most plaintiffs do not owe the chargemaster rate.138Health Insurance Coverage of the Total Population, supra note 5. However, in the odd chance that the tortfeasor encounters a plaintiff without health insurance, the tortfeasor will be liable for costs beyond the medical expenses that an insured plaintiff would have incurred. In this way, the amount paid approach is no more contrary to the principles of tort law than other widely accepted tort rules.

Furthermore, the amount paid rule may also reduce the costs of liability insurance and overall health care costs in states where a large majority of the population is insured because a liability insurer does not pay the write-off.139See David I. Auerbach, Ian Brantley & Paul Heaton, How Will the Patient Protection and Affordable Care Act Affect Liability Insurance Costs? 19 (2014). Barring recovery of write-offs could reduce medical expense damages by 75% on average in amount paid jurisdictions compared to amount billed jurisdictions.140Bai & Anderson, supra note 2, at 1661. Although not a damages cap per se, this significant reduction functions as a de facto cap by increasing the predictability of claims and barring claims for extreme chargemaster rates, thereby potentially slowing the rate of increase in liability insurance premiums.141Cf. Leonard J. Nelson III, Michael A. Morrisey & David J. Becker, Medical Liability and Health Care Reform, 21 Health Matrix: J.L. & Med. 443, 462–71 (2011) (examining the effects of damages caps on medical liability insurance). Research indicates that increases in liability premiums are successfully passed off as increased rates to third-party payers and, ultimately, to beneficiaries.142Id. Thus, the amount paid approach enables the plaintiff to recover the liabilities wholly incurred because of the tort but reduces the overall societal burden otherwise caused by write-off windfalls.

C.     Reasonable Value Approach

The reasonable value approach to write-offs allows parties to introduce evidence for a trier of fact to determine the appropriate figure for medical expense recovery.143Ala. Code § 12-21-45 (2021); N.C. Gen. Stat. § 8-58.1 (2021); Arthur v. Catour, 833 N.E.2d 847, 860–61 (Ill. 2005); Stanley v. Walker, 906 N.E.2d 852, 856–58 (Ind. 2009); Pexa v. Auto Owners Ins. Co., 686 N.W.2d 150, 156–57 (Iowa 2004); Martinez v. Milburn Enters., Inc., 233 P.3d 205, 233–34 (Kan. 2010); Brancati v. Bi-State Dev. Agency, 571 S.W.3d 625, 634–35 (Mo. Ct. App. 2018); Robinson v. Bates, 857 N.E.2d 1195, 1197–98 (Ohio 2006). In these jurisdictions, parties introduce evidence of amounts billed and amounts accepted as payment in full, with the reasonable value of medical services serving as a question of fact like any other.144E.g., Robinson, 857 N.E.2d at 1200. Where it has not been entirely abrogated, the collateral source rule still governs as a rule of evidence, such that only evidence of the amount accepted in final payment of the bill, but not evidence of the payer, may be introduced to rebut evidence of the original amount billed.145See Moretz v. Muakkassa, 998 N.E.2d 479, 496–98 (Ohio 2013). As the Ohio Supreme Court explained in Robinson v. Bates146857 N.E.2d 1195 (Ohio 2006).:

Due to the realities of today’s insurance and reimbursement system, . . . the reasonable value of medical services is a matter for the jury to determine from all relevant evidence. Both the original medical bill rendered and the amount accepted as full payment are admissible to prove the reasonableness and necessity of charges rendered for medical and hospital care.147Id. at 1200.

Other states have also adopted the Ohio Court’s reasoning.148Stanley, 906 N.E.2d at 857–58; Martinez, 233 P.3d at 222–23. There is a fine distinction between the amount paid to satisfy the debt and the write-off amount in these jurisdictions.149E.g., Martinez, 233 P.3d at 229. Because of the collateral source rule, the write-off is not admissible as evidence because it allows the jury to infer the presence of insurance.150Id. At the same time, the amount paid to satisfy the debt in full is admissible evidence that does not violate the collateral source rule because it does not allude to who paid the bill and simply indicates another measure of the value of services provided.151Id. Courts that have adopted the amount billed approach have criticized this distinction as artificial, suggesting savvy jurors can infer the presence of an insurer.152See Covington v. George, 597 S.E.2d 142, 144 (S.C. 2004) (reasoning that “any attempts on the part of the plaintiff to explain the compromised payment would necessarily lead to the existence of a collateral source”); Leitinger v. DBart, Inc., 736 N.W.2d 1, 14 (Wis. 2007) (noting that introducing the amount paid would “circumvent the collateral source rule”). Other reasonable value states have statutes that adopt the approach.153Ala. Code § 12-21-45 (2021) (statutory rule of evidence allows introduction of collateral sources for medical expenses in all civil actions); N.C. Gen. Stat. § 8-58.1 (2021) (statute creates a rebuttable presumption that amounts billed are reasonable, but evidence of lesser amounts paid or accepted to satisfy the bill rebuts the presumption); see Arthur v. Catour, 833 N.E.2d 847, 854 (Ill. 2005) (holding that although write-offs are benefits of a plaintiff’s insurance bargain, Illinois rules of damages are a question of fact for the jury and a plaintiff cannot truthfully testify that the amount billed was fully paid or incurred); Brancati v. Bi-State Dev. Agency, 571 S.W.3d 625, 633–35 (Mo. Ct. App. 2018) (reasoning through statutory interpretation that Mo. Rev. Stat. § 490.715 functions as a rule of evidence to allow admission of amount paid so that a jury may determine reasonable value).

The reasonable value approach to medical expenses respects the critical role of a trier of fact, but the approach is expensive and laborious for litigants and juries.154J. Zachary Balasko, Note, A Return to Reasonability: Modifying the Collateral Source Rule in Light of Artificially Inflated Damage Awards, 72 Wash. & Lee L. Rev. Online 16, 45–46 (2015). In some courts, evidence of the billed amounts and amounts accepted must be accompanied by pricey expert testimony.155See Stanley v. Walker, 906 N.E.2d 852, 856 (Ind. 2009). Even if the evidence may be introduced without such testimony,156See Moretz v. Muakkassa, 998 N.E.2d 479, 496–98 (Ohio 2013). a trier of fact must sift through the evidence to calculate the reasonable value of the medical expenses incurred, choosing the amount billed, the amount paid, or some number in between.157Balasko, supra note 154, at 45. Leaving such calculations to the trier of fact has the effect of adding to their decision costs and yields less predictability for litigants overall regarding the medical expenses a plaintiff may recover.158Forchione, supra note 30, at 25.

Trial transaction and efficiency costs aside, the reasonable value approach accepts the realities of modern health care finance and treats medical expenses the same as other types of damages to be valued and assessed by a trier of fact. Thus, the reasonable value approach is nearly consistent with the damages valuation principle that a plaintiff may only recover the “reasonable value of the services rather than the amount paid or charged,” except in cases where a trier of fact allows recovery beyond the amount paid.159Restatement (Second) of Torts § 911 cmt. h (Am. L. Inst. 1979); see also supra text accompanying notes 98–100.

IV.     Why Write-Offs Should Not Be Collateral Sources and Jurisdictions Should Adopt a Modified Amount Paid Approach to Medical Expense Recovery in Tort

In today’s health care environment, write-offs are simply a structural reality that the insurance company accounted for before offering insurance to the plaintiff.160Michael K. Beard, The Impact of Changes in Health Care Provider Reimbursement Systems on the Recovery of Damages for Medical Expenses in Personal Injury Suits, 21 Am. J. Trial Advoc. 453, 489–90 (1998). Accordingly, write-offs are not properly defined as collateral sources because the write-off was never an economic liability incurred or paid by the plaintiff or her insurer, nor was the write-off a benefit extended to the plaintiff.161Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1133 (Cal. 2011). As one scholar wrote, “[W]hat courts and others must recognize is that the full value of medical expenses is not that reflected by chargemaster prices; rather full value is the value determined by the marketplace.”162Nation, supra note 1, at 968; see also Restatement (Second) of Torts § 911, cmt. h (Am. L. Inst. 1979). As in other markets, the health care marketplace-determined value is the sum paid to satisfy the debt incurred.163See Beard, supra note 160, at 489–90. In health care, these sums vary, as one insurer will pay a different price than another insurer for the same service to the same provider.164Levin, supra note 105, at 749. While it may be unsatisfying that the amount paid approach does not produce a singular fair market value for a health provider’s services as a chargemaster would, the variation of market values is widely accepted by the health care industry as the reality of the modern health care system:

This realization on the provider’s side is epitomized in the following comment in a well-respected medical economics publication: “If your stated fee for a procedure is $5,000, but no insurer is paying more than $2,500, what will you charge an out-of-network patient or someone with a medical savings account? . . . If you’re willing to take $2,500, then that’s your fee.” This quotation recognizes that in large measure marketplace forces set the “real” value of medical services.165Beard, supra note 160, 489–90 (quoting Mark Crane, Getting Peanuts, Med. Econ., Sept. 22, 1997, at 145, 146).

The unique, individualized fair market value for each patient similarly squares with the individualized nature of the health care services provided. In adopting the amount paid approach, courts join the health care industry in accepting that the fair market value of health care services received by a particular plaintiff is the amount required to satisfy their debt.166See discussion supra Section III.B.

Many commentators assert that cabining an insured plaintiff to recovery of actual medical expenses paid is the economically rational solution to calculating medical damages in tort.167See Benjamin A. Geslison & Kevin T. Jacobs, The Collateral Source Rule and Medical Expenses: Anticipated Effects of the Affordable Care Act and Recent State Case Law on Damages in Personal Injury Lawsuits, 80 Def. Couns. J. 239, 242 (2013); Langlois, supra note 136, at 315–18; Levin, supra note 105, at 752–53; Beard, supra note 160, at 489–90. The amount paid approach encourages courts to adopt the view that medical write-offs are vestiges of the health care market that yield no liability or benefit for the plaintiff, and therefore do not implicate a jurisdiction’s collateral source rule. Accordingly, courts can consider evidence of the amount paid to satisfy a plaintiff’s incurred medical expenses and adjust damage recovery correspondingly.168See discussion supra Section III.B.

This position alone, however, creates potential disincentives for plaintiffs filing suit in the first place169The presence of insurance is known to induce “under-claiming for negligently-caused injuries.” Nelson et. al, supra note 141, at 450. and does nothing to address the potential unfairness to uninsured plaintiffs. States should consider course corrections to address these challenges and further harmonize medical expense recovery in tort with today’s health care system. For recoverable medical damages, plaintiffs should be able to recover the actual medical expenses paid170Some jurisdictions include insurance premium costs as actual expenses paid. Because this Comment focuses on write-offs, which are not benefits of a plaintiff’s insurance bargain and are thus outside the collateral source rule, this Comment does not take a position on whether insurance premiums ought to be recoverable. See Randall R. Bovbjerg, Legislation on Medical Malpractice: Further Developments and a Preliminary Report Card, 22 U.C. Davis L. Rev. 499, 526 (1989). plus an additional 25% of those expenses for associated litigation costs.171The twenty-five percent attorney fee addition is modeled from the statutory cap in tort recovery from the federal government (though the FTCA caps as a percentage of what has been awarded and is not in addition to what has been awarded, as suggested here). See 28 U.S.C. § 2678. For uninsured plaintiffs, past medical damages recovery should be capped at (1) the amount paid if the debt has been satisfied, (2) the amount of any liens, or (3) a maximum of two times the Medicare reimbursement rate for such services. To ensure a cap in medical expense recovery would make an uninsured plaintiff whole, states should also adopt similar maximums for provider charges or lien recovery from uninsured patients, particularly if the state has not expanded Medicaid.172As of November 19, 2021, Alabama, Florida, Georgia, Kansas, Mississippi, North Carolina, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, and Wyoming had not expanded Medicaid. Status of State Action on the Medicaid Expansion Decision, Kaiser Fam. Found. (Nov. 30, 2021), https://perma.cc/8N69-5G4K. While caps related to Medicare payments would need to be adopted statutorily, many jurisdictions can adopt the first or second approach for uninsured plaintiffs through classic common law decision-making173As of November 30, 2021, the following jurisdictions had not considered how health insurance write-offs should be treated generally in the context of damages recovery: Arkansas, Colorado, Connecticut, Maine, Maryland, Michigan, Nebraska, New Hampshire, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and Wyoming. Id. by holding that the reasonable value of services is the amount paid or debt incurred per the Restatement (Second) of Torts.174Restatement (Second) of Torts § 911 (Am. L. Inst. 1979). States have incentives to adopt this solution to the extent they are looking to harmonize tort recovery with the health care system, right-size incentives to sue, address the disparity in recovery for uninsured plaintiffs, and rein in costs of third-party insurance markets.

A.     Creating Logical Consistency Between Medical Expense Damages in Tort and Modern Health Care Finance

As described above, the amount paid approach treats medical write-offs as health care does: debts neither paid nor incurred.175See discussion supra Section III.B. The amount paid approach recognizes that health care evolved to make write-offs so commonplace that chargemaster rates no longer reflect the actual value of services provided and are mere relics of health care finance evolution.176See Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1141–42 (Cal. 2011); see also discussion supra Section I.B. Thus, because chargemaster rates exceed the sum required to satisfy the debt incurred and because the plaintiff owes no legal liability for these write-offs, the amount paid is not a collateral source and may be admitted into evidence so that the tortfeasor does not pay more than the debt incurred.177See Howell, 257 P.3d at 1141–42.

The amount paid approach, therefore, reinforces that the reasonable value of health care services is indifferent to the reason the individual needs care in the first place.178Some state hospital lien laws allow health care providers to pursue medical liens to recover the chargemaster price (sometimes capped by a large percentage of the plaintiff’s settlement) if the provider believes the patient has been tortiously injured regardless of contracts with the patient’s insurer. Exploration of this pernicious practice is outside the scope of this Comment, but to the extent the practice is commonplace in any state, it undermines a rational tort recovery system and is not well addressed by the amount paid approach unless liens are so capped. See Talbot & Sjostrom, supra note 117, at 835–37. A medical bill fully satisfied by the plaintiff’s health insurance and applicable co-pay or coinsurance should not be subject to a substantial increase in price simply because a tortious act caused the injury. Just because the chargemaster rate appears on a bill does not make it the market price.179See supra text accompanying notes 160–165. The tort principle of damages valuation relies on fair market value and bars recovery for an amount exponentially beyond the plaintiff’s economic liability.180See Restatement (Second) of Torts § 911 (Am. L. Inst. 1979); supra accompanying text for notes 98–100. For example, imagine the plaintiff cannot return to work permanently because of the tortious injury, so her former employer agrees to double the plaintiff’s salary, knowing she will never work again but that she might recover more from the tortfeasor. A court would not consider the arrangement fair market value because it was never paid. The chargemaster rate is a similarly fictitious price.

The amount paid approach also benefits judicial economy because it presumes that an amount paid in complete satisfaction of the bill is the reasonable value for which the tortfeasor is fairly liable. Unlike the reasonable value approach described in Section III.C, where a trier of fact must sift through the evidence,181See discussion supra Section III.C. the amount paid approach does not require evidence or experts to determine the reasonable value, thereby saving litigants and courts time and money. The amount paid approach thus appropriately limits the economic liability of the tortfeasor to the amount that fully satisfied the health care provider­. For an insured patient, this means the tortfeasor is fairly liable for the amount paid by the health insurer and the plaintiff’s applicable co-pay or coinsurance.

B.     Right-Sizing Incentives to Sue

Even though medical write-offs are not liabilities incurred, some have suggested that cabining a plaintiff’s recovery to the amount paid reduces a patient’s incentive to sue because the plaintiff cannot be made whole after litigation costs. Because attorney fees in personal injury lawsuits are typically based on the sum awarded, if the plaintiff only recovers the amount paid in satisfaction of the incurred medical expenses, subsequent payment of attorney fees leaves the plaintiff without sufficient funds to cover the medical expenses.182E.g., Balasko, supra note 154, at 48. Some courts have noted that litigation cost recovery is part of the collateral source rule’s function in the context of medical expenses because the rule “partially serves to compensate for the attorney’s share and does not actually render ‘double recovery’ for the plaintiff.”183Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1150 (Cal. 2011) (Klein, J., dissenting) (quoting Heflend v. So. Cal. Rapid Trans. Dist., 465 P.2d 61, 68 (Cal. 1970)); see also Stayton v. Del. Health Corp., 117 A.3d 521, 536–37 (Del. 2015) (Strine, C.J., concurring). Although the collateral source rule may serve this useful function in modern tort law, the rationale of paying attorney expenses was notably absent from the earliest cases adopting the collateral source rule in the United States.184See discussion supra Section II.A. As one commentator noted, “[T]he collateral source rule does not create this problem. Rather the rule has enabled a work-around that allows a plaintiff to pay both her insurance carrier and her attorney.”185Balasko, supra note 154, at 48 (asserting that this problem would be best addressed by modifications to tort law beyond the collateral source rule).

To the extent that tort suits seek only recovery of past medical expenses, a pure amount paid rule can reduce the number of lawsuits filed.186Todd, supra note 52, at 986; see also Stephen J. Spurr, The Effects of Subrogation on Personal Injury Litigation and Deterrence of Tortfeasors, 54 Tort Trial & Ins. Prac. L.J. 867, 881 (2019). Thus, state legislatures should consider statutory options to enable medical expense damage recovery plus 25% for the express payment of attorney fees and litigation costs. This approach would be more transparent than relying on fictional chargemaster rates to subsidize attorney fees by clearly delineating damages recovery for medical expenses from recovery for attorney fees. Moreover, this approach right-sizes damage recovery because it is likely that such recovery will still be below the chargemaster rate, given the substantial size of write-offs.187See Bai & Anderson, supra note 2, at 1662–63.

C.     Addressing Uninsured Plaintiffs

An amount paid rule could allow uninsured plaintiffs to recover the total amount billed, even though evidence suggests uninsured patients can often settle the health provider’s claim for less.188Compare Kliff & Katz, supra note 34 (noting that provider compliance with recently promulgated hospital and insurer price transparency rules by the Centers for Medicare and Medicaid Services reveals data that some hospitals charge uninsured patients less than privately insured patients), with Michael K. Beard & Dylan H. Marsh, Arbitrary Healthcare Pricing and the Misuse of Hospital Lien Statutes by Healthcare Providers, 38 Am. J. Trial Advoc. 225, 270–72 (2014) (suggesting that hospital liens frequently attach at chargemaster rates for uninsured plaintiffs). Some commentators, however, have posited that because nearly all Americans are under a legal obligation to carry health insurance, a plaintiff’s failure to carry health insurance may be a form of contributory negligence.189These solutions were proposed before the tax dropped to $0 for failure to carry health insurance, but the legal obligation to purchase health insurance still exists. See Levenson, supra note 38, at 949; Todd, supra note 52, at 982. Even accepting that approximately two million Americans remain unable to purchase affordable coverage in twelve states that did not expand Medicaid,190Rachel Garfield, Kendal Orgera & Anthony Damico, The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid, Kaiser Fam. Found. (Jan. 21, 2021),
the fact that Americans have a legal obligation to carry insurance suggests that modern society’s view of insurance and the foresight benefits which once accrued to a plaintiff for having purchased such insurance today are not the same as they were in the early days of the collateral source rule.191See discussion supra Section II.A. Thus, states should cap an uninsured plaintiff’s medical damages recovery at (1) the amount paid if the debt has been satisfied, (2) the amount of any liens, or (3) a maximum of two times the Medicare reimbursement rate for such services. The effect of such a cap right-sizes an uninsured plaintiff’s recovery in light of the plaintiff’s failure to meet her legal obligation to carry health insurance.192Caps on uninsured plaintiff recovery are not encouraged in jurisdictions which have not expanded Medicaid without an exemption for plaintiffs who fall within the coverage gap. See Status of State Action on the Medicaid Expansion Decision, supra note 172. Some have suggested that a similar result could come about by amending hospital lien statutes or subrogation rights to reject full chargemaster prices, but this legally distinct solution is outside the scope of the Comment. See Talbot & Sjostrom,supra note 117.

The amount paid rule has also sometimes been criticized for allowing differing recoveries between plaintiffs based on their insurance status.193E.g., Daniel L. Carpenter, Tort Law – Collateral Source Rule Does Not Apply to Amounts That Are Written Off by Medicare in Delaware – Stayton v. Delaware Health Corp., 12 J. Health & Biomedical L. 203, 205 (2016) (noting that the disparity was raised in Stayton v. Delaware Health Corporation but such differing recovery did not successfully persuade the Delaware Supreme Court that Ms. Stayton’s Medicare write-offs could not be claimed as reasonable value of medical expenses in her tort suit). Capping recovery for uninsured plaintiffs does not entirely solve this problem, but it does bring the amount an uninsured plaintiff can recover more closely in line with what an insured plaintiff could recover. Moreover, to the extent that uninsured plaintiffs receive write-offs directly from providers,194See Kliff & Katz, supra note 34. those write-offs are liabilities not incurred, paid, or gratuitously offered, and thus outside the collateral source rule and not recoverable under the amount paid approach.

Capping recovery of an uninsured plaintiff risks offending the foundational principle of tort law that a tort victim has a right to be made whole.195“Damage awards that do not correspond to harm wrongfully incurred by victims are clearly appropriate objects of tort reform. Denying tort victims the right to be made whole by a person who wrongfully caused them harm, however, is offensive to the moral foundations of tort law . . . [because it denies the victim] justice.” Krauss & Kidd, supra note 60, at 5. To the extent that a jurisdiction can alternatively cabin the actual economic liability incurred by an uninsured plaintiff, such a rule may better square with the make-whole principle. However, to the extent that a plaintiff’s uninsured status is “willful,”196Levenson, supra note 38, at 941–42. and thus more akin to contributory negligence, the tortfeasor is not solely responsible for making the plaintiff whole. Therefore, a rule capping uninsured recovery yields two goals: ensure the plaintiff can be made whole without incentivizing health care providers to collect exorbitant chargemaster prices they otherwise would not receive, and simultaneously disincentivize those plaintiffs who remain willfully uninsured but can afford or otherwise obtain health insurance.

D.     Controlling Tort Damages

This modified amount paid approach substantially reduces the societal costs of tort law even while allowing for fair recovery of legal fees. Because chargemaster rates can dramatically exceed the amounts paid to satisfy the liability incurred,197See supra notes 2, 35, and accompanying text. chargemaster rates in damages calculations function to over-inflate economic damages. When those economic damages result in punitive damages, the verdicts against a tortfeasor can quickly balloon.198Admittedly, punitive damages are rarely sought—in roughly 9% of torts and just 3% of motor vehicle accidents, for example—and even more rarely awarded. Although rare, when punitive damages were awarded in personal injury suits, the mean punitive-compensatory ratio was 5:2. Neil Vidmar & Mirya Holman, The Frequency, Predictability, and Proportionality of Jury Awards of Punitive Damages in State Courts in 2005: A New Audit, 43 Suffolk U. L. Rev. 855, 862–66, 869–70 (2010).

For example, imagine the amount billed for a plaintiff’s injury-related health expenses was $1 million, of which the insurer and patient collectively paid $100,000 to fully satisfy the providers. This tenfold increase could have a demonstrable effect on what is “grossly excessive” punishment in violation of the Fourteenth Amendment, as suggested in BMW of North America v. Gore.199BMW of N. Am. v. Gore, 517 U.S. 559, 574 (1996) (outlining a three-part test for when damages awarded are “grossly excessive” in violation of due process under the Fourteenth Amendment: (1) degree of reprehensibility of the tortfeasor’s conduct, (2) ratio comparing punitive damages and non-compensatory damages, and (3) available civil penalties for comparable misconduct). In particular, using a nine-to-one ratio,200The Court has suggested this is the outer limit of what may be constitutional in most cases, while generally suggesting that punitive damages should not exceed those awarded in compensation. Vidmar & Holman, supra note 198, at 857. comparing punitive damages and non-compensatory damages will be dramatically different for a plaintiff who can recover $1 million and, therefore, punitive damages of up to $9 million, compared with $100,000 and punitive damages of up to $900,000.201BMW of N. Am., 517 U.S. at 580–82; see also Nation, supra note 1, at 949 (suggesting that some plaintiffs deliberately inflate their medical charges by seeking out-of-network care in advance of tort recovery). This extreme example shows the vast difference in recovery and overall societal cost that turns on how a jurisdiction treats chargemaster rates. Thus, states that view chargemaster rates as fictional prices not fairly used in damages awards will likely have lower tort recoveries overall, and probably reduced liability insurance premiums in the state.202For a discussion on various approaches to controlling medical liability costs, see Nelson et al., supra note 141.

E.     Continuing Challenges of the Proposed Modified Amount Paid Approach

Much like tort law and life, the modified amount paid approach proposed here has its imperfections, a few of which can be addressed by other mechanisms that are beyond the scope of this Comment. States should consider these mechanisms to create a more workable doctrine for their jurisdiction while maintaining the goal of harmonizing tort recovery of medical expenses with the modern health care system. Chiefly, parts of the modified amount paid approach, such as caps on recovery by the uninsured, require political will and substantial tailoring to the realities of the rules of evidence and damages within each jurisdiction. But even if legislative and judicial adoption were easy, the modified amount paid approach is not a panacea for all that plagues the intersection of modern medical expenses and tort damages.

First, this Comment does not consider the quagmire that modern health care finance creates for future medical or life care damages.203See Thomas R. Ireland, The Concept of Reasonable Value in Recovery of Medical Expenses in Personal Injury Torts: An Update from 2008 to 2015, 22 J. Legal Econ. 69, 72–73 (2015). Some courts have required write-off style reductions for future expense forecasting.204See, e.g., Corenbaum v. Lampkin, 156 Cal. Rptr. 3d 347, 355 (Ct. App. 2013). However, to the extent solutions can be developed to avoid or bar the use of chargemaster rates altogether, the more realistic the damages will be to the actual cost incurred by the plaintiff and harm inflicted by the tortfeasor. For example, perhaps future medical recovery ought to be affixed at a projected cost of health insurance premiums plus out-of-pocket maximums as a multiplier for expected years.205See generally Joshua Congdon-Hohman & Victor Matheson, Potential Effects of the Affordable Care Act on the Award of Life Care Expenses, 24 J. Forensic Econ. 153 (2013). But see Maxwell J. Mehlman, Jay Angoff, Patrick A. Malone, Charles M. Silver & Peter H. Weinbergeri, Compensating Persons Injured by Medical Malpractice and Other Tortious Behavior for Future Medical Expenses Under the Affordable Care Act, 25 Annals Health L. 35 (2016). Still, this possible solution would have many practical and theoretical barriers that jurisdictions should grapple with to the extent they are looking to wholly eliminate the influence of chargemasters in tort damage recovery.

Furthermore, allowing evidence of write-offs or amounts paid in satisfaction of a higher bill may allow jurors to infer the existence of an insurer, with savvy jurors further distinguishing private from public insurers based on the apparent size of the discount. Thus, while not directly implicating the collateral source rule, the modified amount paid rule does hint at the existence of collateral sources, so states concerned about potential unfairness or bias may prefer to consider adopting an amount paid approach of post-verdict damage reductions as some states have.206See Goble v. Frohman, 901 So. 2d 830, 833 (Fla. 2005); see also Fla. Stat. § 768.76 (2021).

The treatment of write-offs in tort recovery also raises related questions about subrogation and hospital liens.207Compare West v. Shelby Cnty. Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014) (reasoning that sums written off pursuant to a negotiation between the provider and insurer cannot be recovered by a hospital under Tennessee’s lien statute), with Dedmon v. Steelman, 535 S.W.3d 431 (Tenn. 2017) (holding that write-offs are collateral sources not allowable as evidence in personal injury cases). See also In re N. Cypress Med. Ctr. Operating Co., 559 S.W.3d 128 (Tex. 2018) (holding that the typical amounts paid by private and public insurers in satisfaction of medical services was relevant to determining whether the lien for an uninsured patient was reasonable). Although insurance subrogation for many plans is beyond the reach of state legislatures due to ERISA, insurers may still seek to recover the amount paid from the plaintiff’s damages, which would zero out a plaintiff’s recovery. 208Jesson, supra note 93, at 127. In terms of hospital liens, commentators have noted that hospitals in some states flag possible tort victims and seek a lien for the chargemaster rate instead of billing the patient’s insurance because the providers hope to recover the chargemaster rate.209See Talbot & Sjostrom, supra note 117, at 835–39. These arrangements dramatically affect (or even zero out) a plaintiff’s recovery and require a tortfeasor to pay above market price for the benefit of a non-party—the medical provider.210Id.


As the modern health care system evolved to contain costs, so too did the collateral source rule. These coinciding evolutions forced state courts and legislatures to consider whether write-offs should be recoverable under their jurisdiction’s collateral source rule. Accordingly, courts and legislatures have adopted varying approaches to the recoverability of write-offs in tort damages. The majority adopted an amount billed approach because the write-off benefited the plaintiff’s bargain and was thus recoverable. Others embraced the reasonable value approach, where evidence of the amount paid and the amount billed would be submitted for a trier of fact to determine what should be recovered. A few states adopted the amount paid approach, noting that write-offs are not recoverable because they are not debts incurred, paid, or gratuitously waived. The amount paid approach is optimal because it views chargemaster rates as the health care industry does­—irrelevant. Jurisdictions may adopt further rules to ensure appropriate recovery of litigation costs and to address unfairness with uninsured plaintiffs to optimize the amount paid approach. Such a modified amount paid approach would reduce the direct and societal costs of tort recovery and minimize the need for other tort reforms.

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