Damages Off-sets for Health Insurance and Medicare Write-offs
Paying Only What You Owe
March 2005

     If your claimant has health insurance with an insurer which has a contractual arrangement with healthcare providers (an increasingly common occurrence), through which the provider is required to reduce the usual billing for a medical service, does your insured (and thus, do you) have to pay the full charge or just the reduced charge? Likewise, if Medicare has paid the bills, do you have to pay for the amount Medicare requires the provider to write-off as a condition to accepting payment?

     The answer to these questions from a legal standpoint is not as straightforward as you might imagine. Oregon courts have not yet reached a uniform conclusion, from a state-wide perspective, since there is no statute or appellate case law decision directly addressing the issue. Trial courts in Oregon, state and federal, are for the most part coming down on the side of what would seem to be the common sense result; i.e., to the extent the plaintiff is not obligated to pay the provider, the defendant is not obligated to pay the plaintiff. Although there is no central clearing house for trial court rulings, this writer’s informal survey of practitioners confirmed that a majority of trial court rulings are favoring this common sense result.

     Under ORS 31.710(2)(a) (formerly ORS 18.560), recoverable “economic damages” include medical expenses that are “necessarily incurred”. It would seem to logically follow that evidence of medical expenses billed to the plaintiff but written off by the provider, as the result of contractual agreements with health insurers or because of Medicare regulations, would be irrelevant and should be excluded from a jury’s consideration. The plaintiff has not “incurred” a bill for which he has no legal liability.

     Although there have been no Oregon appellate decisions directly on point to guide trial judges on this issue, there was at least one Oregon Court of Appeals case construing similar statutory language in another context. This opinion, dealing with a statute giving rise to a lien for public assistance, was King v. Oregon Dept. of Human Resources, 142 Or App 444, 921 P2d 1326 (1996). This case held that only medical expenses which the patient “has paid or is legally obligated to pay” are expenses which have been “incurred”.

     Even among trial judges who agree that the defendant is not responsible for medical expenses written off in these circumstances, some judges will still allow evidence of the original charges to be admitted at trial, but will reduce the jury’s award by the amount of the write-offs following receipt of the jury’s verdict. One reason a plaintiff or a plaintiff’s attorney would prefer this approach may be because of the commonly-held belief that economic damages are used by the jury as one factor (some would say a “multiplier”) when evaluating noneconomic damages.

     Some plaintiff attorneys argue that allowing off-sets for these written-off amounts is in violation of the collateral source rule. Indeed, one of the local trial court results denying an off-set based the ruling in part upon that rule. Under the collateral source rule, codified in Oregon as ORS 31.580, certain benefits received by a plaintiff are not to be considered or deducted from damages awarded by the jury. Oregon’s statute has an interesting twist on the collateral source rule. It starts out by providing for a deduction from damages for benefits received by the plaintiff, but then goes on to exclude from deduction certain types of benefits. The exclusion includes insurance and other benefits for which the plaintiff owes an obligation of reimbursement. In addition, ORS 31.580 even precludes a deduction for insurance benefits that are not required to be reimbursed, if the plaintiff or the plaintiff’s “family” (a term that will most certainly give rise to litigation) has paid the premiums for the insurance benefits. Also excluded are life insurance or other death benefits, as well as retirement, disability and pension plan benefits, and Social Security benefits.

     In the case of medical expenses that are required to be written off by the provider, as a result of either the provider’s contract with a health insurer or because of something like Medicare regulations, the amounts written off would seem to not be “insurance benefits” under ORS 31.580, unless one interprets the statutory term “insurance benefits” to include amounts reduced from the provider’s original billing, as opposed to insurance benefits paid by the insurer. That particular issue has apparently not been ruled on by trial courts to this point. It seems likely that the legislature, when adopting ORS 18.580 (now ORS 31.580), was using the term “insurance benefits” in its usual and customary sense, meaning benefits paid by an insurance company. As a result, it would seem that ORS 31.580 should not prevent a deduction in damages for amounts written off and, in fact, the statute should provide authority for an off-set.

     One trial judge has framed to issue to be whether the plaintiff or the defendant should obtain the benefit of Medicare reductions in charges for the plaintiff’s medical services. With all due respect to the judge who framed the issue (and it was probably first framed that way by the plaintiff’s attorney), this really is not the most accurate way to frame the issue. It is without question that the plaintiff benefits from a reduction in charges, since the plaintiff will not need to pay the provider for the amount reduced, whether or not the defendant is required to pay the plaintiff a dime. And, if the defendant is proven to be liable to the plaintiff for damages, but is not required to pay the plaintiff the amount of the reduction, the plaintiff will still get the benefit of not having to pay the provider the amount of the reduction. While it will, in such a case, also be true that this also benefits the defendant, since it reduces the amount of damages the defendant is required to pay, that does not diminish the benefit to the plaintiff from the reduction.

     If a plaintiff is allowed to claim, and to be paid, as an amount of medical expenses “incurred”, medical expenses that the plaintiff has not incurred and is not obligated to pay the provider, the plaintiff will receive an unwarranted windfall. There is at least one medical provider in the Portland area who submits bills that are substantially higher than what other similarly situated physicians in the same community charge, but who rarely collects those charges, because insurers generally will not pay them. If these deductions are not allowed from damages, that billing practice will not only continue but other providers may be encouraged to get into the practice of submitting such billings, on the chance that the patient is not covered by a health insurer who requires the provider to accept a lesser amount.

     So, what does this all mean in day to day application? What should you agree to pay in settlement, if you are faced with medical expenses which the claimant has no legal obligation to pay, especially when those amounts are significant? It means that you should not only collect documentation of the medical charges, but to the extent those charges were not paid at 100% by a PIP insurer, you should confirm who paid the charges and the extent to which they were written off by the provider. To the extent they were written off, you should determine the reason for the write-off. If they were written off as a result of a health insurer’s contract with the provider, or because of Medicare regulations, you should take the position that neither your insured nor you are going to pay the amount that was written off. This is sure to provoke a fight with the claimant’s attorney, both because this request for information will require more work and because it may mean a lesser recovery. Nevertheless, this information is required in order for you to properly evaluate the claim.

     In the final analysis, you should only pay what you owe under the law and not what you do not owe. If your insured, after an arbitration or trial, would not be required to pay the plaintiff medical expenses which have been written off by the provider, then you should not be paying those amounts in settlement, and you should not be using those amounts as a factor in arriving at the amount of the plaintiff’s noneconomic damages.

     If you have any questions about this or any related topic, please feel free to contact the writer at (503) 768-9600 or at jay@lerlaw.com.

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