“Reasonable” Medical Expenses in Tennessee (Amount Billed or Amount Paid?) – The Law After West and Dedmon for Personal Injury Litigation

A very important Tennessee Court of Appeals opinion was issued on June 2, 2016.  In this case, Jean Dedmon v. Debbie Steelman, No. W2015-01462-COA-R9-CV (Tenn. Ct. App. June 2, 2016), the Court discussed whether the amount an insurance company actually pays for medical services in a personal injury action, is, as a matter of law, the “reasonable” amount of medical expenses.  In order to recover medical expenses under Tennessee law, in a personal injury action, the plaintiff must prove the medical expenses were reasonable and necessary.  The reason the Dedmon decision is so important is because of the West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014) decision.  In the West case, the Tennessee Supreme Court, when interpreting the Tennessee Hospital Lien Act, essentially found that a hospital’s non-discounted charges reflected in their lien, were not reasonable because they do not reflect what is actually being paid in the marketplace.  The Court found that, under the Tennessee Hospital Lien Act, the amount actually paid for the hospital charges were the reasonable charges for the services provided, not the amounts billed which were, as a matter of law, unreasonable.

Since the time of the West decision, several trial courts and some Federal district courts have decided that the West case reasoning also applies to personal injury actions.  They have found that essentially, in a personal injury action in the State of Tennessee, evidence of the actual amount actually paid for medical bills is the only amount that can be introduced into evidence, not the amount billed or charged by the provider.  The reason is, due to insurance industry dynamics, there is almost always a significant difference in the amount billed or charged by the provider and the amount actually paid by insurance, Medicare or otherwise.  For instance, in the Dedmon case, the total amount of “incurred” medical expenses were $52,482.87 (the amount charged by the providers).  However, the plaintiff’s health insurance carrier only paid $18,255.42.  As a result, there is a significant disparity between the amount billed and the amount actually paid.

In the Dedmon case, the Tennessee Court of Appeals, found that “we reject any assertion that the Supreme Court meant for its holding in West, standing alone, to control all determinations of reasonableness with regard to medical expenses under Tennessee law.”  Dedmon at 13.  The Court went on to note that the Tennessee Supreme Court may well consider West to apply to personal injury actions, but “in the absence of any such ruling, however, it is not the role of this Court to overturn or overlook existing case law based on speculation about whether the Supreme Court would extend the reasoning of West to this situation.”  Dedmon at 13.  Essentially, the Tennessee Court of Appeals in Dedmon found that they did not have the authority to extend the West holding to personal injury litigation.  As a result, after Dedmon, evidence of the amount charged by medical care providers is not excluded as a matter of law.  That is what the Dedmon court decided (until the Tennessee Supreme Court decides this issue). 

However, the Dedmon analysis did not end at this point.  The most significant impact of Dedmon is the Court’s discussion of the Fye v. Kennedy, 991 S.W.2d 754 (Tenn. Ct. App. 1998) decision.  The Fye decision has long been relied upon by plaintiff attorneys in Tennessee to bar any evidence of the amount actually paid for medical services provided or the amount forgiven or written off by any provider, as a matter of law.  Essentially, this Fye case has been used to prevent the introduction of evidence pertaining to amounts actually paid for medical services under the theory of the collateral source rule.  The Dedmon Court, however, found that “although the Fye case is factually similar to this scenario we are considering on appeal, the Fye Court was not asked to consider the precise issue now before us . . . Fye does not control the issue of whether the amount accepted by a medical provider bears on the reasonableness of the medical expenses.” (emphasis added) Dedmon at 15. 

As a result, the Dedmon Court found that a plaintiff can present testimony of a physician who testifies that the amount of the medical expenses billed or charged were reasonable charges.  The Court then clarified and found that “however, existing law in this state also makes clear that Defendants are permitted to offer proof contradicting the reasonableness of the medical expenses.  However, in doing so, they must not run afoul of the collateral source rule.  See E. G. Martinez v. Milburn Enters, Inc., 233 P.3d 205, 222-223 (Kan. 2010) (“… the collateral source rule bars admission of evidence stating that the expenses were paid by a collateral source.  However, the rule does not address, much less bar, the admission of evidence indicating that something less than the charged amount has satisfied, or will satisfy, the amount billed.”). 

As a result, in the Dedmon case the Tennessee Court of Appeals clearly found that a defendant is entitled to introduce evidence of the amount actually accepted by the medical care provider for the medical services provided.  In other words, if there is a $10,000.00 bill for a procedure and insurance only paid $2,000.00, the defendant can introduce evidence that the medical care provider accepted the $2,000.00 as complete satisfaction for the performance of their services.  The jury can then decide whether the $10,000.00 number (the amount charged as introduced by the plaintiff) or the $2,000.00 number (the amount actually accepted as introduced by the defendant) are reasonable medical bills under the situation. 

The concurrence in Dedmon by Judge Joe G. Riley, makes this holding very clear.  In the concurrence on page 3, Judge Riley stated, “I recognize the long-standing collateral source rule and agree it does not bar evidence of an amount accepted in full satisfaction of medical expenses in this case.  This is because the rule, as customarily applied, assumes the actual charge or non-discounted discharges are reasonable . . . Accordingly, I agree, the collateral source rule does not bar evidence of the amount accepted in full satisfaction of the charges.” Dedmon, concurrence Riley at 3.  Judge Riley went on to state that “if the non-discounted charge is used as the reasonable medical expense, I believe the amount of the windfall to plaintiffs is no longer rationally based and is out of kilter as compared to the past.” Dedmon, concurrence Riley at 3.  Judge Riley also stated that “I believe that modem day medical provider's non-discounted charges generally dictate that the non-discounted charges are no longer the reasonable medical expenses. This large disparity between the non-discounted charges and what medical providers are willing to accept in full payment is a phenomenon primarily dictated by modem day healthcare practices.” Dedmon, concurrence Riley at 2.  Judge Riley also stated that he would extent the West reasoning to personal injury litigation, but since he is not the Tennessee Supreme Court, he is bound to follow the existing precedent.

Like Judge Riley’s opinion, several Federal district court decisions found and interpreted the West case as defining the standard for reasonableness of medical expenses in personal injury litigation.  See Smith v. Lopez-Miranda, 2016 WL 1083845 (W.D. Tenn. Feb. 10, 2016); Hall v. USF Holland, Inc., 2016 WL 361583 (W.D. Tenn. January 12, 2016); Keltner v. US, 2015 WL 3688461, (W.D. Tenn. June 12, 2015).  However, the Dedmon case was the first time the Tennessee Court of Appeals addressed this issue directly.  This case will have a substantial impact on personal injury cases until the Tennessee Supreme Court takes up this issue (which they will almost certainly do in order to decide this issue once and for all).

As a result, the Dedmon case is very significant.  The largest take-away from this case is the clear holding that evidence of the amount actually accepted by the medical care provider is admissible to combat arguments by plaintiffs that the amounts charged are reasonable medical expenses.  Nobody actually pays the amounts charged.  I anticipate the Tennessee Supreme Court will ultimately decide this issue and most likely will extend the holding of West to personal injury actions.  If the Tennessee Supreme Court does not decide in this way, then I expect that the Tennessee legislator will fix this issue legislatively.  The Tennessee legislator has had this issue on its radar for several years (see my prior blog post on this issue).  Once the Tennessee Supreme Court speaks on this issue, if they do not extend West to personal injury actions, I expect that the Tennessee legislator will do this by legislation based on the current political realities of the Tennessee legislature.