Mary K. Patchett v. Ashley N. Lee , 60 N.E.3d 1025 ( 2016 )

ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE FILED
Karl Mulvaney Daniel G. Foote Oct 21 2016, 12:38 pm
Jessica Whelan Tabor Law Firm, LLP
CLERK
Bingham Greenebaum Doll LLP Indianapolis, Indiana Indiana Supreme Court
Court of Appeals
Indianapolis, Indiana and Tax Court
Robert F. Ahlgrim, Jr. ATTORNEYS FOR AMICUS CURIAE
State Farm Mutual Automobile INDIANA TRIAL LAWYER ASSOCIATION
Insurance Company Joseph N. Williams
Indianapolis, Indiana Riley Williams & Piatt, LLC
Indianapolis, Indiana
ATTORNEYS FOR AMICUS CURIAE
INDIANA HEALTH CARE ASSOCIATION
Lucy R. Dollens
Edward L. Holloran
Grant R. Krevda
Quarles & Brady LLP
Indianapolis, Indiana
ATTORNEYS FOR AMICUS CURIAE
DEFENSE TRIAL COUNSEL OF INDIANA
Jon M. Pinnick
Angela J. Della Rocco
Michael F. Mullen
Schultz & Pogue, LLP
Indianapolis, Indiana
Donald B. Kite, Sr.
Of Counsel
Wuertz Law Office, LLC
Indianapolis, Indiana
ATTORNEY FOR AMICUS CURIAE
AMERICAN TORT REFORM ASSOCIATION
Bradley J. Buchheit
Tucker Hester Baker & Krebs, LLC
Indianapolis, Indiana
ATTORNEYS FOR AMICUS CURIAE
INDIANA LEGAL FOUNDATION
Mary Nold Larimore
Jenny R. Buchheit
Derek R. Molter
Ice Miller LLP
Indianapolis, Indiana
__________________________________________________________________________________
In the
Indiana Supreme Court
_________________________________
No. 29S04-1610-CT-549
MARY K. PATCHETT,
Appellant (Defendant Below),
V.
ASHLEY N. LEE,
Appellee (Plaintiff Below).
_________________________________
Interlocutory Appeal from the Hamilton Superior Court 1, No. 29D01-1305-CT-004116
The Honorable Steven R. Nation, Judge
_________________________________
On Petition to Transfer from the Indiana Court of Appeals, No. 29A04-1501-CT-00001
_________________________________
October 21, 2016
Slaughter, Justice.
In Stanley v. Walker, 906 N.E.2d 852 (Ind. 2009), we interpreted Indiana’s collateral-source
statute to permit a defendant in a personal-injury suit to introduce discounted reimbursements
negotiated between the plaintiff’s medical providers and his private health insurer, so long as
insurance is not referenced. Today, we hold the rationale of Stanley v. Walker applies equally to
reimbursements by government payers. The animating principle in both cases is that the medical
provider has agreed to accept the reduced reimbursement as full payment for services rendered. The
reduced amount is thus a probative, relevant measure of the reasonable value of the plaintiff’s
medical care that the factfinder should consider.
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Factual and Procedural Background
Mary Patchett admits she drove her car negligently into oncoming traffic in 2012, striking
Ashley Lee’s vehicle and causing Lee injuries that required medical treatment. Lee sued and sought
damages that would “fully and fairly compensate her”. Patchett admitted she was liable for the
accident and generally agreed Lee received necessary medical treatment for her resulting injuries.
But Patchett contested the reasonable value of Lee’s medical care, so the parties prepared for a trial
on damages.
The parties agreed that Indiana Evidence Rule 413 allowed Lee to introduce her accident-
related medical bills totaling $87,706.36 as evidence those charges were reasonable. The parties
disagreed, however, whether Patchett could introduce evidence that Lee’s providers accepted a
reduced amount as payment in full. Specifically, because Lee was enrolled in the Healthy Indiana
Plan (HIP), a government-sponsored healthcare program, her providers, as HIP participants,
accepted HIP’s prevailing reimbursement rates of $12,051.48 in full satisfaction of those charges—
an 86-percent discount from the amounts billed.
Lee moved before trial to prevent the jury from hearing the reduced HIP rates. Patchett
objected, but the trial court granted Lee’s motion. In addition to finding that the HIP payments are
subject to the collateral-source statute and not permitted by Stanley, the court excluded the HIP
amounts under Evidence Rule 403, because it found HIP’s reduced rates would only confuse the
jury. The court certified its order for interlocutory appeal, observing that “whether [Patchett] may
prove the reasonable value of [Lee’s] medical expenses by introducing evidence of the discounted
payments made to her medical providers through HIP is of critical importance to the jury’s
determination of damages.”
The Court of Appeals accepted jurisdiction and affirmed. Patchett v. Lee, 46 N.E.3d 476
(Ind. Ct. App. 2015). The court concluded Stanley was limited to “evidence of ‘discounted amounts’
arrived at as the result of negotiation between the provider and an insurer”. Id. at 487. Because the
reduced HIP amounts “were not calculated based upon market negotiation”, the court held they are
“not probative of reasonable value” and were properly excluded. Id. Patchett then sought transfer,
arguing the courts below erred in finding Stanley v. Walker inapplicable to HIP discounts. We grant
transfer, thus vacating the Court of Appeals opinion, and reverse.
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Standard of Review
We generally review a trial court’s decision to admit or exclude evidence for an abuse of
discretion. State Farm Mut. Auto Ins. Co. v. Earl, 33 N.E.3d 337, 340 (Ind. 2015). When a trial
court’s evidentiary ruling depends on the interpretation of a statute, case law, or a rule of evidence
and not an “application [of those] to any particular set of facts”, it presents a legal question we review
de novo. See Cook v. Whitsell-Sherman, 796 N.E.2d 271, 277 (Ind. 2003) (citing Stahl v. State, 686
N.E.2d 89, 91 (Ind. 1997)). See also Allen v. Allen, 54 N.E.3d 344, 346 (Ind. 2016). Here we decide,
first, whether the trial court properly interpreted and applied Stanley v. Walker; and, second, whether
the court abused its discretion by excluding the reduced HIP rates under Evidence Rule 403.
Discussion and Decision
Indiana tort law seeks to make injured parties whole. “Compensatory tort damages ‘are
designed to place [plaintiffs] in a position substantially equivalent in a pecuniary way to that which
[they] would have occupied had no tort been committed.’” Nichols v. Minnick, 885 N.E.2d 1, 4 (Ind.
2008) (quoting Restatement (Second) of Torts § 903 cmt. a (Am. Law Inst. 1979)). The
compensatory tort damages at issue here are Lee’s “special damages”—the tangible, measurable
medical-services losses she sustained due to Patchett’s negligence. The proper measure of such
losses, as we reaffirmed in Stanley, is the “reasonable value” of necessary medical services. 906
N.E.2d at 858. Reasonable value is not measured simply by what the plaintiff spends out of pocket
for such services. Even if the services are complimentary, the plaintiff is entitled to recoup their
reasonable value. “Whenever it is proper in such a case to prove the services of a physician or
surgeon, the fair value of such services is the legal rule, even though they might have been rendered
gratuitously.” City of Indianapolis v. Gaston, 58 Ind. 224, 227 (1877).
Reasonable value is the touchstone and may be proved a number of ways. One is to show the
amounts billed for healthcare services. By rule, the billing statement is admissible to establish the
charges are reasonable. “Statements of charges for medical, hospital or other health care expenses
for diagnosis or treatment occasioned by an injury are admissible into evidence. Such statements
are prima facie evidence that the charges are reasonable.” Ind. Evidence Rule 413. This approach
can be dispositive if the parties agree the medical charges are reasonable. As we explained in Cook,
“[b]y permitting medical bills to serve as prima facie proof that the expenses are reasonable, the
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rule eliminates the need for testimony on that often uncontested issue.” 796 N.E.2d at 277. But if
the parties contest the reasonableness of the charges, “the method outlined in Rule 413 is not the
end of the story.” Stanley, 906 N.E.2d at 856.
This brings us to our decision in Stanley v. Walker and its discussion of whether an
alternative metric—specifically, the reduced amount that represents payment in full to a medical
provider for services rendered—also is admissible to prove the reasonable value of those services,
consistent with the collateral-source statute. The common-law collateral-source rule barred evidence
of compensation plaintiffs received from collateral (non-party) sources. Id. at 854. Indiana’s
subsequent collateral-source statute abrogated our common-law rule and made evidence of
collateral-source payments admissible, “except for specified exceptions.” Id. at 855. In Stanley, we
held “[t]he collateral source statute does not bar evidence of discounted amounts in order to
determine the reasonable value of medical services”, if insurance is not referenced. Id. at 858. Today,
we hold, first, that the trial court misinterpreted Stanley by construing it to apply only to discounts
negotiated at arm’s length between a medical provider and an insurance company; and, second, that
the court abused its discretion by excluding the reduced HIP reimbursements under Evidence Rule
403.
I. Under Stanley v. Walker, reduced reimbursements accepted by healthcare providers
are relevant, probative evidence of the reasonable value of medical services.
Indiana’s collateral-source statute remains essentially unchanged since our 2009 decision
in Stanley v. Walker. In relevant part, the statute provides:
Sec. 2. In a personal injury or wrongful death action, the court shall allow the
admission into evidence of:
(1) Proof of collateral source payments other than:
(A) payments of life insurance or other death benefits;
(B) insurance benefits that the plaintiff or members of the plaintiff’s
family have paid for directly; or
(C) payments made by:
(i) the state or the United States; or
(ii) any agency, instrumentality, or subdivision of the state or the
United States;
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that have been made before trial to a plaintiff as compensation for the loss
or injury for which the action is brought.
Ind. Code § 34-44-1-2(1) (2014 Repl.).
Lee argues these statutory provisions (particularly (B) and (C)(ii)) operate to exclude
evidence of reduced HIP rates Patchett may seek to introduce. But in Stanley, we held that such
reduced rates—whether characterized as “discounted amounts”, “adjustments”, or “accepted
charges”—are admissible under the statute if they can be introduced without referencing their
source. 906 N.E.2d at 858. Concluding that “it [is] difficult to determine whether the amount paid,
the amount billed, or an amount in between represents the reasonable value of medical services”, id.
at 857, we adopted a middle-ground approach where “both the original bill and the amount accepted
are evidence relevant to [determining] the reasonable value of medical expenses.” Id. (quoting
Robinson v. Bates, 857 N.E.2d 1195, 1201 (Ohio 2006)).
A. Stanley applies to all accepted reimbursements, regardless of whether they are
negotiated or mandated.
Stanley has many factual and procedural similarities with this case. Stanley also involved a
personal-injury suit arising from a motor-vehicle accident. The plaintiff (Walker) sustained injuries
requiring medical treatment, and he sued the other driver (Stanley). The defendant conceded fault,
and the parties went to trial on the issue of damages. At trial, the plaintiff introduced his redacted
medical bills showing the amount originally billed ($11,570). The defendant then sought to admit
medical bills showing the discounted amount the plaintiff’s providers accepted as payment in full
for services rendered ($6,820). The plaintiff objected, contending the collateral-source statute barred
evidence of the discounted bills. The trial court sustained the objection. On appeal, we held that the
collateral-source statute does not bar evidence of discounted amounts to determine the reasonable
value medical services. Id. at 858.
The principal difference between Stanley and this case is the identity of the payer. In Stanley,
the payer was a private insurance company. Here, it is HIP, a governmental program. The central
issue is whether this difference requires a different result. No party or friend of the court asks us to
reconsider Stanley. Both sides agree that Stanley and its interpretation of the collateral-source statute
supply the answer. Patchett, 46 N.E.3d at 479-80. But each side offers a competing view of Stanley’s
implications. Lee argues that Stanley announced a narrow rule in which the only reductions or
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discounts that may be admitted to prove the reasonableness of medical services are those negotiated
at arm’s length. In contrast, Patchett contends that Stanley pronounced a broader rule allowing the
admissibility of any accepted health-care payments, regardless of whether the reduced
reimbursements are negotiated or imposed by fiat.
We think the approach more faithful to Stanley’s holding and rationale is that which allows
the factfinder to hear evidence of the reduced amounts a provider accepts as payment in full, even
when the payer is a government healthcare program. The salient fact is not whether (or to what
extent) the reimbursement rates were negotiated. What counts is that the participating provider has
agreed to accept the lower rates as payment in full. 906 N.E.2d at 859 (Boehm, J., concurring)
(stating that discounted prices generally “reflect the amounts that providers are willing to accept for
their services.”).
B. A healthcare provider’s continued participation in HIP denotes its acceptance
of the program’s terms.
Like Medicaid and Medicare, HIP is a voluntary program for healthcare providers; they need
not participate. See Ind. Code §§ 12-15-11-2, 12-15-13-2(a)(2), 12-15-44.2-3 (2012 Repl.); 405 Ind.
Admin. Code 5-4-1, 10-9-1. (2016); 42 U.S.C. § 1395cc(a)(1), (b) (2012). See also Stayton v.
Delaware Health Corp., 117 A.3d 521, 523–24 n.5 (Del. 2015); Haygood v. De Escabedo, 356
S.W.3d 390, 392–94 (Tex. 2011). Neither are participating providers indentured; they are free to
leave these programs at any time. See Indiana Medicaid for Providers, (available at
http://provider.indianamedicaid.com/become-a-provider/disenroll-from-the-ihcp.aspx) (last visited
October 21, 2016). Some providers may grow weary of the red tape; others may find the
reimbursements inadequate; still others may think the programs are too slow to pay. Whatever the
motivation for leaving, the fact is that many providers can and do leave. See id.
The flipside is that many more providers remain in these programs. As of July 2016, the
number of primary medical providers participating in HIP is 6,945. The Lewin Group, Indiana
Healthy Indiana Plan 2.0: Interim Evaluation Report 30 (2016). Thousands more specialty providers
also participate in HIP. Id. at 32–35 (Anthem Specialist Network for HIP 2.0 members includes
9,117 providers; MHS Specialist Network for HIP 2.0 members includes 5,706 providers; and
MDwise Specialist Network for HIP 2.0 members includes 8,181 providers. A specialty provider
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may be included in more than one network.). We infer from the low barriers to exit that providers
that enroll and then remain in these programs are at least tacitly agreeable to the terms of
participation, including the reimbursement rates.
Because participating providers accept these reduced rates in full satisfaction of services
rendered, we hold such rates are relevant, probative evidence of the reasonable value of medical
services. Relevant evidence is that which “has any tendency to make a [consequential] fact more or
less probable than it would be without the evidence”. Evid. R. 401; Houser v. State, 823 N.E.2d 693,
697 (Ind. 2005). Probative evidence “tends to prove or disprove a point in issue.” BLACK’S LAW
DICTIONARY (10th ed. 2014). The reduced amounts providers accept for medical care are not
conclusive of reasonable value, but they are admissible to prove reasonable value.
C. The trial court committed reversible error in holding that Stanley did not apply
to accepted reimbursements from a government payer.
In excluding evidence of the reduced HIP rates, the trial court wrongly concluded that Stanley
applied only to medical discounts negotiated between providers and insurers, and not more generally
to any reimbursement rates accepted by providers as payment in full. It may well be true, as the trial
court believed, that HIP rates reflect myriad considerations and are “based upon political and budget
concerns as set forth in the statutes.” But as we observed in Stanley:
We recognize that the discount of a particular provider generally arises out of a
contractual relationship with health insurers or government agencies and reflects a
number of factors—not just the reasonable value of medical services. However, we
believe that this evidence is of value in the fact-finding process leading to the
determination of the reasonable value of medical services.
906 N.E.2d at 858 (emphasis added). As we have discussed, the overriding consideration is that
participating providers have agreed to accept the reduced HIP rates as full payment. A provider’s
willing acceptance of these reduced amounts reinforces the Court’s “belie[f] that this evidence is of
value in the fact-finding process leading to a determination of the reasonable value of medical
services.” Id. The trial court’s contrary holding, which excluded evidence of the reduced HIP’s rates,
was reversible error.
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D. Indiana continues to chart a middle course by admitting billed charges and
accepted amounts.
Since we decided Stanley in 2009, six states have precluded the admission of discounted
reimbursements altogether, concluding that only the amount billed may be introduced to prove the
reasonable value of medical services. See Kenney v. Liston, 760 S.E.2d 434 (W. Va. 2014); Brethren
Mut. Ins. Co. v. Suchoza, 66 A.3d 1073 (Md. Ct. Spec. App. 2013); Crossgrove v. Wal-Mart Stores,
Inc., 280 P.3d 29 (Colo. App. 2010); Law v. Griffith, 930 N.E.2d 126 (Mass. 2010); Swanson v.
Brewster, 784 N.W.2d 264 (Minn. 2010); White v. Jubitz Corp., 219 P.3d 566 (Or. 2009). Two
states, in contrast, have held that only the discounted amount actually paid for medical services is
admissible to prove reasonable value. See Stayton v. Delaware Health Corp., 117 A.3d 521 (Del.
2015); Haygood v. De Escabedo, 356 S.W.3d 390 (Tex. 2011). And two states have joined Indiana
in admitting into evidence both the amount charged and the amount accepted. See Howell v.
Hamilton Meats & Provisions, Inc., 257 P.3d 1130 (Cal. 2011); Martinez v. Milburn Enter. Inc., 233
P.3d 205 (Kan. 2010).
We continue to believe this middle ground not only represents the “fairest approach”,
Stanley, 906 N.E.2d at 858, but also honors our deep, abiding faith in the jury system. The framers
of our state constitution enshrined the right to a jury trial for both criminal and civil cases. IND.
CONST. art. 1, §§13(a), 20. Our faith in juries is borne out by our summary-judgment standard,
according to which we “consciously” allow even “marginal cases [to] proceed to trial” to ensure
parties receive their day in court. Hughley v. State, 15 N.E.3d 1000, 1004 (Ind. 2014). The hybrid
approach we outlined in Stanley and reaffirm today allows the factfinder in a personal-injury case to
consider both the amount originally billed and the reduced amount actually paid and accepted. We
trust juries to consider these metrics, along with any other relevant measures of the reasonable value
of medical care, in determining what damages are warranted in a particular case to make the plaintiff
whole.
We are mindful that some may continue to view Stanley as a giant leap from the law
prevailing at the time of its decision. But those arguments did not prevail in 2009 and, as we have
mentioned, no party or friend of the court asks that we reconsider Stanley today. Moreover, in the
seven years since we decided Stanley, the General Assembly has had the opportunity to revise the
collateral-source statute to correct any misinterpretation by this Court. During that period, the
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legislature has made exactly one (inconsequential) revision to the statute and no substantive change
that would call Stanley’s rationale into question. 2010 Ind. Acts, P.L.1-2010, §139 (revising I.C. §
34-44-1-2(B) from “insurance benefits for which the plaintiff…” to “insurance benefits that the
plaintiff…”) (emphases added). Given Stanley, our ruling today is a small step implementing that
rationale, which is that accepted reimbursements for medical services are probative, relevant
evidence of reasonable value and are admissible if the payments’ source is not referenced.
II. The trial court abused its discretion in excluding evidence of HIP discounts under
Evidence Rule 403.
We also reverse the trial court’s decision to exclude the reduced HIP rates under Evidence
Rule 403. Rule 403 provides: “The court may exclude relevant evidence if its probative value is
substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing
the issues, misleading the jury, undue delay, or needlessly presenting cumulative evidence.”
Although we give considerable deference to a court’s exclusion of evidence under Rule 403, we hold
that the court below abused its discretion in ruling that admission of the HIP rates would “only cause
confusion to the jury on how such amounts should be used or considered.” The record does not
support excluding the accepted reimbursements under Rule 403.
We likewise doubt the record in most personal-injury cases will justify excluding such
evidence under Rule 403, at least where the tort plaintiff has introduced the amount of billed medical
charges under Rule 413. These opposing, complementary twin values—billed charges and accepted
amounts—are the yin and yang of a personal-injury suit for damages where the issue is the
reasonable value of necessary medical services. In such cases, parties should expect and courts
should presume that the admission of billed provider charges will be accompanied by the admission
of reduced amounts accepted by providers as payment in full.
To be clear, we do not hold that Rule 403 can never supply a proper basis for excluding the
reduced amount a healthcare provider has accepted as full payment for medical services. But we
imagine the permissible circumstances for excluding such evidence under Rule 403 will be few and
far between.
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Conclusion
Stanley v. Walker made evidence of the reduced reimbursements a healthcare provider
accepts as full payment for services rendered to be presumptively admissible in a personal-injury
suit for damages concerning the reasonable value of necessary medical care. We hold that the trial
court misinterpreted Stanley by holding the collateral-source statute required the exclusion of
accepted reimbursements from government payers. Moreover, we find the court abused its discretion
by excluding such evidence under Rule 403. We reverse and remand with instructions to allow
Patchett to introduce evidence of the reduced HIP rates accepted by Lee’s medical providers so long
as Patchett can do so without referencing their source.
Rush, C.J., and Massa, J., concur.
Rucker, J., concurs in result with separate opinion in which David, J., joins.
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Rucker, J., Concurring in result.
Largely for reasons the majority explains I agree “the rationale of Stanley v. Walker
applies equally to reimbursements by government payers.” Slip op. at 2 (emphasis added). I write
separately however because I continue to believe Stanley was wrongly decided. See generally 906
N.E.2d 856, 860-867 (Dickson, J., dissenting opinion in which Rucker, J., concurred). More to
the point, Indiana’s collateral source statute could not be any clearer. It precludes admission into
evidence of, among other things, “payments made by: i) the state or the United States; or ii) any
agency, instrumentality, or subdivision of the state or the United States . . . . ” Ind. Code § 34-44-
1-2(c). Payments made by HIP—a federal/state government program—unquestionably fall within
this prohibition. A contrary reading endorsed by Stanley and reaffirmed today simply cannot be
reconciled with the collateral source statute.
Nonetheless neither party nor their aligned amici asks us to reconsider Stanley. And
importantly, in the years since Stanley was decided, the legislature has not amended the collateral
source statute in a way that demonstrates disapproval with this Court’s judicial interpretation.
Further, the landscape in the healthcare industry has not changed dramatically since Stanley was
decided and thus our doctrine of stare decisis also militates against charting a different course. For
these reasons I concur in the result reached by the majority.
David, J., concurs.
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