Lindholm v. Hassan, 2005 DSD 11
MICHAEL N. LINDHOLM,
ADEL A.F. HASSAN, M.D.,
[2005 DSD 11]
United States District Court
District of South Dakota—Southern Division
MEMORANDUM OPINION AND ORDER
A. Russell Janklow, Kimberly Jo Lanham, Matthew T. Tobin
Johnson, Heidepriem, Miner, Marlow & Janklow, Sioux Falls, SD
Lonnie R. Braun, Thomas Nooney Braun Solay & Bernard, LLP, Rapid City, SD
Filed May 2005
Lawrence L. Piersol, Chief U. S. District Judge.
[¶1] In this diversity medical malpractice action, Defendant, Adal A.F. Hassan, M.D., has filed a document entitled “Motion Re: Medical Expenses.” Doc. 15. In his motion, Defendant has requested that this Court issue an order prohibiting Plaintiff, Michael N. Lindholm, from presenting evidence at trial of the amount billed for medical services rendered to Plaintiff but “written off” by his medical providers pursuant to the requirements of Medicare. Plaintiff has submitted his brief opposing the motion. Doc. 17.After considering the briefs, argument of counsel, and all applicable law, this Court is denying the motion.
[¶2] Plaintiff alleges in his complaint that Defendant, a physician who is now a resident of Kentucky, cut or otherwise injured Plaintiff’s common hepatic duct while performing a laparoscopic cholecystectomy. Plaintiff alleges that his damages include extensive past medical expenses and future medical expenses. Plaintiff’s total claim for medical expenses exceeds $102,000. This claim for medical expenses represents the medical expenses billed by Plaintiff’s providers. Plaintiff, however, at all times material, has qualified for Medicare benefits. Medicare, the federally funded medical insurance program for the elderly and disabled, was established as part of the Social Security Act, and is funded and administered by the federal government. 42 USC §§ 1395, et seq.
[¶3] When a healthcare provider contracts to provide medical services to patients covered under Medicare it agrees to certain fee schedules and agrees to accept as full payment less than the amount billed to the patient. It is by operation of law that the healthcare provider must write off the remaining balance and cannot collect any further payment on the remaining amount. See 42 USC § 1395cc and 42 CFR § 489.21(a). A wage earner such as Plaintiff does contribute monetarily toward the cost of Medicare.
[¶4] At the time of the pretrial hearing, counsel for Plaintiff had not ascertained the amount of the write-offs. It is undisputed that a portion of the medical bills was “written off” and a substantially lower amount was paid by Medicare to satisfy payment of the medical bills. Plaintiff contends that the collateral source rule precludes the relief Defendant is requesting in the motion in issue. Defendant contends that the collateral source rule is inapplicable to this case.
[¶5] In a diversity action alleging negligence, a federal court applies the law of the forum state. Jordan v. NUCOR Corp., 295 F3d 828, 834 (8th Cir. 2002). Normally, questions of relevance and admissibility of evidence are determined by federal law. Clark v. Martinez, 295 F3d 809, 814 (8th Cir. 2002). However, if the evidentiary issue is intertwined with a state’s substantive policy, as it is in a matter involving the collateral source rule, state law governs. See Wolfe v. Gilmour Mfg. Co., 143 F3d 1122 (8th Cir. 1998) (applying Nebraska collateral source rule in diversity action).This Court must then apply South Dakota law in deciding Defendant’s Motion.
The Collateral Source Rule
[¶6] The collateral source rule was recognized and adopted by the South Dakota Supreme Court in Moore v. Kluthe & Lane Ins. Agency, Inc., 234 NW2d 260 (SD 1975), a case in which the plaintiff prevailed on a negligent misrepresentation claim for a defendant’s misrepresentation that an insurance policy provided flood coverage. In that case, the South Dakota Supreme Court defined the collateral source rule as follows. “‘Total or partial compensation received by an injured party from a collateral source, wholly independent of the wrongdoer, does not operate to reduce the damages recoverable from the wrongdoer.’” Id. at 269 (quoting Gersick v. Shilling, 97 Cal. App2d 641, 218 P2d 583, 589 (1950)).The South Dakota Supreme Court explained the purpose of the collateral source rule as follows:
“No reason in law, equity or good conscience can be advanced why a wrongdoer should benefit from part payment from a collateral source of damages caused by his wrongful act. If there must be a windfall certainly its is more just that the injured person shall profit therefrom, rather than the wrongdoer shall be relieved of his full responsibility for his wrongdoing.”
234 NW2d at 269 (quoting Grayson v. Williams, 256 F2d 61, 65 (10th Cir. 1958)).
[¶7] In Degen v. Bayman, 241 NW2d 703 (SD 1976), the South Dakota Supreme Court examined the collateral source rule in the context of a personal injury action in which a portion of the Plaintiff’s medical services was rendered free of charge by the Shriners Hospital for Crippled Children. In the Degen case, the South Dakota Supreme Court elaborated on the collateral source rule as follows:“The general rule is that a plaintiff who has been injured by the tortious conduct of the defendant is entitled to recover the reasonable value of medical and nursing services reasonably required by the injury. This is a recovery for their value and not for the expenditures actually made or obligations incurred. Thus, under this general rule, the fact that the medical and nursing services were rendered gratuitously to the one who was injured will not preclude the injured party from recovering the value of those services as a part of his compensatory damages. Accordingly, the plaintiff's recovery will not be reduced by the fact that the medical expenses were paid by some source collateral to the defendant, such as by a beneficial society, by members of the plaintiff's family, by the plaintiff's employer, or by an insurance company.”
Id. at 708 (quoting 22 AM. JUR2d, Damages, § 207).
[¶8] The South Dakota Supreme Court has continued to apply the collateral source rule and has so far declined to apply an exception (fn1) to the collateral source rule. See Jurgensen v. Smith, 2000 SD ___, 611 NW2d 439 (mere fact that defendant motorist’s financial status was introduced at trial did not open the door for plaintiff to introduce evidence that defendant received financial benefits from collateral source). The South Dakota Legislature has also established limitations regarding the admissibility of evidence of insurance. See SDCL § 19-12-13. (fn2)
[¶9] Although the South Dakota Supreme Court has not yet determined whether the collateral source rule applies when Medicare pays a plaintiff’s medical bills, the Restatement (Second) of Torts § 920A, comment c, includes social legislation benefits as those benefits to which the collateral benefits rule applies. (fn3) The Court concludes that the South Dakota Supreme Court would follow the position of the Restatement (Second) of Torts in this matter. (fn4) Defendant does not challenge that conclusion, and, in fact, is not seeking to preclude evidence of the amount of medical expenses actually paid for by Medicare. Defendant is seeking only to preclude evidence of the “write-offs” that were never paid by any entity.
Whether Medicare Write-Offs Fall Within the Scope of the Collateral Source Rule?
[¶10] Defendant relies on cases from other jurisdictions that hold that a plaintiff's damages are limited to the amount of medical expense actually paid and that amounts that are "written off" should be excluded. See, e.g., Wildermuth v. Staton, 2002 WL 922137 (D.Kan)(not reported in FSupp2d)(court rules that collateral source rule, by its express terms, does not apply to Medicare write-offs that are never paid); Moorhead v. Crozer Chester Medical Center, 564 Pa. 156, 65 A2d 786 (2001)(court rules that Plaintiff is not entitled to “illusory” medical charges that neither Medicare nor her “Blue Cross 65" supplemental plan actually paid); Bates v. Hogg, 921 P2d 249 (Kan. App. 1996)(plaintiff could not apply collateral source rule to include as damages amounts that were written off by healthcare provider in conjunction with Medicaid contract), rev’d on other grounds by Frans v. Gausman, 6 P3d 432 (Kan. Ct. App. 2000); Terrell v. Nanda, 759 So2d 1026, 1031 (La. App. 2000)(plaintiffs could not recover portion of medical expenses contractually adjusted pursuant to the requirements of the Medicaid program); (fn5) Hanif v. Housing Auth., 200 CalApp3d. 635, 643, 246 Cal.Rptr. 192 (1988)(plaintiff could recover as special damages for medical care only the amount actually paid by Medi-Cal on plaintiff’s behalf).
[¶11] Defendant also cites to Jackson v. Lee’s Travelers Lodge, Inc., 1997 SD __, 563 NW2d 858, a case in which “the South Dakota Supreme Court refused to apply the collateral source rule to allow a plaintiff to collect medical expense damages which were never incurred by him but were instead paid by the State of South Dakota.” The Jackson case, however, is not applicable because it involves a workers’ compensation claim, not a tort cause of action. In briefly discussing the collateral source rule, the South Dakota Supreme Court noted the defendant “was not found to be a torfeasor, only an employer.” Id. at 868 n.11.
[¶12] In addition, Defendant cites to SDCL § 21-3-1, which provides that in a tort action, the measure of damages is “the amount which will compensate for all the detriment proximately caused” by the conduct of the tortfeasor. Defendant cites South Dakota law which provides that “the sole objective of compensatory damages is to make the injured party whole.” See Hulstein v. Meilman Food Industries, Inc., 1980 SD __, 293 NW2d 889, 891. Defendant argues that given that the purpose behind compensatory damages is making the Plaintiff whole, the reasonableness of Plaintiff’s medical expenses is determined with reference to the amount actually paid for those services, i.e., the amount actually paid by Medicare. Defendant relies on the Restatement (Second) of Torts § 911, comment h, which deals with the value of services rendered in establishing damages. Comment h to § 911 provides in part:
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.[¶13]However, a number of courts, relying on the collateral source rule, have permitted recovery as special damages for the portion of medical bills that was written off by healthcare providers in accordance with Medicare or Medicaid rules and regulations. See, e.g., Parker v. Spartanburg Sanitary Sewer Dist., 607 SE2d 711 (SC App 2005)(collateral source rule barred admission of amounts actually paid by Medicare toward motorist’s total medical bills); Bynum v. Magno, 101 P3d 1149 (Haw. 2004)(collateral source rule prohibited reducing patient’s damages award to reflect discounted Medicare and Medicaid Payments); Rose v. Via Christi Health System, 78 P3d 798 (Kan. 2003)(hospital in medical malpractice action not entitled to limit damage award by the portion of medical bills that were written off pursuant to contract with Medicare); Haselden v. Davis, 579 SE2d 293 (SC 2003)(plaintiff seeking damages for the cost of medical services is entitled to recover the reasonable value of those medical services, not necessarily the amount paid by Medicaid); Wal-mart Stores Inc. v. Frierson, 818 So2d 1135 (Miss. 2002)(evidence of medical expenses which had been written off by medical providers pursuant to Medicare and Medicaid regulations was admissible); (Williamson v. Odyssey House Inc., 2000 WL 1745101, 2000 U.S.Dist. Lexis 16396 (DNH Nov. 30, 2000)(unpublished opinion)(in applying collateral source rule and standard for measure of damages for medical costs, court concludes that the reasonable value of medical serves is the proper measure of service, regardless of the amount paid for the services by Medicaid); Candler Hosp. Inc. v. Dent, 491 SE2d 868 (Ga. App. 1997)(plaintiff can prove medical expenses damages undiminished by any amount written off by defendant pursuant to Medicare regulations); Brown v. Van Noy, 879 SW2d 667 (Mo.App. WD 1994)(expenses written off as part of Medicare coverage considered medical charges submitted and paid). (fn6)
[¶14] Relying on the above cases as authority, Plaintiff maintains it is irrelevant whether the medical write-offs given to him were required by operation of law, and that the write-offs are conceptually the same as gratuitous services. See Bynum, 101 P3d at 1156. Plaintiff further maintains that discounted medical expenses are not materially different than expenses paid by insurance or another source. See Brown v. Van Noy, at 676. Plaintiff contends that the collateral source rule is clearly applicable to this action and as such, he should recover the reasonable value of his medical expenses, including the portions that were written off. Plaintiff further contends Defendant is legally responsible for causing Plaintiff’s injuries and should not be relieved of his obligation to Plaintiff simply because Plaintiff was disabled and received benefits from Medicare, a collateral source. Plaintiff, in support of his position, also relies on South Dakota Pattern Jury Instruction (Civil) No. 30-06, which provides recovery for the “the reasonable value of necessary medical care, treatment, and services received [and the reasonable value of the necessary medical expense of medical care, treatment and services reasonably certain to be received in the future.]” Plaintiff contends that this pattern jury instruction entitles him to recover the “reasonable value” of medical services provided to him regardless of the amount actually paid for the medical services. (fn7)
[¶15] The Court concludes that the position of Plaintiff with regard to the treatment of the Medicare “write-offs” is more consistent with South Dakota law than is the position of Defendant. This Court agrees that Plaintiff is entitled to the reasonable value of the medical services he received. The Court has concluded that the South Dakota Supreme Court would follow the position of Restatement (Second) of Torts § 920A and comment c to that section, which includes social legislation benefits as those benefits to which the collateral benefits rule applies. (fn8) Consequently, the Court also finds comment b to § 920A instructive. This comment provides in part:
[Collateral-source benefits] do not have the effect of reducing the recovery against the defendant. The injured party’s net loss may have been reduced correspondingly, and to the extent that the defendant is required to pay the total amount there may be a double compensation for a part of the plaintiff’s injury. But it is the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor. If the plaintiff was himself responsible for the benefit, as by maintaining his own insurance or by making advantageous employment arrangements, the law allows him to keep it for himself. If the benefit was a gift to the plaintiff from a third party or established for him by law, he should not be deprived of the advantage that it confers. The law does not differentiate between the nature of the benefits, so long as they did not come from the defendant or a person acting for him.
Restatement (Second) of Torts § 920A, cmt. b (emphasis added). The Restatement also provides: “[The collateral source rule] applies to cash gratuities and to the rendering of services. Thus, the fact that the doctor did not charge for his services or the plaintiff was treated in a veterans hospital does not prevent his recovery for the reasonable value of the services.” Restatement (Second) of Torts § 920A, cmt. c, illus. 3.
[¶16] As the Court stated during the pretrial motions hearing in this matter, in the context of the collateral source rule, it is difficult to make a meaningful distinction between services provided by the federal government to a veteran in a veterans hospital who “paid in” by serving his or her country, and Medicare benefits provided at a reduced cost to a Medicare beneficiary who paid in at least a portion of the cost of that program. Any distinction is of clearly limited relevance since the law does not differentiate between the nature of the benefits in the application of the collateral source rule.
[¶17] Under South Dakota law, a plaintiff who has been injured by the tortious conduct of a defendant is entitled to recover the reasonable value of medical and nursing services reasonably required by the injury, not the expenditures actually made or obligations incurred for theses services. Degen v. Bayman, 241 NW2d at 708; see also, Nepstad v. Randall, 152 NW2d 383, 387 (SD 1967) (“Defendant does not complain of the instructions allowing recovery for the reasonable value of medical and hospital services.”); South Dakota Pattern Jury Instruction (Civil) No. 30-06.The reasonable value of medical services is not controlled by whether a portion or all of the medical bills was paid as a gift, or written off pursuant to an insurance agreement or by operation of law.
[¶18] The determination of the amount of damages to which a plaintiff is entitled is a question for the jury. See Berry v. Risdall, 1998 SD __, 576 NW2d 1, 4. The question remaining is what evidence other than the full bill can be introduced as to the reasonable value of the services. As the Court advised during the pretrial motions hearing, counsel should be prepared to present evidence of the necessity and the reasonable value of these medical services at the trial in this case. This Court believes the South Dakota Supreme Court would follow the rationale and the conclusion of the South Carolina Supreme Court in Covington v. George, 597 S.E2d 142, 144 (S.C. 2004), regarding what evidence is admissible in establishing damages for medical services. Showing to the jury the amount mandated by law for Medicare payment is precluded by the collateral source rule. (fn9) Unless and until the South Dakota Legislature changes the rule and makes another exception to the collateral source rule, the amount, if any, paid by collateral sources will not be admissible as evidence to show what was the reasonable value of the services. Accordingly,
[¶19] IT IS ORDERED that Defendant’s “Motion Re: Medical Expenses” (Doc. 15) is denied.