Help Us Tennessee Supreme Court, You’re Our Only Hope: Medical Billing Evidence in Tennessee

Posted on June 9th, 2016 by sutteroconnell

In a closely-watched interlocutory appeal, the Tennessee Court of Appeals ruled on Thursday, June 2nd that medical billing statements are admissible in personal injury suits, even if they reflect amounts routinely reduced by providers under contracts with insurers.  This fight has been brewing for some time, and both the Tennessee Association for Justice and the Tennessee Defense Lawyers Association filed Amicus Curiae briefs in this case.

This issue, well known at this point to most civil litigators, arose in 2014, with West v. Shelby County Healthcare Corporation.  That case involved the interpretation and application of the Tennessee Hospital Lien Act, codified at T.C.A. §§ 29-22-101 through 29-22-107.  The facts were relatively simple:  the plaintiffs were injured in motor vehicle accidents and were treated at the Regional Medical Center at Memphis (“the Med”).  The Med billed their insurance companies and accepted discounted payments pursuant to insurance agreements, but then asserted liens against any tort recovery by the plaintiffs for the full amount billed. The plaintiffs received letters indicating their bills had been paid in full by the insurance companies, and requested the Med release its liens. The Med refused, asserting its perceived right to recover the amount of undiscounted billing in the event of tort litigation, and plaintiffs sued the Med to quash the liens.

The Tennessee Supreme Court ultimately determined the amounts actually paid and accepted, rather than the total billing, reflected “reasonable and necessary” medical expenses under the Hospital Lien Act, for two reasons. First, no one pays undiscounted medical rates.  Both attorneys and the general public are aware of this.  Everyone receives “explanations of benefits” showing astronomical healthcare charges which are greatly reduced before being paid by insurers.  Second, the discounted charges are the result of contracts between providers and insurers, which are the product of voluntary negotiations.  Providers would not enter into such contracts if they did not reasonably compensate them for services rendered. The Supreme Court’s position on this is logical: if a hospital such as the Med voluntarily enters into contracts to accept a certain rate for services, those rates must be reasonable, and the much higher facial billing rates are therefore unreasonable.

Although West involved interpretation of a statute, tort plaintiffs in Tennessee are also required to prove medical expenses incurred are “reasonable”, so very quickly defendants began filing motions in limine to exclude undiscounted medical billing. The United States District Court for Western District of Tennessee attempted to certify the question of West’s application to tort suits to the Tennessee Supreme Court in Hall v. USF Holland, but the Court declined to take up the issue.

In the meantime, the Tennessee Court of Appeals took up Dedmon v. Steelman, a fairly ordinary car accident case in which the defense argued West prevented admission of undiscounted medical bills. Plaintiffs, for their part, argued West’s reasoning was confined to the Tennessee Hospital Lien Act. The trial court ruled for the defense, explaining West stood for the proposition that “we are not going to allow the subterfuge that the medical community uses with regard to insurance and expenses to sully the court system”. The Court further granted the plaintiffs request for an interlocutory appeal.

The Court of Appeals overturned the decision, holding that the language used in West included the phrase “for the purposes of the Hospital Lien Act”. The Court reasoned that because, based on existing case law, the reasonableness of medical expenses is left to the trier of fact, the undiscounted medical billing is admissible. The Court conceded the Tennessee Supreme Court may ultimately expand West, but held it was not able to do so based on existing precedent because “it is not the role of this Court to overturn or overlook existing [sic] caselaw based on speculation.”

This decision is deeply unsatisfying, as it creates another period of limbo as we await the word of the Tennessee Supreme Court. In the meantime, the decision did contain good news for defendants. Contrary to some prior jurisprudence, defendants can challenge the reasonableness of medical expenses by introducing evidence of the amount actually accepted as payment, as long as the evidence can be introduced without violating the collateral source rule. There are a couple of ways this could be done. For instance, defense counsel could question plaintiffs’ treating physicians regarding the amounts accepted as payment. In larger cases, a medical billing expert could be retained to testify that the face-value charges are not customarily paid, and to a more reasonable value of medical services.

In a well-reasoned concurring opinion, Judge Joe Riley agreed the Court was bound by existing case law, but had harsh words for medical billing practices as they exist. “The so-called actual charges or non-discounted charges today are fictional and no longer represent reasonable charges. Neither the injured party nor the insurer pays the non-discounted charges nor are benefits conferred upon the injured party based upon the non-discounted charges.” He further stated “the time has come to re-evaluate the method of calculating reasonable medical expenses in personal injury litigation in light of modern billing practices….I do not believe our hybrid method will prove workable, nor do I think it is justified.” Hopefully the Tennessee Supreme Court will promptly take up Judge Riley’s call to rationalize our practice with respect to medical billing evidence