Missouri Revised Statutes Section 490.715: a toothless attempt to limit the recovery of medical expense write-offs.

• Author: Cornwell, Alexander
• Position: LAW SUMMARY

1. INTRODUCTION

   Well-established case law in Missouri provides that damages should be compensatory only (1) and a plaintiff is entitled to only one satisfaction for the same injury. (2) However, the collateral source rule operates in contravention of otherwise well-accepted tort principles in that it often results in double recovery. (3) Under the collateral source rule, proving a plaintiff already received compensation from a collateral source cannot reduce the amount of damages awarded. (4) Thus, an injured plaintiff can recover twice: once from his or her own insurance provider and again from the defendant.

   In the context of medical expenses, insurers can reach contractual agreements with medical service providers to satisfy the plaintiff's original obligation with a reduced amount. (5) As a result, plaintiffs are able to present evidence to the jury of the original amount billed even though that amount was never actually paid by the plaintiff or any other entity. (6) The difference between the amount billed and the amount actually paid for medical services rendered is known as a "write-off" amount--an illusory damage award. (7)

   Allowing the recovery of write-off amounts conflicts with the fundamental Missouri policy of lowering litigation costs and insurance premiums, increasing affordable access to healthcare, and improving the state's economy. (8) To address this discrepancy, the Missouri legislature enacted section 490.715 as a part of its 2005 tort reform in an attempt to reduce the effect of the collateral source rule and limit the recovery of write-off amounts. (9) Section 490.715 creates a presumption that the amount actually paid represents the reasonable value of medical expenses received. (10)

   Limiting the collateral source rule usually draws less attention than other tort reform enactments. (11) However, it actually has greater practical importance because "the application of the collateral source doctrine ... potentially affects nearly every lawsuit in America to some extent." (12) The broad reaching doctrine impacts every lawsuit by potentially creating a difference of hundreds of thousands of dollars in recoverable damages depending upon which set of medical bills are presented to the jury. (13) Retaining the collateral source doctrine invariably favors plaintiffs who want to represent the larger damage amount to the jury, while abolishing the doctrine necessarily benefits defendants who want to avoid over-compensating plaintiffs. As a result, any discussion of the collateral source doctrine is usually coated in self-interest and skewed towards a partisan viewpoint.

   This Article focuses objectively on whether the decision to limit the application of the collateral source rule in Missouri is in accord with modern trends and whether Missouri courts' recent interpretation of section 490.715 is consistent with the legislature's original intent. Part II reviews the history of the collateral source doctrine and the justifications supporting its retention. In Part III, this Article outlines the Missouri legislature's decision to modify the rule and analyzes subsequent court decisions applying section 490.715. In response to the recent legislative and judicial activity, Part IV concludes that modification of the collateral source doctrine was warranted and suggests additional statutory changes to limit the enigmatic recovery of write-off damages in Missouri. While the recent interpretation of section 490.715 has effectively abrogated the collateral source doctrine with respect to medical bill admissibility, for the recovery of write-off damages to be truly limited, the collateral source rule must be abolished and correspondingly the amount billed must be withheld from the jury.

2. LEGAL BACKGROUND

   The collateral source rule has an English common law origin that can be traced back to 1823. (14) The rule was first embraced by American courts in 1854 when the United States Supreme Court held in Propeller Monicello v. Mollison that the amounts paid by a plaintiff's insurance could not reduce a defendant's liability. (15) The doctrine obtained its current name in 1871 when the Vermont Supreme Court noted that "[t]he policy of insurance is collateral to the remedy against the defendant." (16)

   1. The Collateral Source Rule Defined

      Since those early decisions, the collateral source doctrine became a staple of American jurisprudence. (17) In its current form, the collateral source rule provides that "if an injured party receives compensation for the injuries from a source independent of the tortfeasor, the payment should not be deducted from the damages that the tortfeasor must pay." (18) The Restatement (Second) of Torts describes four general categories of independent sources: insurance policies, (19) employment benefits, (20) gratuities, (21) and social legislation benefits. (22)

      From its inception, the doctrine acted as "an exception to the general rule that damages in tort should be compensatory only." (23) The purpose of awarding compensatory damages is to make the injured plaintiff whole. (24) Missouri courts have recognized that while plaintiffs are entitled to be made whole, they should not be awarded a double recovery. (25) Such recovery would result in a windfall for the plaintiff (26) and has the incidental effect of punishing the tortfeasor, which is not the intended purpose of compensatory damages. (27) Thus, the collateral source doctrine operates as an exception to compensatory damages because it can result in double recovery and is punitive in nature. (28)

      It was not long after its adoption in Propeller Monticello that courts began to recognize exceptions to the collateral source rule in an effort to limit its effect. (29) Today, most states have either substantially modified or completely abrogated the common law collateral source doctrine by legislative action. (30) However, states vary in the degree and manner they have altered the collateral source rule, illustrating the fact that many conflicting rationales exist regarding the purpose and utility of the doctrine. (31)

   2. Rationales Underlying the Collateral Source Rule

      The "benefit of the bargain theory" is the most common justification of the collateral source doctrine for both courts in and outside of Missouri. (32) The theory is based upon the rationale that a defendant should not benefit from a plaintiff's investment in insurance benefits. (33) Instead, the theory argues that courts should give any benefit derived to the plaintiff who had the foresight to purchase and maintain insurance. (34) The logical extension is that any windfall should favor the injured party rather than the party who caused the injury. (35) If a windfall shifted to the defendant, such an approach would produce the inequitable result of relieving the defendant of the full responsibility of his or her wrongful conduct. (36) Courts favoring the collateral source rule also point out that not allowing collateral benefits to reduce a tortfeasor's liability preserves the deterrent effect of tort damages, which is one of the common purposes of tort law. (37) A contrary approach of allowing collateral benefits to reduce a tortfeasor's liability would lessen the deterrent effect that providing a windfall to the plaintiff serves. (38)

   3. Collateral Source Rule and Medical Expense Write-Offs

      Despite the historical justifications of the collateral source doctrine, a number of criticisms have surfaced. Critics commonly argue that the rule is a substantial deviation from the compensatory nature of tort damages by "enabl[ing] a plaintiff to reap a double recovery in certain circumstances." (39) Since the plaintiff was already made whole by an independent source, forcing a defendant to compensate a plaintiff's injury a second time "serve[s] solely as a punishment to the [defendant]." (40) The collateral source rule thus frustrates the principle purposes of compensatory damages in two respects: it enables over-compensation of the plaintiff, and it requires damage awards that "punish the defendant rather than compensat[e] the injured [plaintiff]." (41)

      Preventing the admission at trial of collateral source payments often significantly impacts the calculation of the value of medical services provided to a plaintiff and ultimately his or her recoverable damages. (42) With the growth of the health care industry, it is now commonplace for independent sources like private health care insurers and public healthcare benefactors to receive financial concessions from medical care providers. (43) Medical providers often receive a discounted amount of the initial amount billed to the patient. (44) The discrepancy between the initial amount billed and the amount eventually received is "written off" as a loss by the health care provider, the original debt is discharged, and the balance is never paid. (45)

      In most circumstances, insurance write-offs are merely a product of our healthcare system whereby medical providers give up the ability to receive the full amount billed in return for an increase in patients and guaranteed payments. (46) However, write-off amounts can create complications when tortious conduct causes the need for treatment. (47) In such an instance, the injured party becomes a plaintiff seeking to recover damages rather than just a recipient of medical services. (48) In the interest of maximizing recoverable damages, plaintiffs want to "represent the unadjusted medical bills as expenses actually owed" even though write-off amounts would be "phantom" damage awards. (49) Therefore, the question that arises is whether a plaintiff should be permitted to recover as a medical expense the amount billed or the amount paid. (50) Courts generally use one of three measures to answer that question: (i) the "benefit of the bargain," (ii) the "actual amount paid," or (iii) the "reasonable value of services." (51)

      The "benefit of the bargain" approach allows plaintiffs to...