Jean Dedmon v. Debbie Steelman

11/17/2017

IN THE SUPREME COURT OF TENNESSEE

AT JACKSON

April 5, 2017 Session

JEAN DEDMON v. DEBBIE STEELMAN ET AL.

Appeal by Permission from the Court of Appeals

Circuit Court for Crockett County

No. 3228 Clayburn Peeples, Judge

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No. W2015-01462-SC-R11-CV

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We granted this appeal to address whether our holding in West v. Shelby County

Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014), applies in personal injury cases. We

hold that it does not. West held that “reasonable charges” for medical services under

Tennessee’s Hospital Lien Act, Tennessee Code Annotated sections 29-22-101 to –107

(2012), are the discounted amounts a hospital accepts as full payment from patients’

private insurers, not the full, undiscounted amounts billed to patients. West, 459 S.W.3d

at 46. West defined “reasonable charges” in the context of interpreting the Hospital Lien

Act, and its holding is limited to that Act. As an alternative argument, we are asked in

this appeal to consider applying the principles in West to the determination of reasonable

medical expenses in personal injury cases. Doing so involves the collateral source rule,

which excludes evidence of benefits to the plaintiff from sources collateral to the

tortfeasor and precludes the reduction of the plaintiff’s damage award by such collateral

payments. The rule is based on the principles that tortfeasors should be responsible for

all of the harm they cause and that payments from collateral sources intended to benefit

an injured party should not be used to reduce the liability of the party who inflicted the

injury. After a thorough review of court decisions in Tennessee and across the country

on the collateral source rule, we decline to alter existing law in Tennessee. We hold that

the collateral source rule applies in this personal injury case, in which the collateral

benefit at issue is private insurance. Consequently, the plaintiffs may submit evidence of

the injured party’s full, undiscounted medical bills as proof of reasonable medical

expenses. Furthermore, the defendants are precluded from submitting evidence of

discounted rates accepted by medical providers from the insurer to rebut the plaintiffs’

proof that the full, undiscounted charges are reasonable. The defendants remain free to

submit any other competent evidence to rebut the plaintiffs’ proof on the reasonableness

of the medical expenses, so long as that evidence does not contravene the collateral

source rule. The decision of the Court of Appeals is affirmed in part and reversed in part,

and the case is remanded to the trial court for further proceedings.

Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals

Affirmed in Part and Reversed in Part;

Case Remanded to the Trial Court

HOLLY KIRBY, J., delivered the opinion of the Court, in which JEFFREY S. BIVINS, C.J.,

and CORNELIA A. CLARK, SHARON G. LEE, and ROGER A. PAGE, JJ., joined.

Melanie M. Stewart, Memphis, Tennessee, for the appellants, Debbie Steelman, and

Danny T. Cates, Sr., as co-personal representatives of the Estate of John T. Cook,

deceased.

Glenn K. Vines, Mark N. Geller, Kevin N. Graham, and Jason J. Yasinsky, Memphis,

Tennessee, for the appellee, Jean Dedmon.

Bradford D. Box and Adam P. Nelson, Jackson, Tennessee, for the Amicus Curiae, the

Tennessee Defense Lawyers Association.

W. Bryan Smith, Memphis, Tennessee; John Vail, Washington, D.C.; and Brian G.

Brooks, Greenbrier, Arkansas, for the Amicus Curiae, Tennessee Trial Lawyers

Association.

OPINION

FACTUAL AND PROCEDURAL BACKGROUND

The relevant facts in this appeal are undisputed. In February 2010,

Plaintiff/Appellee Jean Dedmon was involved in an automobile accident with John T.

Cook. Mrs. Dedmon was seriously injured in the accident. Mrs. Dedmon and her

husband, Fred Dedmon (collectively, “Plaintiffs”), filed this lawsuit against Mr. Cook,

alleging that his negligence caused Mrs. Dedmon to suffer severe and permanent injuries

and to incur past and future medical expenses. The complaint itemized Mrs. Dedmon’s

medical bills from sixteen different medical providers, which totaled $52,482.87. The

bills were attached to the complaint.

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After the complaint was filed, Mr. Cook died. In September 2013, the Plaintiffs

filed an amended complaint substituting Mr. Cook’s personal representatives, Debbie

Steelman and Danny T. Cates (collectively, “Defendants”), for Mr. Cook.1

Meanwhile, in March 2013, the Plaintiffs deposed one of Mrs. Dedmon’s treating

physicians, neurosurgeon Vaughn Allen, M.D. Dr. Allen treated Mrs. Dedmon between

April 2010 and September 2012, and in September 2010, he performed neck surgery on

her.2 In his deposition, Dr. Allen testified that all of Mrs. Dedmon’s medical bills,

including those from his own clinic and those from Mrs. Dedmon’s other medical

providers (hospitals, physical therapists, radiologists, etc.), were reasonable and

necessary to a reasonable degree of medical certainty. Dr. Allen’s deposition was filed in

the trial court, and the medical bills were attached as exhibits.3

On December 19, 2014, this Court issued its decision in West v. Shelby County

Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014). West interpreted Tennessee’s Hospital

Lien Act (HLA), Tennessee Code Annotated sections 29-22-101 to –107 (2012). We will

discuss West in more detail below, but suffice it to say at this juncture that West held that

a hospital’s “reasonable charges” under Section 29-22-101(a) are the amount the hospital

accepts from the patient’s private insurer, not the amount in the medical bills sent to the

patient. West, 459 S.W.3d at 46. In the course of its analysis, the West Court commented

that the amount of the full, undiscounted charges billed to the patient is “unreasonable” as

compared to the amount of the discounted bills paid by the insurer. Id. at 44. The

undiscounted bills sent to the patient, the West opinion stated, do “not ‘reflect what is

[actually] being paid in the market place.’ Because ‘virtually no public or private insurer

actually pays the full charges[,] . . . [a] more realistic standard is what insurers actually

pay and what hospitals [are] willing to accept.’” Id. at 45 (quoting What’s the Cost?:

Proposals to Provide Consumers with Better Information about Healthcare Service

Costs: Hearing Before the Subcomm. on Health of the House Comm. on Energy and

Commerce, 109th Cong. 99 (2006) (statement of Dr. Gerard Anderson, Professor,

Bloomberg School of Public Health & School of Medicine at Johns Hopkins University;

Director, Johns Hopkins Center for Hospital Finance and Management)).

1

The amended complaint did not include an itemization of Mrs. Dedmon’s medical bills, nor did

it attach Mrs. Dedmon’s medical bills.

2

Mrs. Dedmon underwent a cervical laminectomy and foraminotomy, which are basically

decompression surgeries intended to take some of the pressure off the spinal nerves.

3

There is no challenge to Dr. Allen’s qualifications to testify as to the reasonableness and

necessity of Mrs. Dedmon’s medical bills.

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Prompted by the holding in West, the Defendants in the instant case filed a

“Motion in Limine to Exclude Evidence of Unreasonable Medical Charges.”4 Citing

West, they argued that evidence of Mrs. Dedmon’s full, undiscounted medical bills must

be excluded because the amounts of those bills are, as a matter of law, unreasonable. The

Defendants asserted that West’s pronouncements on hospital bills “set[ ] forth a new

standard in Tennessee, as a matter of law.” According to the Defendants’ calculations,

Mrs. Dedmon’s health insurer paid only $18,255.42 to satisfy Mrs. Dedmon’s medical

bills. As a result, they argued, the full charges reflected in Mrs. Dedmon’s medical bills

are irrelevant and should be excluded on that basis.

The Defendants also took the position in their motion that “[t]he collateral source

rule does not apply to [the] issue” of whether the discounted amounts paid by Mrs.

Dedmon’s insurance company are admissible. They insisted that “evidence of payment

of the medical expenses by medical insurance will not be used to show that the medical

expenses have been paid in an attempt to mitigate the damages. Rather, the evidence

would be used to show whether the charges are reasonable, as defined by the Supreme

Court.” We interpret the Defendants’ position in the motion in limine as arguing that the

amount paid by Mrs. Dedmon’s insurance company should be submitted into evidence

instead of the undiscounted medical bills sent to the patient. Under the Defendants’

reasoning, there is purportedly no need to mention the fact that the discounted amounts

resulted from Mrs. Dedmon’s insurance contract, so the collateral source rule would not

be violated.

In addition to the motion in limine, the Defendants filed a “Notice of Intent to

Rebut Presumption Pursuant to T.C.A. § 24-5-113.” See Tenn. Code Ann. § 24-5-

113(b)(2). The notice, like the motion in limine, was based solely on the Defendants’

interpretation of West. The Defendants argued that, if the full, undiscounted medical bills

are admitted into evidence, then the discounted amounts accepted by the medical

provider should be admissible to rebut the Plaintiffs’ expert testimony that the

undiscounted charges are reasonable. They argued that, in comparing the two bills, the

full, undiscounted medical bills are unreasonable “under the West standard.”

In March 2015, the trial court conducted a hearing on the Defendants’ motion in

limine. The trial court agreed with the Defendants that, based on West, Mrs. Dedmon’s

full, undiscounted medical bills are irrelevant to the question of her reasonable medical

expenses and that the discounted amounts paid by Mrs. Dedmon’s insurer constituted her

reasonable medical expenses as a matter of law. Accordingly, it granted the motion in

4

The Defendants did not challenge the necessity of Mrs. Dedmon’s medical bills.

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limine and excluded evidence of Mrs. Dedmon’s full, undiscounted medical bills. The

trial court commented that it interpreted West as having advanced a policy of not

allowing “the subterfuge that the medical community uses with regard to insurance and

expenses to sully the court system.” The trial court added that it could not “imagine that

[this Court] would use any other logic in this situation than they used in [the hospital lien

statute] situation.”

Mrs. Dedmon sought permission for an interlocutory appeal from the trial court’s

order. Permission was granted by both the trial court and the Court of Appeals. See

Tenn. R. App. P. 9.

The Court of Appeals reversed. See Dedmon v. Steelman, No. W2015-01462-

COA-R9-CV, 2016 WL 3219070, at *11 (Tenn. Ct. App. June 2, 2016), perm. app.

granted (Tenn. Oct. 21, 2016). Citing limiting language in West, the appellate court

concluded that West did not apply to personal injury cases. Id. at *9. The language in

West cited by the Court of Appeals included a comment that West was intended to define

“reasonable charges for the purpose of Tenn. Code Ann. § 29-22-101(a),” id. (citing

West, 459 S.W.3d at 44), and a footnote stating that the West holding was limited to

private insurance cases, id. (citing West, 459 S.W.3d at 39 n.2). The intermediate

appellate court reasoned: “If the [West] [C]ourt did not intend for its opinion to apply to

hospital liens in all circumstances, surely the court did not intend for its opinion to be

binding as to all determinations of reasonable medical expenses under Tennessee law.”

Id. Thus, the Court of Appeals rejected the Defendants’ argument that West required the

exclusion of Mrs. Dedmon’s full, undiscounted medical bills and reversed the trial court’s

grant of the Defendants’ motion in limine. Id. at *10.

The Court of Appeals then went further. It addressed the evidence that would be

permissible on remand to rebut the Plaintiffs’ expert testimony that the undiscounted

medical bills represented Mrs. Dedmon’s reasonable medical expenses. It held that

evidence of discounted amounts accepted by Mrs. Dedmon’s medical providers may be

admissible to rebut the Plaintiffs’ expert testimony on the reasonableness of the amount

of the full, undiscounted bills. The appellate court acknowledged the collateral source

rule, which generally provides that collateral-source benefits such as insurance must not

be used to “diminish the damages otherwise recoverable from the defendant.” Id. at *10

n.8 (quoting Nance ex rel. Nance v. Westside Hosp., 750 S.W.2d 740, 742 (Tenn. 1988)).

It then commented, however, that “existing law in this state also makes clear that

Defendants are permitted to offer proof contradicting the reasonableness of the medical

expenses,” id. at 11, citing cases from other jurisdictions holding that discounted amounts

accepted by medical providers are admissible to rebut the Plaintiffs’ proof of the

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reasonableness of the full, undiscounted medical bills, so long as insurance is not

mentioned. Id. (quoting Martinez v. Milburn Enters., Inc., 233 P.3d 205, 222-23 (Kan.

2010)) (citing Stanley v. Walker, 906 N.E.2d 852, 858 (Ind. 2009) (holding that the

collateral source rule does not bar evidence of discounted amounts so long as that

evidence is “introduced . . . without referencing insurance”). In a separate concurrence,

Judge Joe G. Riley took the position that the majority’s apparent approval of the “hybrid”

method—allowing evidence of both the full, undiscounted medical bills and also the

discounted amounts accepted by medical providers—“is dictated by existing case law” in

Tennessee.5 Id. (Riley, J., concurring).

In sum, the Court of Appeals reversed the trial court’s grant of the Defendants’

motion in limine and held that Mrs. Dedmon’s full, undiscounted medical bills were

admissible to prove her reasonable medical expenses resulting from the accident. It also

indicated that evidence of the discounted amounts accepted by Mrs. Dedmon’s medical

providers is admissible to rebut the Plaintiffs’ proof that the undiscounted medical bills

are reasonable, so long as insurance is not mentioned. Id. The Court of Appeals

concluded by asking this Court to accept review in this case to address these important

issues. Id. We granted the Defendants’ application for permission to appeal.

ISSUES ON APPEAL AND STANDARD OF REVIEW

On appeal to this Court, the Defendants make the same argument they made in the

lower courts, namely, that the holding in West applies in this case to exclude Mrs.

Dedmon’s full, undiscounted medical bills from the evidence regarding her reasonable

medical expenses. If West does not apply directly, the Defendants argue, the West

principles should nevertheless apply in personal injury cases to limit a plaintiff’s recovery

of “reasonable medical expenses” to the discounted amounts accepted by medical

providers.

All of the issues raised by the Defendants are questions of law, which we review

de novo, affording no deference to the decisions of the lower courts. Colonial Pipeline

Co. v. Morgan, 263 S.W.3d 827, 836 (Tenn. 2008).

ANALYSIS

5

Judge Riley’s separate concurrence also argued that this Court should extend the reasoning in

West to personal injury litigation. Id.

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To address the issues raised in this appeal, we first review Tennessee law on damages

in personal injury cases and the current status of the collateral source rule in Tennessee.

We next review our holding in West and address whether the definition of “reasonable

charges” under the HLA should be applied to the issue of the “reasonable medical

expenses” recoverable in personal injury cases. If the rule in West is not directly

applicable, we will consider whether any of the principles in West should be applied in

personal injury cases to exclude evidence of Mrs. Dedmon’s undiscounted medical bills.

If not, we will address the Court of Appeals’ language indicating that defendants may

submit evidence of discounted amounts accepted by medical providers in order to rebut

evidence that the undiscounted medical bills constitute reasonable medical expenses.

A. Existing Tennessee Law

1. Damages

“A person who is injured by another’s negligence may recover damages from the

other person for all past, present, and prospective harm.” Rye v. Women’s Care Ctr. of

Memphis, MPLLC, 477 S.W.3d 235, 267 (Tenn. 2015) (quoting Singh v. Larry Fowler

Trucking, Inc., 390 S.W.3d 280, 287-88 (Tenn. Ct. App. 2012)). “An award of damages,

which is intended to make a plaintiff whole, compensates the plaintiff for damage or

injury caused by a defendant’s wrongful conduct.” Meals ex rel. Meals v. Ford Motor

Co., 417 S.W.3d 414, 419 (Tenn. 2013) (citing Inland Container Corp. v. March, 529

S.W.2d 43, 44 (Tenn. 1975)). “The party seeking damages has the burden of proving

them.” Overstreet v. Shoney’s, Inc., 4 S.W.3d 694, 703 (Tenn. Ct. App. 1999).

A plaintiff who is injured by another’s negligence is entitled to recover two types of

damages: economic (or pecuniary) damages and non-economic (or personal) damages.

Meals, 417 S.W.3d at 419-20. Economic damages include past medical expenses, future

medical expenses, lost wages, and lost earning potential.6 Id. at 419. A plaintiff may

seek recovery for all “economic losses that naturally result from the defendant’s wrongful

conduct.” Id.

6

Past medical expenses have sometimes been referred to as “out-of-pocket” medical expenses.

The Meals Court said that, in this context, the term “out-of-pocket” medical expenses merely means past

medical expenses as contrasted with future medical expenses. See Meals, 417 S.W.3d at 421 (noting that

the trial judge must consider “past and future medical bills” in assessing the reasonableness of the jury

verdict); id. at 425 (evaluating the plaintiff’s “economic damages, including past medical bills, future

medical bills, and lost earning capacity”).

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“Non-economic damages include pain and suffering, permanent impairment

and/or disfigurement, and loss of enjoyment of life.” Id. at 420 (quoting Elliot v. Cobb,

320 S.W.3d 246, 247 (Tenn. 2010)). Non-economic damages are often highly subjective

and are not susceptible to proof by a specific dollar amount. While there must be some

evidence to justify the amount awarded, plaintiffs are not required to prove the monetary

value of non-economic damages because such injuries are not easily quantified in

economic terms. For this reason, the trier of fact is given broad latitude in fixing the

monetary amount of non-economic damages. Id.; Coakley v. Daniels, 840 S.W.2d 367,

372 (Tenn. Ct. App. 1992) (emphasizing that damages for personal injuries are not based

on fixed rules of law and are generally left to the trier of fact). In practice, “the

traditional lawyer’s rule-of-thumb” is often to value the non-economic damages based on

a multiple of the amount of the plaintiff’s economic damages. See Meals ex rel Meals v.

Ford Motor Co., No. W2010-01493-COA-R3-CV, 2012 WL 1264454, at *27 (Tenn. Ct.

App. Apr. 13, 2012) (Kirby, J., dissenting), rev’d on other grounds, 417 S.W.3d 414

(Tenn. 2013).

In this case, the economic damages at issue are past medical expenses. For this

type of award, a plaintiff must prove that the medical bills paid or accrued because of the

defendant’s negligence were both “necessary and reasonable.” Borner v. Autry, 284

S.W.3d 216, 218 (Tenn. 2009) (citing 22 Am. Jur. 2d Damages § 166 (2003 & Westlaw

2008); 25 C.J.S. Damages § 259 (2002 & Westlaw 2008)); see West, 459 S.W.3d at 44

(“[R]ecoveries for medical expenses in personal injury cases are limited to those

expenses that are ‘reasonable and necessary.’”). “In all but the most obvious and routine

cases, plaintiffs must present competent expert testimony to meet this burden of proof.”

Borner, 284 S.W.3d at 218. “A physician who is familiar with the extent and nature of

the medical treatment a party has received may give an opinion concerning the necessity

of another physician’s services and the reasonableness of the charges.” Long v.

Mattingly, 797 S.W.2d 889, 893 (Tenn. Ct. App. 1990) (citing Emp’rs Ins. of Wausau v.

Carter, 522 S.W.2d 175, 176 (Tenn. 1975)). “To be qualified to render these opinions,

the physician must first demonstrate (1) knowledge of the party’s condition, (2)

knowledge of the treatment the party received, (3) knowledge of the customary treatment

options for the condition in the medical community where the treatment was rendered,

and (4) knowledge of the customary charges for the treatment.” Id.

Our Court of Appeals has explained that, in Tennessee, the focus is on “the

‘reasonable’ value of ‘necessary’ services rendered.” Fye v. Kennedy, 991 S.W.2d 754,

764 (Tenn. Ct. App. 1998) (emphasis in original). In other words, even if it is undisputed

that the medical services were necessary, the plaintiff must prove “that the charges in

question were ‘reasonable.’” Id. To rebut the plaintiff’s proof on medical expenses, the

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“defendant is permitted to introduce relevant evidence regarding necessity,

reasonableness, and whether a claimed service was actually rendered.” Id.

For small claims, Tennessee Code Annotated section 24-5-113(a) provides for a

rebuttable presumption that medical bills of $4,000 or less that are itemized and attached

to the complaint create a prima facie presumption that the bills are both necessary and

reasonable:

(a)(1) Proof in any civil action that medical, hospital[,] or doctor

bills were paid or incurred because of any illness, disease, or injury may be

itemized in the complaint or civil warrant with a copy of bills paid or

incurred attached as an exhibit to the complaint or civil warrant. The bills

itemized and attached as an exhibit shall be prima facie evidence that the

bills so paid or incurred were necessary and reasonable.

(2) This section shall apply only in personal injury actions brought in

any court by injured parties against the persons responsible for causing

such injuries.

(3) This prima facie presumption shall apply to the medical,

hospital[,] and doctor bills itemized with copies of bills attached to the

complaint or civil warrant; provided, that the total amount of such bills

does not exceed the sum of four thousand dollars ($4,000).

Tenn. Code Ann. § 24-5-113(a). The subsection (a) small-claims presumption “assists

claimants for whom the expense of deposing an expert may exceed the value of the

medical services for which recovery is sought.” Borner, 284 S.W.3d at 218. This

presumption may be rebutted “by proof contradicting either the necessity or

reasonableness of the medical expenses.” Id.

Subsection (b) of the same statute sets forth another procedure to create a

rebuttable presumption of the reasonableness (but not the necessity) of the plaintiff’s

medical bills:

(b)(1) In addition to the procedure described in subsection (a), in any

civil action for personal injury brought by an injured party against the

person or persons alleged to be responsible for causing the injury, if an

itemization of or copies of the medical, hospital[,] or doctor bills which

were paid or incurred because of such personal injury are served upon the

other parties at least ninety (90) days prior to the date set for trial, there

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shall be a rebuttable presumption that such medical, hospital[,] or doctor

bills are reasonable.

(2) Any party desiring to offer evidence at trial to rebut the

presumption shall serve upon the other parties, at least forty-five (45) days

prior to the date set for trial, a statement of that party’s intention to rebut

the presumption. Such statement shall specify which bill or bills the party

believes to be unreasonable.

Tenn. Code Ann. § 24-5-113(b). The presumption of reasonableness in subsection (b)

can apply to medical expense claims of any size. See Boettcher v. Shelter Mut. Ins. Co.,

No. 2:14-cv-02796-JPM-dkv, 2016 WL 3212184, at *2 (W.D. Tenn. 2016) (citing Hogan

v. Reese, No. 01-A-01-9801-CV-00023, 1998 WL 430627, at *7 (Tenn. Ct. App. July 21,

1998) (noting that subsection (b), added in 1989, “is not limited as to the amount of such

medical bills”)).

As is apparent from the statutory language, the presumption statute establishes two

different presumptions. Compliance with subsection (a) of Section 24-5-113 creates a

presumption of both necessity and reasonableness. In contrast, compliance with

subsection (b) of Section 24-5-113 creates a presumption only that the medical bills are

reasonable. Id. at *2 n.2 (citing Laird v. Doyle, No. 02A01-9707-CV-00153, 1998 WL

74258, at *2-3 (Tenn. Ct. App. Feb. 24, 1998)). At trial, defendants may present

evidence to rebut the presumption of reasonableness in subsection (b)(1) by following the

procedures set out in subsection (b)(2). Id. (citing Tenn. Code Ann. § 24-5-113(b)(2)).

Regardless of any presumption of necessity and/or reasonableness of medical

expenses under subsections (a) or (b) of Section 24-5-113, plaintiffs must always

establish causation, i.e., “that the injuries or condition for which the medical treatment

was sought was caused by the conduct of the defendant.” Iloube v. Cain, 397 S.W.3d

597, 603 (Tenn. Ct. App. 2012).

2. Collateral Source Rule

The collateral source rule originated from the common law in England as early as

1823. See Dag E. Ytreberg, Annotation, Collateral Source Rule: Injured Person’s

Hospitalization or Medical Insurance as Affecting Damages Recoverable, 77 A.L.R.3d

415, § 2[a] (1977). It was adopted in the United States in 1854 by the United States

Supreme Court in The Propeller Monticello v. Mollison, 58 U.S. (17 How.) 152 (1854).

Id.; see also Mitchell v. Haldar, 883 A.2d 32, 37 & n.4; Baptist Healthcare Sys., Inc. v.

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Miller, 177 S.W.3d 676, 687 (Ky. 2005); Bozeman v. State, 879 So. 2d 692, 700 (La.

2004); Perreira v. Rediger, 778 A.2d 429, 433 (N.J. 2001); Kenney v. Liston, 760 S.E.2d

434, 440 & n.9 (W. Va. 2014). Mollison involved a collision between a steamship (The

Propeller Monticello) and a schooner (the Northwestern) carrying a cargo of salt. The

collision caused the schooner to sink. Mollison, 58 U.S. at 153. The schooner’s owner,

Mollison, recovered for the loss under his insurance policy. When Mollison sued the

owner of the steamship for damages, the steamship owner denied liability based on

Mollison’s recovery under his insurance policy. Id. at 155. The United States Supreme

Court rejected that argument, holding that the steamship owner could not benefit from

Mollison’s receipt of proceeds from his insurance policy. It explained that Mollison’s

insurance contract was “in the nature of a wager between third parties, with which the

[steamship owner] has no concern. The insurer does not stand in the relation of a joint

[tortfeasor], so that satisfaction accepted from [it] shall be a release of others.” Id. The

Court noted that its holding relied upon a doctrine that was “well established at common

law and received in courts of admiralty.” Id. The Court emphasized that the tortfeasor

“is bound to make satisfaction for the injury he has done.” Id.

By 1876, it was “well settled that the reception of the amount of the loss from the

insurers is no bar to an action subsequently commenced against the wrong-doer to

recover compensation for [an] injury occasioned by [a] collision.” The Atlas, 93 U.S.

302, 310 (1876). Atlas recognized that “[n]one can recover twice for the same injury.”

Id. Nevertheless, the United States Supreme Court reasoned: “Compensation by the

wrong-doer after payment by the insurers is not double compensation, for the plain

reason that insurance is an indemnity; and it is clear that the wrong-doers are first liable,

and that the insurers, if they pay first, are entitled to be subrogated to the rights of the

insured against the insurers.” Id. at 310-11; see id. at 310 (indicating the rule is based on

the principle “that a wrong-doer in such a case cannot claim the benefit of the contract of

insurance if effected by the person whose property he has injured”).

The term “collateral source” derived from language used in a Vermont decision,

Harding v. Town of Townshend, 43 Vt. 536 (1871). See Charles R. Mendez, The Impact

of the Affordable Care Act on the Colorado Collateral Source Rule, 94 Denv. L. Rev.

Online 1, 2 n.7 (2017); see also Miller, 177 S.W.3d at 687; Kenney, 760 S.E.2d at 440

n.9. The Vermont Supreme Court in Harding described the rule in terms similar to those

used by the United States Supreme Court in Mollison, but the Vermont Court

characterized insurance proceeds received by the plaintiff as “collateral” to any recovery

from the wrongdoer:

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The policy of insurance is collateral to the remedy against the defendant[]

and was procured solely by the plaintiff and at his expense, and to the

procurement of which the defendant was in no way contributory. It is in

the nature of a wager between the plaintiff and the third person, the insurer,

to which the defendant was in no measure privy, either by relation to the

parties, or by contract, or otherwise. It cannot be said that the plaintiff took

out the policy in the interest or behalf of the defendant, nor is there any

legal principle which seems to require that it be ultimately appropriated to

the defendant’s use and benefit.

Harding, 43 Vt. at 538. After Harding, the principle eventually came to be known as the

“collateral source rule.”

Similar to the United States Supreme Court’s rationale in Mollison, the Vermont

Supreme Court in Harding rejected the defendant’s argument that the collateral source

rule would permit double recovery for plaintiffs, reasoning that the insurer would likely

have subrogation rights. It explained that any recovery against the tortfeasor for amounts

paid by insurance would “create[] an equity between the plaintiff and the insurer, to be

ultimately adjusted between them, in which the defendant has no interest, and with which

he has no concern.” Id. at 539. Thus, the rationale for the rule was that insurance

proceeds emanate from an agreement between the plaintiff and the insurer, wholly

“collateral” to the defendant, so the defendant should not benefit from the plaintiff’s

receipt of proceeds “with which he has no concern.” Id.

Over time, all fifty states, except perhaps Alabama, adopted some form of the

collateral source rule. James L. Branton, The Collateral Source Rule, 18 St. Mary’s L.J.

883, 883-84 (1987) (noting that, until legislative “abolitions of the [collateral source]

rule, it was a part of the jurisprudence in every state”); Kevin S. Marshall, The Collateral

Source Rule and its Abolition: An Economic Perspective, 15-FALL Kan. J.L. & Pub.

Policy 57, 59 & n.28 (Fall 2005) (citing David Fellman, Unreason in the Law of

Damages: The Collateral Source Rule, 77 Harv. L. Rev. 741, 742 (1964), and Alabama

cases to demonstrate the exception in Alabama).

The Tennessee Supreme Court applied the rule espoused in both Mollison and

Harding as early as 1896, though at that time it was not yet called the “collateral source

rule.” Anderson v. Miller, 33 S.W. 615, 617 (Tenn. 1896), cited in Benson v. Tenn.

Valley Elec. Coop., 868 S.W.2d 630, 640 (Tenn. Ct. App. 1993) (recognizing Anderson’s

application of the collateral source rule); see also Ill. Cent. R.R. Co. v. Porter, 94 S.W.

666, 669-70 (Tenn. 1906), cited in Hearn v. Boswell, 1987 WL 5751, at *5 (Tenn. Ct.

- 12 -

App. Jan. 27, 1987) (recognizing Porter’s application of the collateral source). In

Anderson, the plaintiffs sued the defendant in negligence for property damage from a fire;

the plaintiffs had fully recovered for their property damage under their insurance policy.

Anderson, 33 S.W. at 616. The defendant argued that the insurance company that

covered the loss was actually the aggrieved party. The Anderson Court rejected this

argument and held that the plaintiffs were the proper parties to bring the lawsuit. The

Court described the plaintiffs’ contract with their insurance company as unrelated to the

defendant’s obligation to the plaintiffs: “[The defendant] has no concern with any

contract the plaintiff may have with any other party in regard to the goods, and his rights

or liabilities can neither be increased nor be diminished by the fact that such a contract

exists. He has no equities, as against the plaintiff, which can entitle him, under any

circumstances, to an assignment of the plaintiff’s policies of insurance.” Id. (emphasis

added) (quoting Perrott v. Shearer, 17 Mich. 48, 56 (1868)).

Ten years later, the Tennessee Supreme Court in Porter excluded evidence of

gratuitous salary payments received by the plaintiff mail carrier when he missed work

because of the defendant’s negligence. Porter, 94 S.W. at 667-68. The defendant in

Porter argued that evidence of the gratuitous payments was relevant to show that, in

effect, the mail carrier did not “miss” work because he received his salary during his

disability. The defendant contended: “[T]he object of the law is to make the plaintiff

whole, and if he has lost nothing in a pecuniary sense, from his disability, he is not

entitled to damages for loss of time [from work].” Id. at 668. The Court in Porter

rejected this contention; it held that evidence of the gratuitous payments to the mail

carrier was not admissible and should not reduce the railroad’s liability. Id. at 669-70.

The Court cited “the well-settled rule that money received on accident insurance policies

by the injured persons does not diminish the amount of recovery against the wrongdoer.”

Id. at 670.

Since Anderson and Porter, the collateral source rule has become a familiar part of

Tennessee jurisprudence. See, e.g., Nance, 750 S.W.2d at 742; Donnell v. Donnell, 415

S.W.2d 127, 134 (Tenn. 1967), abrogated on other grounds by Dupuis v. Hand, 814

S.W.2d 340 (Tenn. 1991); J&M, Inc. v. Cupples, No. E2004-01328-COA-R3-CV, 2005

WL 1190704, at *3 (Tenn. Ct. App. May 20, 2005) (observing that the collateral source

rule “has long been adopted in Tennessee”); Fye, 991 S.W.2d at 763 (noting that “[a]n

injured party’s right to recover his or her ‘reasonable and necessary expenses’ must be

viewed in connection with the collateral source rule”); Steele v. Ft. Sanders Anesthesia

Grp., P.C., 897 S.W.2d 270, 282 (Tenn. Ct. App. 1994) (“The collateral source rule

permits plaintiffs to prove and recover medical expenses, whether paid by insurance or

not.”); Cherry v. McCullough, No. 02A01-9201-CV-00005, 1992 WL 379074, at *6

- 13 -

(Tenn. Ct. App. Dec. 21, 1992) (noting that any payment the plaintiff receives from a

collateral source is not normally “admissible in evidence and does not reduce or mitigate

the defendant’s liability” in tort cases).

The collateral source rule as applied in Tennessee and elsewhere is succinctly

articulated in the widely-cited Section 920A of the Restatement (Second) of Torts:

(1) A payment made by a tortfeasor or by a person acting for him to a

person whom he has injured is credited against his tort liability, as are

payments made by another who is, or believes he is, subject to the same tort

liability.

(2) Payments made to or benefits conferred on the injured party from other

sources are not credited against the tortfeasor’s liability, although they

cover all or a part of the harm for which the tortfeasor is liable.

Restatement (Second) of Torts Restatement (Second) of Torts § 920A (1977) (entitled

“Effect of Payments Made to Injured Party”); see Nance, 750 S.W.2d at 742 (“[B]enefits

received by a plaintiff from a source wholly independent of and collateral to the

tortfeasor, as a result of the injury inflicted, will not diminish the damages otherwise

recoverable from the defendant”); Donnell, 415 S.W.2d at 134 (“Normally, of course, in

an action for damages in tort, the fact that the plaintiff has received payments from a

collateral source, other than the defendant, is not admissible in evidence and does not

reduce or mitigate the defendant’s liability.”); Fye, 991 S.W.2d at 763-64 (specifically

adopting Section 920A as consistent with Tennessee law); see also Holliday v. State,

W2014-02188-COA-R3-CV, 2015 WL 9255343, at *4-5 (Tenn. Ct. App. Dec. 16, 2015)

(applying Section 920A, as adopted in Fye).

As can be seen in Section 920A, the collateral source rule has evolved as both a

substantive rule of law and an evidentiary rule. Substantively, it affects the amount of

damages that may be awarded against a defendant by prohibiting reduction of a plaintiff’s

recovery by benefits from sources unrelated to the tortfeasor. Comment b to section

920A (“Benefits from collateral sources”) explains the policy reasons for the substantive

aspect of the rule:

b. Benefits from collateral sources. Payments made or benefits conferred

by other sources are known as collateral-source benefits. They 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

- 14 -

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. One way of stating this conclusion is to say that it is the

tortfeasor’s responsibility to compensate for all harm that he causes, not

confined to the net loss that the injured party receives. Compare § 924,

Comment c (recovery for harm to earning capacity though plaintiff was on

vacation), § 914A (recovery for damage to earning capacity ordinarily not

reduced by amount of income tax that was not imposed).

Restatement (Second) Torts § 920A cmt. b. Thus, while application of the rule may at

times result in compensation for the plaintiff that exceeds what he spent, collateral

sources intended to benefit the injured party should not be shifted so as to become a

benefit for the tortfeasor. The tortfeasor is held responsible for the harm he caused,

regardless of the “net loss” of the injured party. Id.; see Leitinger v. DBart, Inc., 736

N.W.2d 1, 10 (Wis. 2007) (noting that the purpose of the collateral source rule “is not to

provide the injured person with a windfall, but rather to prevent the tortfeasor from

escaping liability because a collateral source has compensated the injured person”); Id.at

8 (“‘The tortfeasor . . . is not relieved of his obligation to the victim simply because the

victim had the foresight to arrange, or good fortune to receive, benefits from a collateral

source for injuries and expenses.’” (quoting Ellsworth v. Schelbrock, 611 N.W.2d at 764,

767 (Wisc. 2000))). The rule of law is also intended to promote tort deterrence. See

Bozeman, 879 So. 2d at 699. According to the Bozeman Court, “tort deterrence has been

an inherent, inseparable, aspect of the collateral source rule since its inception over one

hundred years ago.” Id.

The evidentiary component of the collateral source rule flows from the rule of law.

If a plaintiff’s recovery may not be reduced by collateral benefits, then “evidence that a

plaintiff has received benefits or payments from a collateral source independent of the

tortfeasor’s procuration or contribution” must be excluded. Bozeman, 879 So. 2d at 699

(noting that “[t]he issue typically arises at trial following the submission of a Motion in

Limine”).

- 15 -

Comment c to Section 920A relates to the evidentiary component of the collateral

source rule. This comment lists the type of benefits precluded by the collateral source

rule: (1) insurance policies, whether maintained by the plaintiff or a third party, (2)

employment benefits, either gratuitous or arising out of contract, (3) gratuities, and (4)

social legislation benefits, such as social security benefits, welfare, and pensions. Id. §

920A cmt. c.7

As most commonly applied, the evidentiary rule bars “any evidence that all or part

of a plaintiff’s losses have been covered by insurance.” Wills, 892 N.E.2d at 1022. One

court has explained that evidence of insurance should not be presented to the jury

“[b]ecause the likelihood of misuse by the jury clearly outweighs the probative value of

evidence of collateral benefits.” Kenney, 760 S.E.2d at 441. “The theory is ‘that the jury

may well reduce the damages based on the amounts that the plaintiff has been shown to

have received from collateral sources.’” Id. (quoting Ratlief v. Yokum, 280 S.E.2d 584,

590 (W. Va. 1981)); Loncar v. Gray, 28 P.3d 928, 933 (Alaska 2001) (“The collateral

source rule exclud[es] evidence of other compensation on the theory that such evidence

7

Comment c to Section 920A states:

c. The rule that collateral benefits are not subtracted from the plaintiff’s recovery applies to the

following types of benefits:

(1). Insurance policies, whether maintained by the plaintiff or a third party. Sometimes,

as in fire insurance or collision automobile insurance, the insurance company is

subrogated to the rights of the third party. This additional reason for keeping the

tortfeasor’s liability alive is not necessary, however, as the rule applies to insurance not

involving subrogation, such as life or health policies.

(2). Employment benefits. These may be gratuitous, as in the case in which the

employer, although not legally required to do so, continues to pay the employee’s wages

during his incapacity. They may also be benefits arising out of the employment contract

or a union contract. They may be benefits arising by statute, as in worker’s compensation

acts or the Federal Employers’ Liability Act. Statutes may subrogate the employer to the

right of the employee, or create a cause of action other than by subrogation.

(3). Gratuities. This 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.

(4). Social legislation benefits. Social security benefits, welfare payments, pensions

under special retirement acts, all are subject to the collateral-source rule.

Restatement (Second) of Torts § 920A cmt. c.

- 16 -

would affect the jury’s judgment unfavorably to the plaintiff on the issues of liability and

damages.” (internal quotations omitted)); Proctor v. Castelletti, 911 P.2d 853, 854 (Nev.

1996) (adopting per se rule barring admission of evidence of a collateral source of

payment for any purpose because “[t]here is an ever-present danger that the jury will

misuse the evidence to diminish the damage award”); Jurgensen v. Smith, 611 N.W.2d

439, 442 (S.D. 2000) (excluding collateral-source evidence “because of the danger that

the jury may be inclined to . . . reduce a damage award, when it learns that plaintiff’s loss

is entirely or partially covered” (internal quotations omitted)).

From its early applications in Tennessee, the collateral source rule has been

applied as both a substantive rule of law and a procedural rule of evidence.8 Porter, 94

S.W. at 668 (applying the rule of evidence in addressing whether the trial court correctly

admitted evidence of the gratuities); Anderson, 33 S.W. at 616 (applying the rule of law

in deciding whether the plaintiff or the insurance company is the proper party to bring

suit); see also Donnell, 415 S.W.2d at 134 (“Normally, of course, in an action for

damages in tort, the fact that the plaintiff has received payments from a collateral source,

other than the defendant, is not admissible in evidence and does not reduce or mitigate

the defendant’s liability.”); J&M, 2005 WL 1190704, at *3 (noting that the collateral

source rule is “a substantive rule of law that bars a tortfeasor from reducing damages

owed to plaintiff by an amount the plaintiff received from sources that are collateral to

the tortfeasor”); Benson, 868 S.W.2d at 640 (“Our courts have held that collateral source

recoveries should not be the subject of a reduction for the defendants in a lawsuit.” (citing

Simpson v. Allied Van Lines, Inc., 612 S.W.2d 172, 177 (Tenn. Ct. App. 1980)).

Although the collateral source rule is firmly embedded as part of American

jurisprudence, a number of states have abrogated the rule to varying degrees. See Bryce

Benjet, A Review of State Law Modifying the Collateral Source Rule: Seeking Greater

Fairness in Economic Damages Awards, 76 Def. Couns. J. 210, 211 (Apr. 2009) (“Of the

fifty States and the District of Columbia, forty-two jurisdictions have enacted and

retained some form of statute that restricts the collateral source rule.”); Paula Hearn

Moore, et al., Applying the Collateral Source Rule to Government Mandated Programs,

15 J. Legal Econ. 31, 45 (April 2009) (“Out of the fifty (50) states, forty-four (44) states

have taken legislative steps to minimize the effects of the collateral source rule.”);

Guillermo Gabriel Zorogastua, Improperly Divorced From its Roots: The Rationales of

the Collateral Source Rule and Their Implications for Medicare and Medicaid Write-

8

Other states have done the same. See, e.g., Wills v. Foster, 892 N.E.2d 1018, 1022 (Ill. 2008);

Bozeman v. State, 879 So. 2d 692, 699 (La. 2004); Leitinger v. DBart, Inc., 736 N.W.2d 1, 7-8 (Wis.

2007); Kenney v. Liston, 760 S.E.2d 434, 441 (W. Va. 2014).

- 17 -

Offs, U. Kan. L. Rev. 463, 463 (Jan. 2007) (“Currently, only twelve states retain the

rule’s immaculate common[-]law form.”).

Tennessee is among the states that have partially abrogated the collateral source

rule in limited circumstances. In 1975, Tennessee’s legislature enacted health care

legislation that partially abrogated the collateral source rule in health care liability

lawsuits. Newton v. Cox, 878 S.W.2d 105, 107 (Tenn. 1998); see Tenn. Code Ann. § 29-

26-119 (2012).9 The purpose of the overall legislation was to contain the cost of medical

malpractice litigation and control the cost of health care. Newton, 878 S.W.2d at 107-08;

see Allied Waste N. Am., Inc. v. Lewis, King, Krieg & Waldrop, P.C., No. 3:13-00254,

2015 WL 1279579, at *12 (M.D. Tenn. Mar. 20, 2015) (noting that Tennessee has made

a statutory exception to the collateral source rule only for medical malpractice cases);

Baker v. Vanderbilt Univ., 616 F. Supp. 330, 332-33 (M.D. Tenn. 1985) (upholding the

constitutionality of Section 29-26-119); Tenn. Op. Atty. Gen. No. 12-58, 2012 WL

2153495, at *1 (“Damages in medical malpractice actions have been limited since 1975

by Tenn. Code Ann. § 29-26-119 which abrogates the collateral source rule.”).

Tennessee courts have also held that the collateral source rule does not apply to workers’

compensation benefits, because applying the rule in such cases “would conflict with

Tenn. Code Ann. § 50-6-204(a)(1) and would require legislative action to implement.”

State Auto. Mut. Ins. Co. v. Hurley, 31 S.W.3d 562, 566 (Tenn. Sp. Workers’ Comp. App.

Panel 2000). The collateral source rule has remained applicable in Tennessee in other

personal injury cases.

Against this backdrop, we review our decision in West and consider its

applicability in personal injury cases.

9

That section of the health care liability statutes provides:

In a health care liability action in which liability is admitted or established, the

damages awarded may include (in addition to other elements of damages authorized by

law) actual economic losses suffered by the claimant by reason of the personal injury,

including, but not limited to, cost of reasonable and necessary medical care, rehabilitation

services, and custodial care, loss of services and loss of earned income, but only to the

extent that such costs are not paid or payable and such losses are not replaced, or

indemnified in whole or in part, by insurance provided by an employer either

governmental or private, by social security benefits, service benefit programs,

unemployment benefits, or any other source except the assets of the claimant or of the

members of the claimant’s immediate family and insurance purchased in whole or in part,

privately and individually.

Tenn. Code Ann. § 29-26-119 (2012).

- 18 -

B. West v. Shelby County Healthcare Corporation

As they did in the lower courts, the Defendants argue that the holding in West

regarding the definition of “reasonable” medical charges was intended to apply directly in

personal injury litigation. This intent was signaled, they contend, by the West Court’s

choice of words, its observation that recovery for medical expenses in personal injury

cases is also limited to expenses that are “reasonable and necessary,” and West’s

approving citation of cases from other jurisdictions holding that a medical provider’s

billing price is not necessarily representative of either the cost of the services or their

value. See West, 459 S.W.3d at 45 (citing cases). For these reasons, the Defendants

maintain that we should apply the West holding to the question of what medical charges

are “reasonable” in personal injury tort litigation.

We begin our discussion of West by briefly describing the general billing practices

of the defendant hospital in that case. The hospital in West, like many (but not all)

medical providers,10 engaged in the common practice of billing patients for medical

services at full, undiscounted rates and then accepting a discounted amount from the

patient’s private insurance company.11 West, 459 S.W.3d at 37; see id. (noting that the

hospital has “two versions of its costs,” one for the patient and one for the patient’s

insurance company). The difference between the full bill and the discounted amount is

generally referred to as the “negotiated rate differential,” or sometimes informally as a

“write-off.” See Lori A. Roberts, Rhetoric, Reality, and the Wrongful Abrogation of the

Collateral Source Rule in Personal Injury Cases, 31 Rev. Litig. 99, passim (Winter 2012)

(referring to the difference variously as either “negotiated rate differential” or “write-

off”); compare Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1140 (Cal.

2011) (refusing to call the “negotiated rate differential” a “write-off” because the amount

is not gratuitous), with Kenney, 760 S.E.2d at 438 (referring to the difference as

“discounts or write-offs”).

10

As discussed below, any generalization about our health care system must be accompanied by

disclaimers regarding the numerous exceptions. Here, we recognize that many medical providers accept

only certain insurance carriers and that some choose not to accept insurance at all. In West, the defendant

hospital accepted the insurance of both of the plaintiff patients and received payment from those

insurance companies at negotiated, discounted rates. West, 459 S.W.3d at 38-39.

11

The West Court specified that “[n]othing in [the] opinion should be construed to apply to

hospital liens filed against patients who are TennCare enrollees.” West, 459 S.W.3d at 39 n.2.

- 19 -

West arose under the Tennessee Hospital Lien Act (HLA), Tennessee Code

Annotated section 29-22-101 to –107 (2012). West, 459 S.W.3d at 37. The HLA is

implicated when a hospital provides treatment to a patient who was injured by someone

else’s negligence. In that situation, the HLA provides that the hospital “shall have a lien”

on the patient’s tort claim in the amount of “all reasonable and necessary charges for

hospital care, treatment[,] and maintenance” of the patient.12 Tenn. Code Ann. § 29-22-

101(a). As a matter of practice, the hospital in West pursued recovery of a patient’s full,

undiscounted hospital bill from the third-party tortfeasor, even if insurance covered its

bills at a discounted rate. West, 459 S.W.3d at 37. After the patient’s insurer paid the

hospital at the discounted rate, the hospital did not release its lien; it continued its efforts

to recover the full bill from the third-party tortfeasor. Id. at 37-38. If the hospital

recovered the amount of the full, undiscounted bill from the tortfeasor, it would

reimburse the discounted amount to the insurance company and retain the negotiated rate

differential. Only then would the hospital release its statutory lien. Id. at 38.

The plaintiffs in West were two hospital patients whose injuries were caused by

someone else’s negligence. In accordance with the above-described practice, the hospital

asserted a lien under the HLA for the full, undiscounted amount of the plaintiffs’ hospital

bills. Id. at 38-39. The plaintiffs sued the hospital, seeking to quash the lien and recover

damages. They argued that the hospital’s standard practice amounted to unlawful

12

Tennessee Code Annotated section 29-22-101 provides in relevant part:

(a) Every person, firm, association, corporation, institution, or any governmental

unit, including the state of Tennessee, any county or municipalities operating and

maintaining a hospital in this state, shall have a lien for all reasonable and necessary

charges for hospital care, treatment and maintenance of ill or injured persons upon any

and all causes of action, suits, claims, counterclaims or demands accruing to the person to

whom such care, treatment or maintenance was furnished, or accruing to the legal

representatives of such person in the case of such person’s death, on account of illness or

injuries giving rise to such causes of action or claims and which necessitated such

hospital care, treatment and maintenance.

(b) The hospital lien, however, shall not apply to any amount in excess of one

third (⅓) of the damages obtained or recovered by such person by judgment, settlement

or compromise rendered or entered into by such person or such person’s legal

representative by virtue of the cause of action accruing thereto.

Tenn. Code Ann. § 29-22-101(a), (b) (emphasis added).

- 20 -

“balance billing”13 in that the hospital was “receiving payment from its patients’

insurance companies while, at the same time, perfecting a hospital lien for the full,

unadjusted amount of the cost of the medical services provided.” Id. at 39.

At the outset of its analysis, the Court stated: “This appeal requires us to interpret

and apply the statutes governing hospital liens.” Id. at 41. To resolve the issue on

appeal, the Court said, it would address three matters: “First, . . . the general nature of

statutory liens. Second, . . . the . . . purpose of the liens authorized by the HLA. Finally,

we will construe the provisions of the HLA that are relevant to this dispute, and then

apply these provisions to the facts of this case.” Id. at 42. Thus, West clearly described

its analysis as an interpretation of the HLA.

After reviewing the nature of statutory liens and the background of the HLA, West

stated the premise for its interpretation of the HLA. Although “the HLA serves the same

purpose as health insurance,” the Court observed, “a debt owed by a patient to a hospital

is the foundation of a lien under the HLA. Thus, the lien can exist only as long as the

patient owes a debt to the hospital.” Id. at 43 (emphasis added). In other words, the

Court held that the “reasonable charges” under the HLA could not exceed what the

patient was required to actually pay the hospital. Id.

Based on this premise, West characterized the issue before it. Under Section 29-

22-101(a), an HLA lien is for the hospital’s “reasonable and necessary charges.” In light

of its discussion of liens and the purpose of the HLA, the West Court framed the issue on

appeal as whether “reasonable charges” under Section 29-22-101(a) are (1) the hospital’s

full, undiscounted bills, or (2) the discounted amount paid by the patients’ private

insurance. Id. at 43-44. Choosing between the two, West ultimately held that

“reasonable charges” for purposes of the HLA are the discounted amounts that a hospital

agrees to accept from the patient’s private insurer. Id. at 45-46.

13

The Court in West explained that “‘[b]alance billing’ commonly refers to the practice by which

a health care provider bills a patient for the balance of its charges or fees over and above the amount that

the insurance company has agreed to pay as a reasonable charge.” West, 459 S.W.3d at 39 n.4 (citing

Carolyn R. Cody, Professional Licenses and Substantive Due Process: Can States Compel Physicians to

Provide Their Service?, 22 Wm. & Mary Bill Rts. J. 941, 954 (2014)); see also River Park Hosp., Inc. v.

BlueCross BlueShield of Tenn., Inc., 173 S.W.3d 43, 55-56 (Tenn. Ct. App. 2002) (referring to balance

billing as “the practice of the [medical] provider billing the [TennCare managed care organization]

enrollee for any amount charged by the provider but not paid by” the managed care organization and

noting that Tenn.Code Ann. § 56-32-205(c) “requires that TennCare provider contracts include a clause

prohibiting billing the [TennCare managed care organization] enrollee for anything except ‘reasonable

copayment and uncovered expenses.’”).

- 21 -

The Court in West gave two reasons for its conclusion. First, the Court observed,

the amount of the hospital’s full, undiscounted “charges is unreasonable because it does

not ‘reflect what is [actually] being paid in the market place.’ Because ‘virtually no

public or private insurer actually pays full charges[,] . . . [a] more realistic standard is

what insurers actually pay and what the hospitals [are] willing to accept.’” Id. at 44-45

(quoting What’s the Cost?: Proposals to Provide Consumers with Better Information

about Healthcare Service Costs: Hearing Before the Subcomm. on Health of the House

Comm. on Energy and Commerce, 109th Cong. 99 (2006) (statement of Dr. Gerard

Anderson, Professor, Bloomberg School of Public Health & School of Medicine at Johns

Hopkins University; Director, Johns Hopkins Center for Hospital Finance and

Management)). The Court also cited the hospital’s agreement with the patients’ private

insurers to accept the discounted charges as full payment. For these reasons, the Court

held, “with regard to an insurance company’s customers, ‘reasonable charges’ [under the

HLA] are the charges agreed to by the insurance company and the hospital,” i.e., the

discounted amounts actually accepted by the hospital as defined in its contract with the

patient’s private insurance company. Id. at 44-46.

In sum, West began with the postulate that the HLA lien “can exist only as long as

the patient owes a debt to the hospital.” Id. at 43. West then stated the question of

statutory interpretation as a choice between two options, the full, undiscounted bill sent to

the patient or the discounted bill paid by the insurer. Once the question was framed in

this manner, given the hospital’s agreement not to pursue the patient for the negotiated

rate differential, the choice between the two options became inevitable. Thus, West held

that the hospital had no authority “to maintain its lien after the patients’ insurance

company paid the adjusted bill.” Id. at 37.

As noted by the Court of Appeals below, West specifically limited its holding to

application of the HLA. See Dedmon, 2016 WL 3219070, at *9 (noting that West was

specifically limited in application “for the purpose of Tenn. Code Ann. § 29-22-101(a)”

(quoting West, 459 S.W.3d at 44)); see also West, 459 S.W.3d at 39 n.2 (“Nothing in

[the] opinion should be construed to apply to hospital liens filed against patients who are

TennCare enrollees.”). The collateral source rule was not argued or even mentioned in

West.

Despite these disclaimers, overly broad language in West—to the effect that full,

undiscounted medical bills are not “reasonable charges” for purposes of the HLA—

spawned some confusion. Some courts surmised that this Court would hold the same

with respect to “reasonable medical expenses” recoverable in generic personal injury

- 22 -

cases.14 These courts held that the discounted medical bills accepted by the plaintiffs’

medical providers were, as a matter of law, the reasonable medical expenses, and they

excluded evidence of the patients’ full, undiscounted medical bills.15 Noting that West

cited the California Supreme Court’s decision in Howell v. Hamilton Meats & Provisions,

Inc., 257 P.3d 1130, 1133 (Cal. 2011), many of those courts followed the reasoning in

Howell, in which the California Court held that, although “[t]he collateral-source rule

precludes certain deductions against otherwise recoverable damages,” it “does not expand

the scope of economic damages to include expenses the plaintiff never incurred.”16

Howell, 257 P.3d at 1133.

Other courts recognized that the West holding was limited to application of the

HLA and held that the collateral source rule prevents the admission into evidence of

insurance benefits in personal injury cases.17 Like the Court of Appeals below, those

courts identified differences between HLA cases and personal injury cases, and they held

that the collateral source rule applied to prevent the admission into evidence of insurance

benefits in personal injury cases.18

14

At least six Tennessee federal district courts—and the trial court in this case—came to this

conclusion. Pacheco v. Johnson, No. 3:11-cv-00221; 2017 WL 3188429, at *3 (M.D. Tenn. July 27,

2017); Cone v. Hankook Tire Co., No. 14-1122, 2017 WL 401795, at *5-6 (W.D. Tenn. Jan. 25, 2017);

Johnson v. Trans-Carriers, Inc., No. 2:15-cv-2533-STA-dkv, 2017 WL 28004, at *2 (W.D. Tenn. Jan. 3,

2017); Smith v. Lopez-Miranda, 165 F. Supp. 3d 689, 691 (W.D. Tenn. 2016); Hall v. USF Holland, Inc.,

152 F. Supp. 3d 1037, 1040 (W.D. Tenn. Jan. 12, 2016); Keltner v. United States, No. 2:13-cv-2840-

STA-dkv, 2015 WL 3688461, at *4 (W.D. Tenn. June 12, 2015).

15

See Pacheco, 2017 WL 3188429, at *3 (relying on West and rejecting the Court of Appeals

decision below); Cone, 2017 WL 401795, at *6 (same); Johnson, 2017 WL 28004, at *2-3 (same); Smith,

165 F. Supp. 3d at 692 (reasoning that the decision does not conflict with the collateral source rule); Hall,

152 F. Supp. 3d at 1040 (same); Keltner, 2015 WL 3688461, at *4 (same).

16

See Johnson, 2017 WL 28004, at *2 & nn.14, 15 (quoting Keltner, 2015 WL 3688461, at *4,

which quoted Howell, 257 P.3d at 1133); Smith, 165 F. Supp. 3d at 693 (same); Hall, 152 F. Supp. 3d at

1040 & n.4 (same, and finding significant that the West Court cited Howell in its analysis, 459 S.W.3d at

45); Keltner, 2015 WL 3688461, at *4 (finding the reasoning in Howell persuasive).

17

See Barnes v. Malinak, No. 3:15-cv-556, 2017 WL 3687320, at *2 (E.D. Tenn. Aug. 25, 2017)

(relying on the Court of Appeals decision below); Boettcher v. Shelter Mutual, No. 2:14-cv-02796-JPM-

dkv, 2016 WL 3212184, at *3 (W.D. Tenn. June 8, 2016) (same); Ryans v. Koch Foods, LLC, No. 1:13-

cv-234-SKL, 2015 WL 11108908, at *1-2 (E.D. Tenn. Aug. 5, 2015).

18

Barnes, 2017 WL 3687320, at *1 (“Evidence that some medical charges were written off, then,

is squarely barred by the collateral-source rule.”); Boettcher, 2016 WL 3212184, at *3 (noting that “[t]he

Keltner, Hall, and Smith decisions did not consider, however, the presumption of reasonableness that

- 23 -

We now clarify that our holding in West was not intended to apply in personal

injury cases. West was intended only to construe the phrase “reasonable charges” in the

context of determining the maximum amount of a hospital’s HLA lien. Certainly there is

some overlap in that the word “reasonable” is used in connection with the valuation of

medical expenses in many types of cases, such as those based on work-related injuries,

medical malpractice injuries, and generic personal injuries. West, 459 S.W.3d at 44.

However, those types of claims involve different public policies than the policies

underlying the HLA, and they are governed by different statutory schemes and common-

law rules. See, e.g., id. (noting that the presumption in Section 24-5-113(a) does not

apply in the HLA case because the statute applies only to personal injury actions);

Hurley, 31 S.W.3d at 566 (noting the “inherent differences between a tort claim for

personal injury and a claim for workers’ compensation benefits”). West interpreted the

HLA in a manner consistent with the Legislature’s intent and purpose for that statute.

West, 459 S.W.3d at 41 (noting that the HLA must be construed in a manner that would

not “frustrate the General Assembly’s purpose in creating the lien”). Application of the

West holding to personal injury cases would transform what would be a factual finding on

damages into a legal holding by the court. See Dedmon, 2016 WL 3219070, at *10

(“Defendants’ proposed expansion of West would create a new system that allows the

amount accepted by medical providers in satisfaction of the bills to be deemed reasonable

as a matter of law.”). West posed the question under the HLA as deciding between two

choices—either the full bills or the discounted amounts accepted by the hospital—and

ultimately decided that the discounted amounts paid by the insurance company were the

maximum “reasonable charges” under Section 29-22-101(a) as a matter of law. West,

459 S.W.3d at 44 (“[W]e must decide which version of the [hospital’s] costs is the

reasonable cost for the purpose of Tenn. Code Ann. § 29-22-101(a).”). In contrast, in

personal injury cases, the value of a plaintiff’s “reasonable medical expenses” is a fact

question to be decided by the trier of fact, based on the evidence submitted by both

parties. See Meals, 417 S.W.3d at 419 (“We entrust the responsibility of resolving

questions of disputed fact, including the assessment of damages, to the jury.”); Coakley v.

Daniels, 840 S.W.2d 367, 372 (Tenn. Ct. App. 1992) (“The amount allowable as

compensation for personal injuries are not measured by fixed rules of law, but rest largely

in the discretion of the trier of fact . . . .”).

arises under the procedure of [S]ection 24-5-113(b)”); Ryans, 2015 WL 11108908, at *1-2 (“The Court is

not persuaded that the Tennessee Supreme Court intended its decision in West to alter or abolish

Tennessee’s longstanding collateral source rule as articulated in Fye [v. Kennedy, 991 S.W.2d 754 (Tenn.

Ct. App. 1998)].”).

- 24 -

Importantly, as noted by the Court of Appeals below, the collateral source rule and

the presumption statute (Section 24-5-113) are both applicable in personal injury cases.

Neither was implicated in our analysis in West.

For all of these reasons, our holding in West is not directly applicable in personal

injury cases. We reject the Defendants’ argument that West created a new legal standard

for defining “reasonable medical charges” in personal injury cases.

C. Full Bills vs. Discounted Insurance Payments

In the alternative, even if West is not directly applicable in personal injury cases,

the Defendants argue that concepts from West should nevertheless be applied here. The

Defendants and Amicus Tennessee Defense Lawyers Association ask this Court to take

the opportunity to recognize the realities of our current health care system, particularly

the growing disparity between what medical providers charge for their services and what

they will accept. In light of this changed environment, they urge the Court to adopt the

law in jurisdictions that have chosen to limit the recovery of personal injury plaintiffs to

the discounted amounts medical providers accept from insurers in payment for medical

services. See Dedmon, 2016 WL 3219070, at *10 (recognizing the breadth of the

Defendants’ argument). That is, the Defendants argue that plaintiffs’ recovery of

“reasonable medical expenses” in personal injury cases should be limited to the

discounted amounts accepted by medical providers. They contend that the collateral

source rule does not apply and so it does not preclude such a holding.

As outlined above, the collateral source rule has been the law in Tennessee since

1896. See Anderson, 33 S.W. at 617. The rule has served important public policies,

namely, that a tortfeasor’s responsibility is to compensate for all the harm he causes, not

limited to the net loss that the injured party receives, and that a benefit directed to the

injured party should not become a windfall for the tortfeasor. Nevertheless, we recognize

that the law must change “when necessary to serve the needs of the people.” Powell v.

Hartford Accident & Indem. Co., 398 S.W.2d 727, 732 (Tenn. 1966). “Where the reason

fails the rule should not apply.” Brown v. Selby, 332 S.W.2d 166, 169 (Tenn. 1960). We

will consider the Defendants’ arguments in light of these principles.

We agree with the Defendants and the Amicus Tennessee Defense Lawyers

Association that health care has undergone tremendous changes since Tennessee adopted

the collateral source rule. During that time, the types of collateral benefits potentially

- 25 -

available to plaintiffs have multiplied. In addition to the insurance and gratuitous

payments that were the subject of Anderson and Porter, in the current environment,

plaintiffs in personal injury cases may have received benefits from unions, Social

Security, TennCare, Medicaid, Medicare or other social legislation. They may have

received treatment free at a veterans’ facility or at a reduced rate at a charity-affiliated

provider. See Restatement (Second) of Torts § 920A cmt. c. All of these sources would

qualify as collateral benefits potentially subject to the collateral source rule.

During this same period since adoption of the rule, the pricing, payment, and

reimbursement system for health care providers has become exponentially more complex.

“The rise of managed care organizations” has distorted pricing for health care services, as

the deep discounts demanded by the MCOs require providers to offset those discounts by

charging higher prices to other patients. Howell v. Hamilton Meats & Provisions, Inc.,

257 P.3d 1130, 1141 (Cal. 2011). Some social legislation benefits eschew the traditional

fee-for-service model in favor of pool payments or a set “capitation” amount for all

treatment of a single patient. River Park Hosp., Inc. v. BlueCross BlueShield of Tenn.,

Inc., 173 S.W.3d 43, 48 (Tenn. Ct. App. 2002). Hospitals are often legally required to

provide treatment for patients who either are insured by companies with whom the

hospital has no contractual relationship or who have no insurance at all. See

Chattanooga-Hamilton Cty. Hosp. Auth. v. United Healthcare Plan of the River Valley,

Inc., 475 S.W.3d 746, 750 (Tenn. 2015) (referencing federal statutes prohibiting “patient

dumping”); River Park Hosp., 173 S.W.3d at 48 (referencing same federal statute). In

all, providers are “faced with competing objectives of balancing budgets, remaining

competitive, complying with health care and regulatory standards, and continuing to offer

needed services to the community.” Howell, 257 P.3d at 1141 (quoting a 2005 study of

hospital cost setting conducted for the Medicare Payment Advisory Commission). In this

complicated environment, charges by hospitals have come to be “set within the context of

hospitals’ broader communities, including their competitors, payers, regulators, and

customers.” Id.; see also River Park Hosp., 173 S.W.3d at 48. Funding the required

treatment of patients without the means to fully pay for care “depends on the ability of

providers to disproportionately charge various patient categories.” Christopher W.

Blaylock, The Vital Role of the Collateral Source Rule in United States Healthcare

Financing, 36 U. La Verne L. Rev. 1, 14 (2014).

Of significance in this appeal, one result of the increasing complexity of health

care has been a widening of the gap between a medical provider’s standard rate charged

to uninsured patients and the amounts accepted from insurance or social legislation

benefits. See e.g., West, 459 S.W.3d at 37 (noting that medical providers have “two

versions of [their] costs”); River Park Hosp., 173 S.W.3d at 49 (out-of-network provider

- 26 -

insisted on insurance company paying “standard” rates for patients it was required to treat

while insurance company insisted on paying much lower “in-network” rates); Fye, 991

S.W.2d at 762 (medical providers accepted approximately 10% of undiscounted hospital

bill from Medicaid as full payment).

As observed by the Court of Appeals below, all of these developments have

caused “the issue of what constitutes a reasonable medical charge or expense [to become]

the subject of increased litigation due to the increased involvement of government

payors, the complexity of health care reimbursement provisions, financial pressures on

hospitals, and the significance of medical expense recovery in personal injury litigation.”

Dedmon, 2016 WL 3219070, at *5 (citing Michael K. Beard & Dylan H. Marsh,

Arbitrary Healthcare Pricing & the Misuse of Hospital Lien Statutes by Healthcare

Providers, 38 Am. J. Trial Advoc. 255, 272-73 (2014)). Courts across the country have

struggled to understand health care systems and to facilitate personal injury damage

awards that are fair to both plaintiff and defendant.19 See, e.g., Stanley v. Walker, 906

N.E.2d 852, 857 (Ind. 2009) (noting that the complexities of health care make it difficult

to determine the reasonable value of medical services).

Even though “the collateral source rule has been firmly entrenched in the

American jurisprudence of the law of damages for over a century,” see Nora J. Pasman-

Green & Ronald D. Richards, Jr., Who Is Winning the Collateral Source War? The

Battleground in the Sixth Circuit States, 31 U. Tol. L. Rev. at 425 (Spring 2000), the

changed circumstances in health care have prompted reconsideration of the rule in many

jurisdictions. As background for our analysis, we will review the approaches taken in

other jurisdictions. The decisions in other jurisdictions are sometimes dictated by statute,

sometimes developed through a combination of statute and the common law, and

sometimes developed solely through the common law. Some jurisdictions do not have a

clear view, and others have taken inconsistent approaches depending on the facts

involved or the court rendering the decision. In any event, a review of the national

landscape will lend perspective to our analysis of the issues presented in this appeal.

19

Much of the information upon which courts have relied to describe the complexities of our

health care system and the disparity between full bills and discounted payments has come from

commentators. See Stanley, 906 N.E.2d at 863 n.3 (Dickson, J., dissenting) (noting that the majority, the

concurrence, and the dissent all relied on sources outside the record in their analysis). From our review,

most commentary appears written to further an agenda, on both ends of the spectrum, and it is a challenge

for courts to find neutral information.

- 27 -

We first recognize the impact of legislation in this arena. From our review, state

statutes regarding the collateral source rule lack any uniformity whatsoever. As noted

above, a number of states have abrogated the collateral source rule to some degree by

statute,20 usually as a part of broader tort reform legislation.21 Some statutes specify that

the rule is to remain intact for some purposes but not for other purposes.22 Other statutes

allow plaintiffs to submit full, undiscounted bills to prove their reasonable medical

expenses but permit the trial court to reduce the jury’s verdict after trial based on

amounts the plaintiff received from collateral sources.23 Some statutes are interpreted as

20

Courts in at least two of those states have held statutes abrogating the collateral source rule to

be unconstitutional, a violation of the separation of powers doctrine. See, e.g., Johnson v. Rockwell

Automation, Inc., 308 S.W.3d 135, 142 (Ark. 2009) (holding an Arkansas statute unconstitutional when it

restricted evidence of damages to discounted amounts because rules of evidence are within the province

of the courts); O’Bryan v. Hedgespeth, 892 S.W.2d 571, 576 (Ky. 1995) (“Responsibility for deciding

when evidence is relevant to an issue of fact which must be judicially determined, such as the medical

expenses incurred for treatment of personal injuries, falls squarely within the parameters of “practice and

procedure” assigned to the judicial branch by the separation of powers doctrine and [the Kentucky

Constitution].”); see also Denton v. Con-Way S. Exp., Inc., 402 S.E.2d 269, 272 (Ga. 1991) (holding

Georgia’s collateral-source statute violated various provisions of the Georgia Constitution), abrogated on

other grounds by Grissom v. Gleason, 418 S.E.2d 27 (Ga. 1992).

21

Texas enacted its collateral-source statute “as part of a wide-ranging package of tort-reform

measures.” Haygood v. DeEscabedo, 356 S.W.3d 390, 391 (Tex. 2011) (citing Tex. Civ. Prac. & Rem.

Code § 41.0105). It limits a plaintiff’s recovery to the discounted amounts paid by insurance as a matter

of law. Id. at 396 (“[W]e hold that the common-law collateral source rule does not allow recovery as

damages of medical expenses a health care provider is not entitled to charge.”); see also Mo. Rev. Stat. §

490.715 (2016) (stating that the plaintiff may only introduce evidence of “actual cost” paid for services);

Okla. Stat. tit. 12 § 3009.1 (2011 & Supp. 2016) (limiting recovering to actual amount paid for medical

services).

22

North Dakota has abrogated the collateral source rule for some collateral-source benefits, but it

applies a “private insurance” exception in order “to encourage people to secure personal insurance.”

Dewitz v. Emery, 508 N.W.2d 334, 340 (N.D. 1993) (discussing N.D. Cent. Code § 32-03.2-06); see also

White v. Jubitz Corp., 219 P.3d 566, 579-80 (Or. 2009) (applying Or. Rev. Stat. § 31.580, which

generally adheres to the collateral source rule as stated in the Restatement (Second) of Torts § 920A, but

allows a post-trial reduction of damages in some situations). Like Tennessee, some states have abrogated

the collateral source rule to some extent in health care liability legislation. See, e.g., Ariz. Rev. Stat. Ann.

§ 12-565 (2016); Me. Rev. Stat. tit. 24 § 2906 (2016); Md. Code Ann. Cts. & Jud. Proc. § 10-104

(LexisNexis 2013 & Supp. 2017); Wis. Stat. § 893.55(7) (2015-16); W. Va. Code Ann. § 55-7B-9a

(LexisNexis 2016); Utah Code Ann. § 78B-3-405 (2012).

23

Colorado and Idaho permit the trial court to reduce the plaintiff’s verdict after trial. See Colo.

Rev. Stat. § 13-21-111.6 (2017); Idaho Code Ann. § 6-1606 (2010 & Supp. 2017). Other state statutes do

the same, but they also permit the plaintiff to submit proof of amounts they may have paid for the

- 28 -

supporting a so-called “hybrid” method; they allow the jury to consider evidence of both

the plaintiff’s full, undiscounted bills and also the discounted amounts in order to assess

the reasonableness of the plaintiff’s medical expenses.24

In this appeal, we are asked to modify Tennessee’s common law regarding the

collateral source rule.25 Consequently, we focus our review on courts that have addressed

the collateral source rule based on the common law.

Under the common law, courts in other jurisdictions have developed a variety of

approaches to the role of the collateral source rule in awarding damages in personal

injury lawsuits. These approaches have been grouped into three categories: (1) actual

amount paid, (2) benefit of the bargain, and (3) reasonable value. See, e.g., Stayton v.

Del. Health Corp., 117 A.3d 521, 527 (Del. 2015); Wills, 892 N.E.2d at 1025; Bozeman,

879 So. 2d at 701. We will discuss each approach.

A minority of courts follow the “actual amount paid” approach urged by the

Defendants in this appeal. The “actual amount paid” approach limits a plaintiff’s

recovery to the amount actually paid to the medical provider, either by insurance or

otherwise. See Wills, 892 N.E.2d 1018, 1025-26. Courts following this approach

generally seek to avoid allowing plaintiffs any so-called “windfall” from tortfeasors. Id.

They take the position that limiting plaintiffs’ recovery to the amount paid to the medical

insurance, i.e., premiums. Alaska Stat. § 09.17.070 (2016); Conn. Gen. Stat. § 52-225a (2017); Fla. Stat.

§ 768.76 (2017), Mich. Comp. Laws Ann. § 600.6303 (West 2000 & Supp. 2017); Minn. Stat. § 548.251

(2016); Neb. Rev. Stat. § 44-2819 (2010); N.J. Stat. Ann. § 2A:15-97 (2000), abrogated on other

grounds, Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir. 2005); N.Y. C.P.L.R. 4545

(McKinney 2007 & Supp. 2017).

24

Indiana statutes support the “hybrid” method. See Stanley v. Walker, 906 N.E.2d 852, 856-57

(Ind. 2009) (interpreting Ind. Code § 34-44-1-2); see also Crocker v. Grammer, 87 So. 3d 1190 (Ala.

2011) (interpreting Ala. Code. 1975 § 12-21-45); Jaques v. Manton, 928 N.E.2d 434, 438 (Ohio 2010)

(interpreting Ohio Rev. Code Ann. § 2315.20). Iowa’s statute allows a plaintiff to seek recovery of his

full, undiscounted medical bills, provided that they are supported by expert testimony, but it also allows

evidence of discounted amounts to rebut the plaintiff’s expert testimony on the reasonableness of those

bills. See Pexa v. Auto Owners Ins. Co., 686 N.W.2d 150, 156 (Iowa 2004) (interpreting Iowa Code §

668.14 (1999)).

25

As we have indicated, Tennessee has abrogated the collateral source rule through legislation

only in health care liability cases and workers’ compensation cases, neither of which is at issue in this

appeal. See Tenn. Code Ann. § 29-26-119 (health care liability); Hurley, 31 S.W.3d at 566 (workers’

compensation).

- 29 -

provider is not contrary to the collateral source rule because the rule is not implicated.

When insurance payments are used to compensate the plaintiff’s medical providers, they

reason, limiting the plaintiff’s recovery to only the amount actually paid by the insurance

company to the medical provider simply permits the plaintiff to recover no more than he

has expended.

The leading case on the “actual amount paid” approach is Howell v. Hamilton

Meats & Provisions, Inc., 257 P.3d 1130 (Cal. 2011), which was cited in West.

According to the view expressed in Howell, the negotiated rate differential is not an

expense “incurred” by the plaintiff, because neither the plaintiff nor the plaintiff’s insurer

will be expected to pay it. The differential is not an insurance benefit to the plaintiff; it is

instead a benefit to the insurer that results from the insurer’s negotiations with medical

providers:

[P]laintiff did not incur liability for her providers’ full bills, because at the

time the charges were incurred the providers had already agreed on a

different price schedule . . . . Having never incurred the full bill, plaintiff

could not recover it in damages for economic loss. For this reason alone,

the collateral source rule would be inapplicable. The rule provides that “if

an injured party receives some compensation for his injuries from a source

wholly independent of the tortfeasor, such payment should not be deducted

from the damages which the plaintiff would otherwise collect from the

tortfeasor.” The rule does not speak to losses or liabilities the plaintiff did

not incur and would not otherwise be entitled to recover. . . .

The negotiated rate differential lies outside the operation of the collateral

source rule also because it is not primarily a benefit to the plaintiff and, to

the extent that it does benefit the plaintiff, it is not provided as

“compensation for [the plaintiff’s] injuries.” Insurers and medical

providers negotiate rates in pursuit of their own business interests, and the

benefits of the bargains made accrue directly to the negotiating parties. The

primary benefit of discounted rates for medical care goes to the payer of

those rates—that is, in largest part, to the insurer.

Id. at 1143-44 (citations omitted). Howell indicated, with little explanation, that the

Court would not follow the same approach in cases where a plaintiff received donated

medical services or the benefit of charitable aid. Id. at 1140. It did not address cases

involving other benefits, such as social legislation benefits (e.g., veterans’ benefits), or

those in which the medical debt was written off because the uninsured plaintiff was

- 30 -

unable to pay. The Howell Court shrugged off the fact that, under its ruling, “[a]

tortfeasor who injures a member of a managed care organization may pay less in

compensation for medical expenses than one who inflicts the same injury on an uninsured

person treated at a hospital,” commenting only that “[f]ortuity is a fact in life and

litigation.” Id. at 1145 (quoting the defendant’s position).

Few other courts have chosen to follow this approach. Where they have, the result

is often dictated to some extent by statute. See Dyet v. McKinley, 81 P.3d 1236 (Idaho

2003) (holding that Medicare write-offs are not a collateral source and cannot be

recovered), abrogated on other grounds by Verska v. Saint Alphonsus Reg’l Med. Ctr., 81

P.3d 1236, 1238-39 (Idaho 2011); Haygood v. DeEscabedo, 356 S.W.3d 390, 395 (Tex.

2011) (same, and holding “that the common-law collateral source rule does not allow

recovery as damages of medical expenses a health care provider is not entitled to

charge”); Moorhead v. Crozer Chester Med. Ctr., 765 A.2d 786, 791 (Pa. 2001) (same,

and holding that the collateral source rule does not apply to the “illusory” part of the

medical bill), abrogated on other grounds in Northbrook Life Ins. Co. v. Commonwealth,

949 A.2d 333, 337 (Pa. 2008).

The “actual amount paid” approach as articulated in Howell has been the subject

of criticism. The Howell reasoning—that the collateral source rule is inapplicable to

third-party payment of the plaintiff’s medical debts but is still in force for third-party

forgiveness of the same debt—has been called “schizophrenic” and “incoherent.”

McConnell v. Wal-Mart Stores, Inc., 995 F. Supp. 2d 1164, 1170-71 (D. Nev. 2014). It is

also criticized because of the disparity that results in cases where the victim is insured as

opposed to those where the victim is uninsured. As acknowledged by the Court in

Howell, the tortfeasor’s liability is reduced when the victim is prudent and buys

insurance, but it is increased when the victim has no insurance. See Bozeman, 879 So. 2d

at 703. As one court noted, reducing an insured plaintiff’s recovery by the negotiated

rate differential “overlooks the fundamental purpose of the [collateral source] rule, . . . to

prevent a tortfeasor from deriving any benefit from compensation or indemnity that an

injured party has received from a collateral source.” Acuar v. Letourneau, 531 S.E.2d

316, 322 (Va. 2000).

The next approach, the “benefit-of-the-bargain” approach, permits recovery of

full, undiscounted medical bills, including the negotiated rate differential, only where the

plaintiff paid consideration for the insurance benefits. Id. at 322-23. Under this

approach, when the plaintiff is privately insured, the negotiated rate differential is

considered to be “as much of a benefit for which [the plaintiff] paid consideration as are

the actual cash payments made by his health insurance carrier to the health care

- 31 -

providers.” Id. at 322. However, courts that follow this approach do not allow plaintiffs

to recover the amount of their full bills if they did not pay for the benefit of discounted

rates and write-offs. Id.; see Bozeman, 879 So. 2d at 705 (allowing a plaintiff to recover

only what Medicaid paid “because no consideration [was] provided for the benefit”);

Stayton v. Del. Health Corp., 117 A.3d 521, 531 (Del. 2015) (holding that the collateral

source rule does not apply to write-offs for Medicare patients, although it does in other

cases). The “benefit of the bargain” approach seeks to encourage the purchase of

insurance and reward those who exercise prudence and pay for an insurance policy. See

Helfend v. S. Cal. Rapid Transit Dist., 465 P.2d 61, 66 (Cal. 1970).

The “benefit of the bargain” approach has been criticized as protecting the rich

and hurting the poor, since persons who have the ability to pay for insurance are the only

personal injury plaintiffs who may recover the negotiated rate differential. Stated another

way, this approach promotes “inherent discrimination among beneficiaries from different

programs and insurance companies.” Zorogastua, 55 U. Kan. L. Rev. at 492. Another

criticism of the “benefit of the bargain” approach is that it “undermines the collateral

source rule by using the plaintiff’s relationship with a third party to measure the

tortfeasor’s liability.”26 Wills, 892 N.E.2d at 1027; see also Leitinger, 736 N.W.2d at 10

(“The collateral source rule ensures that the liability of similarly situated defendants is

not dependent on the relative fortuity of the manner in which each plaintiff’s medical

expenses are financed.”).

The third general approach may be called the “reasonable value” approach, with a

proviso that courts have defined “reasonable value” in different ways. Under the

reasonable value approach, plaintiffs may recover the “reasonable value” of their medical

expenses, regardless of whether the plaintiff is privately insured. As explained below, of

the courts that use the “reasonable value” approach, a minority defines “reasonable

value” as the actual amount paid, while a majority holds that the “reasonable value” can

be the plaintiff’s full, undiscounted medical bills. A few courts use a “hybrid” method,

allowing the trier of fact to consider both the actual amount paid and the full bill in

determining the “reasonable value” of medical services provided to the plaintiff. Id. at

1027-28.

26

The “benefit of the bargain” approach is contrary to language in Section 920A of the

Restatement (Second) of Torts stating that “there is no reason to differentiate between a payment from a

collateral source and a gratuity from a collateral source.”

- 32 -

The few courts that define “reasonable value” as the amount accepted by medical

providers have generally used reasoning based on comment h to Section 911 of the

Restatement (Second) of Torts, which focuses on the exchange value of property or

services,27 instead of Section 920A (collateral source rule). Id. at 1027; see Bynum v.

Magno, 101 P.3d 1149, 1159 (Haw. 2004) (discussing the difference between sections

911 and 920A). This version of the “reasonable value” approach is similar to the “actual

amount paid” approach, and in fact Howell also relied on comment h to Section 911 of

the Restatement (Second) of Torts. Howell, 257 P.3d at 1138.

Critics of the “reasonable value/actual-amount-paid” approach point out that

section 911 of the Restatement (Second) of Torts was never intended to apply to cases

involving physical harm. Instead, it is intended to apply in cases where a plaintiff sues to

recover the value of property or services the plaintiff rendered to the defendant. In

contrast, section 920A applies to “Harm to the Person,” that is, personal injury cases.

Wills, 892 N.E.2d at 1027 (citing Bynum, 101 P.3d at 1159-60).

Most courts using the reasonable value approach do not limit recovery to the

actual amount paid to the medical provider. “A majority of the courts that have

considered the issue have concluded ‘that plaintiffs are entitled to claim and recover the

full amount of reasonable medical expenses charged, based on the reasonable value of

medical services rendered, including amounts written off from the bills pursuant to

contractual rate reductions.’” Scott v. Garfield, 912 N.E.2d 1000, 1011-12 (Mass. 2009)

(quoting Lopez v. Safeway Stores, Inc., 129 P.3d 487 (Ariz. Ct. App.2006)); see

Montgomery Ward & Co. v. Anderson, 976 S.W.2d 382, 385 (Ark. 1998); Wal-Mart

Stores, Inc., v. Crossgrove, 276 P.3d 562, 565 (Colo. 2012); Bynum, 101 P.3d at 1159-60;

Miller, 177 S.W.3d at 683-64; Werner v. Lane, 393 A.2d 1329, 1335-36 (Me. 1978);

Brethren Mut. Ins. v. Suchoza, 66 A.3d 1073, 1081-82 (Md. 2013); Papke v. Harbert, 738

N.W.2d 510, 535-36 (S.D. 2007); Kenney, 760 S.E.2d at 446-47; Leitinger, 736 N.W.2d

at 7-8; Roberts, 31 Rev. Litig. at 117 (“Most state courts . . . hold that the negotiated rate

differential is a collateral source benefit and allow injured plaintiffs to recover the full

amount of reasonable medical expenses billed . . . .”); see also Melo v. Allstate Ins. Co.,

800 F. Supp. 2d 596, 599-600 (D. Vt. 2011) (predicting that Vermont would apply the

“reasonable value” rationale in Leitinger). These courts adhere to the traditional

collateral source rule, as outlined in Section 920A of the Restatement, that tortfeasors

27

Comment h to Section 911 addresses how to measure the value of services rendered to another,

stating that “[t]he measure of recovery of a person who sues for the value of his services tortiously

obtained by the defendant’s fraud or duress, or for the value of services rendered in an attempt to mitigate

damages, is the reasonable exchange value of the services at the time and place.”

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should be responsible for all the damage they cause and that plaintiffs, not tortfeasors,

should benefit from any negotiated discount. Wills, 829 N.E.2d at 1028-29.

Critics of the “reasonable value/full-bill” approach assert that it can lead to a

“windfall” for the plaintiff, in that the plaintiff may recover the negotiated rate

differential as a medical expense even though he did not actually pay that amount. See

Hanif v. Hous. Auth. of Yolo Cnty., 200 Cal. App. 3d 635, 641 (1988). Some argue that

the full, undiscounted rate does not represent the reasonable value of the medical

expenses, and others point out that permitting the plaintiff to recover the negotiated rate

differential may be viewed as punitive toward the defendant in a situation in which

punitive damages are not warranted.

A few courts that permit plaintiffs to recover their full, undiscounted medical bills

use a “hybrid” method of presenting evidence of “reasonable value” to the jury. Using

this method, plaintiffs may submit their full, undiscounted medical bills to establish the

“reasonable value” of the medical services received. The defendants, however, may

submit evidence that the plaintiff’s medical providers accepted less than the full bills to

rebut the reasonableness of the full bills, so long as insurance is not mentioned. Alicia

Curtis, The Reasonable Value of Medical Services: A Hospital Bill, The Insurer’s

Payment, or the Jury’s Choice?, 23 Me. B.J. 78, 79 (Spring 2008); see Martinez, 233

P.3d at 222-23, Stanley, 906 N.E.3d at 858; see also Robinson v. Bates, 857 N.E.2d 1195,

1200 (Ohio 2006) (applying Ohio statute). These courts claim to adhere to the collateral

source rule as a substantive rule of law. In the view of these courts, permitting the jury to

consider the discounted amounts accepted by medical providers does not violate the

collateral source rule so long as the proof does not reveal the plaintiff’s insurance policy.

As detailed below, this approach, too, has engendered considerable criticism.

Like the majority of jurisdictions, Tennessee courts have generally used the

“reasonable value/full bill” approach, as described by our Court of Appeals in Fye v.

Kennedy, 991 S.W.2d 754, 763-64 (Tenn. Ct. App. 1998). Fye is a wrongful death case

arising out of a car accident. The decedent’s hospital bill was $748,384.08, but her

medical providers accepted $75,264 from Medicaid in full payment of those bills. Fye,

991 S.W.2d at 762. The defendants in Fye made an argument similar to the argument

made in the instant case, that the trial court erred in allowing the plaintiffs to recover “the

fair value of the services rendered as opposed to the actual amount paid by Medicaid.”

Id. While they did not argue that the undiscounted hospital bill was unreasonable, the

defendants in Fye contended that the plaintiffs should not be able to recover the amount

of a bill they were never required to pay since it was “legally forgiven” by the hospital.

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Id. at 764 (“There is no suggestion that the hospital bill for $748,384.08 is other than

‘reasonable.’”).

The Court of Appeals in Fye held that evidence of the $75,164 payment was

inadmissible based on the collateral source rule, adding that the jury “was not entitled to

know that the [decedent’s hospital] bill had been partially forgiven.” Id. at 763-64. The

court explained:

In Tennessee, the focus has always been on the “reasonable” value of

“necessary” services rendered. A plaintiff must prove that the services

rendered were “necessary” to treat the injury or condition in question; and,

even if the services were necessary, that the charges in question were

“reasonable.” The collateral source rule precludes a defendant from

attempting to prove that a “reasonable” charge for a “necessary” service

actually rendered, has been, or will be, paid by another—not the defendant

or someone acting on his or her behalf—or has been forgiven, or that the

service has been gratuitously rendered. However, a defendant is permitted

to introduce relevant evidence regarding necessity, reasonableness, and

whether a claimed service was actually rendered.

Id. at 764. The Court of Appeals reasoned, “The theory underlying the collateral source

rule is that a tortfeasor should be responsible for ‘all harm that he [or she] causes.’” Id.

(quoting Section 920A, comment b). “In applying the collateral source rule and the

theory underlying it, there is no reason to differentiate between a payment from a

collateral source and a gratuity from a collateral source. In either event, there is a benefit

to the injured party that ‘should not be shifted so as to become a windfall for the

tortfeasor.’” Id. (quoting Section 920A, comment b).

The Defendants in the instant case argue that it is time for this Court to depart

from our current method of allowing plaintiffs to put on proof of their full, undiscounted

medical bills in personal injury cases because the amount of those bills is unreasonable as

a matter of law. They urge us to adopt the “actual amount paid” approach in Howell and

hold that plaintiffs in personal injury lawsuits are limited to recovering the discounted

amounts accepted by the providers and actually paid by the plaintiff’s private insurer.

They contend primarily that the “actual amount paid” approach does not implicate the

collateral source rule, but regardless, they maintain that plaintiffs should not be permitted

to recover more than the amount accepted by medical providers.

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Echoing the reasoning in Howell, the Defendants argue that the actual amount paid

approach is not contrary to the collateral source rule because it does not involve evidence

of payments from a collateral source. They note that, under this approach, plaintiffs are

still permitted to introduce evidence of all medical expenses actually incurred by them or

paid on their behalf, without indicating who made the payments. The negotiated rate

differential is not a collateral-source benefit to the plaintiff, they insist, because it benefits

only the plaintiff’s insurance company. We disagree.

From its inception, the most basic application of the collateral source rule has been

to prevent the plaintiff’s recovery from being reduced by benefits that are collateral to the

defendant, such as insurance benefits. Mollison, 58 U.S. at 155; Anderson, 33 S.W. at

616. The negotiated rate differential would not exist but for an insurer who “negotiated”

the “rate differential” from the plaintiff’s full, undiscounted bills. As one court put it, the

negotiated rate differential is “as much of a benefit for which [the plaintiff] paid

consideration as are the actual cash payments made by his health insurance carrier to the

health care providers.” Acuar, 531 S.E.2d at 322; see Chionchio v. Correia, C.A. No. 13-

678-M, 2015 WL 13038439, at *2-3 (D.R.I. Aug. 7, 2015) (holding that, in light of the

fact that “[t]he collateral source rule is deeply rooted in Rhode Island jurisprudence,” the

plaintiff “incurred” her medical charges when she received treatment and she remained

liable for the full bills until they were paid or forgiven); Papke, 738 N.W.2d at 535-36;

Roberts, 31 Rev. Litig. at 137 (citing Michael K. Beard, The Impact of Changes in Health

Care Provider Reimbursement Systems on the Recovery of Damages for Medical

Expenses in Personal Injury Suits, 21 Am. J. Trial Advoc. 453, 467 (1988)); see also

Boettcher, 2016 WL 3212184, at *3 n.4 (“Although Plaintiffs’ insurance company may

have ultimately received a discount on Plaintiffs’ medical bills, Plaintiffs did, at one point

in time, ‘incur’ the total amount of the bills.”). One court has described Howell’s

analysis as “squarely at odds” with the collateral source rule:

The Court rejects the Howell Court’s rationale that a write-down is not

equivalent to forgiveness of debt because write-downs are prearranged

between insurers and providers. A prearranged, yet conditional,

forgiveness of debt is still forgiveness of debt, and write-downs are

conditional upon payment by a particular third-party payor. If an insurer

ultimately rejects coverage for any reason, or if payment by the insurer is

otherwise frustrated after treatment, the provider can, and presumably will,

still charge the full rate to the patient. Even if there is a preexisting

arrangement for a write-down, the write-down does not actually take effect

until payment by the insurer is accepted by the provider, i.e., after treatment

has been rendered, which is when the patient’s duty to pay for it is incurred.

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Providers will not typically provide treatment until a patient signs a

“financial responsibility” document whereby the patient agrees to pay the

full price himself if the insurer ultimately rejects coverage.

McConnell, 995 F. Supp. 2d at 1170-71 (citation to Howell omitted). One commentator

asserted: “[B]ills sent by medical care providers are not a sham for gouging liability

carriers. They are real obligations that, but for a plaintiff’s private health care insurance,

the patient would be responsible for satisfying.” Roberts, 31 Rev. Litig. at 140. “[A]

privately insured patient actually incurs the medical provider’s full charges and only by

virtue of this private contract that he entered into in advance is he spared from paying the

full amount.” Id. The enforceability of the full, undiscounted medical bills, absent the

intervention of insurance, “is illustrated by the number of personal bankruptcy filings in

the United States due to debt resulting from medical bills.” Id. at 141. For these reasons,

we reject the Defendants’ argument that adopting the “actual amounts paid” approach

does not contravene the collateral source rule. The collateral source rule would apply to

preclude evidence of the adjusted price paid by the plaintiff’s insurance carrier for the

medical services received.

Consequently, to adopt the “actual amount paid” approach urged by the

Defendants, we would be required to reject or abrogate the collateral source rule. We

note that, in adopting the “actual amount paid” approach, Howell relied primarily on the

fiction that doing so did not contravene the collateral source rule. We have rejected that

reasoning as specious. However, Howell used other reasoning as well. The Howell

Court indicated that it viewed the amount paid by plaintiffs’ medical insurance as the

most accurate gauge of the reasonable value of medical expenses. In doing so, Howell

appeared to equate “reasonable value” in this context with “market value.” Howell, 257

P.3d at 1142 (“the insured plaintiff is permitted to recover the reasonable value or

‘market value’ of the medical services”). Indeed, even after describing in some detail the

competing demands that impact medical providers’ pricing of services, Howell rather

surprisingly reduced it all down to the following: “Given this state of medical

economics, how a market value other than that produced by negotiation between the

insurer and the provider could be identified is unclear.” Id. It then held that “the plaintiff

may recover no more than the medical providers accepted in full payment for their

services.” Id. at 1143.

In urging adoption of the “actual amount paid” approach, the Defendants pick up

on this thread in Howell by describing the full, undiscounted medical bills as “elevated

above market value.” Going further, the Defendants argue: “The term ‘reasonable

medical expense’ is analogous to ‘fair market value.’ Just as someone who sells a vehicle

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or a home accepts and establishes a fair market value, so do medical providers when they

accept reasonable medical expenses.” Citing a Court of Appeals case on the valuation of

a piece of commercial real property, the Defendants conclude, “Simply stated, there can

be no better way to establish the reasonableness of medical expenses than to show that

amount which was accepted as payment in full.” (Citing Cutshaw v. Hensley, No.

E2014-01561-COA-R3-CV, 2015 WL 4557490, at *1 (Tenn. Ct. App. July 29, 2015)).

We do not pretend to fully understand medical economics or the pricing of

medical services in today’s environment. Even without a full understanding, however, it

is evident that medical expenses cannot be valued in the same way one would value a

house or a car, pegging the “reasonable value” at the fair market value, that is, the

amount a buyer is willing to pay. Health care services are highly regulated and rates are

skewed by countless factors, only one of which is insurance. See Seely v. Archuleta, No.

08-cv-02293-LTB-MKT, 2011 WL 2883625, at *5 (D. Colo. July 18, 2011) (“The

discounted amount of medical services does not necessarily, and in fact probably does

not, reflect the true value of services rendered. . . . A discounted rate. . . generally

reflects the third-party payor’s negotiating power and the fact that providers enjoy prompt

payment, assured collectability.”), quoted in Mathis v. Huff & Puff Trucking, Inc., Case

No. 12-CV-29-F, 2013 WL 11317952, at *2 (D. Wyo. June 7, 2013); Radvany v. Davis,

551 S.E.2d 347, 348 (Va. 2001) (observing that the amounts accepted by the plaintiff’s

medical providers are negotiated amounts that “do not reflect the ‘prevailing cost’ of

those [medical] services to other patients”). Under these circumstances, equating the

value of medical services to the amount the medical provider accepts from an insurance

company is simplistic at best and misleading at worst.

Moreover, in advocating the “actual amount paid” approach, the Defendants and

the Amicus Defense Lawyers’ Association address only the facts presented in this case—

personal injury plaintiffs covered by private insurance. Neither addresses how this

approach would play out under different facts, such as where the plaintiff is covered by

TennCare or by Medicare, or where the plaintiff receives medical care at a veterans’

facility, or where the plaintiff receives care at a charitable facility that accepts payment

on a sliding-scale, or where the plaintiff’s medical care is paid through gift from a parent

or other family member. If the “actual amount paid” approach were applied to all of

these scenarios, even if the plaintiffs had all received exactly the same medical services,

it would cause the awards for their reasonable medical expenses to vary greatly as a

matter of law. If, on the other hand, we were to distinguish among the various types of

collateral benefits and use the “actual amount paid” approach for some collateral benefits

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but not for others, that choice could create an entirely different set of problems.28 For

example, one state has noted that an approach to the collateral source rule that

“effectively creat[es] categories of plaintiffs” based on whether they had private

insurance or received charitable benefits would result in a “possible violation of the equal

protection provisions of the state and federal Constitutions.” Martinez, 233 P.3d at 221

(citing Wentling v. Med. Anesthesia Servs., P.A., 701 P.2d 939, 951 (Kan. 1985) (holding

that legislature’s limitation on collateral source rule was unconstitutional because it

violated the equal protection provisions of the state and federal constitutions by

discriminating between indigent and insured plaintiffs).

As a further concern regarding the “actual amounts paid” approach, Tennessee

Code Annotated section 24-5-113 indicates that introduction into evidence of a personal

injury plaintiff’s full, undiscounted medical bills can create a presumption of the

reasonableness of those amounts when certain criteria are met.29 Tenn. Code Ann. § 24-

28

With little explanation, Howell held that the collateral source rule has “no application to

commercially negotiated price agreements like those between medical providers and health insurers” but

stated that “donated services are considered to fall within the collateral source rule.” Howell, 257 P.3d at

1140. The Howell Court saw “no anomaly” in “recogniz[ing] the gratuitous[-]services exception to the

rule limiting recovery to the plaintiff’s economic loss” because the exception was intended as “an

incentive to charitable aid.” Id. This reasoning is unsatisfactory. The collateral source rule was not

intended to incentivize “charitable aid.” As explained in comment b to section 920A of the Restatement

(Second) of Torts, the collateral source rule “does not differentiate between the nature of the benefits.”

Restatement (Second) of Torts §920A cmt. b. The comment explains that “the tortfeasor’s responsibility

to compensate for all harm that he causes,” and “a benefit that is directed to the injured party should not

be shifted” so as to become a benefit for the tortfeasor. Id. Thus, there is no basis for the Howell Court’s

reasoning that the collateral source rule applies to “donated services” but not to insurance benefits. The

collateral source rule would apply to both.

29

Since this statute was enacted in 1978, Tennessee courts have routinely applied the statutory

presumption to the amount of medical providers’ full, undiscounted bills. See Borner, 284 S.W.3d at

218-19 (discussing the legislative history of the statute); see also West, 459 S.W.3d at 44 (noting that the

presumption in Section 24-5-113 applies to “itemized medical bills” which referred to the full bill, rather

than the discounted bill); Long v. Mattingly, 797 S.W.2d 889, 893 (Tenn. Ct. App. 1990) (discussing

qualities of the expert who can testify to another provider’s medical bills). The lack of any discussion in

these cases regarding whether the amounts “paid or incurred” constitute the discounted amounts accepted

by medical providers is undoubtedly because the collateral source rule precluded the admission of

evidence regarding a plaintiff’s insurance benefits. Given this long-standing judicial application of the

statute, we can presume that the Legislature agrees with this application, and there is no authority to

suggest otherwise. See Hardy v. Tournament Players Club at Southwind, Inc., 513 S.W.3d 427, 444

(Tenn. 2016) (discussing the doctrine of legislative inaction) (quoting Hamby v. McDaniel, 559 S.W.2d

774, 776 (Tenn. 1977)). For this reason, we reject the Defendants’ argument that the language used in

Section 24-5-113 supports their position on appeal.

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5-113. To now hold that the full, undiscounted medical bills are inadmissible because

they are unreasonable as a matter of law would conflict with the statutory process for

obtaining a legal presumption of reasonableness under Section 24-5-113.

For all of these reasons, we must respectfully reject the argument by the

Defendants and the Amicus Tennessee Defense Lawyers’ Association urging us to adopt

the “actual amount paid” approach as articulated in Howell.30

Although the Defendants primarily advocate the “actual amount paid” approach,

the Court of Appeals below indicated its approval of another approach, namely, the

“hybrid” method of proving the “reasonable value” of medical services. Under this

method of proving “reasonable value,” plaintiffs are allowed to submit the full,

undiscounted medical bills into evidence, and defendants are allowed to submit evidence

of discounted amounts accepted by medical providers to rebut the plaintiff’s proof of

reasonableness, so long as insurance is not mentioned. Dedmon, 2016 WL 3219070, at

11 (citing Martinez, 233 P.3d at 222-23, and Stanley, 906 N.E.3d at 858); see also

Patchett v. Lee, 60 N.E.3d 1025, 1032-33 (Ind. 2016); Robinson, 857 N.E.2d at 1200.

Although this “hybrid” method is not specifically promoted by the Defendants in their

appellate briefs, we will address it since the Court of Appeals lifted it up to us.

Though the hybrid approach may sound like an equitable option, it has not been

met with favor. The criticism centers on practical problems that ensue from use of this

approach, as well as its effect of undermining the collateral source rule. The

concurring/dissenting Justices in Martinez, one of the cases cited by the Court of

Appeals, pointed out that twenty-two courts had considered the hybrid method and then

rejected it. Martinez, 233 P.3d at 243 (Davis, C.J., and Rosen and Biles, JJ., concurring

in part and dissenting in part) (citing cases). They warned that the hybrid method,

adopted in Martinez by a slim 4 to 3 majority, “will most surely allow a jury to infer the

existence of a plaintiff’s insurance, which is forbidden by the collateral source rule; inject

jury confusion into what are already complex deliberations at trial; and ultimately lead to

the demise of the collateral source rule itself.” Id. at 237; see also Ty A. Patton, Common

Sense and the Common Law, They’re Not As Common As They Used to Be: A Critique of

30

The Amicus Tennessee Defense Lawyers’ Association also argues that the mandatory

provisions of the Affordable Care Act undermine the necessity of the collateral source rule. Given the

continuing uncertain status of the Affordable Care Act, we decline to base our decision on it. See

Mendez, 94 Denv. L. Rev. Online at *2 & n.8. We also note that, regardless of the Affordable Care Act

or any federal insurance program, some plaintiffs will be uninsured.

- 40 -

the Kansas Supreme Court’s New Application of The Collateral Source Rule, 50

Washburn L.J. 537, 558 (Winter 2011) (“[I]ntroduction into evidence of the lesser

amount paid creates a significant risk of jury prejudice, overlooks the dubious correlation

that exists between the lesser amount paid and the reasonable cost, and fails to

acknowledge that avenues already exist that permit a defendant to challenge the

reasonableness of a plaintiff’s hospital bill.”).

An Ohio intermediate appellate court expressed frustration with the hybrid

approach adopted by the Ohio Supreme Court in Robinson. Ross v. Nappier, 924 N.E.2d

916, 924 (Ohio Ct. App. 2009). The Ross court described the hybrid approach as

“perplexing,” id. at 919, and observed that it forces litigants “to navigate an uncertain and

complex procedure when presented with a case where the injured party received

collateral benefits from a third party.” Id. at 924. The intermediate appellate court

indicated that the hybrid approach had caused confusion in the verdict rendered in that

case: “[T]he apparent confusion between the distinct concepts addressed in [Robinson]

and [Ohio Revised Code section] 2315.20 resulted in the jury being presented with a

conundrum, and the resultant confusion is apparent from the record and the verdict.” Id.

at 925.

Other courts have explained that, while advocates of the hybrid approach take the

position that it does not contravene the collateral source rule, it is clearly inconsistent

with the rule. The Wisconsin Supreme Court has flatly rejected the suggestion that

discounted amounts should be allowed to rebut the reasonableness of full, undiscounted

bills. Leitinger, 736 N.W.2d at 14. Leitinger reasoned that allowing such evidence

would permit a defendant “to do indirectly what it cannot do directly, that is, it is seeking

to limit [the plaintiff’s] award by introducing evidence that payment was made by a

collateral source.” Id. The Leitinger Court also recognized that unexplained evidence of

“accepted payments” would tend to confuse the jury; any attempt by the plaintiff to

explain the payments “would lead to the existence of a collateral source.” Id. (citing

Covington v. George, 597 S.E.2d 142, 144 (S.C. 2004)); see also Radvany, 551 S.E.2d at

348 (holding that amounts paid by insurance are not admissible on issue of

reasonableness of full bills).

Similarly, the Supreme Court of Illinois has rejected the hybrid method, stating

that evidence of discounted amounts, without mentioning insurance, is improper,

confusing, and would essentially force the plaintiff to introduce counter-evidence that

would either directly or indirectly reveal the existence of insurance. Wills, 892 N.E.2d at

1032-33. As the Wills Court explained:

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[T]he collateral source rule “operates to prevent the jury from learning

anything about collateral income” and . . . the evidentiary component

prevents “defendants from introducing evidence that a plaintiff’s losses

have been compensated for, even in part, by insurance.” Arthur[ v.

Catour], 833 N.E.2d 847[, 852 (Ill. 2005)]. Thus, defendants are free to

cross-examine any witnesses that a plaintiff might call to establish

reasonableness, and the defense is also free to call its own witnesses to

testify that the billed amounts do not reflect the reasonable value of the

services. Defendants may not, however, introduce evidence that the

plaintiff’s bills were settled for a lesser amount because to do so would

undermine the collateral source rule.

Id. at 1033; see also Aumand v. Dartmouth Hitchcock Med. Cntr., 611 F. Supp. 2d 78, 91

(D.N.H. 2009) (evidence of discounted medical bills, even if proffered only to rebut the

reasonableness of the undiscounted bills, “strikes the court as an end-run around the

collateral source rule.”).

The weight of authority criticizing the hybrid method is compelling. We agree

with the courts that have concluded that the hybrid approach undermines and contradicts

the collateral source rule. At best it would cause confusion by inserting into the evidence

discounted payments with no explanation; at worst it would lead the jury to infer the

existence of insurance. Moreover, we do not know how such a “hybrid” approach would

be applied in cases involving collateral sources other than private insurance. It is unclear

what the jury would be told in a case where, for example, the plaintiff paid only a

discounted “sliding scale” amount for medical services at a charitable health care facility,

or one in which the medical provider accepted a heavily discounted settlement with an

uninsured, indigent, “judgment-proof” plaintiff. It is unclear how such an approach

would be used for social legislation benefits such as TennCare, where medical providers

accept pool payments or set capitation amounts for a single patient. These situations

must be considered to evaluate any proposed alternative to the collateral source rule.

As noted above, the majority of courts still apply the collateral source rule to

collateral benefits of all types. Moreover, the collateral source rule continues to further

substantial public policies. The rule permits plaintiffs, rather than tortfeasors, to receive

the benefits of insurance that they had the foresight to purchase. See O’Bryan, 892

S.W.2d at 576 (“There is no legal reason why the tortfeasor or his liability insurance

company should receive a ‘windfall’ for benefits to which the plaintiff may be entitled by

reason of his own foresight in paying the premium or as part of what he has earned in his

employment . . . .”). For collateral benefits other than private insurance, such as

- 42 -

TennCare or Medicare, the same policy reasons apply: the collateral benefits were

intended to benefit the injured party, not the tortfeasor who inflicted the injuries. The

collateral source rule keeps the focus on tortfeasors’ responsibility for paying for all of

the harm they cause, not just plaintiffs’ net loss.

The Defendants and the Amicus Tennessee Defense Lawyers Association have

ably pointed out the shortcomings of the collateral source rule in the current health care

environment. They are substantial and we do not minimize them. However, neither the

Defendants nor the Amicus has pointed us to a better alternative.

All of the alternative common-law approaches have the effect of undermining the

collateral source rule and the significant public policies it continues to serve. A decision

to depart from the established precedent of the collateral source rule would have to be

supported by the firm belief that justice dictates a different path. None of the common-

law alternatives to the collateral source rule give us such a firm belief.

Importantly, we have no assurance that adoption of any of the alternative

approaches would result in a more just and accurate assessment of the reasonable value of

medical services received by plaintiffs in personal injury cases. See Seely, 2011 WL

2883625, at *5 (“The discounted amount of medical services does not necessarily, and in

fact probably does not, reflect the true value of services rendered. . . . A discounted rate,

however, generally reflects the third-party payor’s negotiating power and the fact that

providers enjoy prompt payment, assured collectability.”), quoted in Mathis v. Huff &

Puff Trucking, Inc., Case No. 12-CV-29-F, 2013 WL 11317952, at *2 (D. Wyo. June 7,

2013); Radvany 551 S.E.2d at 348 (observing that the amounts accepted by the plaintiff’s

medical providers are negotiated amounts that “do not reflect the ‘prevailing cost’ of

those [medical] services to other patients”); Stanley, 906 N.E.2d at 857 (expressing doubt

“that the reasonable value of medical services is necessarily represented by either the

amount actually paid or the amount stated in the original medical bill”); see also

Haygood, 356 S.W.3d at 393.

Moreover, instead of simply fixing problems associated with the collateral source

rule, each of the alternative approaches appears to create a whole different set of

problems. Under these circumstances, adoption of any of the alternative common-law

approaches would amount to opening the proverbial “can of worms,” that is, in the course

of trying to remedy problems associated with the collateral source rule, we would end up

creating a litany of other problems.

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The essential criticism of the collateral source rule from the Defendants and the

Amicus Tennessee Defense Lawyers Association is that, absent evidence of the

discounted medical bills, the jury is free to award the amount of the full, undiscounted

medical bills, which does not represent the reasonable value of the medical services.

Excluding evidence of the discounted medical bills, they argue, may result in

overcompensation to a plaintiff who did not have to pay the full amounts.

Indeed, potential overcompensation of plaintiffs has been a recognized drawback

of the collateral source rule since its inception. See Restatement (Second) of Torts §

920A cmt. b (“The injured party’s net loss may have been reduced [by collateral

benefits], 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.”). However, as

recognized by the United States Supreme Court: “The law contains no rigid rule against

overcompensation. Several doctrines, such as the collateral benefits rule, recognize that

making tortfeasors pay for the damage they cause can be more important than preventing

overcompensation.” McDermott, Inc. v. AmClyde, 511 U.S. 202, 219 (1994) (footnote

omitted).

Under the present law in Tennessee, plaintiffs in personal injury cases may use

their full, undiscounted medical bills to satisfy the burden of proving the reasonable value

of medical expenses. To rebut the plaintiffs’ proof that those charges are reasonable,

defendants are free to submit any competent evidence in rebuttal that does not run afoul

of the collateral source rule. See Fye, 991 S.W.2d at 764 (noting that “a defendant is

permitted to introduce relevant evidence regarding necessity, reasonableness, and

whether a claimed service was actually rendered”). The jury then determines the

“reasonable value” of the medical services in light of all of the evidence.

On balance, we must conclude that the Defendants have presented insufficient

bases for us to depart from Tennessee’s long-standing adherence to the collateral source

rule in personal injury cases. See In re Estate of McFarland, 167 S.W.3d 299, 306 (Tenn.

2005) (“The power of this Court to overrule former decisions ‘is very sparingly exercised

and only when the reason is compelling.’” (quoting Edingbourgh v. Sears, Roebuck &

Co., 337 S.W.2d 13, 14 (Tenn. 1960))). “Recent reports of the impending death of the

collateral source rule are greatly exaggerated.” Mendez, 94 Denv. L. Rev. Online at *9

(quoting Adam G. Todd, An Enduring Oddity: The Collateral Source Rule in the Face of

Tort Reform, the Affordable Care Act, and Increased Subrogation, 43 McGeorge L. Rev.

965, 965 (2012)). We choose not to alter existing law in Tennessee regarding the

collateral source rule.

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In light of our holding, we affirm the Court of Appeals’ reversal of the trial court’s

grant of the Defendants’ motion in limine. To the extent that the Court of Appeals

indicated that the Defendants would, on remand, be able to introduce evidence of lesser

amounts accepted by Mrs. Dedmon’s medical providers in order to rebut the Plaintiffs’

proof on reasonableness, we reverse that holding.

CONCLUSION

In sum, we hold that the definition of “reasonable charges” under the Hospital

Lien Act set forth in West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn.

2014), does not apply directly to determinations of “reasonable medical expenses” in

personal injury cases; the West definition of “reasonable charges” is limited in application

to interpretation of the Hospital Lien Act. We also decline to alter existing law in

Tennessee regarding the collateral source rule. Consequently, the Plaintiffs may submit

evidence of Mrs. Dedmon’s full, undiscounted medical bills as proof of her “reasonable

medical expenses,” and the Defendants are precluded from submitting evidence of

discounted rates for medical services accepted by medical providers as a result of Mrs.

Dedmon’s insurance. The Defendants remain free to submit any other competent

evidence to rebut the Plaintiffs’ proof on the reasonableness of Mrs. Dedmon’s medical

expenses, so long as the Defendants’ proof does not contravene the collateral source rule.

Thus, we affirm the Court of Appeals’ decision to reverse the trial court’s grant of the

Defendants’ motion in limine, but we reverse the Court of Appeals to the extent that it

held that the Defendants could introduce evidence of lesser amounts accepted by Mrs.

Dedmon’s medical providers in order to rebut the Plaintiffs’ proof on reasonableness.

Accordingly, the decision of the Court of Appeals is affirmed in part and reversed

in part, and the case is remanded to the trial court for further proceedings consistent with

this Opinion. Costs on appeal are to be taxed to the Appellants/Defendants, Debbie

Steelman and Danny T. Cates, Sr., as co-personal representatives of the Estate of John T.

Cook, deceased, and their surety, for which execution may issue, if necessary.

_________________________________

HOLLY KIRBY, JUSTICE

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