Spicer Rudstrom attorney Jared S. Renfroe in our Memphis office recently co-authored a brief filed with the United States District Court for the Western District of Tennessee in a personal injury action, seeking to have the Court issue a ruling limiting the medical bills that a plaintiff can introduce to the jury at trial. Jared extensively researched the issue, reviewing cases and authorities from several other jurisdictions, in order to co-author the brief. On January 12, 2016, the United States District Court for the Western District of Tennessee agreed with the brief, entering an Order holding “that a Tennessee court would not find healthcare provider charges in excess of what an insurer paid to a provider to be ‘necessary and reasonable’ costs that may be recovered as damages in a personal injury suit.” The Court, therefore, prohibited the plaintiff from introducing any undiscounted hospital charges as evidence of the plaintiff’s alleged injuries, overturning what has been the standard practice for plaintiffs for decades.

The United States District Court for the Western District of Tennessee’s Order notes that, under Tennessee law, a plaintiff must prove that the medical expenses he or she seeks to recover as damages are both “necessary and reasonable” and that there is no Tennessee case directly on point regarding whether undiscounted medical charges may be considered reasonable and necessary when an insurer has paid a discounted rate to satisfy such bills. However, the Tennessee Supreme Court decided in December 2014 that hospitals cannot assert a lien for the full undiscounted amount of their charges against a plaintiff’s recovery, in the case of West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014). Rather, the Court in West held that these undiscounted medical charges were not “necessary and reasonable” because they “did not reflect what was actually being paid in the market place.” West, 459 S.W.3d at 45. Additionally, the West Court held that the discounted charges that were accepted by the medical providers were in fact reasonable because the medical providers and insurance companies negotiated the rates, which furthers the economic interests of the medical providers. West, 459 S.W.3d at 45. However, the holding in the West case was limited to application in cases involving the Hospital Lien Act, not personal injuries actions.

Based on the reasoning from the West case, Jared sought out to convince the court that if the Tennessee Supreme Court had already determined that undiscounted medical charges are not “necessary and reasonable” for purposes of the Hospital Lien Act, the same undiscounted charges cannot be considered “necessary and reasonable” in the context of a tort action in which the plaintiff seeks to maximize the amount of alleged damages to the jury by introducing evidence of the undiscounted medical charges.

The brief co-authored by Jared sought to have the Court agree with the statements from the Tennessee Supreme Court in the West case, specifically, “A more realistic standard is what insurers actually pay and what the hospitals [are] willing to accept” because charges issued by hospitals do not “reflect what was actually being paid in the market place. . . . With regard to an insurance company’s customers, ‘reasonable charges’ are the charges agreed to by the insurance company and the hospital.” West, 459 S.W.3d at 46. Jared further highlighted that although the West case was limited to application in the context of the Hospital Lien Act, it relied on several tort cases to assess what a reasonable expense is.

One of the major counter-arguments to Jared’s arguments was that the longstanding collateral source rule precludes evidence of the discounted charges. Under Tennessee law, 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 . . . or has not been forgiven, or . . . gratuitously rendered.” Fye v. Kennedy, 991 S.W.2d 754, 764 (Tenn. Ct. App. 1998). However, limiting the plaintiff in a personal injury action to only introducing evidence of the discounted charges does not violate the collateral source rule because the collateral source only precludes evidence of “reasonable” charges, and undiscounted charges are not “reasonable.” The United States District Court for the Western District of Tennessee addressed this argument, holding that “a plaintiff’s recovery should not be reduced by the fact that a plaintiff’s expenses were paid by a third party, but a plaintiff can still only recover those costs that were reasonable and necessary. . . . Since [the plaintiff’s] undiscounted hospital bills do not represent the reasonable cost of service provided, [the plaintiff] would not be able to recover the amount stated on those bills.” The Court noted that it does not violate the collateral source rule to limit recovery in such a way as long as the evidence of the discounted payment amounts is not presented in a manner reflecting third-party payments.

This decision by the Western District of Tennessee drastically changes the landscape for personal injury cases that are transferred to federal court and could significantly limit the value of damages awarded to plaintiffs in personal injury cases. Additionally, we believe that the Tennessee Supreme Court will follow suit in the near future when a case presenting the same issue is brought before the Tennessee Supreme Court, as it declined to issue a ruling on this issue at this time.

Jared is an Associate with Spicer Rudstrom, who focuses on litigation throughout Tennessee. His practice is concentrated primarily in premises liability, business and commercial representation, employment practices litigation, professional liability, insurance defense and workers’ compensation.